Photographer: Jeff Kowalsky/Bloomberg

Flint aid returns as part of water bill

April 27, 2016 Mark Drajem

The First Word Energy team draws on Bloomberg’s worldwide resources to cover all aspects of energy policy. Learn how Bloomberg Government can help your energy lobbying or policy analysis—contact Peter Hsu at yhsu24@bloomberg.net or 202-416-3035.

Today’s Agenda

Flint aid found its way back into the mix  as Sen. James Inhofe incorporated the emergency-aid compromise into a larger piece of water infrastructure legislation. The Flint-aid provisionsworked out earlier this year during bipartisan negotiations were added to the Water Resources Development Act reauthorization bill, James Rowley reported. “It’s the same language that we had they were trying to get into the energy bill,” Michigan Democrat Gary Peters said in an interview.

Overall, the WRDA bill, S. 2848, would authorize big government projects such as levees, flood control, Florida Everglades restoration and port dredging. Coupling those authorizations with the Flint assistance could speed approval for the entire package. The legislation would authorize $220 million for areas experiencing a presidentially declared emergency, including Flint. That provision, when it was debated as part of the Senate energy bill, caused Utah Republican Mike Lee to object, and it fell out of the final measure that passed. The popularity of a water-projects bill among lawmakers, particularly during an election year, may help Democrats overcome Lee’s objection. The bill would authorize 25 “critical” Army Corps of Engineers projects in 17 states, according to a committee summary of the legislation’s highlights. For the first time, the water-projects bill addresses drought conditions in the West, authorizing grants for desalination, ground-water charging and recycling projects, said Sen. Barbara Boxer, whose home state has been hit by a longstanding drought.

Nuclear activists should be thanking central bankers  for accomplishing what a generation of protests had failed to do: Force operators to finally decommission almost 150 reactors sitting in limbo across the globe. The plants have been shut down, either because they’re too expensive to run or because of concerns about their safety or age. They can’t send electricity to the grid, and they’ll need the special funds saved over decades for formal decommissioning and clean-up of radioactive waste. In the past, many operators delayed decommissioning to allow growth in the clean-up funds. As the global economy weakened, however, and central banks kept interest rates low, the principal in those funds shrank. Last year in the U.S., seven of the 10 biggest funds lost money, falling to $43.7 billion, a drop of 1.1 percent. Now, with projected costs rising, industry advocates say owners are more likely to opt for full decommissioning before the funds decline further, Jonathan Tirone reports. The full story is here.

Two oil behemoths moved in opposite directions  yesterday, underscoring the unsettled nature of the business now. Exxon had its S&P credit rating downgraded from AAA, the highest rating that it had held since the Great Depression. But BP had a surprise first-quarter profit, buoyed by refining and trading revenues. Bob Dudley, the company’s CEO, predicted oil prices were set for an upswing. In the markets, crude rose to a five-month high, but some investors said that may have had more to do with a weak dollar than optimism about crude prices.

The most energy-intensive industry in the nation? Maybe, pot.  Indoor growing houses use so much electricity that the DEA is relying on local utilities to help it try to find indoor growers, an investigative story by E&E said.

In yesterday’s Acela primary,  Donald Trump and Hillary Clinton consolidated their leads. In the Pennsylvania Democratic Senate primary, Katie McGinty emerged as the nominee after beating Joe Sestak. House Transportation and Infrastructure Cmte Chairman Bill Shuster defeated businessman Art Halvorson in a race that was tighter than anticipated, and Rep. Chris Van Hollen won the Maryland Democratic Senate primary over Rep. Donna Edwards. Read a full wrap of last night’s congressional races here.

A MoveOn.org petition would have Democrats  call for a ban on fracking in its party platform. The petition has 343 signatures. Separately, a Flint resident sued EPA for $220 million in damages, saying ti took 18 months for agency officials to meet with her after her complaints about the taste and odor of drinking water, the Detroit News said. Also today, Barclays on trial for manipulating electricity prices, EPA relents on haze deadlines and Southern estimates it will take another $33 million charge for its long-overdue Kemper Plant. Hey, out of $6.7 billion, that’s only another 0.5%.

