Renewable Energy Law Insider -

I’d like to take a moment to briefly highlight an upcoming event at the University of Missouri-Kansas City (my law school alma mater).  The event, hosted by the University and held at the Intercontinental Hotel in Kansas City, will feature a number of interesting speakers all focusing upon the them of “Expanding Business Opportunities in Energy.”

The keynote speaker will be R. James Woolsey, a former Director of the Central Intelligence Agency.  Director Woolsey has been a very active advocate for energy security in the United States in recent years.  His list of accomplishments is quite long, but a few examples of his involvement include helping found the Set America Free Coalition, dedicated to freeing the United States from oil dependence. He is also on the board of directors for the electric vehicle advocacy group Plug In America and an advisor to The Institute for the Analysis of Global Security, a think tank focused on energy security.  Most recently, Director Woolsey co-founded the United States Energy Security Council, a group with the goal of hlighting and promoting a fresh approach to solving America’s dependence on foreign sources of oil.

In addition to Director Woolsey, the conference will feature such distinguished speakers as Chairman Kevin D. Gunn of the Missouri Public Service Commission, Chairman Mark Sievers of the Kansas Corporation Commission, David Cozad and Mark Smith from EPA Region 7, Frank Rukavina, the Director of Sustainability of NREL, and many others.

The event will be held on May 10.  Registration is $245 for attorneys and other professionals requiring CLE credit, $195 for energy company employees, and $150 for employees of non-profits, government agencies, or educational institutions.  Registration information is available at the University website.

The legislature of the State of Colorado has been very active on renewable energy issues over the last few weeks.  Three bills have been making steady progress through the House and Senate in Denver, each of which could have a noticeable effect on the renewable industries in the state.

I.   Coal-Mine Methane as a Renewable Energy Source

House Bill 1160 seeks to amend Colorado’s renewable energy standard to include electricity generated by burning captured coal-mine methane.  The legislation has passed in the House, and is now being considered by the Senate Local Government Committee.  The bill faces strong opposition by many environmental and renewable energy advocacy groups, including Western Resource Advocates (“WRA”), based in Boulder, Colorado.  In a March 23, 2012 guest commentary in the Denver Post, John Nielsen, the Energy Program Director at WRA stated as follows:

By allowing coal-mine methane to qualify as “renewable energy,” something it is not, HB 1160 would diminish further investments in Colorado’s wind and solar resources. Those resources are sustainable, emission-free, use little or no water, provide important health and economic development benefits, and reduce greenhouse gases.

II.   Prohibition on Severance of Wind Rights

House Bill 12-1105 seeks to establish a non-severable wind energy right in real property.  Essentially, under this proposal a landowner would not be able to sell fee simple title to the wind rights on his or her property, but must instead execute a lease, license, easement or other agreement to develop or participate in the income from or the development of a wind project on the property.  The legislation has passed in the House, and is now being considered by the Senate Local Government Committee.  This proposal law is in-line with a national trend against severance of wind and solar rights, and effectively prohibits a landowner from selling the wind or solar rights to a project developer while retaining the ownership of the underlying property.  Interestingly, however, this legislation seems to expressly contemplate and allow for the transfer of the rights to receive the income from the wind project to a third-party, which could potentially lead to many of the same down-stream ownership concerns that commonly give rise to severance restrictions in the first place.  K.K. DuVivier, professor of law at the University of Denver Sturm College of Law and author of the excellent resource “The Renewable Energy Reader,” was recently interviewed by Colorado Public Radio about this legislation.

III.   Ending PUC’s Authority Over Transmission Siting Issues

House Bill 12-1312 seeks to modify the Colorado Public Utilities Commission’s approval process for transmission line certificates of convenience and necessity, so that the PUC no longer has jurisdiction over the land use rights or siting issues related to the location or alignment of the proposed transmission lines.  Instead, those issues would be left to the discretion of the county and local governments.  Ms. Becky Quintana, a representative of the PUC, recently testified before the House Committee on Transportation about this legislation and stated that the PUC neither supported nor opposed the legislation.  From the PUC’s perspective, the legislation does not restrict the authority of the PUC, but rather more clearly defines the jurisdiction of the PUC and local governments, though she noted that, under the proposal, any transmission project that spanned multiple counties would require inter-governmental agreements as each county’s jurisdiction would end at the county line.

