Topic: Utilities

Utilities

Retrofitting the Grid: How Senator Manchin’s Permit Reform Could Facilitate an Energy Transition in Texas

Introduction

Climate change will remain a prominent issue in the United States for decades. Attempting to decelerate global warming will require the country to undergo an energy transition and revolutionize its underlying electrical grid.[1] Partially with this end in mind, Senator Joe Manchin released the text for a bill that would accelerate the permitting process for energy projects across the U.S.[2] The initial ninety-one-page document was never formally introduced into the Senate, and Senator Manchin ultimately failed to tack a shorter version onto a defense spending package in December 2022.[3]

The proposal garnered an onslaught of criticism from all directions, including from Democrats, Republicans, and environmental groups.[4] Much of this criticism centered on the bill’s push for agencies to “take all necessary actions to permit the construction and operation” of a project in Appalachia and expedite the construction of other new fossil fuel pipelines.[5] Regardless of the proposal’s deficiencies, experts acknowledge that some kind of permitting reform is necessary for the large-scale renewable energy transition at hand.[6]

This Note explores the provisions proposed in Senator Manchin’s bill and how it might have impacted the construction of a hypothetical wind energy project in Texas’s High Plains region, which includes forty-one counties in the Texas Panhandle and West Texas.[7] Such a project would require permitting interactions with local governments, state agencies, and eventually the federal government.[8] This Note focuses on three key categories of federal permitting requirements—wildlife protection, air and water protection, and National Environmental Policy Act (NEPA) review—and how they would apply to a proposed turbine project. Then, it explores how these requirements would have interacted with Senator Manchin’s proposed legislation.

Federal Permitting Requirements

Wildlife Protection

Since turbine projects can potentially kill flying animals such as birds and bats, the U.S. Fish and Wildlife Service (FWS) has jurisdiction over any new wind installation in the High Plains of Texas.[9] The statutes that affect new wind turbines include the Migratory Bird Treaty Act, the Bald and Golden Eagle Protection Act, and the Endangered Species Act (ESA).[10] The ESA provides a straightforward example. If a project were to incidentally “take” a species on the endangered species list,[11] FWS must authorize the take through a formal permitting process.[12]

Air and Water Protection

Section 404 of the Clean Water Act requires permitting for projects that discharge dredged or fill materials into protected waters and wetlands.[13] A new turbine project in the High Plains would likely fall under this statute’s jurisdiction due to the presence of playa lake wetlands throughout the region,[14] which are essential to the cyclical recharge of the Ogallala aquifer.[15] These jurisdictional waters would be affected by large amounts of waste product from project construction—both from the turbine facility itself and the miles of transmission lines required to bring the power to population centers like Dallas and Austin.[16]

National Environmental Policy Act (NEPA) Review

NEPA is unlike the above statutes in that it is a procedural requirement rather than a permitting mandate.[17] NEPA requires a two-stage evaluation of the environmental impacts of a proposed federal action and is overseen by the White House Council on Environmental Quality.[18] First, for a new wind project, an agency overseeing the permitting process—for example, FWS for projects affecting land species[19]—must prepare an “environmental assessment” to determine whether the project would have a significant impact on the environment.[20] If the agency determines there would be a significant impact, it must then prepare a longer and more detailed “environmental impact statement” (EIS).[21] This review allows local communities, industry groups, and environmental organizations to comment on the project. Our hypothetical wind installation in the High Plains of Texas would certainly require a full NEPA review.[22]

NEPA tends to be the target of criticism since the review process can be lengthy (a median of three and  a half years), although the cause of such delays are in dispute.[23] Even after an agency finishes its EIS, litigants frequently challenge projects on the basis of procedural deficiencies, causing further delays, increasing costs, and stalling momentum for new projects.[24] While NEPA has provided wins for environmental groups,[25] it also poses a hurdle to new renewable energy projects that must be planned for.

