Student Post: Which administrative hearing is this again? The multiple layers of administrative law applicable to siting electric facilities.

Our casebook authors note that there are dormant commerce clause issues possible with the siting of power facilities.[1]  While this could be an obstacle to deal with, my experience from watching the live testimony on the siting of a new transmission line from Center, North Dakota to Grand Forks, North Dakota.[2]  North Dakota’s definitions of who can petition for a siting are not as restrictive as the example cited by our casebook authors.  A “‘[u]tility’ means any person engaged in and controlling the generation, manufacture, refinement, or transmission of” anything related to energy.[3]  For this statute, a “‘[p]erson’ includes any individual, firm, association, partnership, cooperative, corporation, limited liability company, or any department, agency, or instrumentality of a state or of the federal government, or any subdivision thereof.”[4]

The Dormant Commerce Clause is the least of the worries of a utility seeking to have either generation or transmission facilities sited in North Dakota.  The web of jurisdictional approvals required became apparent in the first 30 minutes of testimony at the hearing held in Baker court room today.  For the proposed transmission line the testimony revealed that the applicant, in this case Minnkota Power Cooperative, Inc., has had to coordinate with the U.S. Fish and Wildlife Service, the Federal Aviation Administration (FAA), and the Western Area Power Association (a federal agency).  Looking at the list of filed documents in the PSC’s docket reveals that even North Dakota agencies have weighed in on the proposed sites, including the Department of Health,[5] the State Historical Society,[6] and the State School Trust Land Department.[7]  In addition, each county, and some townships, along the proposed route must approve the site.  Many of these counties and townships do not even have a procedure for obtaining such approval.

Given the myriad governmental agencies and subdivisions that go into approving siting of a transmission facility it is a wonder that any transmission facility can be approved.  While all this work may be attractive for lawyers that want to practice in this area, the issue of parochialism that the casebook authors warn about seems to be a real concern.[8]  While the Federal Energy Regulatory Commission can provide a back-stop for siting transmission, the problem with upgrading the nation’s electricity grid will still be slow and cumbersome given all of the governmental entities that currently touch any proposed plan.

An example brought up on cross examination at this morning’s hearing is illustrative: the Western Area Power Association (WAPA) is currently upgrading a transmission line near the Grand Forks International Airport to comply with North American Electric Reliability Corporation (NERC) reliability standards.[9]  Part of the hold-up in the WAPA approval is gaining approval from the FAA.  The height of the proposed Minnkota line in the same area is dependent on the WAPA line, and as such the Minnkota line cannot be approved by the FAA yet either.  This is just part of the reason that this case has already had its time horizon broadened from a two year plan into a five year plan.  The construction has not delayed anything but just getting the plan in place is adding significant time delays.  When we include in the above alphabet soup NIMBY – which several landowners have raised[10] – it becomes clear that siting energy facilities is anything but easy.

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[1] Pages 892-93.

[2] N.D. Public service Comm’n, Case PU-09-670, available at http://www.psc.nd.gov/database/docket_view_list.php?s_dept=PU&s_year_case=09&s_seq_num=670&s_company_name=Minnkota+Power+Cooperative%2C+Inc.&docket_viewPage=2

[3] N.D. Cent. Code § 49-22-03(13).

[4] § 49-22-03(8).

[5] http://www.psc.nd.gov/database/documents/09-0670/126-010.pdf

[6] http://www.psc.nd.gov/database/documents/09-0670/128-010.pdf

[7] http://www.psc.nd.gov/database/documents/09-0670/106-010.pdf

[8] See page 893.

[9] NERC is the standard setting body for reliability in the United States as chosen by FERC.  http://www.nerc.com/

[10] See case 09-PU-670, docket ##22-33, 34-39 (landowners objecting to original hearing date because it is during spring planting season and they could not attend to voice objection to site of the line on lands they farm).

