Wyoming Legislature Rejects Attempts to Penalize Wind Energy Industry

In a state that has been described as having “world class wind,” a boast hard to ignore during a winter that featured days upon days of wind gusts reaching 80 mph at times, wind energy has struggled to find a secure toehold due to the vice-like grip traditional extractive mineral industries have on the energy sector in Wyoming.  That may be changing, however.

This year, bills were proposed in both the Wyoming House and Senate that sought to limit the ability of wind producers to market their product within the State.  Luckily (or not, depending on your point of view), each bill failed in committee before being introduced on the floor of either house.  House Bill 127 sought to increase the tax on wind energy from $1.00/megawatt hour to $5.00/megawatt hour.  This bill was defeated by a 7-2 vote by the House Revenue Committee on January 23, 2017.  In the Senate, Senate File 71 proposed that utility companies that use wind or solar power would incur a penalty of $10.00/kilowatt hour starting in 2019.  After widespread public opposition to this bill reached the desks of the Senate, it died in committee.  So, while Wyoming is the only state in the U.S. to tax wind1, and while wind producers still face a more difficult permitting process before the Industrial Siting Council than their traditional extractive mineral counterparts, the State legislature prevented two significant roadblocks to future development from being erected.

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The November Ballot Can Still Affect the Energy Industry

For those interested in Colorado’s energy economy, ballot initiatives concerning oil and gas regulation have rightly taken center stage. (See [4/27/16 blog post]). As of today, however, none of those public initiatives appear destined for the ballot this November.  The Colorado Secretary of State found that proponents of the two measures did not collect the requisite number of signatures to make the ballot. Though proponents turned in slightly more than the nearly 100,000 necessary signatures, the Secretary of State must conduct a random sampling of the signatures to assure that those signing are registered voters and the signatures authentic.  The Secretary concluded that both submitted measures lacked enough valid signatures, so they would not appear on the ballot (unless proponents successfully challenge the ruling).

But despite the fact that there will be no explicit challenge to the industry, another initiative could also significantly though indirectly affect regulation of the energy industry via initiative going forward. Initiative 96 would “raise the bar” - to quote the group promoting the measure - that must be cleared to amend the Colorado Constitution through the public initiative process.  If adopted by Colorado voters in November, it would become far more difficult for public initiatives and referendums, including those concerning energy regulation, to supplant or bypass the decisions of the General Assembly and, in this case, the Colorado Oil and Gas Conservation Commission.

Specifically, Initiative 96 targets the public constitutional amendment process in two ways.  First, it bolsters the signature requirements by requiring at least 2% of the total ballot signatures come from each of the state’s 35 senate districts.  This component appears to target the increasingly common practice of (often paid) signature collectors standing outside major events like games and concerts in metropolitan areas to generate signatures quickly and easily.  Proponents of the measure allege that such strategies leave rural districts with little input into the public ballot process.  Second, a constitutional amendment would require a 55% majority, not the 50% currently required.

Of course, these procedural changes would make it more difficult for the public to directly regulate the energy industry and, in turn, the state’s economy. As Governor Hickenlooper stated, Initiative 96 “is going to ensure that our constitution is not held captive by the whims of the day.”  Therefore, although it appears that the November 2016 ballot will not directly threaten radical change to the energy industry, the outcome of the election will still have a long-term impact on energy production and regulation in Colorado.

For some background on the use and management of the initiative process see “Citizen Initiatives: Power to the People or More of the Same?”, Rebecca W. Watson & Jennifer Cadena. http://goo.gl/z1zKSv

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Mission Assurance is Energy Assurance*

* This blog is co-authored with Sarah Ruckriegle, a graduate of the Air Force Academy, current Captain in the Air Force and law student at the University of Las Vegas where she is based.  Heidi Ruckriegle is an Associate with the Welborn firm.  

The United States Department of Defense (“DoD”) is the world’s single largest user of fossil fuels. DoD is comprised of three branches—Air Force, Army, and Navy—and reliable, affordable, and available energy is critical to each of their missions. The military spends $4 billion dollars a year to meet its energy needs and two-thirds of that energy is petroleum. Of the branches, the Air Force is responsible for using more than 2.4 billion gallons of jet fuel annually, making it the highest energy consumer. By contrast, the Navy uses roughly 1.3 billion gallons of fuel annually. The Army consumes much less energy because of its reliance on the Air Force and the Navy for transportation. The Army’s energy use is concentrated in its installations, which consume an average of 661.5 million gallons of petroleum each year.