How Senator Manchin’s Bill Would Affect This Process

Senator Manchin’s bill would impact a proposed wind facility in the High Plains by accelerating NEPA review and setting a statute of limitations for court challenges.[26] First, the bill defines “major project” as one that requires “multiple authorizations, reviews, or studies” and one that requires an EIS.[27] Since our proposed facility would be a significant public utility, it would likely be classified as a “major project”; this analysis will proceed under this assumption.

As a first step in the accelerated process, the “lead agency”[28]—e.g., the Environmental Protection Agency—would coordinate with each “participating agency”[29]—e.g., FWS for ESA authorization—to create a single environmental document that covers all applicable environmental statutes.[30] Currently, projects may require multiple agencies to create separate documents, such as a “Biological Opinion” prepared by FWS.[31] Additionally, the bill sets a page limit for this singular environmental document of 150 pages, with extra space of up to 300 pages for a project “of unusual scope or complexity.”[32] For major projects, this entire environmental review process should be finished no later than two years after the lead agency provides notice that it will began preparing an EIS.[33] Thus, for our proposed wind facility, if the permitting process would begin now, environmental review would be statutorily required to conclude by 2025 rather than 2026 or later.[34] If an agency in this process fails to meet the deadline, the project sponsor may petition a court to issue an order to the agency to complete its task within ninety days.[35]

Should the involved federal agencies, state officials, or project sponsors reach an impasse, the bill sets forth prescribed dispute resolution schedules to keep the major project moving forward.[36] Regarding potential litigation for a project, the bill sets a statute of limitations of 150 days after an agency finalizes the permit application and requires the reviewing court to undergo “expedited consideration.”[37] If any aspect of the environmental document is remanded, the court must set a “reasonable schedule” to fix the deficiency, not to exceed 180 days from the initial court order.[38]

An additional aspect of Senator Manchin’s bill would assist with creating the expansive new transmission lines required for wind energy expansion in the High Plains. Should the transmission lines be trapped in the CWA state-certification phase, the bill would   empower the Federal Energy Regulatory Commission (FERC) to issue a construction permit for transmission siting.[39] Since any new transmission lines for a wind project in the High Plains would likely be attached to the interstate electrical grid, this reform would likely apply to the theoretical wind facility.[40] Thus, in this case, if the Public Utility Commission of Texas failed to act on a permit application within one year, FERC might intercede and issue one itself.[41]

Conclusion

Constructing new electrical facilities is an exceedingly complex process. Even One could easily get lost digging through the text of the permit reform legislation and its numerous exceptions, deadlines, and chokepoints which could kill a new project. This Note only touches the surface of the regulatory requirements that must be met before applicants can construct new facilities. There is no doubt that some reform is needed to expedite the energy transition. Senator Manchin’s bill provides a starting point for legislators and regulators to consider how to best balance environmental interests while facilitating the transformation of our energy grid.

Paul Sarahan is a member of Enoch Kever PLLC. He focuses his practice on environmental, safety, and transportation issues. He has 28 years of experience in policy, regulation, and commercial use of the environment and has represented clients in the energy, chemical, manufacturing, transportation, and retail industry sectors before federal, state, and local agencies. Paul is a graduate of the University of Texas at Austin, The University of Texas School of Law, and the University of Houston Law Center’s Energy, Environmental and Natural Resources LL.M. program.

Jesse Bennett is a dual JD/MPAff student in his second year from Rochester, New York. He attended Hamilton College where he majored in economics and minored in history. Jesse joined TELJ as a 1L.

Utilities

Texas’ Response to Winter Storm Uri – Structure of Electricity Markets and Risk Management

Introduction

In February 2021, Winter Storm Uri shocked the electricity market in Texas and caused millions of customers to go without electricity, heat, or running water for days in freezing temperatures.[1] When the power finally came back on, members of the electricity market and individual customers were further shocked by astronomical prices driven by high demand during a period of very short supply.[2] During the 2021 Texas Legislative session, several bills were passed to address the problems made apparent by the winter storm.[3] The Texas Legislature focused on several key areas of improvement. One of the main areas of concern included regulating the structure of the electricity market and implementing risk mitigation strategies for future market disruption. This included implementing changes that required rulemaking procedures by state agencies including the Public Utility Commission of Texas (“PUC”) and the Texas Railroad Commission (“RRC”).[4] While the Texas legislature made significant legislative changes to support the power grid, these changes will take time and may not have a significant impact for several years.[5]

