Energy Industry Updates for June 2010

Bureau of Land Management Sets Rents for Solar Developments on Public Lands

Until recently, the rental rates for solar rights-of-way on public lands administered by the Bureau of Land Management (BLM) were based on site-specific appraisals. Now, solar developers looking to develop projects on the 23-million acres that the BLM has determined have solar potential can estimate in advance the rental rates they will pay based on the interim rental schedule announced by the BLM on June 10, 2010.

The interim rental schedule includes (a) a base rent for the acreage of public land subject to the solar energy right-of-way authorization and (b) an additional megawatt (MW) capacity fee based on the total authorized MW capacity for the project.

The base rent is an annual per-acre fee paid upon the date of issuance of the right-of-way authorization, although the BLM state director may approval a rental payment plan for the first annual payment. The rent is based on land values published by the National Agricultural Statistics Service and is subject to yearly adjustment. The list of rates by state and county is as follows:

Base Rent Rates by State and County

 The MW capacity fee is implemented over five years following electricity generation (20 percent for the first year, 40 percent for the second year, 60 percent for the third year, 80 percent for the fourth year, and 100 percent for the fifth year), and for phased projects, the five-year implementation applies to each phase. The MW capacity fee is designed to capture the increased industrial use value of the right-of-way authorization above the base rent and is $5,256 per MW for photovoltaic (PV) solar projects; $6,570 per MW for concentrated PV and concentrated solar power (parabolic trough, power tower, and solar dish/engine) projects without storage capacity; and $7,884 per MW for concentrated solar power projects with storage capacity of three hours or more.

Solar energy development projects that include separate right-of-way authorizations issued for support facilities are not subject to the MW capacity fee, only the base rent. Any separate right-of-way authorizations issued for linear right-of-way facilities (power lines, pipelines, roads, and so forth) would use the rental fees established for linear rights-of-way. The policy is effective immediately.

FERC, CFTC, and Stakeholders Discuss “Clearing and Netting” for OTC and Exchange Contracts for ISOs/RTOs

FERC and the CFTC held a rare joint meeting at the latter’s headquarters in Washington, D.C. on June 22. 2010 to look into clearing and netting in Independent System Operator (ISO) or Regional Transmission Organization (RTO) regions. The meeting, hosted by CFTC Commissioner Scott O’Malia and FERC Commissioner Phil Moeller, looked at the proposal included in a white paper developed by the Committee of Chief Risk Officers (CCRO), an organization that represents a diverse coalition of firms doing physical and financial trading and marketing of energy.

The CCRO white paper was produced by the Netting Subcommittee of the CCRO’s Power Markets Credit Panel this March. It calls for North American ISOs/RTOs to implement central clearing and combine transactions with over-the-counter (OTC) and exchange-traded contracts, netting them against each other in a single netting pool.

According to CFTC and FERC representatives, the meeting was not an official “joint hearing,” although Commissioner Moeller believes the two agencies can work together and discuss topics in which they have a mutual interest. The commissioner declined to comment on the jurisdictional issues between the two regulatory entities that also are playing out in the legislative process this week. “It goes without saying that this issue is complex and it is difficult to predict how electricity markets will evolve and how participants will prefer to manage their risk,” said Commissioner O’Malia.

A panel discussion followed at the meeting focusing on a number of issues related to clearing and netting. According to PJM Interconnection General Counsel Vincent Duane, a major issue in setting up clearing and netting in ISO/RTOs is a lack of clarity about which entities are making deals in the centralized markets.

All of the panelists, including FERC Office of Energy Policy and Innovation Senior Market Advisor Scott Miller, said they believe inter-RTO netting would have to be voluntary. Inter-RTO netting is popular in the industry, but the most controversial provision of FERC’s Notice of Proposed Rulemaking’s (NPRM) clarifies the legal status of organized markets, a prerequisite to such netting. The Energy Authority Vice President – Risk Control and Chief Risk Officer Joanie Teofilo agreed, noting that many entities do not take part in multiple ISO/RTO markets such as public power and power co-ops and they could see costs rise without any benefit.

The CCRO white paper suggests implementing clearing within an ISO/RTO and using a third party for clearing to take full advantage of the bankruptcy protections. Discussing a February 2010 FERC NPRM on this issue, Mr. Miller acknowledged that “[t]here was visceral opposition to ISOs/RTOs establishing themselves as central counterparties.” But he added, “[Netting] can’t happen without the required legal status. A title is needed to novate — you can’t move what you don’t have.”

OffShore Wind Renewable Energy Credit Legislation — New Jersey

Legislation is advancing in New Jersey that would require electric power suppliers in that state to purchase offshore renewable energy credits (ORECs). The Offshore Wind Economic Development Act (Act), awaiting the governor’s signature as of press time, will have far-reaching consequences for New Jersey’s offshore wind industry and will establish a landmark precedent for the entire offshore wind industry.

The Act is designed to facilitate the generation of at least 1100 MW of electrical energy from qualified offshore wind projects. Under the Act, ORECs will be created for each MW of electricity generated by offshore wind farms. All electric power suppliers or basic generation service providers will be required to purchase ORECs; should insufficient ORECs be available to satisfy demand then, in lieu of purchasing such credits, an offshore wind alternative compliance payment would be due.

Energy generated through offshore wind will be deemed to offset renewable portfolio standards in the year in which they are generated and for the following two energy years as well as to meet their “Class I renewable energy” requirements. Class I renewable energy requirements compel electric power suppliers or generation service providers in New Jersey to rely upon Class I renewable energy sources (i.e., solar technologies, PV technologies, wind energy, fuel cells, geothermal technologies, wave or tidal action, methane gas from landfills, or biomass cultivated and harvested in a sustainable manner from a biomass facility) for at least four percent of the kilowatt hours they sell.