DoD has identified its oil supply chain to the military’s land, water, and air equipment as a point of vulnerability. Aerial refueling and convoys transporting fuel can be extremely dangerous. In its 2011 Strategic Sustainability Performance Plan, DoD wrote “attacks on fuel convoys and fixed energy supplies in Afghanistan, Iraq and surrounding countries already demonstrate the vulnerability of our current supply networks.” A 2009 Army Environmental Policy Institute report shows that between 2003 and 2007 approximately 50% of more than 3,000 U.S. troops and contractor deaths or injuries were attributable to fuel supply convoys in Afghanistan and Iraq. To reduce dependence on supply chains and oil, the military is broadening the use of solar and other renewable sources in meeting its defense mission.

The move to renewables will also help DoD meet new national directives to conserve energy and increase the use of renewable energy:

• the Energy Independence and Security Act of 2007 requiring federal agencies to improve energy intensity by 30% as compared with 2003 baseline;
• the National Defense Authorization Act of 2007 mandating DoD secure 25% of its energy from renewable resources by 2025; and
• Executive Order 13514 issued by President Obama on Oct 5, 2009, directing federal agencies to develop and implement an annual Strategic Sustainability Performance   Plan to the Council on Environmental Quality between 2011 and 2021 and ensure federal buildings designed in 2020 or later are net zero for energy, i.e., not using more   energy than they produce, by 2030.

Further, in enhancing its renewable energy portfolio, DoD is also responding to two emerging threats to its operations around the world: climate change and cyberterrorism. Internal studies have documented the military’s vulnerability to disruptions to the power supply from cyber attacks and long-term impacts from global warming. In many parts of the world, DoD looks at global warming as a “threat multiplier,” meaning that increased pressure from progressively more severe weather is expected to exacerbate economic and political issues. Similarly, DoD is vulnerable in our wired, internet-centered, world. The April 2015 DoD Cyber Strategy focuses on building capabilities for effective cybersecurity and cyber operations to defend DoD networks, systems, and information.

The military’s ability to employ a defense force, execute a mission, or train for the future, is heavily dependent on fuel and the electricity that powers installations and operations. The various branches have identified “energy resilience” as a critical objective. The Army developed innovative private-sector funding of solar installations, a successful program that later launched the Office of Energy Initiatives in 2011. In turn, the Air Force has set the standard for utility-scale solar with its 14 megawatt giant in 2007, called “Nellis I” after its Air Force Base home. Nellis Air Force Base opened a second major solar array in February of this year. Seeking to strengthen alternative energy, the Navy has an ambitious goal of getting 50 percent of its energy from renewable sources by 2020, while the Air Force and Army maintain more modest goals of 25 percent.

Solar maintains its position as the renewable resource of choice at military installations because tall wind turbines create the potential for collision danger to military aircraft operations and generate “clutter” from close-by wind turbine projects impacting airborne military radar capability. The hazards to air safety and surveillance presented by wind energy are unacceptable to DoD. However, as DoD continues to enhance its energy portfolio, geothermal and biomass have gained more recognition as possible alternatives. Each of the armed services has also established programs geared toward alternative fuel to replace petroleum in their tactical weapons systems such as aircraft, combat ships and vehicles, and supporting equipment. DoD currently uses gasohol and biodiesel in administrative and other nondeployable vehicles but continues to evaluate and test other alternative fuels (e.g., hydrotreated renewable oils, coal-derived or algae-derived fuels) for military applications. Considerations include whether the alternative fuel is cost-competitive, performance consistent, and emitting fewer greenhouse gasses.

On April 6, 2016, the Army and Air Force signed a Memorandum of Understanding confirming a common commitment to securing military installations with energy that is clean, reliable, and affordable. Large-scale renewable projects at military installations independent from the grid can keep the lights on in the event there is a cyber attack or severe weather event that knocks out power. Renewable energy projects located on or near military bases are vital to keeping missions and operations fully functional at a time when the Armed Services are increasingly reliant on electricity to keep the country safe.

