January Sustainable Energy Initiative Update

January 2016

Sustainable Energy Initiative Update

In this issue:

SEI Welcomes a New Board Member!
Congratulations to Kevin Fitzgerald
Charting A Path For The R[ev]olution

Last Chance to Sign Up! "Transforming the U.S. Electric System: Where State & Federal Initiatives Meet"
Moot Court Team Sponsorship
Have a Law Review Article You Want to Publish?

Save the Date: March 10-11, The Electricity Mix of the Future: Environment, Economics, and Governance
Looking Ahead in 2016: Growing Popularity of Community Solar
Just Released: GridWise Alliance 3rd Annual Grid Modernization Index (GMI) Report
Faculty & Staff Updates
Upcoming Events
Recommended Reading

SEI Welcomes a New Board Member!

SEI is delighted to welcome Dentons US LLP, represented by Emma Hand, to the GW Energy Law Advisory Board. Emma is a partner at Dentons, where she plays an essential role on teams representing signature clients such as the city of New Orleans, the Municipal Electric Utility Association of New York, Ormet Primary Aluminum Corporation and many others. She is president-elect of the Energy Bar Association and will assume the role of president at its 2016 annual meeting. Welcome Dentons and Emma!

Congratulations to Kevin Fitzgerald

On December 14, the Institute for Electric Innovation (IEI) awarded GW's Energy Law Advisory Board member Kevin Fitzgerald (JD '91) its inaugural Technology Leadership Award. In addition to being the Executive Vice President and General Counsel of Pepco Holdings, Inc., Kevin is also a member of the Edison Electric Institute's Legal Planning Committee, an Advisory Board Member to the Electric Power Research Institute, an Executive Committee Member to the U.S. Partnership for Renewable Energy Finance, as well as chair of IEI's Technology Partner Roundtable. Recognizing the transformations underway in the electric system today, Kevin has facilitated industry discussions about adopting new technologies and helped expand the IEI Roundtable to include renewable energy, storage, and data analytics companies. In the words of NorthWestern Energy President and CEO and IEI Co-Chair Bob Rowe, "Kevin is a real leader and visionary in working to bring technology partners and thought leaders together with utilities to discuss how we collaborate as the industry evolves." Congratulations, Kevin!

Charting A Path For the R[ev]olution

The idea that the electric system is on the cusp of perhaps the most significant change in its history - a "r[ev]olution" - has gained such momentum it is now, perhaps, mainstream thought. Many factors can be identified as the impetus for this change, such as, the advent of new cost-effective technologies that alter the ways in which we can generate, store and deliver energy; the need to harden the grid against severe weather events and cyber and physical attacks, and make it more resilient in order to improve recovery times; and a desire to reduce the electric sector's contribution to climate change, whether driven by policy decisions or individual customers' choices.

Many organizations across the U.S. - utilities, regulators, policy-makers, technology and service providers, customers, and other stakeholders-- are addressing at least some aspect of this r[ev]olution. Efforts include, for example, initiatives for grid modernization, integration of distributed energy resources, changes in market rules, attention to the convergence of markets, solar tariff rate re-design and many other discrete topics.

Most of the work being done and that needs to be done to transform the electric system falls into one of four "buckets" that are conceptually different and require different skill sets, but are highly interrelated. The buckets address business, engineering, economic regulation and governance. In the top left quadrant of the illustration are efforts to move away from a system that rewards investors and service providers primarily for capital investment and volumetric sales to a system that addresses operational efficiency, grid access, and achievement of policy goals, using tools such as performance-based ratemaking, market design and tax incentives. Grid modernization facilitates policy goals such as reliability, security and integration of services and products that customers value. It is largely an engineering challege, but has to be undertaken with respect for regulatory concerns over expenses and the equitable distribution of the benefits and costs. Distribution-edge ratemaking is a traditional economic regulatory function but is increasingly informed by more granular data that provides better insights into consumer behavior. It is also made more complex by new choices available to consumers due to technological change and the need to send the proper price signals to encourage customers to deploy customer-owned technology in a manner beneficial, or at least not harmful, to the system and the welfare of other customers. And regulatory processes require attention to assure that our regulators have the knowledge, tools, resources and authority needed to manage new technologies and business models and an expanded pool of actors, and to react to the faster pace of technology changes.

