Energy Industry Updates for October 2012

01 October 2012 Publication
Author(s): John T. Dunlap

Legal News: Energy Industry

  • FERC Approves First Commercial Wave Energy Project 
  • Benefit Corporation Legal Structure Utilized by Companies Focused on Renewable Energy 
  • Massachusetts Provides Additional Policy Support for Net Metering 
  • More Companies Decide to Self-Report to FERC

FERC Approves First Commercial Wave Energy Project

By: John T. Dunlap

After more than two years of proceedings, the U.S. Federal Energy Regulatory Commission (FERC) has approved the development of a proposed commercial wave energy project in Oregon. On August 13, 2012, FERC, acting under its authority under the Federal Power Act to license energy projects in navigable waterways and on federal lands, issued an Original License to Reedsport OPT Wave Park, LLC. The issuance caps off more than two years of legal and regulatory wrangling involving not only FERC and the developers of the Reedsport project, but also a host of federal and state agencies.

The first phase of the Reedsport project will involve the installation of one 150 kW wave energy generator 2.5 miles off the coast of Oregon, near the town of Reedsport. After testing of the initial unit, nine additional generators will be installed for a total generating capacity of 1.5 MW. Once the system is connected to the Douglas Electric Cooperative, via 5.5 miles of undersea and underground transmission line, it will become the first commercial wave energy facility in the world. The generators are being developed and manufactured by Ocean Power Technologies, which owns Reedsport OPT Wave Park, LLC and is developing the project.

Because they are built in navigable waters, wave energy projects are subject to many of the same licensing requirements under the Federal Power Act as hydroelectric dams. As a result, they must demonstrate compliance with a wide range of federal environmental, maritime, and agricultural laws and regulations, including approvals from relevant state agencies. FERC’s order issuing an Original License to the Reedsport project requires the project developers to monitor and mitigate for harms recognized by the Clean Water Act, the Coastal Zone Management Act, the Endangered Species Act and other laws protecting wildlife, the Magnuson-Stevens Fishery Conservation and Management Act, and several others. The Original License will be valid for 35 years.

FERC’s order approving the Reedsport project suggests enthusiasm for wave power technology, stating “The Reedsport Project will demonstrate the potential of an emergent renewable energy industry segment with the goal of bringing clean, competitively priced electricity to commercial and residential customers in Oregon and other states.” Reedsport is not the only wave energy project currently under development in Oregon; the nonprofit Oregon Wave Energy Trust has distributed more than $10 million in grants to support the research and development of wave energy projects. In August, the Northwest National Marine Renewable Energy Center, a joint project of Oregon State University and the University of Washington, with funding from the U.S. Department of Energy, deployed its Ocean Sentinel buoy to study and measure the potential of future wave energy projects.

Benefit Corporation Legal Structure Utilized by Companies Focused on Renewable Energy

By: Laura J. Neumeister

Socially and environmentally-minded entrepreneurs who want to address societal problems through a corporate structure have a relatively new legal structure available to them. “Benefit corporations” are a new class of corporations that (1) voluntarily create a material positive impact on society, their employees and the environment, (2) expand the traditional fiduciary duty to require consideration of financial and non-financial interests when making decisions, and (3) report on their overall social and environmental performance using recognized third-party standards. In short, these are entities that operate as traditional corporations, but are accountable to the triple bottom line (i.e., people, planet, profit). 

While the majority of states have passed constituency statutes, or statutes that allow directors to consider non-shareholder interests when making decisions, advocates of the benefit corporation structure claim this permissive structure does not go far enough in advancing societal and environmental goals. Eleven states have now passed benefit corporation legislation, with Illinois and Louisiana passing legislation as recently as summer 2012. Other states that recognize the corporate structure include California, Hawaii, Maryland, Massachusetts, New Jersey, New York, South Carolina, Vermont, and Virginia. Washington State has a similar law for special purpose corporations, and is debatably on this list as well.

Benefit corporations must publish an annual public benefit report that includes an assessment of their overall social and environmental performance against a third-party standard. This allows the corporation, its directors, its shareholders, and the public to determine whether the benefit corporation is meeting its statutory requirement of creating a material positive impact on society and the environment. A third-party standard is a standard for defining, reporting, and assessing overall corporate, social, and environmental performance that is comprehensive, independent, credible, and transparent. Benefit corporation legislation does not require any particular third-party standard to be adopted in preparing an annual benefit report, and the government has no role in determining the sufficiency of such standards.

This movement has been largely encouraged by B Lab, a nonprofit organization that certifies benefit corporations having a high overall standard of social and environmental performance. These certified entities are referred to as “Certified B Corporations” or “B Corps” and should not be confused with the legal distinction “benefit corporation.”

Newly formed and existing corporations can elect to become benefit corporations. A corporation may make this election in order to establish a clear mission that survives change of management or ownership. Furthermore, holding the benefit corporation distinction can help differentiate a company to investors and the public during this era when branding as green or responsible is popular.