The Air Force is aware that its global role and presence has changed; it needs guaranteed power for remotely piloted aircraft missions, missile launches, space launches, and satellite control. With new remote-controlled technologies, the Air Force has been fighting more battles from domestic bases—as a result installation energy security is even more important. Looking forward, the Air Force believes that in order to build resiliency its budget is better spent on renewable projects that cost less than traditional grid energy. Beyond domestic bases, the Air Force is also working on ways to improve energy reliability for its expeditionary forces by developing modernized equipment using solar panels and batteries rather than the expensive and dangerous conventional convoys or airdrops of fuel supplies.

DoD’s development of renewable energy is viewed by the agency as necessary but has faced some criticism on the Hill from renewable energy skeptics. Disagreements exist as to whether the DoD's efforts to move to renewable energy are more about politics than saving lives and boosting security. Among lawmakers' complaints is concern that the military is paying a higher price for some forms of renewable energy at a time when DoD proposes cutting weapons programs and reducing forces in order to meet budget mandates. DoD officials insist that their efforts focus on a single goal: finding the best way to power military missions.

National security will always be the Unites State’s top priority. In the words of George Washington, “to be prepared for war is one of the most effectual means of preserving peace.” How renewable energy will play a role in DoD strategy is just beginning to take shape.

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2016 Wyoming Energy Plan – Doubling Down on Coal

In the face of a radically altered economic and energy picture for Wyoming, Governor Matt Mead released an updated energy strategy for the State on March 14, 2016. Titled “Leading the Charge: Wyoming’s Action Plan for Energy, Environment, and Economy,” the plan is an update of a similar report issued by the State in 2013, the first of its kind in the nation. The State is facing significant budget challenges from the loss of royalty income, severance taxes, and jobs from low oil and gas prices and the even more dramatic decline of coal mine revenue as key coal mining companies in the State seek bankruptcy protection. Approximately 60% of State government revenues come from mineral development.

Gov. Mead proposes to meet the budget challenges by addressing the backbone of the State’s economy – energy development. The 2013 report set forth 45 initiatives, 28 of which have been completed, and the 2016 strategy adds several new priorities. Emphasizing his commitment to the coal industry, the Governor summed up his approach as “a doubling down on coal and a very good start on renewables.” Specifically, the energy plan includes:

• A “carbon innovation” effort for the development of “clean coal” technologies by building on the success of the Integrated Test Center, a public-private partnership with the XPRIZE, to develop and test new technologies for the capture of CO2 emissions.
• Harnessing Wyoming’s Class 5-7 wind energy resources with a new Wind Energy Manufacturing Initiative, led by the Wyoming Business Council. The goal would be to attract wind turbine manufacturing to the State.
• Hosting a symposium to explore how to turn the devastation caused to Wyoming forests by the Pine Beetle on its head by integrating biomass energy into the State’s overall energy plan.
• Forming a National Environmental Policy Act Team to work with federal agencies to expedite the NEPA process to work more collaboratively with BLM in land use planning and combatting invasive species on public land.
• Identifying and working to reduce areas of duplication in State and Federal regulations.
• In light of coal company bankruptcies and self-bonding the State had permitted earlier, Wyoming must urgently address coal mine reclamation liabilities. The energy strategy accordingly calls for an examination of the adequacy of reclamation formulas, reviewing reclamation goals and definitions, and analyzing the self-bonding program.
• Diversifying the State’s economy by increasing the emphasis on international exports including coal, oil and gas (LNG), uranium and other resources.
• The strategy also addresses rulemaking proposals, including baseline groundwater testing before oil and gas drilling, setback requirements, a review of flaring rules, and mitigation banking and additional efforts for the protection of Greater sage-grouse.

Gov. Mead hopes that this year’s plan will continue to allow the State to be proactive in planning its future energy development, which will in turn create additional economic and business opportunities for both new and existing industries. The Governor asked for $500,000 to implement the energy strategy in the 2017-2018 budget, which was rejected by the Legislature, so it remains to be seen how much of the plan he will be able to implement.

The full text of Wyoming’s Action Plan can be found here: http://governor.wyo.gov/media/news-releases/2016-news-releases/governormeadannouncesupdatedenergystrategy.

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ENERGY TRANSFORMATION: CLEAN POWER PLAN AND THE WEST

When candidate Obama was running in 2008, he identified energy as his top priority and described his goal as the “transformation of American energy” to address the threat of climate change. On August 2, 2015, the President and the EPA Administrator announced the final rule to implement his Clean Power Plan. The focus of the rule is the reduction of carbon emissions from 2005 levels by 32% in 2030.