Student Post: World Uncertainty in Solar and a Path Forward

Solar Energy seems to be the source that is believed because is virtually unlimited and all but guaranteed to be available but has been huge failures throughout the world because of the challenges posed by being able to harness it and then put it to use. The United States and many western European countries have been aggressively seeking a way to reduce reliance on the use of fossil fuels and nuclear power with a cleaner and safe energy source alternative. Germany for instance public opinion has been extremely opposed to nuclear energy to the point that they have a political party, The Greens, that has made getting rid of Nuclear energy as their parties platform which has caused the government to begin the process of shutting down all of their seventeen nuclear plants over the next decade, by switching to wind and solar through the use of tax subsides. Germany feels that these alternatives are close so at hand that Germany has created the world’s largest solar farm, the problem however is that there is very little sunshine where the farm is located. Germany is counting on a combination of wind and solar to make up 80% of their sources of electricity by 2050. Current problems with this mass exodus from Nuclear to Solar and Wind, is the technology is not advanced enough to store base load power, which is a steady supply of reserve electricity available at all times. Nuclear power is very good at keeping steady levels of base load power. Due to the lack of technological advancements in solar and wind paired with the abandonment of Nuclear energy has caused the country to go backwards in their clean and safe energy initiative by a more heavily dependence on coal, which has lead to the country to defeat its stated purpose of reducing greenhouse carbon gas omissions into the environment.

More specifically in the solar realm in December, the German equivalent to Solyndra, Solon filed for bankruptcy. The problems in Germany, along with other countries in Europe and in the United States are the tax subsides given to these companies to produce solar energy are expiring or expired causing turbulence to their business model. The global market price for these renewals has been dropped dramatically in part because of the low cost for solar cells being produced in where? You guessed it China. China has made domestic manufacturing companies that producer solar cells in Germany, Brittan, and the United States forced to lay off hundreds of employees in an attempt to stay competitive.

The path forward seems to leave the western world with a couple of options in order to balance reduction of dependency on fossil fuels while attempting to grow the renewable domestic energy market to create jobs for a sector that has a potential for huge growth. The US can renew the subsides, although there seems to be little interest in this due to the bitter taste that has been left after the taxpayers had to eat roughly half a billion dollars in the fallout of Solyndra. The United States could impose a tariff on the Chinese parts so that American Manufactures can remain competitive but this would lead to a much higher price to cost of using the energy compared to cheaper fossil fuels. Another option is to embrace the Chinese low cost solar parts which in the short run will help the solar market compete with the price fossil fuels but leaving the market could result with the Chinese creating a monopoly to which they would eventually raise prices. The other solution I see would be to indirectly subsides the solar market in a similar fashion as the ethanol market is set to take when subsides for corn growers expires. In which the government is set to enforce requirements on car manufactures to produce cars with certain levels of ethanol and fuel producers to mix a certain amount of ethanol, which will sustain the demand for ethanol into the future. If the government were to do the same for utility companies with mandatory feed-in tariffs it would undoubtedly raise prices but they would be across the board and it would also give the solar market much needed certainty. The option could be a huge incentive for potential investors sitting on the sidelines because of the current risk to invest in solar and hopefully continue the research and development for a relatively primitive energy source with infinite potential.

Additional Sources
:
http://online.wsj.com/article/SB10001424052970204026804577100150091819074.html

http://www.nytimes.com/2011/09/23/us/politics/in-rush-to-assist-solyndra-united-states-missed-warning-signs.html?_r=1&ref=todayspaper&pagewanted=all

http://green.blogs.nytimes.com/2012/01/30/weighing-tariffs-on-chinese-solar-panels/?ref=solarenergy

http://www.nytimes.com/2012/01/27/business/energy-environment/clean-energy-projects-face-waning-subsidies.html?pagewanted=2&_r=1&ref=solarenergy

http://euobserver.com/1021/115352

Student Post: "Saving" the Environment

As we look to renewable forms of energy production to provide for the demands of the future, scientists are continuously straining to find new ways to harness the great power of the environment’s natural resources.  From waves to wind, it seems the possibilities for sustainable energy production are limited only by the human imagination.  Which is all well and good, but no two days are ever the same.  With that concept in mind, the alternative energy crowd faces a new challenge:  where do we store the wind and the rain brought in by a hurricane?  How can Alaska store its 20 hours of summer sunlight to keep the lights on during 20 hours of winter darkness?

In densely populated areas, temperature extremes can overwhelm the power grid.  In California and New York, for example, residents are all-too-familiar with the scenario in which record-high temperatures in the summer months create such a burden on the system that it simply cannot keep up with the demand.  On numerous occasions, this has resulted in devastating blackouts when residents need that power the most.  This scenario is just one reason why utility companies have looked to harnessing renewables as a way to meet the demands along the grid.