Senate Bill 3 – A Comprehensive Bill

Senate Bill 3 was one of the most expansive bills to address the structure of the electricity market and the mitigation of risk related to future market disruptions.[6] Among other things, it required the PUC to undertake rulemaking procedures to create requirements for the weatherization of power systems.[7] The PUC implemented Phase 1 of these rules to address current market needs.[8] These rules were met by 321 out of the 324 electric generation units and transmission facilities that ERCOT inspected by January 18, 2022.[9] Phase 2 will be a longer process which will elaborate on these rules and take ERCOT’s weather report into consideration.[10] Additionally, a bond issuance was approved to finance weatherization and to support customers who faced abnormally high bills from February 2021.[11] While this financing helps mitigate the up-front cost associated with both weatherization and utility bills, it will increase customer payments in the form of additional utility charges for years to come.[12] 

Senate Bill 3 also required the PUC to undergo rulemaking allocating load shedding among different electrical facilities and categorizing circuits as critical based on historical peak demand.[13] During Winter Storm Uri the power supply could not support the power demand, resulting in involuntary load shedding in the form of rolling blackouts that left many customers without power for days.[14] This was due in part to ERCOT underestimating the severity of the demand.[15] Amended rules regarding involuntary load shedding took effect on January 6, 2022.[16] This bill also required the PUC to enact rulemaking focused on improving emergency planning, lowering the price cap during periods with limited availability, and increasing the strength of penalties for failing to follow regulations.[17] While the PUC undertook rulemaking that reduced the price cap from $9,000/MWh to $5,000/MWh, the reduced cap was not restricted to periods of limited availability.[18] In response to several of the directives in Senate Bill 3 and other legislation related to Winter Storm Uri, the PUC undertook to reform the ERCOT wholesale electricity market in a “Blueprint” that detailed the two-phase reform plan.[19] There were several references to these changes in the January 13, 2022 Blueprint to implement many directives related to reforming the wholesale electricity market as future next steps.[20] While the classification system for violations has been amended to include violations of weatherization requirements,[21] natural gas facilities that are not voluntarily deemed “critical” are exempted from the penalties.[22] Because of this exemption, the natural gas sector and the RRC have drawn criticism from many, including the legislators who wrote Senate Bill 3.[23] While the RRC argues that listing every natural gas facility as “critical” would negatively impact the availability of electricity to everyone else,[24] this argument misses the point. The concern is not whether all natural gas facilities are critical; the concern is whether all natural gas facilities are required to weatherize in case of emergency. 

In addition to these comprehensive changes to the energy market itself, Senate Bill 3 also expanded the governance of the electricity market.[25] While other bills made changes to the existing structure in ERCOT[26] and the PUC,[27] Senate Bill 3 created three new governing bodies to help implement the changes established in the bill. First, the Texas Energy Reliability Council (“TERC”) exists to “(1) ensure that the energy and electric industries in [Texas] meet high priority human needs and address critical infrastructure concerns; and (2) enhance coordination and communication in the energy and electric industries in [Texas].”[28] The bill requires that TERC to obtain utility information related to disasters and mandates that public utilities and gas providers supply any such information.[29] Second, the Texas Electricity Supply Chain Security and Mapping Committee (“TESCSMC”) was created to map the electrical supply chain in Texas, identify critical infrastructure sources, establish best practices for preparing facilities to maintain services in the event of extreme weather, recommend oversight and compliance standards for these purposes, and prioritize service needs to prepare for, respond to, and recover from extreme weather.[30] TESCSMC was required to submit a report related to their newly assigned duties by January 1, 2022 and must complete the map by September 1, 2022. Last, the State Energy Plan Advisory Committee (“SEPAC”) functions to create a comprehensive state energy plan no later than September 1, 2022, in order to identify barriers, provide recommendations to overcome or remove those barriers, and evaluate methods to improve electric service, including ancillary services and emergency response.[31] 

