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Wind Farms and Eagle “Take” Permits – Litigation is Coming Over the New “30-Year” Permit Rule

The U.S. Fish and Wildlife Service (FWS) recently changed its eagle “take” permitting rules to allow wind developers to apply for 30-year take permits; previously, such permits, which allow the incidental killing of eagles, were available for a maximum of just five years.  Wind developers had lobbied for the rule change based on concerns that shorter permitting periods inhibit their ability to obtain financing.  But now, a bird conservation group, the American Bird Conservancy (ABC), is threatening litigation to overturn the “30-Year” rule.

How strong are ABC’s claims?

Not especially strong, because the FWS has powerful responses to each of ABC’s contentions.  The FWS will also be protected by the deferential standard of review that typically applies in this type of lawsuit.  And even if ABC were to prevail on its claims, the end result is less likely to be wholesale revocation of the rule than some delays in implementing it.  That is because ABC’s claims are largely procedural in nature, not substantive.

ABC’s claims are summarized in an April 30 letter to the U.S. Department of the Interior and the FWS announcing the group’s intention to file suit over the 30-Year rule.  The letter contends that the FWS committed three legal errors when it extended the maximum take permitting period from five years to 30 years.  According to ABC, the FWS violated:  (1) the National Environmental Policy Act (NEPA), by failing to prepare an environmental impact statement or environmental assessment for the 30-Year rule; (2) the Endangered Species Act (ESA), by allegedly failing to ensure that the rule is not likely to jeopardize the continued existence of endangered species; and (3) the Bald and Golden Eagle Protection Act (BGEPA), which is the statute that authorizes take permits, by prioritizing the concerns of wind developers over those of the eagles the statute is designed to protect.

The problem for ABC – and the good news for wind developers – is that FWS has strong defenses to ABC’s assertions.  First, the NEPA claim will almost certainly turn on whether the FWS correctly concluded that the 30-Year rule falls within a “categorical exclusion” from NEPA’s requirements.  In its letter, ABC quibbles with the FWS’s conclusion, but courts generally review such conclusions under a highly deferential standard of review.  Indeed, agencies often prevail on such claims simply by offering a facially plausible explanation of why NEPA does not apply.  Here, the FWS has done that.  The agency’s NEPA implementation regulations permit the FWS to forego NEPA analysis for rules that have broad or speculative impacts, provided that those impacts will be analyzed on a case-by-case basis in the future.  The FWS contends that is the situation here – it will conduct a NEPA analysis on a permit-by-permit basis in the future.  Courts have rejected NEPA claims under similar circumstances in the past.

The FWS has a similar defense to ABC’s ESA claim.  That claim turns on whether the FWS had a duty to engage in internal consultation about the potential impact of [...]

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BLM Finalizes Segregation Rule for Wind and Solar Energy Projects

by Thomas L. Hefty

As part of its policy to encourage private development of renewable energy projects on public lands, the Bureau of Land Management (BLM) issued its final rule for “segregating” (temporarily withdrawing) BLM public lands from appropriation. Under the final rule, when the BLM receives an application for right of way (ROW) for a solar or wind energy generation project (or when the BLM initiates a competitive process for solar or wind energy development), the BLM has the authority to segregate those lands for up to two years to ensure that they remain available for solar or wind projects.  The final rule should provide greater certainty to developers applying for ROW to develop solar or wind projects.

Most of the public lands with pending wind energy ROW applications are currently managed for multiple resource use and are open to mineral entry under the Mining Law of 1872 (Mining Law). Such mining claims are not subject to BLM approval and could interfere with the BLM’s processing of solar or wind ROW application. Prior to this final rule, the BLM lacked authority to maintain the status quo on lands during the period between when it  publicly announced the receipt of a solar or wind energy generation ROW application, or when it identified an area for such applications, and its final decision. As the BLM pointed out, certain Mining Law claims were likely filed not for actual mining, but “to provide a means for a mining claimant to compel payment from the ROW applicant in exchange for relinquishing a speculative mining claim.” The final rule is intended to prevent such claims. Because segregation is intended only to preserve the status quo until the BLM acts on a ROW application, the segregation order will have no effect on valid existing Mining Law claims or Mining Law claims made after the segregation period. 

Segregation is not automatically granted with every solar or wind energy ROW application. BLM’s decision will be made on a case-by-case basis when it finds that segregation is necessary for the orderly administration of public lands.  Based on the BLM’s Programmatic Environmental Impact Statements for solar energy (2012) and wind energy (2005) developments in the western states and the BLM’s solar and wind pre-application screening protocol, the BLM should possess sufficient facts to make a segregation determination shortly after receipt of the ROW application. 