Do you have any questions or comments about any of these bills or about developing renewable energy projects inColorado?  If so, leave a comment below or contact me directly at lhagedorn@polsinelli.com.

Despite the doom and gloom that seems to be dominating the renewable energy headlines of late, I’ve noticed an interesting trend that should bode very well for the continued development of renewable energy in the United States.  While the Federal Government’s lack of action on the 1603 grant has cast serious uncertainty about the future of federal tax incentives for renewables, many state governments have quietly introduced legislation to increase their Renewable Energy Standards (“RESs”) or Renewable Energy Portfolios (“REPs”).

I’ve provided an overview of these very important policies before, but as a quick refresher RES programs are essentially state legislative initiatives that require a certain threshold percentage of a utility’s total energy portfolio be generated from renewable sources (such as wind, solar, biomass, geothermal or other sources) by a certain date in the future.

For states that are trying to incentivize their public utilities to invest in renewable technologies, RES programs provide a relatively straight-forward way to achieve their goals.  However, RES programs are only effective for as long as it takes the utilities to build enough renewable generation or purchase enough Renewable Energy Credits (“RECs”) to meet the thresholds.  Encouragingly, many states that have set RES thresholds have seen their utilities quickly obtain sufficient renewable generation to satisfy the RES for years into the future.  However, once those projects have been developed, the utilities then have no further incentive to continue investing, so development of renewable projects unsurprisingly begins to languish.

This leads us to the good news.  Presented with undeniable evidence that RES programs do in fact lead to increased development of renewable projects, many states are now seeking to either implement RES programs for the first time, or increase the amount of renewable energy that is required.  Below are a few examples…

• Kentucky: Legislation introduced by State Rep. Mary Lou Marzian, D-District 34, calls for the establishment of a RES which would require utilities to obtain 12.5% of their electricity from renewable energy by 2022.  (Source: NA Windpower)

• Missouri: Renew Missouri, a group formed several years ago to support the state’s first RES, is introducing a new ballot initiative to close existing loopholes that have delayed implementation and increase the thresholds to 25% by 2025.  Jeffrey Tomich of the St. Louis Post Dispatch recently wrote an excellent article summarizing the issue.

• Illinois: A ballot initiative is being considered which would increase the state’s current 10% by 2015 mandate to 25% by 2025.

• New Jersey: Though ultimately struck down by Gov. Christie, legislation sponsored by State Sen. Bob Smith and Assembly Member Upendra J. Chivukula sought to more than double the solar output from utilities by 2014.  Jessica Lillian of Solar Industry Magazine provides this overview.

• Vermont:  Legislation proposed in Vermont seeks to adopt very aggressive RES thresholds, amounting to 40% from existing renewable resources, plus 10% more from new resources by 2013, and adding an additional 40% from new renewable resources by 2025.

• Michigan: A ballot initiative being proposed by Michigan Jobs & Energy Coalition seeks to wants to increase the states mandate from 10% by 2015 to 25% by 2025.  Silvio Marcacci provides a thorough analysis here.

I would be remiss if I didn’t also mention a wonderful defense of Renewable Energy Standards written by Peter Fox Penner, Principal and Chairman of the Brattle Group, on Think Progress.  The article is packed full of great information, but among my favorite facts is the following:

In the midst of the worst economy since the great depression, the worldwide market for renewable energy continues to provide jobs and investment. And states are recognizing these economic benefits when setting energy and environmental policies.  The nonpartisan Brookings Institution recently studied employment trends in the clean energy sector and found that, “though modest in size, the clean economy [in the U.S., which according to the study includes many sectors other than renewable energy] employs more workers than the fossil fuel industry and bulks larger than bioscience.” The study also found that the renewable energy sectors “added jobs at a torrid pace.”