However, as utilities have been developing their renewables programs, they face the newest issue of how to store surplus energy.  Matthew Wald, writing for the New York Times, explains one such instance.  “In June 2010, for example, a violent storm in the [Pacific] Northwest caused a simultaneous surge in wind power and in traditional hydropower, creating an oversupply that threatened to overwhelm the grid and cause a blackout.”  The Bonneville Power Administration, a federal agency responsible for the region, resorted to giving away free power just to get it out of the system.  Faced with the dilemma of harnessing excess wind power or excess hydro power, Bonneville chose to unplug the wind machines.  (They reasoned that diverting water around the regional dams could hurt salmon in the region.)  This move brought on a lawsuit by wind producers and investigation into the matter by FERC.

Rather than simply accept the monetary losses during an event such as that in Washington, the Energy Department is lending a hand and proposing new ways in which companies can store the surplus energy.  At a recent forum, the Federal Energy Secretary, Steven Chu, proposed several methods of storage, including using batteries and also cooperation among utilities to remove barriers among their systems.  Even more compelling was his description of a Houston medical center.  Faced with surplus energy, the hospital “was simply chilling water in a tank that could be used to cool the building the next day. ‘The amount of energy needed to keep that tank cold is one-tenth of what you’d need to chill it,’ [Chu] said, describing a method of storing energy as cold water instead of as electricity.”  Chu has also suggested storing the energy as ice or heat, but energy companies and other regulators are wary of moving into this new realm.

The costs of implementing renewable energy systems on a large scale are often debated by those on both sides of the energy debates.  And yet it is rare to find any discussion of the costs associated with the storage issue such as that described above.  Perhaps this is because it is too new a dilemma or is largely misunderstood.  Regardless of the reasons for its lack of prominence in the discussion, there is no question that the issue will continue to gain momentum as more and more alternative energy facilities begin to pop up all over the nation.  Whether this is another cost that will be passed on to consumers or, as in Bonneville’s case, will result in giving away the excess energy when the system cannot handle the strain, is anyone’s guess.  But even the still somewhat novel idea of alternative energy has created still newer dilemmas that only time will solve.  Regardless of the outcome, one thing is glaringly clear:  it's a good time to be in R&D in the energy sector.

Student Post: In Support of a Green Economy

The Center for Community Innovation at the University of California Berkeley describes the four basic sectors of a green economy as renewable energy, green building and energy efficient technology, energy-efficient infrastructure and transportation, and recycling and waste-to-energy.  Changing to a green economy would change the way we live in many ways but would not require us to live in an austere or uncomfortable way.  A green economy has the potential to save not only the planet, but the economy as well.  The Green Economy Group defines a green economy as “a sustainable economy and society . . . where all energy is derived from renewable resources” and “rigorously applies the triple bottom line of people, planet and profits.”  

 Sounds great, right? Achieving this will require a change in our thinking, in our priorities, and our behavior.  However, clearly the way we’ve been doing things for the last decade is not working.  As a country we have more debt than I even know how to comprehend, jobs are difficult to come by, and the morale of the country in general is gloomy at best.  Shifting towards a green economy would require significant investment in new infrastructures and technologies to put the new energy goals into place.  Jobs would be created, at the same time that some jobs in industries no longer favored may cease to exist.  New industries would give us the opportunity to rethink how we work, how employees are treated, companies structured, etc. There would need to be major changes in laws and regulations at the federal, state, and local levels.  Investing in new industries, new infrastructures, and a new way of life also has the potential to improve the standard and quality of living for us all. 

The United States has taken steps toward a greener economy, but in recent decades has fallen behind many European and Asian countries in sustainable energy development. There have been stops and starts along the way but the time has come to stop dipping our toe in the pool and jump right in.  At this point I do not believe you would find too many people who would argue that there is no credible scientific evidence that our reliance on fossil fuels and culture of consumption is swiftly and seriously damaging the planet and putting the health of ourselves and future generations at risk. Addressing the problems created by dependence on fossil fuels and shifting towards a greener economy will require a combination of capitalist innovation and governmental regulation and investment in a new infrastructure. Focusing on creating a green economy has the potential to revitalize what now seems like a nation in decline. Preservation of the planet should not be a political debate but a shared goal of protecting our future and restoring the United States as a world leader in innovation, technology, and concern for public welfare.

