Pittsburgh Penguins Are the Energy Story of the Year!

By Michael Krancer
Follow: @MikeKrancer 

Pittsburgh coal may be dead, but the NHL’s Pittsburgh Penguins are the “energy” story of the year—maybe the century.

At the turn of the New Year, the Penguins were deader than a rusty, retired coal plant. The team appeared to be out of the playoffs and armchair pundits like me were saying that Penguins Captain Sidney Crosby was a spent force. Now, those same plucky Penguins have been producing more energy than a matter/antimatter reactor and moved at warp speed to take the Stanley Cup back to the Steel City.

It’s a story that has a lot in common with the U.S. energy sector. Eight years ago, the political debate in America was about us becoming more energy efficient and the need to reduce our dependence on foreign oil. Now, the U.S. energy sector is booming thanks to shale gas and the country is on the verge of becoming an oil exporter. Even dirty old coal has cleaned up its act and still has a valuable place in the U.S. energy generation stack. Meanwhile, Saudi Arabia and other oil producing nations of the Middle East are pondering ways to transition their economies away from an unhealthy reliance on oil to become knowledge-based economies.

The Penguins’ run to the Cup is an unlikely story about a likeable bunch—even to a lifelong Philadelphia Flyers fan like me. The Pens’ melting pot mix is about as eclectic as the U.S. energy generation stack. Mike Sullivan, a kid from Boston, took over as head coach in mid-December, coming up from being coach of the team’s American Hockey League affiliate, the Wilkes-Barre Scranton Penguins, affectionately called the “Baby Pens” by fans. Now, in front of him on the bench are a waddle of former Baby Pens who are playing lights out for the Penguins proper—Bryan Rust, Conor Sheary, Tom Kuhnackle, and Matt Murray. Murray, the 22-year old rookie goalie, is as cool as a cucumber and is looking like a combination of 1945 Hall of Famer Georges Vezina (“The Chicoutimi Cucumber”) and Ken Dryden, who won six Stanley Cups with the Canadiens from 1971 to 1979. Then there are the “retreads,” jettisoned from other teams and landed by the Pens, think Phil Kessel, Carl Hagelin, Nick Bonino, and Eric Fehr. To complete the gang are the veteran Penguin “usual suspects” like Crosby, Evgeni Malkin, Olli Maatta, Kris Letang, and Chris Kunitz. Crosby is playing like Superman in the playoffs and is proving me as wrong as those energy experts who predicted we would have run out of natural gas by now.

The Pens are as American as Apple Pie to boot; the majority of the roster are U.S.-born players. I predicted on Twitter back in March that the Cup would return to Pittsburgh. This rag-tag team of baby Pens, retread Pens, and veteran Pens who won this Cup are the best hockey story in North America since “do you believe in miracles” in 1980, when the U.S. Olympic men’s ice hockey team pulled off one of the biggest sports upsets ever by beating the Soviet Union.

The lesson from the Penguins and the U.S. energy sector is the same: never count out a fighter too soon. So “Elvis has left the building” and we do get an Ethane Cracker and a Stanley Cup in the same week!

End Of Crude Oil Export Ban Could Have Negative Unintended Consequences

By Michael Krancer
Follow: @MikeKrancer 

The repeal of the crude export ban, which Congress just passed and the president signed as part of the omnibus appropriations bill (read “budget”), may end up being one of those “watch out what you wished for” events. The ban goes back to 1975 when OPEC, in charge of oil supply, liked to deny us the resource from time to time with embargoes. The thinking at the time was that, by keeping all domestic crude oil inside U.S. borders, supply and national security would be protected.

Back then, the United States could easily use all of the oil it produced, and America’s daily production was already waning. But the dramatic increase in U.S. crude production from hydraulic fracturing of shale formations has altered those circumstances. Domestic producers, finding a crude glut at home, have been clamoring for access to international markets where their product might fetch higher prices. Environmentalists and domestic refiners, however, wanted exports to remain off-limits.

U.S. refiners, who have been investing billions to increase state-side refining capacity for the lighter, sweeter domestic crude, say refining jobs will be lost in the United States. Environmentalists say that more crude on the world market means that more refining and producing will take place, thus feeding the world addiction to hydrocarbon fuel and upping carbon emissions, and that the increased refining will happen in countries with little or no environmental regulations.

The playing field is made even more uneven against domestic refiners by a piece of 95-year-old legislation called the Jones Act. The Jones Act mandates that cargo being moved between U.S. ports can only be carried by ships that were built in the United States and that are owned by U.S. companies flying U.S. flags. This means that refiners on the East Coast pay about three times the transportation costs to acquire ship-born U.S. crude than do their competitors in Canada, Europe, or Asia.

It’s worth noting that, just in the Southeastern Pennsylvania region, refineries that were on the brink of shuttering just a few years ago at the estimated cost of 24,000 jobs, today pump $2.5 billion in wages into the local economy and account for an economic impact of $15 to $20 billion.

Some very credible people are also warning that a major assumption in the equation to repeal the crude export ban, namely the low price of crude, is not going to stick for much longer. As they say, the cure for low prices is low prices. Rob Kaplan, the president of the Federal Reserve Bank of Dallas, gave everyone a dose of reality in his public remarks on November 18, 2015, at the University of Houston. Kaplan pointed out that it is expected that the current imbalance in oil production versus consumption, which is driving and keeping oil prices low, is expected to come more into balance by late 2016 or early 2017.

It’s a complicated issue with myriad implications, a fact outlined in a longer piece that I recently wrote with Blank Rome Partner Matthew J. Thomas for The Legal Intelligencer, where we dissected the case for both sides.

How will lifting of the ban affect this currently vibrant domestic refining sector of our economy? Will the ban do more harm than good? It can’t be said for sure right now. But we can only hope that Congress takes less than 40 years to course-correct if it turns out that the law of unintended consequences hoists us by our own petard.