Senate Bill 1281 – Updating Regulation of Transmission Projects

Another significant bill passed to address the structure of the market and mitigate the risk of future disruptions was Senate Bill 1281.[32] One priority of this bill was to expand the exception from obtaining a certificate of convenience and necessity (“CCN”).[33] An electric utility is required to obtain a CCN before building new transmission lines.[34] The previous exception to the CCN requirement applied to transmission lines between substations or customers if (1) the new line did not exceed one mile and (2) affected landowners whose property is crossed gave prior written consent.[35] The new codified exception expanded these criteria to apply when (1) transmission lines do not exceed 3 miles for connections to customers or 2 miles for generation connections, (2) all directly affected landowners give consent, and (3) necessary rights-of-way have been purchased.[36] The previous CCN exception existed in the PUC’s rules, but with the new legislation, the PUC must initiate rulemaking to adopt the new standard.[37] In addition to this expansion, the legislation aimed to refocus the review of proposed projects onto reliability criteria.[38] This included consideration of historical load, forecasted load growth, additional load seeking interconnection, and an analysis of the cost and benefits to consumers.[39] The PUC has not yet opened rulemaking procedures to incorporate these changes. Another goal of this bill was to create a mandatory biennial reliability assessment to be conducted by ERCOT that “consider[s] the impact of different levels of thermal and renewable generation availability; and recommend[s] transmission projects that may increase the grid’s reliability in extreme weather scenarios.”[40] 

House Bill 16 – Protecting Residential and Small Commercial Customers

House Bill 16 aimed to revamp the structure of the electricity market and focused on increasing regulation of certain retail electric products, specifically related to wholesale indexed power products and fixed rate products.[41] An aggregator, broker, or retail electric provider cannot offer wholesale indexed products to residential or small commercial customers, but they may continue to offer these products to other customers as long as they obtain signed acknowledgement of the associated risk from the customer.[42] This restriction helps protect residential or small business customers from the exponential price increases due to wholesale prices in times of extreme demand. In addition to limiting exposure to wholesale indexed pricing, this legislation updated notice requirements regarding the expiration of a fixed rate product.[43] Now, when a fixed rate contract is set to expire, the provider must provide three written notices in evenly distributed intervals during the last third of the contract period and the final notice must include terms for the default renewal product.[44] Any default renewal product must be clearly communicated in the contract and in the final notice, must be month to month, and the customer must be able to cancel at any time without a fee.[45] Failure to comply with the notice requirements results in the provider continuing to provide the fixed-rate product until proper notice is given or the customer selects a different product.[46] The PUC undertook rulemaking procedures to implement the requirements of House Bill 16, and these updated rules became effective as of January 6, 2022.[47]

Conclusion

While the Texas legislature took steps toward solving the problems with the Texas electricity market, the work has just begun.[48] The sheer amount of change required by the legislation will take years to implement, as demonstrated by the multi-phased plans proposed by PUC and ERCOT.[49] While some have claimed that sufficient change has been made to survive the “test” of the 2022 winter season, this most recent winter season did not compare to Winter Storm Uri.[50] The new legislation and regulation resulting from Winter Storm Uri is a significant step in the right direction, but the Texas electricity market has a long way to go to implement these changes and successfully shift the focus of the market to reliability.  

Michelle White is a 3L living in Hutto, Texas. Originally from Wimberley, Texas, she attended Texas A&M University before working for several years in Human Resources in Dallas. She joined TELJ her first semester of law school. During summer of 2022, she worked at Lloyd Gosselink and Naman Howell.

Alisha Mehta is an attorney in the Environmental and Legislative section of Jackson Walker’s Austin office. She focuses on permitting and water matters, including real estate developers and special utility districts and counsels clients on transactional and regulatory issues before the Public Utility Commission of Texas.