Student Post: Nebraska Shuns the Investor-Owned Utility

Out of all of the States in the Union, Nebraska is the only one that does not allow investor-owned utilities (IOU) to operate within its borders.  Nebraska Power Association claims that “their electric prices do not include a profit.  That means Nebraska’s utilities can focus exclusively on keeping electric rates low and customer service high.”  Is Nebraska right in their ban of IOUs from their state, or do IOUs serve a purpose towards the overall benefit of the generation, transmission and distribution of electricity.

According to William Pentland, a contributor to Forbes magazine online, “the prevailing business model for investor-owned utilities is flawed, antiquated and deeply ineffective.”    Mr. Pentland goes on to discuss the fraud which he claims has gone unpunished at Consolidated Edison of New York.  In most situations IOUs have some kind of government regulation controlling some aspects of their business, but it appears that Mr. Pentland believes that these regulations are not enough and IOUs are still operating in ways that are not in the public interest.  Despite Mr. Pentland’s criticism, he doesn’t go on to offer any solutions to this problem.  He doesn’t discuss whether we should modify the current IOU system or switch entirely to a new system, such as publicly owned utilities (POU).  Instead he seems to provide only one example of a corrupt IOU and says something should be done.  In my opinion, corruption can occur in any business structure, so there must be other reasons for choosing one system over the other.

A good way to examine the benefits of IOUs versus POUs is to look at a state that provides both, such as California. According to Anaheim Public Utilities (APU), POU’s provided electricity at rates 41% lower than what IOUs provided them at in 2003.  APU elaborates on these benefits by arguing that POUs are willing to develop in areas that need the electricity, not just areas that are profitable, are controlled on a local level with more community influence, and have higher transparency for the utility provider. 

Although there seems to be many arguments for the benefits of POUs, there still is the question of why Nebraska is the only state that goes completely without IOUs.  In fact it appears that many states are doing just fine with having IOUs.  According to the Energy Information Association, Nebraska had the ninth lowest electricity rate in the nation in 2009.   Although this is still quite low, it still isn’t the lowest, which means other states are providing cheaper electricity then Nebraska with IOUs.  Although these cheaper states range from Washington to North Dakota, it isn’t clear what exactly makes them able to afford lower electricity rates then Nebraska.  One thing is made clear; removing all IOUs from your state doesn’t necessarily mean that your state will have the best energy prices, and thus to make a ban of IOUs really worth a states while, the state must really value the other attributes of POUs, such as greater local control.

Student Post: Quenching our Nation's Thirst for Electricity: Greater Transmission or Reduced Use

The trend lately has been for businesses and individuals to reduce the amount of energy they consume on a day-to-day basis. This is being accomplished through energy efficient appliances and light bulbs, the use of geothermal energy to heat buildings, better architectural designs that account for optimal sunlight (or shade), unplugging devices when not in use, and more efficient means of transportation. The idea of reducing the amount of energy consumed is not only practical, but essential as we move forward as a nation and as a species. But, will becoming more energy efficient solve our growing need for energy? 

 

The population of this country and the planet is not going to decrease in the foreseeable future. Greater energy use will follow with a greater population base. Additionally, as our technology advances and our hunger for the latest devices increase, we will become increasingly reliant on the electrical grid. Cellular phones, laptop computers, tablets and perhaps eventually, electric vehicles have all found their ways into the homes of a large number of Americans. Will our reduced use of electricity through more energy efficient designs and appliances be able to negate the population growth?

 

I believe that in the short-term, technological advances that allow for greater energy efficiency coupled with a better understanding by the general public of the importance of energy conservation, we will be able to provide enough reliable electricity to meet all of our needs. In the long-term however, I am not so optimistic. 

 

A reworking of our country's electrical grid system that would provide for greater, more efficient, and reliable transfer of electricity will become a necessity. The time to upgrade this system should be sooner rather than later. No one like to spend money to prevent something that has the possibility of happening in the distant future, but the alternative may be far more severe especially at a time when we are even more dependent on electricity to power our daily lives. One of the main problems is that the cities that require the most electricity are also the cities without the resources to provide it for themselves. Generally speaking, the methods of producing electricity lie in the middle of the country with the major cities lying on the coasts. Transmission and an overhaul are going to cost money (and a lot of it), but waiting until the problem has become crippling to our economy and well-being will undoubtedly be worse.

