Sidley Environmental Trends

Topics discussed this week include:

  • Courts dismiss challenges to advisory panel membership policy.
  • Groups sue EPA for overdue spill regulations.
  • Environmental groups threaten suit over oil dispersant guidelines.
  • Court: Clean Air Act does not preempt odor nuisance claims.
  • Court holds that long-defunct companies may still face CERCLA liability.
  • New York close to banning plastic bags.
  • Environmental groups sue Iowa, asserting constitutional right to clean water.
  • Court strikes down Arctic drilling executive order.
  • Court rejects foreign policy objection to denial of Clean Water Act certificate.

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FERC Issues Wide-Ranging Call for Comments in Review of its ROE Policy

On March 21, 2019, the Federal Energy Regulatory Commission (“FERC”) initiated an Inquiry Regarding the Commission’s Policy for Determining Return on Equity (“ROE”) that was published in the Federal Register on March 28, 2019.  FERC is seeking comments on this Notice of Inquiry (“NOI”) in eight general areas, including the role its base ROE plays in investment decision-making, and whether FERC should reevaluate how it uses the discounted cash flow (“DCF”) methodology to set ROEs for jurisdictional rates.  The DCF methodology has guided cost-of-service ratemaking at FERC since the 1980s.  It is used to ascertain an investor’s required return for investing in a firm, and is applied using a proxy group of firms that face similar risks to the entity whose ROE is being determined, which defines a “zone of reasonableness” for the ROE.  The use of a proxy group is intended to satisfy the “Hope” and “Bluefield” standards (named for a pair of 20th Century U.S. Supreme Court cases) that an ROE is commensurate with returns on investments in other enterprises having corresponding risks to assure confidence in the financial integrity of the enterprise to allow it to maintain its credit and attract capital. Comments on the NOI are due on June 26, 2019 and Reply Comments are due on July 26, 2019.

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FERC Opens Inquiry on Improvements to Electric Transmission Incentives Policy

On March 21, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a notice of inquiry (“NOI”) in which the Commission addresses possible improvements to its electric transmission incentives policy.  The NOI requests stakeholder comment on a wide range of issues related to the Commission’s current transmission incentives policies. FERC Chairman Neil Chatterjee said, “as I announced in November, I believe these policies are overdue for a fresh look with input from all stakeholders, not just those that happen to be parties to a pending complaint proceeding.”  The NOI was published in the Federal Register on March 28, 2019.  Comments on the NOI are due on June 25, 2019 and Reply Comments are due on July 25, 2019.

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Trailblazer Pipeline Company LLC Reinforces FERC Income Tax Allowance Policy But Punts Final Determinations on Other Partnership Taxation Matters

On February 21, 2019, the Federal Energy Regulatory Commission (FERC) issued Trailblazer Pipeline Company LLC (“Trailblazer”), FERC’s first order addressing how FERC applies its Revised Income Tax Allowance Policy Statement, as further revised on rehearing (collectively “Revised Policy Statement”), to a pipeline organized as a pass-through partnership that is not a master limited partnership (“MLP”) in a Natural Gas Act (“NGA”) section 4 rate case proceeding.  FERC issued the Revised Policy Statement in response to the U.S. Court of Appeals for the D.C. Circuit’s (“D.C. Circuit”) decision in United Airlines, Inc. v. FERC (“United Airlines”), which found that FERC could not permit a specific MLP pipeline to recover an income tax allowance in its rates without further explaining why this did not result in the MLP’s investors “double recovering” their income tax costs, based on a concern that the investors’ pre-tax return on equity (“ROE”) also provided such compensation when calculated using the discounted cash flow (“DCF”) methodology.  United Airlines did not consider other types of pass-through entities, such as non-publicly traded partnerships, or alternative methodologies to calculate ROE and the Revised Policy Statement did not address them directly. 

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DOE Deputy Secretary Attends German LNG Conference

On February 12, 2019, U.S. Deputy Secretary of Energy Dan Brouillette and U.S. Ambassador to Germany, Richard Grenell, participated in a German LNG Conference hosted in Berlin by German Federal Minister of Economic Affairs and Energy Peter Altmaier.  The group was joined by high-level government and industry leaders, including Executive Director of the International Energy Agency, Dr. Fatih Birol. 

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