As mentioned above as an additional advantage, benefit corporation directors are protected when basing decisions on non-financial interests. While this last point is touted by advocates as a benefit, some critics have argued that this corporate form offers another way for directors who fall down on the job to escape liability by pointing to “social benefits” as their ill-defined guideposts. Either side of the argument would agree, however, that this protection allows for a different type of decision-making.

Although benefit corporations encompass a broad array of missions — from providing chemical-free makeup to assisting in addiction recovery — this corporate form is being utilized by a variety of green energy companies and companies with green energy clients. Examples include:

  • Solar Works: This private company in Sonoma, California, provides energy-efficient solutions that conserve natural resources and promote individual and community self-reliance by offering in-house design and installation of on-grid and off-grid PV systems
  • SunCommon: This company’s purpose is to increase solar energy production in Vermont by eliminating upfront costs and charging a monthly fee that is the same or less than what Vermonters are currently paying their utility for electricity
  • Thinkshift Communications: This California company creates strategic communications, planning, publications, and branding for sustainability-oriented enterprises
  • Ethical Electric Benefit Co.: This Maryland company, set to launch in 2012, will offer clean energy from solar and wind sources to residential customers
  • Clean Currents LLC: With Maryland being the only state allowing limited liability companies (LLC) to elect a benefit structure, this LLC sells green power to residential and commercial customers in the Mid-Atlantic, with solar and wind power options

Massachusetts Provides Additional Policy Support for Net Metering

By: Trevor D. Stiles

On August 3, 2012, Massachusetts enacted SB 2395, “An Act Relative to Competitively Priced Electricity in the Commonwealth,” which changes Massachusetts’ net metering and interconnection rules.

SB 2395 doubled the Commonwealth’s existing net metering capacity limit from three percent of the utility’s peak load to six percent, with half allocated to private projects and the other half allocated to municipalities or other government entities. This provision is important because Massachusetts was already approaching the existing net metering cap.

Additionally, SB 2395 exempts certain small Class I facilities from the net metering cap altogether. Class I facilities are those producing renewable energy credits (RECs) from most renewable energy technologies (including solar, wind, tidal, and biomass) that became operational after December 31, 1997. Carving out small Class I facilities allows these small developments to continue to occur without regard to the overall net metering cap.

SB 2395 directs the Massachusetts Department of Public Utilities (DPU) to develop and implement an enforceable standard interconnection timeline for distributed generation facilities by November 1, 2013.

Finally, SB 2395 extended the mandate for state utilities to procure long-term renewable generation contracts. SB 2395 requires each utility to competitively procure an additional four percent of its historic peak-power load needs from renewable sources through long-term contracts with terms of 10 to 20 years. Of the additional four percent of load, 10 percent must be reserved for “newly developed, small, emerging, or diverse renewable energy distributed generation facilities.” Finally, renewables procured pursuant to the program must be “low-cost,” instead of “cost-effective,” taking into consideration a number of factors. These changes are likely to make it easier for developers of renewable generation to enter into such long-term contracts.

Taken together, these provisions demonstrate Massachusetts’ continued support for the development of renewable generation — and particularly distributed generation — within the Commonwealth.

More Companies Decide to Self-Report to FERC

By: Jennifer M. Forde

Recently, more companies have been self-reporting possible inappropriate activity to FERC than ever before. The recent increase in self-reporting likely does not stem from a trend in bad behavior, but rather from FERC’s strong indications that it intends to more aggressively pursue perceived wrongdoing by gas and power market participants.

In February 2012, FERC Chairman Jon Wellinghoff announced the establishment of a new Division of Analytics and Surveillance (DAS) under the Office of Enforcement. Just six months later, Mr. Wellinghoff revealed that the activities of DAS have proved to be a “huge deterrent” to market manipulation. In particular, Mr. Wellinghoff stated that more companies have been self-reporting to FERC than ever before, especially with respect to the area of energy trading, which Mr. Wellinghoff observed as “very unusual.”

The DAS was originally created to conduct continuous surveillance to ensure that natural gas and power market participants do not violate FERC rules related to market manipulation, anticompetitive behavior, and other anomalous activity. FERC then effectively broadened the tools at DAS’ disposal with FERC Order No. 760, which requires independent service operators (ISOs) and regional transmission organizations (RTOs) to provide FERC with extensive transaction data, some of which includes information on supply offers and demand bids for energy and ancillary services, virtual offers and bids, and financial transmission rights (FTRs) transactions. Based on some of these strong surveillance resources, it is DAS’ objective to identify potential subjects for FERC investigations. It is this threat of time-consuming and costly investigations initiated by DAS that has likely incentivized companies to self-report potential wrongdoing to FERC at a higher rate than in the past.

Legal News is part of our ongoing commitment to providing legal insight to our clients and colleagues. If you have any questions about or would like to discuss these topics further, please contact your Foley attorney or any of the following individuals:

John T. Dunlap
Milwaukee, Wisconsin

Laura J. Neumeister
New York, New York

Trevor D. Stiles
Milwaukee, Wisconsin

Jennifer M. Forde
Washington, D.C.

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