 

I am not saying that energy conservation and energy efficient appliances and buildings aren't necessary. We need to reduce how much we use, but more importantly we need to realize that at our current capacity, reducing consumption by half is merely a band aid. 

Student Post: Deregulation: The Balancing Act

Economists have come full circle in the past few decades regarding “natural monopolies”, those utilities that were considered ‘natural monopolies’ as the economies of scale supposedly propelled this type of business as a natural monopoly.  As our textbook defines a natural monopoly on page 56, if one firm can more efficiently meet the total demand of a firm because of declining costs over the quantity demanded, then this is considered a natural monopoly.

The fact that electricity generation was considered a natural monopoly for decades in the early 1900’s was the impetus for the US policy of encouraging monopolies to take control of supplying utilities like electricity across the country.  It was thought that the only way, then, to control the natural monopoly was through regulation, where a Public Service Commission in each state would regulate how much a natural monopoly could charge for its services.  It was a sort of compromise that if society allowed a natural monopoly to exist and operate, then it had to agree to regulation of its rates.

But the history of natural monopolies was clouded at best in its ability to regulate rates efficiently.  The breakup of the telephone natural monopoly of AT&T and the astounding reduction in long distance telephone rates that occurred in the 1980’s and 90’s was a turning point in how we approached ‘natural monopolies’.  The magic of competition and its ability to generate efficiencies – even in the case of what was once considered a natural monopoly – re-emerged in economics circles. 

Once again, deregulation and creative ideas for introducing competition into the world of ‘natural monopolies’ was popular. As David Spence comments in our energy law textbook (Energy, Economics, and the Environment, third edition, Bosselman et el) on page 610, “The theoretical case for restructuring was and is simple, straightforward, and based on two related propositions.  First, the sale of electicity is not a “natural monopoly”’; rather, it can and should be an industry in which sellers compete for customers.  Second, and partly therefore, markets can set electricity prices better and more efficiently than governments can.”  He does on to describe how this differs from thought about natural monopolies in the first half of the twentieth century. 

However, because we are dealing with human beings, its likely that deregulation will go too far, just as it did in the case of California when deregulation of electricity and natural gas prices caused extreme shortages and extreme price fluctuations. Enron traders took advantage of that deregulation to abuse the energy markets, and exert market power to extract trading profits from those less capable of exerting market power.  These types of abuse always bring us back to a regulatory framework that involves some control over these behemouth industries, especially those that tend toward monopoly control of an industry.

It is providing and finding the proper balance between regulation and free markets that is always tricky! 

Student Post: Examination of State Renewable Portfolio Standards

When reading today’s assignment a major theme throughout the chapter was the place of Renewable Portfolio Standards in development or greater reliance on renewable energy sources. It was shocking to me that at present, renewable resources other than hydropower only account for a little less than 4% of the nation’s entire electricity. This does not seem like a balanced approach to solving our nation’s problems of energy independence and its “addiction” to fossil fuels. Ultimately, it does not seem to make sense entangle the United States in foreign affairs with countries that do not like us, depend on dirty energy, and rely on the same sources until these resources have become depleted.

At some point, there will need to be a transition to other types of energy; energy that is environmentally friendly and cannot be depleted as other natural resources. Instead of waiting until the world lurches to a halt because all of the oil has been sucked up the industrial and post-industrialized nations, these alternative types of energy resources and ways of capturing and developing these powers should be harnessed and developed now. Of course, the markets help dictate this. Perhaps at this time in the energy paradigm there is not the economic impetus to go forward with investing and developing such technology as solar, wind, geothermal/subterranean, and alcohol fuel/power. But when? Will the market be able to react fast enough to avert catastrophe at the culmination of fossil fuels? Why even take the risk.

This in part, is Renewable Portfolio Standards (RPS) come into play. RPS are state mandates that require specific percentages of all power sold by electricity retailers operating in a state to be derived from renewable power sources such as wind, solar, biomass, etc. Looking at the RPS map Figure 11-1, it is heartening that 29 states have enacted some type of RPS requirements system.

There are numerous benefits to having an RPS system. Among the benefits include environmental improvement. Under this broad benefit the EPA has stated the state RPS work to mitigate global climate change, combats habitat destruction and desecration as well as works to preserve natural resources for future generations. Another fundamental dynamic of relying RPS is that it leads to increased energy diversity. Instead of relying on fossil fuels from the volatile Middle East as one the main sources of energy in this county, RPS help develop local and state energy infrastructure and contribute to creating high paying green jobs that cannot be outsourced.