Drajem’s Don’t Miss

In Bloomberg Government’s Methane Moment event this morning, we’re going to have the opportunity to hear from EPA’s Janet McCabe. From industry and environmental advocates we talked to in advance, it looks like there’s a keen interest in finding out when the agency will release both its rule for new wells and its information request to companies. And there’s also this: How has the EPA’s hike in its estimate of methane emissions from oil and gas, and the drop in their market prices affected what it plans to do? The event runs from 8 a.m. to 10 a.m. at 1101 K St.

Quotable

“The company’s debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow,” S&P wrote in the note about its downgrade of Exxon Mobil.“Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year,” BP’s Dudley said in the statement.

The Predictor

A Bloomberg survey predicted that U.S. crude supplies expanded by 1.75 million barrels last week. The EIA crude supply data will be released by EIA today. The projected gain in nationwide crude supplies will leave stockpiles at more than 540 million barrels for the first time since 1929.

This chart by Naureen Malik shows that FERC ramped up its enforcement cases in 2012 and 2013.

Inside the Beltway

Senate Opts for Sailboats  Wind power got a boost in the energy-water spending bill yesterday, despite objections by the legislation’s author, Senator Lamar Alexander. Relying on wind power is “like going to war with sailboats when the nuclear navy is available,” he said on the floor. The amendment, which would make $95.4 million of funds available for wind energy research, was sponsored by Senators Jeff Merkeley, D-Ore., and Chuck Grassley, R-Iowa. The amendment was adopted 54 to 42, with the backing of 12 Republicans including North Dakota’s John Hoeven, Colorado’s Cory Gardner and South Dakota’s John Thune. Majority Leader Mitch McConnell set a deadline for all further amendments for 10:30 a.m. today, and set an 11 a.m. vote to advance the bill. Final passage could come today or tomorrow.

Pipeline Safety Take Two  The Energy and Commerce Committee is set to mark up its pipeline safety bill today, a week after the Transportation Committee approved similar legislation. So far, it’s clear that the most troublesome piece of the package — a provision granting DOT authority to issue emergency orders — remains problematic for Republicans on the committee. Look for at least one amendment seeking to strike that section altogether. A new version of the bill released ahead of the markup addresses some concerns raised by industry lobbyists. In particular, it includes new language that would allow pipeline operators to seek expedited judicial review of emergency orders. But it still needs work, Subcommittee Chairman Ed Whitfield said in his opening statement last night. Rep. Joe Barton also said the measure doesn’t give pipeline operators an opportunity weigh in before orders are issued. “I still think it gives the Transportation Secretary too much power,” he said.

EPA Proposal Would Push Back State Haze Planning Deadlines   States would gain an additional three years to submit a revised regional haze plan to address visibility in national parks and other protected areas under an Environmental Protection Agency proposal. The agency said the decision came so that states could coordinate their haze plans with deadlines for the mercury rule and the Clean Power Plan.

Murray Energy Continues Fight Against EPA’s Emissions Rules   Coal producer Murray Energy Corp. is challenging the U.S. Environmental Protection Agency’s final rule that targets mercury pollution from power plants.

Regulators Relax Monitoring of Decade-old Gulf Oil Leak   Federal regulators have relaxed a pollution monitoring requirement for a company responsible for a decade-old oil leak in the Gulf of Mexico, a slow-motion spill that could last another century, AP reported. In 2008, the Coast Guard ordered Taylor Energy Company to conduct daily flights over the site of its leak to visually monitor chronic oil sheens that often stretch for miles off Louisiana’s coast. That requirement remained in effect until December, when the Coast Guard amended the order to reduce the minimum number of required overflights to twice a week. Regulators didn’t announce the change at the time. The Coast Guard confirmed details of its new order on Tuesday in response to an Associated Press inquiry.

