State Environmental Issues

A recent decision by the Pennsylvania Public Utility Commission (“PUC” or “Commission”) confirms that Pennsylvania public utilities with combined sewer systems (i.e., systems that collect both sewage and stormwater) may incorporate stormwater charges in their service charges.  While some public utilities have already been incorporating stormwater collection charges in their sewage rates, not all utilities have carried forth this practice.  As a result, this decision could increase sewage rates for some large commercial and industrial customers experiencing significant stormwater flows.

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On March 30, 2016, the Pennsylvania American Water Company (“PAWC”) and the Sewer Authority of the City of Scranton (“SSA”) filed an Application with the PUC to permit PAWC to purchase the SSA’s combined sewer system.  As indicated above, combined sewer systems collect sewage and stormwater, so the PUC’s disposition of this Application would clarify the ability of a Pennsylvania public utility to include stormwater charges in its wastewater service rates.  Although Administrative Law Judges David A. Salapa and Steven K. Haas recommended that the PUC reject the proposed Application, the PUC approved it on October 19, 2016.

As a result of the PUC’s approval, statutory enabling legislation was required.  Senate Bill No. 881 was revived and amended to make necessary changes to the Public Utility Code.  Specifically, the Bill amends the Public Utility Code to change the reference of “sewer” to “wastewater,” and expanded the definition of wastewater to include certain “stormwater.”  This bill passed both chambers [October 26 (Senate) and October 27 (House)] and was signed by Governor Wolf.

The Bill provides as follows:

Wastewater.  Any used water and water-carried solids collected or conveyed by a sewer, including:

(1)  Sewage, as defined in Section 2 of the act of January 24, 1966 (1965 P.L. 1535, No. 537), known as the Pennsylvania Sewage Facilities Act.

(2)  Industrial waste originating from an establishment.  For the purposes of this paragraph, the terms “industrial waste” and “establishment” shall be as defined in Section 1 of the Act of June 22, 1937 (P.L. 1987, No. 394), known as the Clean Streams Law.

(3)   Infiltration or inflow into sewers.

(4)   Other water containing solids or pollutants.

(5)  Storm water which is or will become mixed with waters described under paragraph (1), (2), (3) or (4) within a combined sewer system.

The term does not include storm water collected in a Municipal Separate Storm Sewer, as that term is defined by 40 CFR 122.26(b)(8) (Relating to storm water discharges (applicable to state NPDES programs, see § 123.25)), that does not flow into a combined sewer system.

This legislation, now codified as PA Act 154, allows Pennsylvania utilities providing wastewater service to include, in certain cases (i.e., combined sewer systems), stormwater charges into rates.  While some Pennsylvania municipal wastewater service providers (e.g., Philadelphia Water Department) have been including stormwater charges in wastewater rates for some time, it will be much more commonplace with PUC-regulated service providers with this new legislation.

On September 21, 2016, the Susquehanna River Basin Commission (“SRBC”) published a proposed rule that would expand the scope of its current authority over projects that withdraw and use water in Pennsylvania, Maryland, and New York.  The proposal would amend application requirements and SRBC’s review standards for projects, as well as add an entire subpart to its regulations for registration and reporting of “grandfathered” projects (which previously were not regulated).   Water users should expect additional regulation and scrutiny of all projects that involve withdrawals of surface water or groundwater and/or consumptive uses exceeding SRBC thresholds, whether they are new, existing, or (now) grandfathered projects.

Grandfathered Projects.  The most significant proposal is regulation of “grandfathered” projects, which involve water withdrawals or consumptive uses that began before specified dates in the regulations and did not previously require SRBC approval.  SRBC has estimated that there are some-760 grandfathered projects, many of which are not tracked by SRBC or member states, that account for the same amount of water use as all existing regulated consumptive uses in the Basin.  Therefore, SRBC has proposed a mandatory registration-and-reporting program for grandfathered withdrawals and uses, which includes a one-time registration and periodic reporting of withdrawals and uses, along with associated fees.  As support for this rule, SRBC cited to its responsibility to wisely manage water resources in the Basin and the corresponding need to close this “knowledge gap” by comprehensively tracking water usage.