Of course, there are drawbacks. Some states are averse to the RPS programs because they infringe upon the state’s sovereignty and the ability to regulate its own energy markets. Still, other states that perhaps would like to develop RPS systems are ill equipped due to lack of funding, manpower or a dearth of natural and renewable resources that could be cultivated for energy production.

For those who envision market based problems concerning RPS, the book mentions the development or Renewable Energy Certificates, relatively new market instruments “created by separating the ‘attributes’ of renewable electricity generation from the physical electricity produced, thus making RECs a tradable commodity separate from the actual electrons.” Thus, the RECs could be sold on the marketplace as credits to comply with state environmental regulations. 

In concluding, the development of state run RPS programs appears to be a step in the right direction toward cleaner technology, energy independence, and local control. These programs seem to best run by the states themselves and it does not appear that it should be the province of the federal government to come in and regulate the intrastate markets of the respective states. The leaders of each state should now how best to utilize and develop the renewable resources and manpower in a way that is efficient and beneficial for its own polity.

Student Post: Nuclear Power

Last week there was an article in the Grand Forks Herald concerning a new nuclear energy facility to be built in the Red River Valley.   While the proposal is in the infancy stage, it is claimed that building a new plant would create 3000 jobs in North Dakota, and further expand North Dakota’s influence on American energy.

Over the next two decades, roughly two dozen currently standing nuclear plants will be decommissioned, and those will need to be replaced. The plant in North Dakota would be close enough to provide energy for eastern United States.   The Red River Valley is one of the most seismically stable areas in North America, and thus provides a prime location for a new reactor.
Currently, 19% of all electricity in the United States is created from nuclear power plants, and according to 2011 CNN poll, 57% percent of people support domestic use of nuclear energy.  However, after the Fukushima disaster in Japan, public support for building new plants fell to 43% in the United States.

Because of the nuclear reactor disaster at Fukushima, and previously Chernobyl, there are many negative opinions of nuclear powered energy.  While none of those major accidents happened on American soil, the Three Mile Island incident in 1979 scared enough Americans to stop building nuclear energy facilities.  According to the Congressional Research Service, during the 1980s 120 nuclear reactor orders were cancelled.  Since then nuclear energy and its potential have dwindled.
In my opinion, nuclear energy is a source of energy that often gets overlooked in terms of its usefulness.  While the dangers of nuclear energy can be extremely deadly, when properly utilized nuclear power is one of the cleanest and most efficient.   Currently, most of the electricity is produced from fossil fuels in the United States.  Electric cars are becoming very popular, but are they truly helping erase our carbon footprint?  As long as a majority of our electricity is produced from fossil fuels, that answer is no.

The “not in my backyard” premise rings true to most people in North Dakota, but in reality, North Dakota is sparsely populated compared to the rest of the country.  Building a facility would bring less human and monetary damage if something catastrophic would happen. If correctly done, a nuclear facility in the Red River Valley would potentially lower energy costs for the public, create jobs in North Dakota, and continue to assist North Dakota in keeping a balanced budget.

Student Post: Minnesota Lawmakers Debating Continuing Restriction of North-Dakota Produced Electricity

The Next Generation Energy Act in Minnesota bans Minnesota utilities from importing power from new coal plants outside of the State of Minnesota, and raises the cost of future purchases of coal-based electricity by assigning environmental fees to the use of coal fuel. North Dakota's coal industry has been working for the repeal of the Minnesota law since lawmakers there approved it in 2007. Minnesota is a major customer of electricity produced in North Dakota from lignite coal mines. Utilities in North Dakota say it would cripple future development of the state's lignite industry, which produces more than 30 million tons of fuel annually for western North Dakota power plants that supply Minnesota customers with electricity. North Dakota’s lignite industry and its associated power plants employ more than 27,000 people, provide a $3 billion annual impact and generate more than $90 million in North Dakota taxes each year. The Lignite Energy Council states that two million Minnesotans get power from North Dakota’s seven power plants, and half of North Dakota’s electrical production goes to Minnesota.