 

Support the PA PUC Proposed Rule on Solar Net Metering

By Michael Krancer
Follow: @MikeKrancer 

The PA PUC proposed rule on solar net metering has drawn a lot of press lately from major newspapers across the state. (See http://triblive.com/business/headlines/8449120-74/solar-cap-power#axzz3biKjb410 and http://articles.philly.com/2015-04-25/business/61497727_1_the-puc-power-production-commission-chairman-robert-f.)

Net metering is where a solar system (on a house, for example) generates more electricity than the homeowner uses that day, the homeowner then sells the electricity back to the grid, and he or she receives a credit on their electricity bill. Basically, it turns the homeowner’s solar PV system into a revenue generator.

Problems arise when net metering becomes overused and costs to maintain the grid, which all of us pay, become higher. So for those of us who don’t own a solar PV system, we end up subsidizing those who do.

To help mitigate this issue, the PA PUC proposed rule puts limits on what can be net metered. In my view, this proposed rule is a basic, common-sense proposal that is important public policy on a couple of levels. First, without the rule, the cost of operating the grid would become higher for people who don’t have rooftop solar panels on their houses, which would be especially detrimental to low-income households. Second, the rule prevents a few well-heeled folks from using the grid for their own personal profit without contributing to the upkeep of the grid. Those screaming the loudest against the rule want the “freeload” effect for their own profit, at the expense of all the rest of us and especially to those who can afford it the least.

The full PUC rulemaking appears here, and it covers more than just solar net metering. I encourage readers to weigh in and support the PA PUC proposed rule.

EPA’s Final Startup, Shutdown, and Malfunction (“SSM”) Rule: The Emperor’s New Clothes, Part II

By Michael Krancer
Follow: @MikeKrancer 

The Final EPA Rule under the Clean Air Act (“CAA”) emissions standards for the Startup, Shutdown, and Malfunction (“SSM”) Rule is out.  EPA issued the Final Rule on May 22, 2015 and it’s even worse than when proposed.  I wrote about the Proposed Rule in this blog on August 19, 2013.

Perhaps the worst part about the Rule is that it is a prime example of the undemocratic “sue and settle” dynamic that has sadly become so frequent these days.  The Rule is in response to a petition by Sierra Club and requires 36 states to change their laws—without meaningful input from any of those states.

As was the case when the rule was proposed:

(1) the process behind the Final  Rule is flawed;

(2) the Rule is not based on any documented evidence of environmental or public health concerns;

(3) the Rule is factually and technologically flawed;

(4) the Rule  is legally flawed; and

(5) the Rule  has nothing to do with environmental justice; but rather, is a serious disservice to environmental justice.

SSM events, by definition, are very short in duration.  There is not a single shred of documented evidence that emissions from any SSM event have resulted in an exceedance of a National Ambient Air Quality Standard (“NAAQS”) for any Clean Air Act parameter anywhere.  There is likewise no evidence that any SSM event has caused a threat to the environment or to public health and safety.

The Final Rule goes even further than the Proposed Rule since the EPA now eliminates completely the state’s right to establish SSM events as an affirmative defense to a penalty action.  That’s equivalent to telling the states that they can’t even hear that the radar gun was broken and/or malfunctioning in a speeding case.  EPA conveniently claims that an intervening court case NRDC v. EPA, 749 F.3d 1055 (D.C. Cir. 2014), forces it to do this but, of course, that decision related to cement plants and Maximum Achievable Control Technology (MACT), not NAAQS decision and it had nothing to do with State Implementation Plans (“SIP”).

As was the case with the Proposed Rule, the Final Rule is remarkable for its hubristic brush-off of “cooperative federalism” that the CAA requires.  Just recently, the D.C. Circuit court took the EPA to the woodshed for violating the “cooperative federalism” provisions of the CAA in the case of EME Homer City Generation v. EPA, 696 F.3d 7, 11 (D.C. Cir. 2012).  Adding to the unfairness, while the EPA and Sierra Club ruminated over this so-called “settlement” for two years, the EPA gave the states and the rest of the public only 30 days to comment on the 80-page Proposed Rule.  The EPA later extended the time, but not by enough.

The Final Rule is as technologically flawed as the Proposed Rule.  First and fundamentally, SSM events are beyond the control of the operator.  Moreover, with respect to Electric Generating Units, the EPA is wrong that startup and shutdown events are “planned.”  Also, emissions control equipment does not, and cannot, run at full efficiency during startup and shutdown.  By way of example, the EPA’s Final Rule is as silly as making automakers hit their fuel mileage standards during acceleration to a steady speed.  The Final Rule also compromises worker safety because there are increased dangers of fire and other mishaps during startup and shutdown should emissions control equipment be forced online too early.

The Final Rule is even more legally flawed than the Proposed Rule (by its reliance on NRDC v. EPA to eliminate all defenses in SIPs to SSM emissions exceedances) and will now certainly be challenged.

The EPA Rule does not respect the case law on SSM under the CAA, and the Rule seems to restrict the state’s discretion on SSM more than is allowed by the case law under the CAA.

Finally, despite the lip service, the Final Rule is no “environmental justice” provision.  As mentioned before, there is no evidence that SSM events cause any NAAQS exceedances or adverse environmental or public health impacts.  The  Final Rule will do little more than open the door to private lawsuits for money damages—where there is no environmental or public health threat.  In that regard, this Final Rule is more about the Sierra Club’s long-term financial planning than it is about environmental justice.  Affordable and available electricity and products are fundamental tenants of environmental justice.  This Final Rule will end up creating scarcity and adding unjustified costs.  And it’s an even bigger profit center for the Sierra Club than the Proposed Rule.