The statements and views expressed in the postings on the Ocean & Offshore Energy Projects and Policy Blog are my own and do not reflect those of Nixon Peabody LLP. This Blog does not provide specific legal advice. Reading or visiting this Blog does not create an attorney client relationship. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Monday, October 31, 2011

Court Orders Reconsideration of FAA Approvals for Cape Wind Offshore Wind Project

On Friday October 28, 2011, the United States Circuit Court of Appeals for the District of Columbia issued a decision vacating and remanding the Federal Aviation Administrations’ ("FAA") 130 identical Determinations of No Hazard which were issued with respect to the proposed Cape Wind 130-turbine offshore wind farm. See Town of Barnstable, et al, v. Federal Aviation Administration, No. 10-1276 (D.C. Cir. 2011).

Summary of the Decision

The lawsuit, filed by long-standing opposition group Alliance to Protect Nantucket Sound (the “Alliance”) and the town of Barnstable, MA (together, the “Petitioners”), alleged that the FAA “violated its governing statute, misread its own regulations, and arbitrarily and capriciously failed to calculate the dangers posed to local aviation.” The FAA, along with intervening party Cape Wind Associates, LLC, responded by alleging that the petitioners had no Article III standing to challenge the FAA determinations. Id. at 3. Although the Court’s decision is likely to lead to additional delays for Cape Wind, the ruling does not per se negate the validity of the submerged land lease issued by the Department of the Interior (“DOI”) to Cape Wind in October 2010.

With respect to the threshold question of standing, the FAA argued that even if the Petitioners could allege harm, the fact that “FAA’s hazard determinations, by themselves, have ‘no enforceable legal effect’” means that reversal of the FAA hazard determinations would not redress the grievance. Id. at 5. Although the Court agreed that the FAA hazard determinations were not enforceable on their own, the DOI incorporated a provision into the submerged land lease requiring that Cape Wind abide by “any future mitigation measures that the FAA might deem necessary to reduce or eliminate a hazard on Cape Wind.” Id. at 6. Accordingly, the Court held that the DOI’s inclusion of the FAA hazard mitigation provision is sufficient basis to find it “‘likely as opposed to merely speculative,’ that [DOI would cancel or retract the Cape Wind lease] if faced with an FAA determination that the project posed an unmitigatable hazard.” Id. at 10 (additional citations omitted).

The Court then considered whether FAA properly issued its No Hazard Determinations. Although the petitioners’ alleged that the FAA violated both its governing statute (49 U.S.C. Sec. 44718(b)) and its own internal guidelines (“Procedures for Handling Airspace Matters”, FAA Order 7400.2G (April 10, 2008)), the Court’s ultimate ruling regarding the FAA’ hazard determinations rests solely on the FAA’s application of its internal guidelines. Id. at 10. Importantly, the Court did not issue a declaration stating that the Cape Wind turbines present a hazard – mitigatable or otherwise. Rather, the Court merely remanded the determinations to FAA “to require the FAA to address the issues and explain its conclusion.” Id. at 13-14.

What Happens Next?

There are at least two possibilities as to what will happen in the wake of the Circuit Court’s decision. First, the FAA and Cape Wind Associates could appeal the decision by submitting a writ of certiorari to the Supreme Court of the United States. However, if the Supreme Court does not grant certiorari, the decision of the Appeals Court will stand. Moreover, even if the Supreme Court does choose to hear the matter, a Supreme Court affirmation of the lower court ruling could further dampen the perception that the U.S. offshore wind industry has the support of the U.S. government.

The alternative is for FAA to follow the Circuit Court’s order. FAA would be within its authority to re-issue all 130 Determinations with a “No Hazard” finding provided FAA includes further explanation of its conclusions. Under principles of administrative law, the FAA’s hazard determinations must not be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). In other words, the agency must “adequately explain its result…." Public Citizen, Inc. v. FAA, 300 U.S. App. D.C. 238, 988 F.2d 186, 197 (D.C. Cir. 1993).

