Energy Industry Updates for March 2010

31 March 2010 Publication

Legal News: Energy Industry

With Health Care Reform Out of the Way, Is Comprehensive Energy and Climate Change Legislation Next?

The thunderbolt that struck Washington, D.C. — literally and figuratively — early on the morning of March 22, 2010 not only changed the fortune of the health care reform legislation but also put back in play many of President Obama’s other key legislative initiatives, including the energy and climate change proposal.

Some speculated in January 2010 that the election of Massachusetts Republican Scott Brown to the U.S. Senate had reshaped the political landscape unlike any political event in a generation, and had dealt health care and the energy and global climate change proposals a crippling blow. But, in retrospect, Mr. Brown’s election now seems to have been the high-water mark in the opposition to health care reform. It’s a whole new ballgame on a series of Obama legislative initiatives that includes the energy and global climate change legislation.

Already there has been a move in the Senate to achieve consensus on energy and to seize this new-found initiative. That activity is now likely to accelerate in the next few weeks. Recall that the U.S. House of Representatives passed comprehensive energy/cap and trade legislation on June 26, 2009 in a close partisan vote (219 – 212). As recently as January 2010, senior Democratic senators on the Energy Committee had signaled resistance to the cap and trade proposals passed by the House, indicating that a clean energy bill with research funding and renewable energy standards was all that could be expected to emerge from the Senate.

But in recent days, Senators John Kerry (D-Mass.), Lindsey Graham (R-S.C.), and Joe Lieberman (D-Conn.) have begun to circulate the outline of a climate and energy bill with detailed concepts of the proposal being sent to the EPA for analysis. The bill would then be sent to the Congressional Budget Office for revenue scoring.

These three senators are attempting to balance the wish lists of environmental groups and the interests of major industries that would be impacted under the plan, which aims to put a price on U.S. greenhouse emissions. They are aiming to reduce greenhouse emissions to 17 percent below 2005 levels by 2020 and to 80 percent below 2005 levels by 2050. Power plants would be covered starting in 2012 and other industries beginning in 2016, while a carbon tax would be levied on fuels. The bill would promote more nuclear power and offshore oil and gas production. Rather than impose an economy-wide cap and trade system for carbon emissions, the senators are focusing on a sector-by-sector approach.

Other details of the Kerry, Graham, Lieberman approach include:

  • A carbon tax on oil at the refinery level
  • Changing the renewable energy standard in the House bill and prior Senate energy proposals to a clean energy standard that would promote nuclear power along with wind, solar, and geothermal power
  • Incentives to transition trucking from diesel to natural gas

In addition to the momentum provided by Senators Kerry, Graham, and Lieberman, 22 Senate Democrats, including Senators Sherrod Brown (D-Ohio) and Debbie Stabenow (D-Mich.), have sent a letter to Majority Leader Harry Reid urging the Senate to pass climate and energy legislation this year “with a renewed focus on jobs and a reduced dependence on foreign oil.” The letter continues, “Our lack of a comprehensive clean energy policy hurts job creation and increases regulatory uncertainty throughout our economy. Businesses are waiting on clear signals from Congress before investing billions in energy, transportation, manufacturing, buildings, and other sectors.”

With the active engagement of influential senators on energy legislation, a refocus of the bill away from the unpopular and complicated cap and trade proposal and toward broader, more inclusive energy production provisions, momentum in the Senate seems certain to build over the next weeks.

And against the backdrop of the passage of health care reform, a clearly emboldened Democratic majority in the House, and the vote-counting skills of House Speaker Nancy Pelosi (D-Calif.), it would be a big mistake to dismiss the chances for the passage of energy and climate change legislation this year.

Wind Energy Technologies Continued to Sail Through the U.S. Patent Offices in 2009; Development Opportunities May Still Exist

A review of patent trends between 2008 and 2009 reveals that 29 percent of the patents for wind energy inventions that were granted by the USPTO were “first action allowances” (i.e., with no initial rejection by the USPTO examiners based upon their search of preceding patents and other prior art documents), an increase from about 25 percent over 2008. In an indication of the technology areas that were most actively pursued, the top five wind energy technology areas in which patent protection was granted during 2009 (based on the number of claims in the patents) are:

  1. Wind turbine generator blade/rotor design (23 percent of total claims)
  2. Wind turbine generator operational control (18 percent of total claims)
  3. Generator design for a wind turbine generator (seven percent of total claims)
  4. Starting/coordinating a wind turbine generator to a grid (six percent of total claims)
  5. Wind power generation from vehicular traffic (five percent of total claims)

Collectively, individual inventors accounted for almost 29 percent of all the wind energy patents granted in 2009 (down from about 35 percent in 2008). The top five corporations obtaining wind energy patents in 2009 are General Electric Company (15 percent); Nordex Energy (six percent); REpower Systems AG (five percent); Genedics Clean Energy (four percent); and Vestas Wind Systems A/S (three percent). U.S. patents in the wind energy field were granted to entities from 17 countries in 2009. The top five are the United States (45 percent total); Germany (27 percent total); Denmark and Japan (five percent each); and Spain (four percent).