Outside the Beltway

Hanford Seeks Possible Leak in 2nd Double-Walled Tank: AP   Officials for the Hanford Nuclear Reservation are trying to determine if a second giant underground tank containing radioactive waste from the production of plutonium for nuclear weapons is leaking, the U.S. Department of Energy revealed on Tuesday. Air monitors attached to an aging tank known as AY-101 recently found radiation at higher than normal background levels, the agency said. A video inspection of the underground tank found no evidence that radioactive waste had leaked from the primary tank into the space between the two walls, Hanford officials said. While a new leak is a possibility, they have found no evidence of one. “We want to discredit that potential before we make any statement,” said Tom Fletcher, the U.S. Department of Energy’s tank farms manager at Hanford.

Feds Seek to Dismiss South Carolina Nuclear Fuel Project Lawsuit: AP   South Carolina’s lawsuit calling for million-dollar fines and plutonium removal should be dismissed because the state is wrongly interpreting the laws governing a long-delayed nuclear fuel project at Savannah River Site, the U.S. Energy Department said in court documents. In its first official response to the state’s lawsuit, the federal government also argued Monday that any potential fines for project delays should be handled in a different court system, not federal district court.

Lakeland Ledger: EPA’s Clean Power Plan Prompts Energy Changes   Before energy producers like Lakeland Electric can build the electrical grid of tomorrow, they’re going to have to plan the electrical grid of the next decade, the Lakeland Ledger reports. For the utility’s managers, governing board, 120,000 customers and Lakeland’s voters, it’s the $350 million question that demands an answer by the mid-2020s.

Pennsylvania Regulators Approve New Gas, Oil Industry Rules: AP   Drillers will now have to identify schools or playgrounds near wells, and if water supplies are damaged drillers will have to fix them or replace them with alternatives that meet federal standards. Natural gas drillers won’t be able to store waste in pits, or use brine to keep down dust or to de-ice.

DetroitFreePress: Southfield Passes Ordinance That Limits Oil Drilling   Oil and gas well-related activities will only be permitted in Southfield under a Special Land Use in the industrial (I-1) zoning district, according to a zoning ordinance adopted and enacted by the Southfield City Council at a meeting Monday.

Electricity and Renewables

Barclays Fights FERC Over Price-Fixing Fine

By Naureen S. Malik

In the southwest corner of Arizona, just east of the California line, sits the Palo Verde nuclear plant, the provider of power to 4 million residents in four separate states. It’s in this market that a Barclays Plc trader manipulated electricity prices so brazenly in 2006 that he bragged in one message that he’d “totally fukked with the Palo mrkt,” according to federal regulators.

A decade later, that e-mail and other documents are coming back to haunt Barclays in a closely watched civil case that marks the first public test of energy regulators’ enforcement powers. The Federal Energy Regulatory Commission is seeking $488 million in fines and profit disgorgement from Barclays and four traders, the biggest penalty the agency has ever sought.

The bank was supposed to get its day in a federal court in California on April 22. Now, though, the judge on his own initiative canceled oral arguments and the two sides are awaiting to learn what the next step will be. A new schedule for arguments could be set, or District Judge Troy L. Nunley could come to a decision based on the papers already filed with the court. If there is a decision, it would be the first time this type of case came to a ruling. Earlier suits were all settled.

Oil, Gas and Coal

Market Wrap:  Oil advanced from the highest close in five months as U.S. industry data showed a decline in crude stockpiles. West Texas Intermediate for June delivery rose as much as 64 cents to $44.68 a barrel on the New York Mercantile Exchange and was at $44.56 at 8 a.m. London time. The contract gained $1.40 to $44.04 on Tuesday, the highest close since Nov. 10. Natural gas futures for May, which close at the end of trading Wednesday, rose as much as 1% to $2.053/mmBtu, and were trading at $2.05 at 8:01am London time.

Exxon Mobil Loses Top Credit Rating It Held Since Depression   The worst oil crash in a generation has cost Exxon Mobil Corp. the gold-plated credit rating it had held since the Great Depression.Standard & Poor’s on Tuesday stripped Exxon of its highest AAA measure of credit-worthiness, cutting it to AA+, the same as the U.S. government. It’s a defeat for Exxon, which sought to retain the rating after S&P placed it on notice in February. Before the downgrade, Exxon shared the distinction with just two other companies: Johnson & Johnson and Microsoft Corp.

