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Legal Battleground

2010 Law & Lawyers Report

Fortnightly Magazine - November 2010

“It feels like standing on shifting sand. That’s very difficult for an industry that has a 30-year planning horizon.”

Green Retreat

Coal-fired plants are most directly targeted by stricter environmental regulations, but the whole power industry is caught in the energy policy crossfire.

The greatest damage is being caused by the ongoing threat of GHG regulations. In the context of a perennially uncertain regulatory regime, GHG policy has become a sword of Damocles, preventing companies from investing in coal-fired power capacity. The same factors affect new projects as well as life-extension and refurbishment plans at many existing coal-fired facilities; if and when GHG regulations take effect, many such projects would be subjected to additional costs that change the investment calculus in ways that are impossible to predict in the absence of final regulations.

“There’s a lot to be said for certainty,” Tewksbury says. “Of course, certain doom isn’t preferable to uncertainty. But in the utility world, people just want to know the rules so they can make business decisions based on those rules.”

In the midst of these uncertainties, coal also is facing a tough economic challenge from natural gas. Shale gas exploration has turned up massive potential reserves within America’s grasp, supporting a favorable outlook for gas prices—and a growing market for gas-fired power capacity. This combination of factors has created a no-win situation for coal—and also, ironically, for renewables.

With power demand today still below pre-recession levels, wholesale electricity prices remain low—too low for developers of wind farms and many other alternative power plants to assemble a bankable business plan, even with the federal incentives currently in place. As a result, renewable power development slowed dramatically in 2010 compared to 2009, despite the availability of grants in lieu of investment tax credits provided under Section 1603 of the American Recovery and Reinvestment Act (ARRA). Those grant provisions are set to expire at the end of the year. And while renewable energy advocates are lobbying Congress to extend them as part of pending tax legislation, their fate seems doubtful in the current economic and political climate.

Moreover, the appetite for renewable energy subsidies seems likely to shrink in the 112th Congress, given persistent weakness in the economy and a strident election-season debate about big government programs and ballooning deficits. However, some recent developments suggest a bipartisan coalition actually might emerge to advance a federal renewable energy standard (RES)—which in the next Congress might be more palatable than proposals to extend the Section 1603 tax grant.

In September, a group of Democratic and Republican senators introduced the Renewable Electricity Promotion Act , which would require electric utilities to source at least 15 percent of their power from a combination of renewable energy and conservation. Although it faces stiff opposition from lawmakers in renewable-poor states, such a legislative approach benefits from the perception that it supports domestic green jobs and reduces the number of energy dollars flowing overseas.

At the state level, the same political factors support a trend toward feed-in tariffs (FIT)— e.g., higher, standard-offer prices for certain preferred sources of