In attempting to close this gap, SRBC has claimed that the registration requirements will not open the door to review-and-approval requirements for grandfathered projects.  In some respects, the registration requirements may be similar to those imposed by the states.  However, this may be only the first step for additional regulation of grandfathered projects, particularly once SRBC gathers and analyzes the registration data.  Indeed, the proposal potentially opens a floodgate of additional regulation. Failure to register within two years of the effective date would render a grandfathered project subject to SRBC’s review-and-approval authority.  Some key informational requirements for this critical registration include:

  • Identification of metering and monitoring for withdrawals and consumptive uses;
  • Reporting five years of quantity data, or other information that may be used to determine quantities withdrawn or consumptively used;
  • Identification of groundwater levels and elevation monitoring methods for groundwater sources;
  • A description of the processes that involve consumptive uses;
  • A request for specific grandfathered quantities; and
  • Any other information SRBC determines necessary.

Accordingly, it is clear that SRBC intends to scrutinize whether and to what extent currently unregulated withdrawals and uses actually qualify for “grandfathering.”  Under the proposal, the SRBC Executive Director must determine the appropriate grandfathered quantity and, in doing so, can examine the accuracy of metering and monitoring.  Increases of any amount over the determined grandfathered quantity would trigger SRBC’s review-and-approval authority.  Although SRBC’s approach is not yet in final form, those potentially affected should already ensure they are accurately metering and documenting withdrawals and usage.  It will also be important for potentially affected water users to understand their processes and monitor consumptive uses from those processes.  For example, as part of the registration, one provision requires SRBC to evaluate current metering and monitoring and authorizes SRBC to require a metering and monitoring plan.  The proposal would also trigger consumptive-use mitigation, such as fees, for certain grandfathered projects.

Other Projects.  New projects may also be affected by the registration requirements described above because SRBC will use the data on grandfathered projects to analyze the impact on waters of the Basin when deciding to approve or deny a new project.  The proposal also would impose several additional requirements to alter SRBC procedures.  It would amend the required contents of applications for new projects and renewals, requiring specific information depending on the type of project, such as an “alternatives analysis.”  The proposal would amend standards for SRBC’s review and approval and authorize SRBC to require monitoring for impacts to water quality and aquatic biological communities.  SRBC has also proposed to revise the provisions for public hearings and enforcement actions.  For example, the proposal expands the Executive Director’s enforcement authority, allowing the Director to issue compliance orders and determine civil penalty amounts, and acknowledges the SRBC’s use of consent orders and agreements and settlements to resolve enforcement actions.  These are just a few of the various amendments proposed by SRBC that may impact water users.

Next Steps. SRBC intends to hold informational webinars on October 11 and October 17 and then conduct four public hearings throughout November and December, with the first meeting scheduled for November 3 in Harrisburg.  Interested stakeholders should understand how the rules may affect them and weigh in through the public-comment process, which is open until January 30, 2017.  Stakeholders seeking more information or advice should contact attorneys and technical specialists who are experienced in these matters.  McNees contacts include:

 

As we transition from the dog days of summer and prepare for changes that are guaranteed to come this fall in our state and national political landscapes, we at McNees are considering what the upcoming elections and legislative sessions in Pennsylvania and Washington D.C. mean for our clients.  As discussed this summer, the Pennsylvania budget that became law on July 13 2016, provided relief for those who use state funding and its programs. The Pennsylvania General Assembly and Governor initially faced  a $1.3 billion shortfall in revenues when working on the FY 16-17 budget.  However, the final budget package was $1.2 billion less in spending than what Governor Wolf initially proposed and 5% higher than last year’s budget.  There are a number of new revenue sources for FY 16-17 including a $1 per pack tax increase on cigarettes with new taxes on e-cigarettes and smokeless tobacco products; expansion of the sales and use tax on digital downloads of videos, books, etc.; expansion of the income tax to include state lottery winnings, and a bank shares tax increase. While there was no across the board tax increases such as sales or income taxes or a tax on energy, it is expected and very likely that such tax increases will be necessary in the next budget cycle and is something we advise our large energy consumer clients to be mindful of as we approach this fall when elections and upcoming budget discussions will be front and center.

