Energy-header.jpgThe third edition of Energy Update, an e-newsletter for Novack and Macey's clients and friends in the energy industry, was published in May 2017 and featured the article "Illinois Supreme Court Grants Review in Consequential Wind Power Dispute" by Courtney D. Tedrowe, Energy Disputes Practice Group. It also included other updates on the firm's activities in various energy sectors. The full text of the Update appears below:

Illinois Supreme Court Grants Review in Consequential Wind Power Dispute

The United States has an abundance of wind resources and a demand for low-cost renewable energy. It is a challenge, however, to get wind-generated energy to market. The two are often very far apart. This problem is aggravated by the nature of existing long-distance high voltage transmission lines, which often do not reach high-wind resource areas and which transmit alternating current (AC), rather than the more efficient direct current (DC).

Recently, the Illinois Supreme Court granted review in a case that could significantly shape renewable energy markets in Illinois and regionally, and could spur or retard future investments in clean energy infrastructure. The decision under review is Illinois Landowners Alliance, NFP v. Illinois Commerce Commission, 2016 IL App (3d) 150099, appeals docketed, Nos. 121302, 121304, 121306, 121308 (Ill. Nov. 23, 2016).

At the heart of the case is a proposal by Rock Island Clean Line, LLC (Rock Island) to construct a long-distance high voltage DC (HVDC) transmission line -- to be called the Rock Island Clean Line -- from northwest Iowa to northeast Illinois. The line would carry wind-generated energy from wind farms in northwest Iowa, South Dakota, Nebraska and Minnesota to the PJM Interconnection grid, which coordinates the movement of wholesale electricity to markets in Illinois, 12 other states, and the District of Columbia. According to Rock Island, the project could deliver enough electricity to power 1.4 million homes.

Rock Island first encountered legal difficulties when it petitioned the Illinois Commerce Commission (Commission) for a certificate of public convenience and necessity (Certificate). A Certificate would permit Rock Island to operate as a public utility and to construct, operate and maintain the proposed transmission line. Illinois’s Public Utilities Act, Section 8-406, 220 ILCS 5/8-406, generally bars a “public utility” from transacting business in Illinois without a Certificate.

Petitions to intervene were filed by a number of entities, including the Illinois Landowner’s Alliance, the Illinois Agricultural Association, and Commonwealth Edison. Collectively, they opposed the granting of a Certificate to Rock Island, arguing, for example, that Rock Island was not a “public utility.”

After an evidentiary hearing, the Commission ordered issuance of a Certificate on the basis (among other things) that a party could apply for both a Certificate and public utility status at the same time. On appeal, the appellate court reversed, holding that the Commission lacked authority to issue a Certificate because Rock Island was not already a public utility. According to the court, to be a public utility a company must: (1) “own, control, operate, or manage utility assets within the state,” and (2) “offer those assets for public use without discrimination.” 2016 IL App (3d) 150099, ¶ 41.

On the first element, the court concluded that Rock Island did not own, control, operate, or manage utility assets within Illinois. In doing so, it pointed to Rock Island’s admission that it did not currently own any transmission assets in Illinois, or have any agreements for service with renewable energy generators in Illinois. While “the potential may exist” for Illinois generators to purchase services on the Rock Island Clean Line, the court noted that no generator had yet done so.

On the second element, the court concluded that the proposed transmission line was not “for public use without discrimination.” Because Rock Island did not have a process to recover its capital costs from ratepayers, Rock Island proposed to recover those costs from buyers of transmission capacity (i.e., the generators). To attract these buyers, it proposed to offer 75% of the line’s capacity to generators in the Great Plains states, which Rock Island called “anchor tenants,” with whom it would enter into negotiated contracts. The remaining 25% of the line’s capacity would be sold using an “open season” auction.

In holding that this proposal did not satisfy the “for public use without discrimination” element of the public utility definition, the court noted that 75% of capacity would be devoted to generators outside Illinois. As to the other 25%, there was no mandate that any Illinois generator successfully bid for capacity. On the consumer side, the court noted that, although the energy would be delivered to the PJM Interconnection grid, there was no assurance that the energy transmitted would actually be used by the public in Illinois. Thus, the court held there was no basis to conclude that the proposed line would be for “public use,” meaning, public use in Illinois.

Recently, the Illinois Supreme Court allowed several parties to appeal from this decision, including Rock Island, the Commission, the International Brotherhood of Electrical Workers, and Wind on the Wires.

The Supreme Court's ruling is likely to have significant consequences, not just for the Rock Island Clean Line, but for other large-scale, privately funded energy transmission infrastructure projects. Indeed, Rock Island recently withdrew its petition to the Iowa Utilities Board for permission to build the Iowa segment of the line, pending the ruling.

More broadly, although Illinois has mandated the use of renewable energy, including wind energy, transmission infrastructure is lacking. And if Rock Island’s attempt to fund development and construction of such infrastructure is blocked, there may be a chilling effect on similar efforts in the future. If entities are required to already “own, control, operate, or manage utility assets” within Illinois prior to applying for a Certificate, this could pose a substantial barrier to entry for private wind energy transmission projects, such as the Rock Island Clean Line. Such a ruling and requirement could narrow the field of entities eligible to embark on the large-scale, multistate transmission infrastructure projects that are needed to support the growing demand for renewable wind energy in Illinois and the region.

Courtney D. Tedrowe, Energy Disputes Practice Group

Novack and Macey at the EBA Midwest Chapter Annual Meeting

Partners Michael Weinberg and Richard Douglass attended the 2017 Energy Bar Association Midwest Chapter Annual Meeting held in March. The annual Midwest Chapter meeting brings together federal and state regulators and policymakers, executives from industry-leading companies, and counsel from throughout the United States to discuss significant changes on the horizon for the energy industry. The firm has maintained a long-time membership in the EBA and the Midwest Chapter.

Novack and Macey at the University of Texas Renewable Energy Law Conference

In January, partner John Haarlow attended the annual University of Texas Renewable Energy Law Conference. The conference blends law, economics, technology, finance, tax, and regulatory policy, and is aimed at industry participants, legal and financial advisors, and key legislative and regulatory policymakers and staff. Over 200 leading attorneys and industry experts in wind, solar, and storage gathered to discuss the latest developments affecting renewable energy in Texas and nationwide.

The Energy Disputes Practice Group

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