Segregation is effective upon publication of notice by the BLM in the Federal Register identifying the affected public land. Because it is intended to prevent Mining Law and other claims from interfering with pending BLM’s decision on the ROW application, the segregation notice occurs without prior public notice or comment period. 

Upon segregation, the affected public land will no longer be subject to appropriation under the public land laws, including location and entry under the Mining Law, however, the segregated land remains subject, to the Mineral Leasing Act of 1920 and Materials Act of 1947. segregation remains in effect for a maximum of two years, but a BLM State Director has the [...]

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FERC Declares That Proposed Wind Curtailment Violates PURPA

by Melissa Dorn

The Federal Energy Regulatory Commission (FERC) ruled in September that Idaho Power Company’s (Idaho Power) proposed curtailment policy for purchases from qualifying facilities (QF) violates the Public Utility Regulatory Policies Act of 1978 (PURPA) because it allows the utility to curtail its wind power purchases under previously negotiated power purchase agreements when demand is low.

The Idaho Public Utilities Commission (PUC) had directed Idaho Power to lodge with the PUC a new curtailment policy allowing Idaho Power to halt purchases from QFs that it was otherwise contractually obligated to make when demand for power was low, such as during off-peak periods.  The state proceeding is ongoing.  In response to the filed proposal, Idaho Wind Partners 1, LLC (Idaho Wind) petitioned FERC for an order declaring the new policy to violate section 210 of PURPA.  Certain FERC regulations that implement PURPA require electric utilities to purchase energy and capacity made available to the utility from QFs.

While there are allowances in PURPA for curtailment under certain operational circumstances that cause purchases from QFs to result in higher costs, FERC’s determination turned on the interpretation of when the exception in § 304(f) of the Commission’s PURPA regulations applies.  Idaho Power argued that § 304(f) applied to QF contracts generally — fixed avoided-cost contract and those whose avoided-cost rate is determined at the time of delivery — thus it possessed the authority to curtail unilaterally QF purchases under any QF power purchase agreement. To the contrary, Idaho Wind argued that § 304(f) does not apply to fixed avoided-cost contracts, pursuant to which the parties had already accounted for variability and operational challenges.  Consequently, Idaho Power should not be able unilaterally to curtail a fixed avoided-cost purchase based on economic or operational circumstances.

In granting Idaho Wind’s petition, FERC instructed that the purpose of § 304(f) was to preserve, not override, contractual or other legally enforceable obligations that a utility incurs to purchase from a QF.  Therefore, the PUC could not authorize Idaho Power to curtail unilaterally its QF purchases.

Idaho Power has announced its intention to appeal FERC’s order rejecting the proposed new curtailment policy.

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Changing Qualification Requirements for PTC Could Have Big Impact for Wind

by Martha Groves Pugh and William Friedman

The wind industry is pushing for an extension of the renewable energy production tax credit (PTC), which is currently scheduled to expire at the end of the year.  The PTC has helped spur investment in wind by providing a tax credit of 2.2 cents per kilowatt hour of wind energy produced.  It has been successful in growing the industry, but new wind projects have slowed this year to due uncertainty over the PTC’s extension. Historically, when Congress declined to extend the PTC, new wind projects fall drastically.  

Despite the political battles surrounding the tax credit, the Senate Finance Committee voted 19-5 to extend the PTC as part of a proposed tax extender package.  The bill, called the Family and Business Tax Cut Certainty Act of 2012, would extend the wind production tax credit for one year, through December 31, 2013.

The bill also contains a change to the qualification requirements for wind facilities, which has received little attention despite its important implications.  Previously, wind facilities had to be placed in service before they could qualify for the PTC.  Under the proposed extension, facilities will be eligible for the tax credit so long as construction begins before January 1, 2014.

The new qualification requirement would extend the impact of the PTC beyond 2013 by providing an incentive to begin construction during the year regardless of when the facility becomes operational.  The change would also provide certainty to new wind projects.  Under the old qualification requirement, a wind facility had to meet an operational deadline on the back end of their construction schedule.  The new qualification requirement front ends the relevant date, providing greater certainty that the facility will be able to take advantage of the tax credit.  The new qualification requirements have the potential to reinvigorate the wind industry.

Extending the PTC has implications for job growth, a critical issue in November’s election. One recent study by the Natural Resources Defense Council predicts that extending the PTC could create 17,000 new jobs, while letting it expire could cost 37,000. Despite the impacts on job creation, the House and Senate will likely consider the tax legislation, including the extension of the PTC for wind facilities, after the November election.