In addition to those relieved that a budget was passed somewhat timely in early July, there was also a sigh of relief for those who benefit from Senate Bill (SB) 1195 (Act 57 of 2016)  that was signed into law on June 23, 2016 and amends the Pennsylvania Greenhouse Gas Regulation Implementation Act by imposing requirements on Pennsylvania state government regarding its submission of a Clean Power Plan (CPP) to the EPA.  The CCP is intended to regulate states’ carbon emissions from existing electric power plants.

Act 57 reflects a compromise between the Pennsylvania General Assembly and Governor Wolf that allows the General Assembly the opportunity to review and approve the state’s proposed CPP before it is submitted to the EPA.  If either chamber of the General Assembly disapproves the draft CPP, the Department of Environmental Protection (DEP) must review and consider the reasons for disapproval and modify the draft CPP.  At that time, the DEP must resubmit a CPP to the General Assembly and open a public comment period for no less than 180 calendar days on the modified CPP during which time the department shall conduct at least four public hearings in geographically dispersed areas of the Commonwealth.  The Act also includes other provisions that address a default approval or a situation where neither chamber approves the draft or resubmitted modified CPP.  The amendment language further restricts the administration from submitting a CPP to the EPA until after the expiration of the stay issued by the United States Supreme Court on February 9, 2016.

While no one can truly predict how the U.S. Supreme Court will rule, Hillary Clinton’s campaign has boldly made its prediction. Recently during a panel discussion hosted during the Democratic National Convention in Philadelphia at the end of July 2016, Hillary Clinton’s campaign and energy adviser expressed the campaign’s expectation that the U.S. Supreme Court will uphold the CPP and the EPA’s authority to regulate greenhouse gases under the Clean Air Act.  While Donald Trump has not predicted the high court’s position, he has made clear that he is against the CPP and would work to repeal it regardless of the high court’s ruling.  Meanwhile, in Pennsylvania, the republican majority dominated General Assembly will be closely monitoring when the U.S. Supreme Court rules and monitor the state’s plan if and when it is submitted to the EPA.  Until then, the political landscape and issues being debated by the presidential candidates are indicators that this Fall will be quite interesting in many respects with the status and future of the CPP being just one of them.

At McNees, our energy attorneys and government relations professionals will be closely monitoring the politics that will affect this and many subjects of interest to our clients.  Please let us know if there is a specific issue or piece of legislation or subject you have interest in learning more about and we will help you.  Please contact Pam Polacek or Kathy Bruder at 232-8000 should you have any questions or want to discuss.

When the Pennsylvania Public Utility Commission (“PUC”) announced its interest in alternative ratemaking methodologies, it incited a debate among members of the energy community on the benefits of one particular alternative ratemaking mechanism: revenue decoupling.

Like the current ratemaking process, revenue decoupling begins with a base rate case at the PUC.  With revenue decoupling, however, the Commission determines a utility’s revenues for the next couple of years after analyzing data over a certain time period.  An automatic adjustment mechanism is then established in order to regularly adjust rates to ensure that the utility generates its allotted revenue.  In other words, revenue decoupling severs the connection between an electric utility’s profits and its volumetric sales to retail customers.  Thus, as customers consume less electricity, the rate per kilowatt-hour increases to make up the difference in a utility’s revenue.  Likewise, if customers consume more energy, the price per kilowatt-hour falls.

Proponents of revenue decoupling argue that this automatic adjustment mechanism incentivizes utilities to adopt additional energy efficiency and conservation programs because it guarantees that the utility will earn a certain revenue regardless of retail sales.  Supporters also believe that revenue decoupling would facilitate more gradual rate increases because it would enable utilities to recover the costs of energy efficiency and conservation investments through the automatic adjustment mechanism instead of annual base rate cases.