Nevertheless, even if FAA finds that it must issue one or more determinations indicating a hazard, the Circuit Court decision indicates that FAA may make recommendations for mitigation measures to overcome these hazards. Accordingly, the only circumstance under which DOI may need to reconsider Cape Wind’s lease is in the event that FAA finds that there are unmitigatable hazards associated with the Cape Wind turbines.

Litigants’ Statements About the Case

Given the longstanding enmity between Cape Wind Associates and the Alliance, both parties issued public statements regarding the decision of the Circuit Court.

The Alliance to Protect Nantucket Sound issued a press release stating that the decision is "a resounding victory for the Cape and Islands community and the citizens of Massachusetts" and that the "FAA case is the first of multiple federal lawsuits challenging this poorly sited and expensive project and is just the tip of the iceberg of the problems the courts will consider relative to the Nantucket Sound location."

Cape Wind spokesman Mark Rodgers issued Cape Wind's official response to the decision: "The FAA has reviewed Cape Wind for eight years and repeatedly determined that Cape Wind did not pose a hazard to air navigation," he said. "The essence of today's court ruling is that the FAA needs to better explain its Determination of No Hazard ruling."

Thursday, October 20, 2011

Offshore Wind Investment Tax Credit: House Companion Bill Introduced

On October 18, 2011, Representative Bill Pascrell, Jr. (NJ-D) introduced H.R. 3238. H.R. 3238 is the companion bill to S. 1397 (previously discussed here) which was introduced on July 21, 2011 by Senators Tom Carper (D-DE) and Olympia Snowe (R-ME). The bills, both titled the “Incentivizing Offshore Wind Power Act”, propose an extension of the investment tax credit (“ITC”) for qualified offshore wind energy generation projects.

The bills, which contain nearly identical provisions, call for the Treasury to select up to 3000 MW of offshore wind projects which will qualify for tax credits if they are placed into service over a 5 year period. The tax credit would be the same 30% ITC that is granted to many other renewable energy sources. The five year extension of the ITC for offshore wind projects has been proposed in recognition of the longer siting, permitting and finance process required for offshore renewable energy projects-- a process that is currently estimated to take between 5-7 years. The existing ITC has a sunset provision expiring in 2012 that will render nearly all of the proposed offshore wind projects ineligible for the credit.

Co-sponsors for the Senate bill include Sen. Sherrod Brown (OH), Sen. Benjamin Cardin (MD), Sen. Susan Collins (ME), Sen. Christopher Coons (DE), Sen. Frank Lautenberg (NJ), Sen. Robert Menendez (NJ), Sen. Jack Reed (RI), and Sen. Sheldon Whitehouse (RI), all of whom represent states hosting active offshore wind development projects. The co-sponsor for the House bill is Representative Frank LoBiondo (NJ-R). There are at least three offshore wind generation projects proposed for both state and federal waters off the coast of New Jersey.

Friday, October 14, 2011

AWEA Offshore 2011: The Highlights

At last year's American Wind Energy Association Offshore Windpower Conference and Exhibition in Atlantic City, Secretary of the Interior Kenneth Salazar and Jim Gordon from Cape Wind signed the first-ever submerged land lease for an offshore wind farm on the United States' federally managed outer continental shelf. Many of those in attendance last year fully expected that the lease-signing would signal an increase in project momentum-- and many industry participants and observers fully believed that construction on the Nation's first offshore wind farm might begin in 2011.

At this year's Offshore Windpower Conference and Expo, attendees spent three days discussing what has happened-- and what has not happened-- since October 2010. Here are some quick highlights from the event:

Secretary Salazar and Maryland Governor O'Malley Present Keynote

The Conference kicked off with a keynote address presented by Department of the Interior Secretary Ken Salazar, Maryland Governor Martin O'Malley, AWEA CEO Denise Bode, Michelle Siekerka from the New Jersey Department of Environmental Protection, and program co-chairs Aileen Kenney (Deepwater Wind) and Jim Lanard (Offshore Wind Developers Coalition).