The work within each quadrant is and will be conducted by many - individuals, businesses, and regulators working in wholesale and retail arenas and at federal, state and local levels. Thus, it is also important that we address the element that is lacking the in the diagram above, which is a common set of goals and a general consensus on policy direction. While each of these four areas pose challenges of their own, the work within each quadrant cannot be undertaken in complete isolation from the others. Nor can the work be done sequentially. Rather progress within each quadrant will inform and influence the others, and participants need a common understanding of what they are trying to achieve to avoid conflict and waste.

To some, the idea of trying to create a set of common goals as a guide for policy and regulatory development may sound like integrated resource planning (IRP), a concept that has lost favor, particularly in states that rely heavily on markets. Indeed, IRP is currently practiced only in slightly over half of the states and generally focuses primarily on utility-specific or state development. But the concept posited here is different. It is both higher level and, for maximum impact, would cover larger areas, such as regions that have common markets or resources. The concept is that regulators, the regulated, and other interested parties should come together to agree upon and articulate a common vision or set of goals and reach a common consensus on a direction for development to achieve the goals. The decision may be to rely on markets, but for what products and services and how should the markets be structured to elicit the desired outcome? Should barriers to self-generation or microgrids be lifted? Should the transmission and distribution systems be designed to facilitate greater use of demand-side resources over a wider region or remain structured to favor more traditional supply-side solutions? These higher level questions require collaboration across jurisdictional boundaries.

The argument as to why a common set of goals is needed to effect transformation of the electric system is driven by five factors, which together make the electric sector unique:

First, the US electric system - generation, transmission, distribution, storage, and consumption - is a mosaic developed, built, owned, and operated/implemented by the actions of thousands of different actors, whose motivations and goals often differ. Yet, the pieces must be tied together, architecturally and operationally, in a way that allows for unified operations with split-second accuracy and near perfect reliability. Within each interconnection (at least), the system must operate as if it were a single machine. Thus, some structure and rules-of-the-road are essential.

Second, the electric system is extraordinarily capital-intensive and many investments are long-lived. For example, based on financial projections compiled by Edison Electric Institute, the investor-owned utilities alone will be investing $90 to $100 BILLION dollars per year in the short-term, and that doesn't include the investments being made by public power, cooperatives, independent power producers and customers. Further, if history repeats itself, investments made today will still be in service in 40 years, and investors will expect that ratepayers will continue to pay for them. Investors rely on regulatory stability, so any change that impairs past investments will be met with strong resistance and can shake investors' confidence for future investment. Looking forward, it is important to develop a regulatory structure for long-lived assets that will encourage development of the right resources for decades ahead - whatever those resources may be - and encourages continuing investment. This is not an industry that can change shape easily or quickly and the investment is huge. It is important to get it right the first time.

Third, there's a temporal disparity in resource development, which is also closely tied to the problem of rate recovery above. An easily understood example is the problem of coordinating transmission development for renewable resources. Generation resources, such as windfarms or utility-scale photovoltaic resources, which might be constructed in a location remote from load, often can be developed and constructed in a shorter time-frame than the long-distance transmission needed to carry the new resources to load. But since the transmission and various generation resources that will use the transmission may be owned by different owners, and are regulated under different systems (e.g., mostly cost-based regulation for transmission and competitive markets for wholesale generation) there is a tension between building the transmission and waiting to see if the generators that would use it will, in fact, develop. Regulators have wrestled with this chicken-or-egg issue with respect to transmission and generation for the last two decades and now the same issue must be played out at the distribution level. For example, the growth of distributed rooftop solar in Hawaii outstripped development of a distribution system able to accommodate it. Indeed, many states are just beginning to undertake the grid modernization efforts that could facilitate a largely distributed system that might include micro-grids, distributed energy, distributed storage, enhanced demand response and transactive energy. But by the time such a distribution system could be fully operational, will it be the system ratepayers want to pay for? And what about the transmission investments being made simultaneously to support centralized generation? Or off-shore wind? Will that transmission be used (and the investment recovered) if states promote distributed systems instead? How much new gas infrastructure should FERC certify to support gas-fired generation, if state and other federal policies push for greater use of renewable technologies and storage, instead? Because so much of our system requires energy infrastructure that has a long-lead time for development, the timing problem (as well as the investment issue identified above) demands that policy directions be clearly established.

