Inside the Minds: Client Strategies for Alternative Energy and Efficiency
12/31/2008

Article originally appeared in Aspatore on 12/31/08

Challenges and Benefits of Helping Clients Go Green

Energy Production and Energy Efficiency

Many of our clients face increasing challenges regarding energy efficiency and energy production. We focus on two types of clients in this chapter—energy producers and energy consumers. In Arizona, for energy users, the most difficult thing is keeping your facility cool enough for the manufacturing process to take place, whether for your personnel or the general operation. What drives our clients’ challenges is the rising cost of energy use and greenhouse gases. The future for our clients in terms of how greenhouse gases will be regulated and the limits that will be placed on those emissions are of particular concern. Clients who are developing solar or other renewable energy generating facilities are challenged by the uncertainties of the law and the ever-rising costs. The ultimate nature of federal and state tax policies will have a major impact on the economics of these projects. Tax policy also will affect a utility’s decision to build its own facilities or sign long-term purchase power agreements with developers of renewable energy generating facilities.

For our clients who produce energy, their challenges arise from the specific rules established by the Arizona Corporation Commission, which we refer to in the acronym REST. The REST rules require our energy utilities to use renewable sources to generate a portion of their energy portfolio.

The Arizona Corporation Commission is charged by the Arizona Constitution and legislature to regulate the rates charged to customers for the delivery of utility services. Our energy production clients are looking for new and innovative ways to meet those regulations. We represent several companies that produce and sell energy to our public service corporations.

Arizona does not have large-scale solar power production. However, that is about to change. We anticipate that by 2011, a solar power generating station capable of meeting the electric needs of approximately 70,000 Arizona homes will be operating using concentrated solar power (CSP). Historically, the question asked is: “This is Arizona, you have all this sunshine, why not use that to produce power?” The questioner fails to realize that the most efficient time to create power using the sun does not Challenges and Benefits of Helping Clients Go Green coincide with our greatest use of power. One must have the ability to store the solar generated energy for when it is needed. The CSP company has developed efficient storage capacity to make power available during peak time use.

Sources of Regulatory Knowledge

We pay very close attention to our regulators’ comments in all public meetings, whether or not the docket involves our clients. We monitor the meetings through the computer to pick up hints on new directions, strategies, and concerns voiced by regulators. For instance, recently there has been discussion about whether the developers of distributed generation are subject to corporation commission regulation, particularly large projects used by commercial and industrial companies directly connected to the grid. Such regulation would have a significant impact on our clients’ plans. Suppose a regulator made a statement about wind power or using landfill gas to generate energy. Such a comment may assist us in preparing for our next negotiating session. Sometimes it is just a nugget in another proceeding. We track how often certain concepts are discussed, which regulators are making positive statements, which are making negative statements, etc. Through these nuggets, we have advance notice of where the regulators may go with the next set of rules and regulations. We also track activity in California because the regulatory environment in California affects us. California is making it increasingly difficult to build power plants within the state or to purchase certain coal-derived power. Sometimes Arizona follows California. Sometimes Arizona does not because we are in a different economic and physical environment, or because the unintended consequences of California’s actions are revealed. We have the luxury of watching how a concept employed first in California does or does not work. For example, Arizona did not require its utilities to divest themselves of their generating facilities and purchase all their power on the open market. California did and was negatively affected. We alsomonitor what other similarly situated states are doing. Our law firm has offices in New Mexico and Nevada, where our personnel monitor those state regulatory agencies. We meet monthly to discuss the latest developments, how things are similar, and how they differ. We may alert a Inside the Minds – Published by Aspatore Books particular client building a facility in Arizona that their next facility may be best built in Nevada, based on our reading of the future of the states’ regulatory scheme and whether that will be more conducive to the clients’ goals.

Intellectual Property

A major concern in the quest for power generation lies in the realm of intellectual property issues and risks. Certainly as companies research and develop new technologies to determine the most efficient methods of generation, there are many patents, trademarks, and copyrights, both U.S. and international, required to ensure the client’s ownership of their research and development remains intact. Seminars regarding solar power and other renewable power generation activities reveal the broad interest of both the governmental and private sectors. As to solar, there are many different ways to generate electricity using the sun. There is a huge intellectual property component for these companies to protect what they have produced.