Conversely, opponents of revenue decoupling argue that the current regulatory framework sufficiently promotes energy efficiency and conservation efforts.  Opponents note that the Commonwealth’s legal framework would need substantial overhaul in order to implement a decoupling methodology.  The opposition also argues that revenue decoupling would promote intra- and inter-class cost shifting among consumers, because the rate per kilowatt-hour would be determined by the total amount of electricity delivered by a utility to a broader group of customers.  Under such an arrangement, some rate classes would end up subsidizing others.  On a customer-specific basis, those customers that invest in energy efficiency for their homes and businesses may not see the benefit of their investments because of the automatic adjustment mechanism would adjust the rates paid by customers.

Will the PUC adopt revenue decoupling as an alternative ratemaking methodology?  What other alternative ratemaking methodologies may be incorporated into the future regulatory framework?  Numerous stakeholders submitted Comments to the PUC on this issue on March 16, 2016.  The PUC’s Final Order on this issue is pending.

We will continue to monitor the progress of this proceeding and provide updates accordingly.  However, if you have any questions regarding revenue decoupling, or wonder how it might impact your business, please contact us.

 

Since its adoption on September 6, 2015, the federal Clean Power Plan (“CPP”), the United States’ first comprehensive rule for lowering greenhouse gas emissions, has been a topic of simultaneous praise and criticism.  With respect to the impact of the CPP on future electricity costs, there are also significant differences of opinion.  Although the Environmental Protection Agency (“EPA”) acknowledges CPP compliance costs of $8.4 billion per year, the EPA contends that the CPP will encourage energy efficiency programs and switching to lower cost fuels that could eventually result in lower electricity costs for consumers.  By contrast, non-governmental organizations such as the National Economic Research Associates (“NERA”) estimate compliance costs at approximately $33.5 billion per year and predict an electricity cost increase of between 12 and 17%.  In light of such varying predictions related to the impact of the CPP on electricity costs, large consumers of electricity should, at a minimum, pay close attention to individual state implementation plan proposals to assess how these specific proposals may affect their electricity costs.

In addition to the questions associated with the CPP’s impact on future electricity costs, the future of the CPP is also subject to significant uncertainty.  On February 9, 2016, the United States Supreme Court issued a stay of the CPP preventing the EPA from enforcing the CPP until legal challenges are resolved by the federal courts.  As a result, the Supreme Court will not review the CPP until late 2017 or 2018.

The composition of the Supreme Court at that time will likely be the deciding factor regarding the CPP’s fate.  Specifically, since the death of Justice Antonin Scalia, the Supreme Court is considered to have four conservative Justices and four liberal Justices.  As a result, the upcoming Presidential election will almost assuredly determine whether or not the CPP will be upheld.  A President Hillary Clinton likely means a fifth liberal justice and the CPP surviving challenge at the Supreme Court.  A President Donald Trump likely means a fifth conservative justice and rejection of the CPP by the highest court.

Whether or not the CPP is upheld by the Supreme Court, however, the push by some for greenhouse gas reductions will continue.  The United States is now subject (as part of the Paris Agreement) to an international commitment to lower its greenhouse gas emissions by 26 to 28 percent from 2005 levels by 2025.  In addition, a number of states have adopted legislation and regulations to address climate change solutions or combat greenhouse gases directly.  For example, Pennsylvania’s Climate Change Act of 2008 requires Pennsylvania’s Department of Environmental Protection (“DEP”) to draft a Climate Change Action Plan that identifies greenhouse gas emissions baselines and recommends legislative changes to reduce greenhouse gas emissions in the Commonwealth.  Other states, such as California, have more aggressive and binding ambitions.

If you have any questions regarding the CPP or state proposals for reducing greenhouse gas emissions and the impact on electricity pricing, please do not hesitate to contact us.