North Dakota has sued Minnesota in federal court, asserting that a law that bars utilities from buying power from new plants that would raise carbon dioxide emissions illegally restricts business between states and encroaches on Congress' power to regulate interstate power sales and carbon dioxide emissions. Tom Trenbeath, North Dakota's deputy attorney general, said the state has spent just over $342,000 so far in preparing for the litigation. The figure includes expenses for lobbying the Minnesota Legislature to repeal the law, Trenbeath said. The utilities and coal companies were not required to pay a share of those costs. Basin Electric Power Cooperative, Minnkota Power Cooperative Inc., Great Northern Properties LP and North American Coal Corp. have agreed pay up to $100,000 each in legal expenses for the lawsuit filed in federal court in Minneapolis last month. Aside from the state of North Dakota, the lawsuit's plaintiffs include Basin Electric Power Cooperative, of Bismarck; the North American Coal Corp., of Plano, Texas; Great Northern Properties LP, of Houston; Missouri River Energy Services, of Sioux Falls, S.D.; the Lignite Energy Council, of Bismarck; and Minnkota Power Cooperative Inc., of Grand Forks, N.D. Basin, Minnkota and Missouri River Energy supply power to Minnesota utilities. North American Coal operates North Dakota coal mines that supply the state's power plants, while Great Northern owns vast coal reserves in western North Dakota. The Lignite Energy Council is a trade group that represents coal producers and electric utilities.

The lawsuit, filed in U.S. District Court in Minneapolis in early November 2011, contends the Minnesota law violates the U.S. Constitution. It imposes illegal restrictions on doing business between states, and infringes on Congress' power to regulate carbon dioxide pollution and interstate power sales, the lawsuit contends. The lawsuit was filed against Lori Swanson, Minnesota's attorney general; the five members of Minnesota's Public Utilities Commission; and Mike Rothman, the chief administrator of Minnesota's Department of Commerce. The suit asks a federal judge to declare the law unconstitutional and permanently enjoin it. Minnesota Attorney General Lori Swanson has asked the case's presiding judge, U.S. District Judge Susan Richard Nelson, to dismiss most of the lawsuit and remove her from its list of defendants. Nelson has scheduled an April 12, 2012 hearing in St. Paul.

Prospects for repeal of the law brightened when Republicans took control of the Minnesota House and Senate in 2011 elections. A bipartisan group of lawmakers approved removing the law's ban on importation of energy from new coal-fueled plants, but Minnesota's Democratic governor, Mark Dayton, vetoed the legislation. Since then, North Dakota filed suit in federal district court, while Minnesota lawmakers continue working to lift the law. Rep. Mike Beard, R-Shakopee, is currently pushing a bill to eliminate that restriction, saying Minnesota needs affordable electrical power from North Dakota plants fueled by lignite coal. It also would allow new coal-fired power plants in Minnesota, although companies wanting new plants still would need to receive state approval. Minnesota lawmakers held hearings on this issue in January. Democrats, with support of environmental groups, argued in favor of keeping current restrictions. The primary argument against repealing the restriction is that North Dakota lignite coal used to produce much of Minnesota’s imported electricity pollutes the air.

The Minnesota law was touted as an effort to cut carbon dioxide pollution and combat global warming, but the law made exceptions for Minnesota coal projects, which underscored inconsistency and arbitrariness of the law's policy aims, the lawsuit says. On the ‘environmental’ side of the fence, Wayde Schafer, a Bismarck-based spokesman for the Sierra Club, said the state could instead use its money "to advance the technology to provide cleaner energy, so both North Dakotans and Minnesotans would benefit." I tend to agree that a law that makes arbitrary distinctions on purchasing coal-based electricity from North Dakota seems arbitrary and unconstitutional. I also tend to believe that this lawsuit is unnecessary and that an answer lies in the middle road, with advanced technology and safety to utilize lignite coal for electricity production. Cleaner energy is the answer, not states suing one another in pursuit of affordable electricity and limited environmental impact.

Below are links to articles, if anyone would like further information:

http://capitolchat.areavoices.com/2011/01/27/86735/
http://www.businessweek.com/ap/financialnews/D9QP9M500.htm
http://www.huffingtonpost.com/2011/12/29/north-dakota-coal_n_1174425.html

Student Post: Methods of Real Estate Valuation in Eminent Domain

The Constitution requires that parties whose property is taken by eminent domain for a “public use” shall receive “just compensation”.  The use of eminent domain by state and local governments is commonplace in many sectors of the energy industry. Private property is often taken (in whole or in part) for any number of “public uses” including: construction of electrical transmission and distribution lines, electrical substations, oil and gas pipelines, solar and wind power facilities, and other energy-related projects.