Following last year's lease signing, Secretary Salazar's comments seemed a little more subdued this year. Although the Secretary did not release any industry-shaking news, he affirmed that both he and the Obama administration are committed to creating an offshore wind industry in the United States. To that end, Secretary Salazar announced that the Bureau of Ocean Energy Management expects to announce lease agreements for as many as five wind farms in as little as a few weeks or months.

Deepwater Wind Announces Siemens as Turbine Supplier

Deepwater Wind announced that it signed an agreement with Siemens Energy to buy the company’s latest offshore wind turbines for deployment in the Block Island Wind Farm, a project that remains on track to be the nation’s first offshore wind farm.

Under the agreement, Siemens will supply five of its new 6.0-megawatt direct drive offshore wind turbines for the Block Island Wind Farm. This will be the first project in the United States, and one of the first anywhere in the world, to use the new turbine, which will be commercially available for the project.

The Block Island Wind Farm is one of several proposed small demonstration-scale offshore wind projects (such as Fishermen's Energy's proposed 6-turbine project to be located 2.8 miles off of Atlantic City, NJ) that may become the first offshore wind farm built in North America. The Block Island Wind Farm is a 30-megawatt project to be located in Rhode Island state waters. The project also includes a transmission cable connecting the island to the mainland grid for the first time. Pursuant to a heavily litigated but now approved 20-year power purchase agreement, National Grid has agreed to buy all of the output from the project.

The project is scheduled to be in the construction phase in 2013 or 2014, although the timing of construction is dependent on the permitting process and final turbine specifications.

Highlights from the Developers' Panel

The last session of the conference offered attendees to hear updates from two full panels of offshore wind developers actively pursuing offshore wind projects in the United States. The thirteen developers on the two panels represented the largest number of developer panelists ever put on stage at an AWEA Offshore Windpower Event.

Developers represented on the panel included: Tim Ryan (Apex Wind/ North Carolina), Ian Hatton (Baryonyx/ Texas), Bill Moore (Deepwater Wind / Rhode Island), Doug Copeland (enXco / California), Andy Kinsella (Mainstream Renewable Power/ United Kingdom), Erich Stephens (Offshore MW), Dennis Duffy (Cape Wind Associates/ Massachusetts), Daniel Cohen (Fishermen's Energy/ New Jersey), Chris Wisseman (Freshwater Wind/ Ohio), Robert Gibbs (Garden State Offshore Energy/ New Jersey), Peter Mandelstam (NRG Bluewater Wind/ Delaware), Carolyn Heeps (RES-Offshore), and Theo de Wolff (Seawind Renewable Energy Corp.).

Following an opportunity for each developer representative to provide an overview of his/her company and project status, the panel responded to questions from the audience. One of the most compelling responses was offered up by Theo de Wolff from Seawind Renewable Energy. Jim Lanard asked the panel to consider whether the Department of Energy's recent grants (bestowed upon research and development facilities seeking to lower the cost of offshore renewable energy projects) were supporting the right technologies. Mr. de Wolff responded by saying that, with all due respect to the Department of Energy, at least some of the $43 million in grant money would be better spent deploying existing offshore wind technology and getting "steel in the water." Mr. de Wolff's comments echoed the frustration of many industry participants in the audience who responded with enthusiastic applause.

Finally, Jim Lanard presented his closing remarks by setting forth three challenges. His first challenge was to the federal government. He asked federal officials to be prepared to respond to the question, "what have you done for this industry lately?" at next year's Offshore Windpower event in Virginia Beach. Second, Jim challenged state officials to work harder to develop markets and market-promoting mechanisms that will enable developers to get projects into the water sooner. Finally, he challenged the non-governmental organizations to report back on how to reach consensus among parties with different opinions, approaches, objections and concerns about offshore wind.