The Kansas Supreme Court on Friday issued a much anticipated ruling on a case involving a number of key issued for wind developers.  The case, Zimmerman v. Board of County Commissioners of Wabaunsee County, revolves around a dispute between the Board of County Commissioners of Wabaunsee County, Kansas and a group of landowners in Wabaunsee County who have entered into easement agreements to develop large-scale wind energy development systems on the landowners’ property.

Background

In order to develop a wind farm in Wabaunsee County, it is necessary to apply for a Conditional Use Permit (“CUP”) from the Wabaunsee County Board of Commissioners.  In November of 2002, the Board passed a temporary moratorium on the granting of CUPs for wind development projects in the county.  While this moratorium was in place, the Plaintiffs and the Plaintiff Intervenor entered into agreements which they contend severed the wind rights from the ownership of the underlying property and transferred the ownership of those wind rights to the Plaintiff Intervenor.

On June 28, 2004, after the wind development agreements had been entered into by the Plaintiffs and Plaintiff Intervenor, the Board amended the county zoning regulations to allow for small wind energy conversion systems (“SWECs,” essentially single turbines under 100’ in height generating less than 100 kilowatts), but outright prohibiting the placement of commercial wind energy development systems (“CWECs”) in the county. 

Procedural History

The Plaintiffs filed suit in the Wabaunsee District Court, asking that the Board’s decision be declared void and requesting damages under a number legal theories. Among the arguments made, the Plaintiffs stated the County’s actions diminished the economic value of their wind rights in their own property, and therefore amounted to a taking of their property interest in violation of their Fifth Amendment rights.  

The Plaintiffs also argued that by allowing small wind projects, but banning utility-scale projects, the County was unjustly burdening out-of-state commerce in violation of the Commerce Clause of the United States.  Ultimately, however, the District Court granted a Motion to Dismiss in favor of the Board, and the Plaintiffs and Plaintiff Intervenor appealed to the Kansas Supreme Court.

On October 30^th, 2009 the Kansas Supreme Court issued a decision in favor of the Board for the majority of the issues presented, with a few notable exceptions.  Specifically, the Supreme Court decided to table the issues of whether the Board’s amendment violated the Takings Clause or the Commerce Clause of the United States Constitution.   

These issues remained tabled until October 21, 2011, when the Court issued a ruling on the Takings and Commerce Clause arguments advanced by the Plaintiffs and Plaintiff Intervenors.

The Takings Issues

The Plaintiffs’ essentially raised three legal bases for their contention that the County was unlawfully “taking” legal property interests: (1) the County violated Article 5 of the United States Constitution, which prohibits the taking of private property for public use, without just compensation; (2) the County’s action constituted an act of inverse condemnation; and (3) the County’s action constituted a violation of 42 U.S.C. § 1983.

In its October 21 Order, the Court disposes of all three of these takings arguments in one swoop.  Essentially, the Court notes that in order to prevail on a takings claim a party must first establish that a vested interest exists in the property in question.  “Vested interest” has been defined by the Court in the past as a right that “is not dependent on any future act, contingency or decision to make it more secure.” 

Here, the Court found that no such vested interests exist, as all of the Plaintiffs’ and Plaintiff Intervenors’ interests are conditioned upon the Board’s discretionary issuance of a CUP.  Thus, because there were no vested property interests, there can be no taking under any of the various legal theories advanced by the parties.

The Commerce Clause Issues

Overview of Dormant Commerce Clause

Before describing the decisions, it might first be helpful to provide an overview of Commerce Clause jurisprudence.  Article I, §8 of the U.S. Constitution (the “Commerce Clause”) grants Congress the power to regulate interstate commerce.  The “dormant” Commerce Clause refers to the prohibition, implied in the Commerce Clause, against states passing legislation that discriminates against or excessively burdens interstate commerce.