Reliability and Feasibility

One concern about some of the different types of alternative energy or renewable energy is reliability. Interestingly when the Arizona Corporation Commission promulgated the REST rules, one requirement of the renewable energy component was to obtain a percentage of that renewable energy from distributed generation. For example, some of our manufacturing clients are operating completely on solar power and produce power seven days per week. If the facility does not operate Friday through Sunday, it can send that energy back into the grid, and that can reduce the facility’s energy costs while increasing power available to others. This is distributed generation. The Goldwater Institute is protesting, explaining that the rule in question requires that the utility be dependent upon third parties over whom the utility has no control over. The utility cannot force a third party to produce or provide energy. Other legal issues arise when a company builds a new power source in a community. Wind and solar generation mean a sizeable footprint—fields of Challenges and Benefits of Helping Clients Go Green windmills, fields of solar reflectors. These projects are generally in low density areas and the planning and zoning process is implicated. An entirely different and public process is required to obtain such approval. Then there are competing government issues. The land use agency, the Arizona Corporation Commission, the Department of Water Resources, the Department of Environmental Quality, and the local government may all have different requirements of the project. This adds up to a very complex communication strategy. It requires coordination to ensure that one agency does not require something another agency prohibits. This is a full-time job; whether the client has someone in-house or hires a local communications expert, someone has to be paying attention, understanding the process, and making sure the right agency is contacted at the right time. It is vital not to make the mistake of inadvertently creating a hostile environment, because, for example, the corporation commission is notifiedfirst and the water provider is not told for months and thus feels left out. Perhaps the town council feels left out because no one bothered to tell itwhat is planned in its jurisdiction. Proper coordination and appropriate timing are critical components to the communication strategy.

Compliance Challenges

Most of our clients’ compliance issues arise at the state level. We anticipate an increase in the degree to which federal standards will come into play. Power generation clients are the ones that will be most affected. For those seeking to use alternative energy sources or make more efficient use of energy, we anticipate more regulation whether from the EPA through the Clean Air Act requirements or new standards—for example, limitations on greenhouse gases. One certainty is that compliance will be more expensive and more difficult. Two critical components to our work are, first, developing and maintaininga solid, quality relationship with the regulatory agencies, which is necessary, and second, gaining an understanding of our clients’ compliance needs and goals. The most important elements in this effort are personal time and energy. This is essential to our success in representing our clients. We spend the time necessary at those agencies. To the extent that records are needed, it is easy to obtain them from the Internet, but we encourage our newer Inside the Minds – Published by Aspatore Books lawyers to go to the agencies and review files to begin the face-to-face personal contact needed to build trust. Of course, there are open meeting laws and other restrictions on the extent to which you can meet with various state officials, but whenever we have the opportunity to meet in person, we do it. There are opportunities when appearing before certain agencies to have education sessions with staff or elected officials. We like to take the time to use those opportunities to let the agencies know our clients and what they intend to do. It is vital to educate clients on the processes to obtain necessary approvals, permits, or certificates. The more the client understands the process and the programs, the better involved and prepared the client can be. In a recent case involving an interstate transmission line, it was important for the client to understand that the process has two stages. The first stage is an evidentiary hearing before a statutorily created siting committee. The decision of the committee is based on the facts and the law of the case. The second stage is a review of the committee’s decision by elected officials whose perspective is heavily weighted toward policy and public perception considerations. The elected body is likely to weigh evidence differently thanthe siting committee. The client received a favorable result from the sitin committee but an unfavorable result from the elected officials. The case is now subject to review in the state court. Imagine the client’s reaction if the second stage was not well-known in advance! We can use our relationship to foster a relationship between the client and the state agency, and they can work together without us. These relationships are based on trust, keeping commitments, and being reliable. If a client is about to make a presentation to the agency, we try to anticipate as many issues as possible and be prepared with accurate answers. On the odd occasion when an unanticipated question arises, we let the staff know by what date an answer can be provided. Never simply provide an answer because it is what the staff wants and then see if it can work. Coming back later to admit a mistake erodes credibility and damages these relationships.

Economics

Determining what questions clients should ask to guide their business plans and meet requirements depends on the client. Are we discussing a Challenges and Benefits of Helping Clients Go Green manufacturing facility that is more focused on the efficient use of power, or a client that is producing power? For each, there is a critical path to obtain required regulatory approvals. For most clients, the first question is economics. There is a process to figure out the end game. Some clients have not thought through to that end game and appreciate a lawyer who understands the business as well as the legal aspects. With a pretty good idea of the end game, the client can determine if their plans are truly viable. There are a number of pieces that go into the puzzle of the economics. How much does the water cost? Where will water be found? How much will it cost to manufacture the physical infrastructure to build the plant? Another challenge our solar clients face is physical production of plant components. The technology is new, thus adequate manufacturing facilities for the mirrors, connectors, and other equipment, unique to solar plants, do not exist. Where is that coming from? How is it delivered? At the same time certain departments of the client are looking at expenses, other departments are reviewing engineering and whether there are small changes that make big differences. Are the different departments communicating effectively? Security and safety may also raise a cost concern; one that often is overlooked.

