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Natural Gas

• Natural Gas Outlook: U.S. On Track to be Net Exporter Q2 2017: Natural gas production and consumption are expected to rise this year due to increases in natural gas prices and LNG exports, as well as increased electric power generation. As LNG exports and pipeline exports to Mexico continue to rise, the U.S. Energy Information Administration expects the U.S. to be exporting more natural gas than it imports by the second quarter of 2017.

Oil

• Exports of U.S. Crude Oil Average 9% Above Last Year, Reach 16 Nations: The U.S. Energy Information Administration (EIA) recently analyzed the impact that lifting the restrictions on the export of U.S. crude oil has had on the volume and trajectory of U.S. exports. Crude oil export restrictions were lifted in December 2015, prior to which Canada received the majority of U.S. oil. In the first five months of this year, oil exports averaged 9% higher than the full year average in 2015 and reached sixteen nations, according to the EIA. Exports to other countries surpassed exports to Canada during March and May. Bloomberg reports 87 million barrels of crude oil and condensate were exported from the U.S. in the first half of the year.

• Hearing on Clean Power Plan Challenge Approaches: Oral arguments before the en banc D.C. Circuit (minus two judges who have recused themselves) are scheduled to be heard September 27, 2016. The argument has been allotted a little more than three and half hours, and is divided among five categories of issues: (1) All statutory issues other than those related to Clean Air Act (CAA) Section 112; (2) Section 112 arguments; (3) Constitutional issues; (4) Notice issues; and (5) Record-based issues not submitted on briefs. Petitioners have argued, among other points, that the CPP is not authorized under CAA Section 111(d) for several reasons, including (a) it is applying standards to the owners/operators of the regulated sources instead of to the sources themselves by requiring owners/operators to subsidize cleaner generation, (b) the requirement to shift generation to cleaner sources in essence requires non-performance or cessation of production from existing sources and therefore is not a valid standard of performance for those sources under the CAA, and (c) it requires stricter standards for existing sources than for new sources, contrary to Congress’ intent to require more stringent standards for newly constructed facilities as it is more cost-effective and feasible. Section 112 prohibits sources that are regulated under that section from also being regulated under Section 111(d). Accordingly, petitioners have argued that the CPP violates Section 112 by “double regulating” coal-fired generation plants.

Federal Energy Regulatory Commission (FERC)

• FERC Moves to Bolster Electric Grid Cybersecurity: In light of recent cyber attacks on international energy infrastructures, FERC has taken steps towards bolstering the cybersecurity of the U.S. electric grid. On July 21, 2016, FERC issued an Order directing the North American Electric Reliability Corporation (NERC) to develop a mandatory reliability standard requiring entities to develop a plan with cybersecurity controls for supply chain management of hardware, software, and services connected to the operation of the bulk electric system (BES). FERC also issued a Notice of Inquiry (NOI) seeking comments on whether Critical Infrastructure Protection Reliability Standards for the cybersecurity of bulk electric system Control Centers should be modified. The reliability standard that NERC must develop will need to address software integrity and authenticity; vendor remote access; information system planning; and vendor risk management and procurement controls. While it would be mandatory under the reliability standard for entities to implement a plan, FERC was clear that it is not directing NERC to set particular controls and it expects the standard to allow flexibility. The NOI solicits feedback specifically on whether: (1) to separate the Internet and BES Cyber Systems in Control Centers performing transmission operator functions; and (2) to implement administration practices that prevent unauthorized computer programs from running on BES Cyber Systems in Control Centers (known as “application whitelisting”).

State of California

• California Legislature Passes Bill Setting Reduced GHG Targets for 2030: On August 23 and August 24, 2016, the California Assembly and Senate passed SB 32, which requires that greenhouse gas emissions be reduced to 40% of 1990 levels by 2030. The California Global Warming Solutions Act of 2006 already required GHG levels to be at 1990 levels by 2020. SB 32 took the initiative a step further to reduce emissions with an eye towards positively impacting the “state’s most disadvantaged communities.” SB 32 was explicitly dependent upon the enactment of Assembly Bill 197, which, among other initiatives, creates a Joint Legislative Committee on Climate Change Policies, adds two Legislative representatives as non-voting members of the State Air Resources Board, and requires the Air Resources Board to prioritize “[e]mission reduction rules and regulations that result in direct emission reductions” from stationary and mobile sources. The requirement to prioritize direct emission reductions has raised questions regarding the impact of the Bill on the future Cap and Trade in the state. Assembly Bill 197 was passed by the Senate and Assembly August 22 and August 24, 2016.