Under the Act, New Jersey’s Board of Public Utilities (BPU) will review a proposed developer’s application to construct a qualified offshore wind energy facility and, if such application is approved, will set the OREC price in relation to that facility for a 20-year period. In the context of earlier debate, there has long been concern that BPU would set the OREC price too high, thereby triggering a spike in ratepayers’ utility bills. Neither the price at which these ORECs is likely to be set nor its effect upon rates is known at this time. Before approving any offshore wind project, BPU will be required to take into account both the total subsidy to be paid by ratepayers over the life of the project and whether the project demonstrates a net positive benefit to the state, both economically and environmentally.

The Act also authorizes the New Jersey Economic Development Authority to provide tax credits over a 10-year period for offshore wind farms that employ at least 300 people full-time in an amount equal to the developer’s capital investment, up to a maximum of $100 million.

Foley’s Cleantech Energy Patent Landscape Report Reveals Licensing and Transaction Opportunities May Arise in New Technology Areas

Not only are cleantech innovations here to stay, sources indicate that the industry may achieve record growth in 2010. The looming question for those embarking in this industry is a matter of determining which technology areas contain the most market opportunities. For example, while solar and wind held their ground as the most dominant technologies of the year, federal stimulus funding of nearly $100 billion and the USPTO’s recent expansion of the Green Technology Pilot Program are likely to aid in increased success for other clean innovations throughout the year. The result: increased opportunities for innovation and investments and a parallel of uncertainty as to what technology will be most successful.

To aid industry executives, start-ups, individual inventors, and investors in identifying and leveraging market opportunities in this continually changing landscape, Foley annually identifies the top clean energy technologies within the major cleantech categories that are patented in the United States in the Cleantech Energy Patent Landscape Report, available at http://tinyurl.com/268lkpq. The report provides contrasting activity levels between corporate entities and individuals, comparing venture capital (VC) investment funding for each category and identifying the green technology areas where untapped licensing and investment opportunities may still exist.

The analysis of 2009 highlights trends for the following leading cleantech innovations:

• Solar
• Wind
• Hydro/wave/tidal
• Geothermal
• Biomass/biogas/biofuel
• Nuclear
• Hybrid vehicles
• Fuel cells for vehicles
• Utility Metering
• Smart grid technologies
• CO₂ storage or sequestration

The summary of Foley’s in-depth look at the patent and VC investment trends in these sectors serves as a consolidated guide for industry leaders evaluating business opportunities in cleantech. While the conclusions to be drawn from this research will vary depending on the experience and perspectives of each reader, the observations and analysis with regard to patentable “white space,” investment trends, and licensing opportunities are intended to serve as a useful reference and guide for those navigating the cleantech landscape. For example, particularly strong areas of investment interest include:

• PV solar cell construction
• Control systems for hybrid vehicles
• Blade/rotors for wind turbine generators
• Automated meter reading and/or load control systems, devices, and components
• Wind turbine generator operational control

NERC and DOE Report Examines High-Impact Risks to the Bulk Power System

What would happen to the bulk power system if a major geomagnetic disturbance caused by solar weather hits North America? This and similar questions were examined in a report released this month by the North American Electric Reliability Corporation (NERC) and the U.S. Department of Energy (DOE). Together with task forces of industry and risk experts, NERC and the DOE examined High-Impact, Low Frequency (HILF) risks to the North American bulk power system and strategies for addressing them.

Unlike various other threats to the North American bulk power system, HILF risks are unique in that while being statistically very unlikely to occur, they have the potential for a large-scale catastrophic impact. Examples of HILF risks are coordinated cyber, physical, and blended attacks of the bulk power system, the high altitude detonation of a nuclear device, major natural disasters such as earthquakes, tsunamis, hurricanes, pandemics, and geomagnetic disturbances caused by solar weather.

In light of the already strained human and financial resources that are available for addressing HILF risks, the report acknowledges that the bulk power system cannot be “gold plated” and protected against any and all HILF risks, and that various risks must be assessed and prioritized.

The report falls short of creating a specific action plan. Rather, it suggests a number of “proposals for action” that might be considered for inclusion in an action plan. As possible risk mitigation strategies, the report focuses on distinguishing the most critical power system components (such as core system reliability functions) from less critical ones such as business and marketing systems) and temporarily shedding less critical components during an HILF emergency. The report also identifies the need for information sharing between the public and private sector, which is currently severely limited because of information sharing restrictions. Information sharing would facilitate the ability to flag suspicious activity in preventing attacks of the power system. The report also discussed events that might incapacitate numerous individuals who are critical to the functioning of the power system and proposed that such individuals be identified and that policies be developed to ensure that the skills, experience, and work force levels can be maintained for the most critical power system functions.

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.
202.295.4091
[email protected]

Thomas McCann Mullooly
Milwaukee, Wisconsin
414.297.5566
[email protected]

Joseph L. Colaneri
Washington, D.C.
202.672.5471
[email protected]

Robert C. Geist, Jr.
Washington, D.C.
202.295.4090
[email protected]

John M. Lazarus
Milwaukee, Wisconsin
414.297.5591
[email protected]

Ellen C. Wolchek
New York, New York
212.338.3497
[email protected]

Jennifer H. Stone
Los Angeles, California
213.972.4552
[email protected]  

Jerry D. Brown
Chicago, Illinois
312.832.4914
[email protected]

Jeffery R. Atkin
Los Angeles, California
213.972.4557
[email protected]