In a Dormant Commerce Clause case, a court is initially concerned with whether the law facially discriminates against out-of-state actors or has the effect of favoring in-state economic interests over out-of-state interests. If the action is facially discriminatory, it will be deemed invalid unless the County can show that it has no other means to advance a legitimate local purpose.

If the action is not facially discriminatory, the Court is much more flexible. If the law is not outright or intentionally discriminatory or protectionist, but still has some impact on interstate commerce, the court will apply a balancing test which examines whether the interstate burden outweighs the local benefits. If it does, the law is usually deemed unconstitutional.

Remand of Commerce Clause Issues

In addressing the Dormant Commerce Clause issues in this case, the Court first notes that, because the zoning regulations prohibit all CWECs in the county regardless of the connection to interstate commerce, there was no facial discrimination. 

Therefore, the Court must examine whether the burden imposed in interstate commerce is “clearly excessive in relation to the putative local benefits.”  Specifically, the Court notes that it should consider (1) the nature of the putative local benefits advanced by the County action; (2) the burden placed on interstate commerce by the statute; and (3) whether the burden is “clearly excessive” when weighed against these local putative benefits.

Here, the Court noted that because the lower courts dismissed the case without allowing discovery or an evidentiary hearing, there is not enough evidence in the record to conduct a full analysis of the benefits and burdens of the County’s actions.  Therefore, the Court reversed the District Court’s grant of the County’s Motion to Dismiss and remands the case back to the District Court for a full analysis of whether the interstate burden outweighs the local benefits.

If you have any questions about the impact of this ruling or would like any additional information about renewable project development in Kansas going forward, please feel free to leave a comment below or contact me directly at lhagedorn@polsinelli.com.

Today’s post is part of an on-going series in which we offer practical, plain english definitions of some of the most baffling and complex terms thrown around in the renewable energy industry. 

For today’s edition of Renewable Term of the Week, we will focus on Feed-in Tariffs.

Feed-in Tariffs (FITs)

A feed-in tariff (often referred to as FITs) is a governmental policy that is intended to encourage renewable energy development by guaranteeing that project developers will be able to enter into long-term purchase agreements for the electricity they generate from renewable resources.  Under FITs, utilities are typically required to offer a specified price above market value for every kilowatt-hour (kWh) of electricity produced by renewable developers.  When done well, this guaranteed boost to the profit margin for renewable projects creates a huge incentive to develop renewable projects, which in turn can dramatically alter the energy portfolios of the public utilities that are subject to the policy.

Depending on the policy goals that the legislators want to achieve, the guaranteed price can be tailored to offer added incentives to develop certain types of the technology, small or large projects, or any number of other variables.  Similar to a Renewable Energy Standard, the FIT can also include a cap of sorts, so that the specified price is only offered up until a predefined quota of energy met.  The FIT can also be tailored so that the specified price can decrease over time, or as certain renewable energy goals are met, to more closely reflect the supply/demand curve as the more renewable energy becomes available on the market.

For those industry readers outside of the United States, Feed-in Tariffs are a part of everyday life.  To give you a sense of just how broadly these tariffs are utilized world-wide, the National Renewable Energy Laboratory estimates that, in total, FITs are responsible for approximately 75% of global PV and 45% of global wind deployment.  However, in the United States, FITs have not been nearly as popular. 

One reason that the U.S. has not seen wide-spread use of FITs are potential legal concerns that might come into play.  Specifically, opponents to FITs in the U.S. argue that because FITs involve a wholesale sale of electricity between a renewable developer and to public utility, any state FITs would be preempted by either the Public Utility Regulatory Policies Act (PURPA) or the Federal Power Act (FPA).  Nonetheless, ample research and analysis has been conducted on this topic by some of the leading energy law scholars in the United States, and it appears that solutions to these legal obstacles can be found through careful planning.  For more information on these topics, please see the excellent January 2010 NREL report, “Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions,” written principally by Scott Hempling with the National Regulatory Research Institute (NRRI).

For more information about Feed-in Tariffs, or any other renewable energy topics please feel free to contact Luke at lhagedorn@polsinelli.com.