Fourth, the US electric system is governed and regulated in a myriad of ways, at federal, state and local levels, including for economics, safety, reliability, and consumer protection, using tools that range from direct mandates to incentives such as tax policies to competition. Each set of regulators has limited scope, and thus can impact only a discrete portion of the activities and actors who develop, build, own and operate the system. Thus, for example, development of reliability standards for the bulk electric system is done in isolation from the enactment of tax policies driving renewable energy development and state-run implementation of programs for the protection for low-income residents unable to pay their utility bills. Efforts to increase customer fixed charges to better allocate grid costs to customers who have their own generation can negatively impact energy efficiency. Regulators must continually make appropriate weightings and trade-offs, and working from a common set of goals would allow them to make those decisions in a manner less likely to cause conflict.

Lastly, electricity is essential. Electricity is a highly regulated industry because electricity is of critical importance to the health, safety, and welfare of people, and to industry, commerce, and national defense. For the very same reasons that we regulate it, we cannot afford errors that result in shortfalls, significant price spikes and volatility or outages.

Because of these factors, transforming the electric system is a Herculean task and therefore the need for direction is essential. While it's important that each group of regulators fulfill their specific mandates, it is equally as important that they understand the consequences of their actions on other policy goals. At minimum, regulators must have a high degree of awareness of the changes being undertaken by, or driven by, other actors and forces. Ideally, regulators and market participants would have channels through which to discuss and collaborate in order to chart a set of common goals and a path that is robust enough to meet all agreed upon goals and survive across a number of possible future scenarios that are beyond regulatory control (e.g., the rate of technological change or a financial shift that alters investment patterns).

Defining the most desirable set of goals for the future at the very highest, abstract level is not all that difficult. Looking across Minnesota's e21 Initiative, NY REV, and goals suggested by various thought leaders advocating change, suggests that there is very broad industry-wide consensus on what the system of the future is expected to do. The most commonly repeated themes center around creation of a grid that supports: reliability/resiliency, safety/security, affordability, sustainability, and customer options/value and sometimes accountability, transparency and financeability.

The tensions arise in the details of how, when and by whom. Revolution or evolution? The motivations and interests of individual actors will pull in multiple directions. Simplifications such as "let the market decide" are mere platitudes, because our energy markets are regulated and all market structures and rules have some inherent biases. Even the decision of which services, products or actors will or will not be regulated is a consequential regulatory decision. In the absence of a clearly defined unifying vision that goes a level below the abstract (including, by way of example, decisions such as centralized or decentralized, extent of de-carbonization, and consideration of the impact on lower-income customers), the work undertaken within and across quadrants, at federal, state and regulatory levels, can result in conflicting policies and slower, and potentially more costly, routes to the end-goal.

Finding a way to develop common end-goals and a consensus vision on approach or policy direction is not easy. The Minnesota e21 Initiative's success to-date with a collaborative, facilitated stakeholder process however, suggests one path. Key, however, is starting a dialogue among the active players to define whether there is a problem and if so, its extent and solutions. GW Law's upcoming conference, Transforming the US Electric System: Where Federal and State Initiative Meet is a starting place. Join us!

Last Chance to Sign Up! "Transforming the U.S. Electric System: Where State & Federal Initiatives Meet"

Join us on January 26, when top policy-makers and industry leaders will convene at The George Washington University Law School for a one-day conference to consider the interface of state and federal initiatives addressing the way in which electricity in the U.S. will be produced, delivered and used in the future. The objective of the conference is to generate ideas about how the efforts of individual states and federal agencies can better build upon and leverage the work of each other and other states. This particular conference will look specifically at utilities that have largely retained a vertically integrated structure, to better focus the discussion. The schedule will include both "learning" sessions in which the work that is being done will be presented, and a substantial period for discussion, questions, and sharing of ideas. The conference proceedings will be summarized and the conference report will be filed with the U.S. Department of Energy as comments to the Quadrennial Energy Review. This conference is supported by the J.B & Maurice C. Shapiro fund.

Tuesday, January 26, 2016

8:00 a.m. (registration and breakfast) to 5:15 p.m.

Jacob Burns Moot Court Room

Lerner 101

2000 H St NW

To see the agenda and to register for the event click here. Space is limited, so register today!

Have a Law Review Article

You Want to Publish?