Among the 69 wind energy patents granted to U.S. entities, the top five states for wind energy patent activity are New York (36 percent); Massachusetts (12 percent); California and Illinois (seven percent each); and Ohio (six percent).

This activity suggests that substantial patentable “white space” may still exist in the wind energy field despite renewed interest and development activities over recent years. The top three wind energy technology areas showing the most potential white space are:

  1. Operational control for wind turbine generators (10 patents total — the same as in 2008)
  2. Starting or coordinating wind turbine generators to a grid (six patents total — up from two patents in 2008)
  3. Blade or rotor designs for wind turbines (four patents total — down from 10 in 2008)

Although wind technology was among the top three clean technologies most patented in the United States 2008, this data indicates that there remains continued strength and an opportunity for development in this sector.

Foley will continue to monitor the patent trends in 2010 and provide year-end updates as to the possible investment and technology opportunities in the wind energy industry.

New FERC Penalty Guidelines on Civil Penalty Determinations

After nearly four years of experience with new and expanded civil penalty authority under the Energy Policy Act of 2005 (EPAct 2005), the Federal Energy Regulatory Commission (FERC) adopted a policy statement this month on penalty guidelines for all FERC civil penalty determinations. FERC’s new Penalty Guidelines (Guidelines) are modeled on relevant portions of the United States Sentencing Guidelines. FERC stated that, in its view, the Guidelines apply penalty factors in a manner that promotes fairness and consistency, while still allowing for the discretion to depart from the indicated penalty where necessary. The Guidelines will apply to any pending investigation where enforcement staff and the organization have not yet entered into settlement negotiations and will not apply to natural persons. FERC will determine the appropriate penalty for natural persons based on the facts and the circumstances of the violation but will look to the Guidelines for guidance in setting the penalties. For violations of the National Gas Act, the National Gas Policy Act, and certain parts of the Federal Power Act, FERC has statutory authority to assess civil penalties of up to $1 million per day.

Demand Response National Action Plan Open for Comment

A draft Demand Response National Action Plan was released for comment by FERC this month, pursuant to a requirement in Section 529 of the Energy Independence and Security Act of 2007. The National Action Plan has four objectives: (1) identify requirements for technical assistance to states to allow them to maximize the amount of demand response resources that can be developed and employed; (2) develop and establish requirements for implementation of a national communications program that includes broad-based customer education and support; (3) design or identify analytical tools, information, model regulatory provisions, model contracts, and other support materials for use by customers, states, and utilities; and (4) demand response providers.

Examples of items found in the plan include: establishing a national forum on demand response for federal agencies, state public utility commissioners, utilities, and other stakeholders; conducting informational and educational sessions for policymakers and regulators; building a panel of demand response experts; establishing a demand response grant program; developing a Web-based clearing house of demand response materials; and developing or enhancing demand response estimation tools and methods.

Comments on the Draft National Action Plan are due by Thursday, April 8, 2010.

FERC Streamlines the Self-Certification Standards of Qualifying Facilities

The certification criteria of qualifying facilities (QFs) has been streamlined for small power production or cogeneration facilities, pursuant to several changes FERC made to its QF regulations this month.

First, Order No. 732 removes Form No. 556 from the regulations. This form was required for QFs seeking to self-certify under FERC’s regulations. In its place, FERC will put a revised and reformatted Form No. 556 on its Web site and require entities to file electronically. FERC intends this change to streamline the self-certification process and lighten the administrative burden on both the applicants and FERC itself.

Second, Order No. 732 adopts a provision to exempt facilities with a net power production capacity of 1 MW or less from the requirement to make a filing with FERC to be a QF. FERC explained that:

for facilities that are comparatively small, such as solar generation facilities installed at residences or other relatively small electric consumers such as retail stores, hospitals, or schools (many of the filings received in recent years involve just such small solar and wind-powered facilities), there may not be as compelling a need for filings with the Commission for QF status.

During the past five years, facilities falling below the 1 MW threshold made up approximately half of all filings. Thus, the new exemption will reduce filing requirements for many facilities and reduce FERC’s administrative burden. FERC also made a number of technical changes to its regulations to clarify the QF filing requirements. For example, FERC codified its authority to waive the QF certification requirement for good cause and amended its certification notice requirements.

These changes are particularly good news to developers of distributed wind and solar technologies. Regulatory costs disproportionately affect these small-scale facilities, and FERC’s streamlined procedures should reduce these regulatory costs.

Legal News is part of our ongoing commitment to providing legal insight to our energy clients and our colleagues.

Please contact your Foley Energy attorney if you have any questions about these topics or want additional information regarding energy matters.

Authors and Editors:

Ronald N. Carroll
Washington, D.C.

Thomas McCann Mullooly
Milwaukee, Wisconsin

Andrea J. Chambers
Washington, D.C.

Joseph L. Colaneri
Washington, D.C.

Trevor D. Stiles
Milwaukee, Wisconsin

John M. Lazarus
Milwaukee, Wisconsin

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