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Wind Energy Industry Will Be Affected by Recent Trade Decisions, Tax Policy

On August 2, 2012, the U.S. Department of Commerce (DOC) published in the Federal Register its preliminary determinations in the antidumping (AD) investigations of Wind Towers from China and Vietnam.  DOC calculated preliminary AD margins for the Chinese mandatory and cooperative respondents ranging from 20.85 to 30.93 percent, while non-participating producers will face a margin of 72.69 percent.  Pursuant to its non-market economy (NME) AD calculation methodology, in which DOC estimates the costs of producing subject merchandise in China based on costs in a comparable "surrogate" market economy, DOC preliminarily selected the country recommended by the foreign producers—Ukraine—as the surrogate, finding that it provides the most specific information to value steel plate, the most significant input in the manufacture of wind towers.  For Vietnamese producers, DOC calculated preliminary AD margins ranging from 52.67 to 59.91 percent; India was selected as the surrogate country.

Importers of wind towers from China and Vietnam will be required to post cash deposits at the applicable rate calculated by DOC starting August 2, 2012.  DOC has postponed the deadline for the final determination in both cases, as well as in the companion countervailing duty case affecting imports from China only, for the maximum allowable statutory amount, i.e., until 135 days after publication of the preliminary determination notices, or December 17, 2012.

Meanwhile, legislative incentives may also have a great impact on the industry.  The wind industry has urged U.S. Congress to pass an extension of the production tax credit (PTC), which will expire at the end of this year.  There have been several proposals in Congress to extend the PTC to wind facilities that are placed in service after December 31, 2012.  Even though in years past the PTC and other provisions needing extensions to preserve the current tax treatment have often been extended in the waning moments of the Congress, it is more difficult than ever to predict whether such extensions will become law because of the impending election, the national debt debate and the current political environment.

For questions on the trade actions, contact David Levine or Raymond Paretzky.

For questions on the PTC, contact Martha Pugh.

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McDermott Webinar: U.S.-China Trade Actions Affecting the Solar and Wind Energy Industries

On Wednesday, June 27, 2012, McDermott conducted the web seminar "U.S.-China Trade Actions Affecting the Solar and Wind Energy Industries."  Leading the discussion were McDermott International Trade partners David Levine and Raymond Paretzky, with insightful industry commentary from Francine Sullivan of REC Silicon.  The slides and an audio recording of the seminar can be accessed here.

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Proposed Legislation Would Expand Use of Master Limited Partnerships to Renewable Energy Projects

by Madeline M. Chiampou and Brian Levy

Last week, Sens. Chris Coons, D.-Del., and Jerry Moran, R.-Kan., introduced bipartisan legislation aimed at expanding the use of master limited partnerships (MLPs) from fossil fuel-based energy projects such as oil, natural gas, coal extraction and pipeline projects to also include renewable energy projects. Interests in MLPs are traded on markets, like corporate stock. However, unlike corporations, MLPs are not subject to entity level tax; rather, the profits of MLPs are subject to taxation at the partner level, much like other entities treated as partnerships for federal tax purposes. These benefits are viewed as having significantly increased investment in fossil fuel-based projects in the United States. 

Congress first enacted tax legislation specifically relating to MLPs in 1987. The legislation required MLPs to derive at least 90 percent of their income (qualifying income) from certain categories of passive income, including income from resources subject to depletion, such as oil and gas. In 2008, the Emergency Economic Stabilization Act expanded the definition of qualifying income to include income from the transportation and storage of certain renewable and alternative fuels, such as ethanol, biodiesel and industrial-source carbon dioxide. The proposed legislation would expand the definition of qualifying income for MLP purposes to include income from wind, biomass, geothermal, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells and combined heat and power projects, as well as certain renewable transportation fuels. 

Under the current legislative regime, developers and investors typically invest in renewable energy projects through entities taxed as partnerships for tax purposes. Tax benefits available to such projects flow through to and are allocated among the partners. MLPs would also permit tax benefits to flow through to and be allocated among the MLP partners. Thus, for federal income tax purposes, there would not be many differences between the traditional partnership scenario and MLPs. From a transaction cost perspective, both traditional renewable energy partnerships and MLPs can involve significant transaction costs to developers and investors. However, since MLP interests are able to be traded on a market, investing in or exiting from MLPs may be easier than selling non-MLP partnership interests in the private market. As a result, MLPs are more attractive for some private investors who are more accustomed to buying and selling shares of stock than investing in partnerships. 

Most of the recent legislative focus from the renewable energy community has been on the impending expiration of tax credits related to the investment in and production of electricity through wind. Co-sponsor Coons has indicated that the proposed legislation should not be seen as a replacement to the expiring tax credits but as a complimentary piece of legislation. Without these tax credits or other tax incentives, the benefits of using MLPs alone may not be sufficient to make some renewable energy projects economically viable. However, it bears noting that any tax benefits generated by an MLP structure would be subject to existing limitations on the use of energy tax credits, such as the passive activity loss rules applicable to individuals and the investment tax credit and depreciation [...]

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