The George Washington Journal of Energy and Environmental Law (GW JEEL) is currently accepting articles for publication in Fall 2016. GW JEEL is produced in collaboration with the Environmental Law Institute and is published three times each year. GW JEEL focuses on legal issues related to next-generation energy production and distribution, as well as environmental and climate issues related to the production of energy.

The standard article is 12,000 to 15,000 words. Questions and submissions for consideration should be directed to Addison Miller, [email protected].

Moot Court Team Sponsorship

Thanks to the generosity of Skadden Arps, LLP, GW Law will be able to send a team of students to the National Energy & Sustainability Moot Court Competition sponsored by the West Virginia University School of Law. Third-year law students Garrett Henderson and Jason ("Jay") Ross will be representing GW Law in the competition. In addition, Skadden Arps will present our team with an award for their representation of the school on March 11, the second day of the GW Law Shapiro Conference. We thank Skadden Arps for their generous gift to our students, which will help GW Law train the next generation of excellent energy lawyers.

Save the Date: March 10-11, The Electricity Mix of the Future: Environment, Economics, and Governance

On March 10-11, 2016, GW Law will convene its annual J.B. & Maurice C. Shapiro Environmental Law Symposium. This Symposium will focus on environmental, economic, and governance issues for the electricity mix in the coming two-to-three decades. The two-day Symposium will bring together a multi-disciplinary group of legal scholars, economists, engineers, and regulators for a series of panels and discussions structured around several issues including: the ability of electricity markets to account for the environmental attributes of generation resources, how best to model, and plan for, the electricity resource mix of the future, and what technical and regulatory shifts must be considered to facilitate these changes.

The Symposium promises to be an engaging event that will address some of the most pressing issues facing the electric system. More information about the Symposium, and how to register, will be available in the coming weeks.

Looking Ahead in 2016:

Growing Popularity of Community Solar

Contribution of Adrienne Thompson, GW Energy Law Scholar and SEI Research Associate.

As the U.S. electricity sector evolves, battle lines have been drawn on such issues as net metering, renewable portfolio standards, and distributed generation. One emerging trend being cheered across the board is community solar. Unlike typical net metering arrangements -- in which customers offset their electricity bill through electricity generated by solar panels installed on their own roofs -- community solar projects are physically separate from the customers' property, and each bill is offset in proportion to a customer's ownership stake in the development. Utilities are jumping on board with these projects, as they are seen as an alternate revenue stream in an age of declining demand and competition from third-party providers. Indeed, according to a November 2015 report from the Solar Electric Power Association (SEPA), there are at least 68 active community solar programs in the U.S., nearly 60% of which are led by utilities, co-operatives and other public power entities. Consumer advocates also praise community solar as a means through which non-homeowners, and lower-income customers, can participate in the country's solar power revolution.

The community solar industry has been growing steadily over the years, and even though it makes up less than one percent of installed solar capacity here in the U.S., it appears that 2016 may be a great year for such projects. According to the above-referenced SEPA report, of those 68 active community solar programs, 24 are located in Colorado, Massachusetts, and Washington -- three of the first states to enact community solar legislation. Since then, ten other states and the District of Columbia have also passed laws to participate in this growing market. The report projects that more than 200 MW of capacity will be integrated by the end of this year, a sharp increase from the 88 MW currently installed across the country. Looking beyond to 2020, GTM research predicts that community solar could increase by 500 MW annually.

The past year saw several other positive signs for this burgeoning industry. First, there was a private letter ruling from the IRS to allow a Vermont man to claim a 30% tax credit on a community solar project investment. Although such letters are only applicable to the individual taxpayer on the facts of the taxpayer's case, community solar advocates hailed this decision as a promising indication of how the IRS would view similar requests to claim investment tax credits for community solar projects. Second, these kinds of developments are finally catching the eye of traditional financing institutions. One of the most prominent community solar project developers, Clean Energy Collective, teamed up with a Morgan Stanley subsidiary in Massachusetts last March, as did another developer, BlueWave, which announced last December that it secured $100 million for more community solar development in the state. Finally, Christmas came early for the solar industry last month when Congress extended the investment tax credit to 2022, prompting Bloomberg New Energy Finance to predict that new solar PV installations from 2016-2021 would increase from 41GW to 59GW as a result of the

extension.