National and state regulatory authorities have been charged with ensuring access to affordable and reliable energy and the public has grown accustomed to the relatively cheap and plentiful sources of such energy. These regulators have a duty to implement energy policies primarily to protect consumer interests.

Growing populations and increased demand for energy has led to the need for takings of private property by eminent domain. While the primary concern for regulators is protection of consumers, private property rights cannot simply be disregarded for the greater good. The owners of property taken by eminent domain must receive “just compensation”. And while the concept of “just compensation” is simple, its application often is not.

Real estate is difficult to value for one simple reason. It is unique. A particular piece of land can be found in one place and one place only- its current location! While personal property and financial instruments regularly have active markets where supply and demand indicate a generally accepted “fair market value”, real estate rarely does. This fact is significant when calculating “just compensation” for property taken by eminent domain.

There are generally three accepted methods for calculating “just compensation” for property taken by eminent domain:

·         Market Data Approach: Based upon the sales of comparable property in the relevant market.

·         Income Approach: Based upon a capitalization of net income from the property.

·         Cost Approach: Based upon the value of the land plus the depreciated replacement cost of any existing structures.

Market Data Approach

This approach is generally the most reliable, assuming there is an active market for the particular type of property being taken. The factors usually considered include whether:

·         The comparable property has at least a general similarity to the property taken; and

·         The sale was reasonably close in time to the taking; and

·         The sale was voluntary and not under compulsion.

Whether these factors are useful depends largely upon the specific type and location of the property taken. The underlying theory behind this approach is that recent voluntary sales of similar properties is strongly indicative of the value of the property being taken. These factors are very fact specific and cannot be applied mechanically. Without a reasonable number of sales of similar properties in the area, this approach will not provide a valid approximation of fair market value for calculation of “just compensation”.

Income Approach

This approach recognizes that land is income-producing. It can be used or rented to create income for the owner. Because of the inherent risk of investing capital in real estate, those risking such capital require a higher return on investment than other less-risky investments. If the income producing potential and required rate of return are known, it is possible to calculate a “fair market value” by using a fairly simple formula: net income divided by annual rate of return.

For example, if it is known that a particular property can produce $7,000 net income per year, it is also possible to calculate the value of the property if the rate at which the income was generated is known. Assuming a reasonable estimate of this yearly rate of return is 7%, the value of the property would be $100,000 (or $7,000/.07).

Most jurisdictions base “just compensation” off of the rental value of the property and do not allow compensation for loss of business profits. But even in those jurisdictions that do allow for such compensation, a business’s loss of goodwill and going concern value are generally not compensable. Computation of loss of business profits is dependent on numerous factors such as the economic climate and quality of service, which are not easily predictable. Despite this, some jurisdictions do allow the recovery of business profits and even good will.

While this approach is theoretically sound, its application is contingent upon the use of accurate assumptions. Because it is difficult to precisely calculate the actual rate of return required, any number used will only be a rough approximation.

The problem with assumptions is further worsened when the property taken is a public utility or other income producing business. Assuming a jurisdiction allows for recovery of business profits and goodwill, the calculation of these items is based upon often unreliable predictions of future market conditions and expected future costs. These estimates vary widely and are generally not reliable enough to state with much certainty. Therefore, the income approach may be inappropriate for calculation of “just compensation” in many instances.

Cost Approach

This approach is fairly straightforward, although less reliable as a valid indicator of fair market value. Essentially, “just compensation” is whatever a reasonably prudent buyer would pay for land and buildings that are physically and functionally similar to those being taken, constructed using modern construction methods. This calculation essentially seeks to calculate the cost of obtaining and building a functionally similar property with a similar level of depreciation.

Although this approach is generally less reliable, it may provide an acceptable fallback when other approaches to calculation are simply inadequate.

Conclusion

While none of these approaches are particularly accurate or reliable, they are all based upon valid theories of market valuation and provide at the very least a starting point for the determination of “just compensation”.  A voluntary sale of the property is of course preferable to the use of eminent domain. However, there are occasions when the use of eminent domain is justified and these methods of valuation must be applied to satisfy constitutional requirements.