Public Relations

The first step is to really understand the possible impact of the project on the immediate community, and then on the greater community. There is a broad spectrum of ways to bring the project to the public. We start very early in the process. We hire a public relations consultant who understands how best to communicate with the different constituencies: agency staff, elected officials, the public at large, the water provider, etc. There are hosts of constituencies that have different concerns about the project. We hold open houses, bringing the experts into an open forum to present the project and then allow people to ask questions. The most effective strategy when dealing with the local community is to be patient and allow as many people who wish to ask questions to do so. The public wants to know what the plant will look like, what the projected truck traffic bringing in the materials will be like, whether there will be an odor or dust blowing on to the neighbors? Such questions are of concern to the public, and those Inside the Minds – Published by Aspatore Books answers are required before you start to embark on your PR process. We learn the concerns of the general public, and help the public build a relationship with the entity moving into the neighborhood. The public gets comfortable with the notion “These people know what they are doing, and are not going to put our children and us at risk.” Most regulatory processes allow interveners or public participation. Any member of the public can comment on the process. As a result, there may be many people asking questions or challenging the agency about decisions they are about to make. Once we understand the public concerns, those can be incorporated into the presentation to the commission. Once others realize that their issues are addressed, they need not intervene or comment. The public is very much involved in the process. The more the client can do in advance to understand the public concerns and address them, the more smoothly the process will be to obtain the regulatory approvals. These processes require maintaining regular contact with the land use agency, regular contact with the public, full disclosure of all relevant details, making your experts available, and ensuring the client takes on a major role and is the visible entity in the public relations process. The attorney steps aside and plays the broker or mediator role, as necessary. The client is responsible, because it is building the plant—the one that will be answering questions after the plant is built. It is the client that the agencies and the public need to know. Green is very popular right now as are alternative energy sources. Despite this popularity, some object to how the regulatory agencies handle this public and political shift. The REST rules make it more costly to develop and produce energy. The Goldwater Institute filed a petition at the Arizona Supreme Court against the Arizona Corporation Commission and the Arizona Attorney General, who approved the rules of the Commission. The petition requests that these rules be rescinded because the Commission      overstepped its bounds. The petition claims the Commission does not have the jurisdiction to make these rules, and while conceptually alternative energy sources are a good thing, there are costs and uncertainties involved. The group that filed the petition states that the Arizona Corporation Commission has no jurisdiction to put rules in place requiring the utilities to Challenges and Benefits of Helping Clients Go Green generate a percentage of power from alternative sources, which increases the consumer cost. We hear about energy use, energy efficiency, and energy production from almost every client with which we deal. Our clients range from producers of energy to all sorts of users of energy. Our clients operate cement plants, run sand and gravel mining operations, manufacture furniture, build homes, and provide utilities. While the clientele ranges quite a bit, all are thinking about alternative energy and energy efficiency in how facilities are built and managed. We handle a variety of issues for our clients that might derail or delay a regulatory approval process. For example, there are limited resources to build alternative energy generating plants, but there are multiple sources of alternative energy: wind, solar, the biomass industry, biogas, hydropower, geo-thermal, and landfill gas. They all have their pros and cons. The negative aspect of solar and wind energy is that when the sun is not shining or the wind is not blowing, energy is not generated. There are limited resources to build these plants; a local energy provider cannot build one of each. There is competition among the different types of alternative energy. One alternative energy producer may intervene negatively in another’s permitting process. The first thing a lawyer needs to do is to really understand the client’s business and how they operate; the good, the bad and the ugly of their operations; the pros and cons; where problems are; and what will be said either at the public meetings or in front of an agency. Lawyers try to bluff their way through some of those things. That is a huge mistake because someone in that audience will know the answers. When that happens, the lawyers’ credibility is destroyed. Understand the regulatory process and the people involved in the process, both on the staff side and on the elected official side. What are their hot buttons? It is not unusual to be 95 percent of the way through a process and have someone throw what you think is a curve ball. Had you really understood the person’s concerns and their constituencies’ concerns, you would have been ready. Inside the Minds – Published by Aspatore Books Lawyers make the mistake of understanding the process and working through it without focusing on the individual people involved and the decision makers. We work diligently to broaden our focus to include the people and not just the law.

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