BP Reports Surprise Profit on Strength in Refining, Trading   BP Plc, the first oil major to report first-quarter earnings, posted a surprise profit as a stronger-than-expected refining and trading performance helped mitigate the lowest crude prices in more than a decade. Profit adjusted for one-time items and inventory changes totaled $532 million compared with $2.6 billion a year earlier, the London-based company said on Tuesday. Analysts had expected a loss of $244.9 million.

BP Banks on Refining, Trading to Counter Oil’s Slump: Chart

BP Plc’s refining and trading units are helping it counter losses from oil and natural gas production. The downstream division beat forecasts by about 60 percent in the first-quarter earnings announced Tuesday, analysts at Exane BNP Paribas said in a note to clients. Since crude started its slump in the middle of 2014, refining has been the safety net for the majors from BP to Royal Dutch Shell Plc, which announces first-quarter results May 4.

Southern Estimates $33 million First Quarter Charge for Kemper Coal Plant Costs   The total cost estimate rises to $6.7 billion for Mississippi power plant designed to capture carbon dioxide, co. says in filing. Company still sees plant in service during third quarter of 2016. Southern issues revised estimate for costs through Sept. 30. A delay beyond Sept. 30 would add costs of $25 million to $35 million a month. The company is scheduled to release first quarter earnings today.

Up for Debate

A Wholesale Appraisal of the SCOTUS Decision in Hughes v Talen  

By Miles Farmer, Natural Resources Defense Council

The Supreme Court’s decision in Hughes v. Talen Energy Marketing, LLC, is good news for clean energy…The Court’s decision is very important because, in holding that Maryland exceeded its authority in adopting a program to spur the construction of a natural gas plant, the Court went to great lengths to ensure that its holding does not prevent the adoption of a wide range of state policies designed to spur clean energy development.

In striking down the program, the Fourth Circuit was careful to state that its ruling was “narrow and focused upon the program before us.” But some advocates raised questions regarding what it meant for various renewables programs. When the Supreme Court took the case, this offered the potential to clear up any misconceptions caused by the Fourth Circuit’s decision. But it also elevated the stakes considerably. The American Wind Energy Association (AWEA) argued in an amicus brief that if the Court were to affirm the Fourth Circuit decision without “emphasiz[ing] that the preemption decision is limited to the specific circumstances of the Maryland program, it could stifle the states’ ability to encourage new generation of clean energy.”

In reading Justice Ginsburg’s unanimous opinion in Hughes, we breathed a sigh of relief, because the holding is limited in exactly the manner requested by AWEA. The opinion rules that Maryland’s program “invades FERC’s regulatory turf.” But critically, the Court repeatedly emphasized that the reason for its holding was not a general concern that the program could potentially influence market prices, but rather because of a feature unique to Maryland’s “contract for differences” requirement that is not present in state PPA requirements or other mechanisms to incentivize renewable energy.

Specifically, the Court “reject[ed] Maryland’s program only because it disregards an interstate wholesale rate required by FERC.” (emphasis added). This conclusion followed from prior decisions holding that a State may not “second-guess the reasonableness of interstate wholesale sales.”

This defeating characteristic of the Maryland program is not present with bilateral contracts such as PPAs. A bilateral contract does not modify the FERC-approved price for a sale of electricity or capacity to PJM because it involves an entirely separate transaction between the two parties themselves, rather than a sale to PJM. Only afterwards does the buyer bid the electricity and capacity into the PJM markets. Thus, while the economic incentives delivered by PPA are similar to those provided by a CfD arrangement—such contracts also guarantee the buyers and sellers fixed prices—the payment between the parties does not depend on, or directly override the PJM market prices. Significantly, while FERC has approved the price for sales to PJM, its rules do not say that bilateral contracts for electricity or capacity need to be set at this same rate. Indeed, FERC routinely approves contracts between parties that provide for rates that are different from PJM’s clearing prices.

To read the full analysis by Farmer, a legal fellow at NRDC, see the full blog post here.