The rule is issued under the authority of the Clean Air Act Section 111(d) in what many acknowledge is a big stretch for language that was drafted long before climate change was an issue. The rule came as the result of a 2012 settlement of litigation brought by environmental groups and several northeastern states against EPA. See a just-released Senate Majority Staff, Environment and Public Works Committee Report, “Obama’s Carbon Mandate: An Account of Collusion, Cutting Corners, and Costing Americans Billons” on this “sue and settle” tactic. http://goo.gl/gLaviN

The rule addresses new and existing power plants and establishes a different carbon target reduction from a 2012 baseline for each state. According to EPA, each state has the flexibility to choose how it meets its own carbon targets, but the rule is built on three EPA “building blocks”:
• Make fossil fuel power plants more efficient
• Increase generation form lower-emitting combined cycle natural gas plants for reduced generation from higher emitting coal/gas-fired power plants
• Increase generation from new zero-emitting renewable energy power sources
If a state refuses to develop a plan consistent with the rule, EPA will enforce a federal model plan. The rule encourages states to work together and to develop a “cap and trade” program, similar to a proposal that failed to pass Congress in the President’s first term.

EPA projects compliance costs for the rule of between $$5.1-8.4 billion, with an individual’s energy costs increasing by 3%-1% early in the compliance period, but dropping to a net “savings” in 2030 as a result of reduced energy consumption.

Winners and losers? Obviously coal is the big loser, but surprisingly natural gas also came up short with the Administration backing away from gas as a “bridge fuel” in favor of incentives to support wind and solar generation and demand reduction.

The rule is voluminous – existing power plants are addressed in over 1800 pages, new and modified plants are covered in 900 pages and the EPA model federal plan clocks in at 755 pages. See http://www2.epa.gov/cleanpowerplan/clean-power-plan-existing-power-plants

What does the rule mean for the West? Much to the relief of Alaska (and Hawaii) there is no carbon target for these states, yet. Several western states are already on track to meet their carbon targets by 2030 as the result of state law and/or an energy mix already reliant on renewables: California, Washington, Oregon, Nevada and South Dakota. The biggest loser among the states is North Dakota, which saw its 2030 target quadruple from an initially proposed 10.6% reduction to a 44.9% reduction in the final rule. Democratic North Dakota Senator Heidi Heitkamp described the rule as a “slap in the face.” Wyoming, which supplies 70% of the nation’s coal, saw its target double from the draft rule to a 37-44% reduction in the final rule. Wyoming elected officials uniformly attacked the plan with Wyoming Senator Barasso (R) calling it a “job crushing mandate.” Montana was also hit hard with a doubling of its draft goal to a 41% reduction. Montana’s Democratic Governor Bullock said he was “extremely disappointed” by the change, and Montana’s AFL-CIO, which had planned to attend a rally in support of the rule, withdrew in light of the impact of the changed targets on union jobs.

In Utah, where 80% of its power is coal-fired and its renewable energy is sold out of state, elected officials denounced the plan; Senator Orrin Hatch (R) said the rule is “unjustified and potentially devastating for Utah and the nation.” In Colorado, reaction to the state target of a 28% reduction was divided along party lines, with the Democratic Governor Hickenlooper saying he will work to implement the target while Republican Attorney General Cynthia Coffman is considering joining in litigation to challenge the rule. In New Mexico, Republican Governor Susana Martinez and Democratic Senator Tom Udall were united in their belief that New Mexico was ready to comply with the law. See EPA-prepared charts for good summary of state-by-state impacts. https://goo.gl/4rScB4

Opinion among green groups is divided with Environmental Defense Fund Fred Krupp praising the rule as “historic” and an example of Presidential leadership, while the climate researcher and former NOAA scientist, James Hansen, derided the rule as “practically worthless.” The New York Times, in a front page story this week seemed to be “shocked” (see “Casablanca”) that the coal industry was already planning on how to defeat the rule before the rule was published. http://goo.gl/x0yzd3

There is 100% agreement on one thing -- the Clean Power Plan is headed for the courts as soon as EPA publishes the official version of the rule in the Federal Register expected later this month.

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