Despite the sunny long-term outlook for the community solar sector, however, there may still be some clouds on the horizon. One damper on private sector development is continued uncertainty over whether community solar subscriber agreements comply with securities laws. While hardly a deal-breaker for developers, as evidenced by the strong growth outlook, this uncertainty will ultimately require an SEC ruling to be dispelled. Driving down costs also remains a goal. Meanwhile, however, utilities and third-party developers are surging into 2016 with numerous community solar projects planned. As a new service for utilities to offer, third-parties to develop and operate, and consumers to take advantage of, it is clear that this new industry is here to stay and bound to get bigger.

Just Released: GridWise Alliance 3rd Annual Grid Modernization Index (GMI) Report

On Wednesday, January 20, GridWise Alliance released its 3rd Annual Grid Modernization Index (GMI) Report. Recognizing how the electricity sector is evolving in response to changing technology and customer demands, several years ago GridWise Alliance sought to create an index of the various policy, regulatory, technical and related changes that are driving grid modernization efforts at the state level. Using state-by-state data gathered by project team members, the resulting annual GMI Report ranks states according to their grid modernization activities in three broad categories:

State Support - state policies and regulatory mechanisms that facilitate grid investment
Customer Engagement - investments throughout a state in customer-enabling technologies and capabilities
Grid Operations - investments throughout a state in grid-enhancing technologies and capabilities

GridWise Alliance reports that "For the third time in a row, California is the highest-ranked state, with a nearly seven-point lead over second-place Illinois. Texas (which was neck and neck with California for the top score in the previous GMI) ranks third. Maryland and Delaware each move up a spot to fourth and fifth respectively. Rounding out the top ten are Washington DC, Oregon, Arizona, Pennsylvania, and Georgia."

GW Law was proud to serve as a project team member for this 3rd Annual GMI Report.

Faculty and Staff Updates

On February 5, Associate Dean Lee Paddock will speak on "The Arc of Local Government Environmental Law" at Fordham University School of Law's Environmental Law Review symposium on "Global Challenges and Local Solutions: The Role of Municipalities in the Fight Against Climate Change."
Professor Rob Glicksman, in collaboration with Sandra Zellmer of the Nebraska College of Law, recently finished a new manuscript, Developing Skills in Environmental Law, scheduled for publication this summer.
Professor Emily Hammond now also serves as the Chair of the Administrative Law Section for the American Association of Law Schools. She is also the Co-Principal on a grant involving wastewater treatment plants and electricity generation. On February 8, Professor Hammond will speak at UCLA Law School regarding the FERC/NERC relationship, and at Georgetown on February 25 on judicial review of agency science in environmental and energy regulation.
On February 8, Donna Attanasio will speak at the Electric Power & Light's Executive Conference as part of a panel on "Innovative Approaches for Growth." This conference, a prequel to DistribuTECH, will be held in Orlando, Florida. For more information, visit the website. On March 7-9 Donna will also speak about the e21 Initiative as part of a panel at the Energy Bar Association Midwest Chapter's Annual Meeting in Indianapolis, Indiana. For information about this conference, keep an eye on the EBA's Meeting Central website.

Upcoming Events

January 26, 2016: The law school will host "Transforming the U.S. Electric System: Where State & Federal Initiatives Meet" (supported by the J.B. & Maurice C. Shapiro fund). Register here.
February 25-26, 2016: The Energy Bar Association's Western Chapter will hold its annual meeting in San Francisco.
March 7-9, 2016: The Energy Bar Association's Midwest Chapter will hold its annual meeting in Indianapolis IN. Donna Attanasio is among the invited speakers.
March 8, 2016: GW Law will host and co-sponsor the annual "Enforcers and Defenders Conference," with the Energy Bar Association. For more information, watch this space.
March 10-11, 2016: "The Electricity Mix of the Future: Environment, Economics, and Governance," the annual J.B. & Maurice C. Shapiro Symposium, will be held at GW Law. The program will include presentations and discussions from leading experts in energy law in academia and industry. More information, and details about registration, will follow in the coming weeks.
June 7-8, 2016: Mark your calendar for the Energy Bar Association's 2016 Annual Meeting & Conference! The June 7-8 event will provide two full days of discussions focused on the legal issues related to all aspects of energy law. Attendees will include attorneys, non-attorney professionals, and students active in all areas of energy law, including antitrust, international energy transactions, legislation and regulatory reform, electric utility regulation, alternative dispute resolution, finance and transactions, and environment and public lands at federal, state, and international levels. To register or learn more, go to www.eba-net.org/2016-eba-annual-meeting.