DNREC sued over carbon emission reduction

O’Mara acted illegally, plaintiffs say
A lawsuit against Delaware Department of Natural Resources and Environmental Control claims electric consumers will see increases in utility costs because of amendments to the Regional Greenhouse Gas Initiative. BY KARA NUZBACK
January 17, 2014

A Delaware think tank and several businesses are taking DNREC to court, alleging the agency is illegally increasing permit fees.

The plaintiffs say Delaware Department of Natural Resources and Environmental Control Secretary Colin O’Mara illegally lowered caps on carbon emissions and unlawfully raised fees for companies that pay the department an allowance to produce carbon emissions as part of daily operations.  The allowance allows a company to produce a ton of carbon.

O’Mara says the increase in the cost of the allowance was legal and necessary to reduce greenhouse gas emissions.

In December 2005, Delaware and several surrounding states announced an agreement to implement the Regional Greenhouse Gas Initiative, aimed at reducing carbon dioxide in the atmosphere by capping emissions and over time lowering the cap.  The agreement called for a review of the program in 2012.

Delaware formally defined its participation in the initiative June 30, 2008, through an act of the 144th General Assembly, Senate Bill 263.

The bill stipulates all proceeds from the sale of CO2 allowances must be used for public benefit, such as the Delaware Sustainable Energy Utility, which develops renewable energy technologies. The revenues can also go to programs designed to help low-income ratepayers, to a Greenhouse Gas Reduction Program, and to DNREC for administration of the program.

SB 263 also authorizes the DNREC secretary and the chair of the Public Service Commission to implement the initiative.

On Nov. 19, O’Mara issued a secretary’s order lowering the emission cap and raising the cost of allowances that electric companies must purchase in exchange for each ton of carbon dioxide they emit.

In his order, O’Mara said the amendments resulted from the 2012 review and include a 45 percent reduction in the previous carbon emissions cap – equal to more than 90 million tons – beginning in 2014.

Another amendment puts some of the CO2 allowances, of which there is a limited number, on reserve.  The reserves would become available when the cost of allowances, which are sold through auction, gets too high – a measure state officials say will prevent spikes in utility costs.

O’Mara said he expects electric consumers to see no discernible change in their electric bill as a result of the amendments.  Proceeds from the initiative are being reinvested into the development of more efficient energy production, which is lowering costs to consumers, he wrote.

In the order, O’Mara noted concerns from the public at a Sept. 25 public hearing in Dover about the department’s authority to amend the emissions cap.

The 2008 Senate bill set the initial emissions cap and stated, “The cap and Delaware’s allocation may be adjusted in the future,” O’Mara wrote in his order.

Delaware Code  further gives DNREC the power to implement RGGI.  “Thus, the department believes that the statute grants the DNREC secretary the authority to further reduce the emissions cap to comply with the emissions reduction goal,” O’Mara wrote.

Hudson Management owner Christian Hudson; Rep. Jack Peterman, R-Milford; Director of the Center for Energy Competitiveness at Caesar Rodney Institute David Stevenson; and Caesar Rodney Board member John Moore, who owns Acorn Energy in Wilmington, filed a lawsuit against DNREC and O’Mara Dec. 30 in Sussex County Superior Court.

In the complaint, Hockessin attorney Richard Abbott said the secretary’s order establishing new greenhouse gas regulations violates the Delaware Constitution.

Requiring businesses to purchase CO2 allowances constitutes a permit, and the General Assembly must approve an increase in permit rates by a three-fifths majority vote, Abbott wrote.

“Multiple parties warned DNREC this decision was a potential violation of the Delaware Constitution in public comment sessions, but the comments were ignored," Stevenson said in a Jan. 3 press release.

Stevenson also said the auction of CO2 allowances has raised $46 million in the last six years, which has either been used to fund overhead costs or remained unspent.

Delaware Code gives O'Mara the power to tweak the process of the auctions, Stevenson said, but O'Mara is not empowered to raise rates.

The complaint also asserts electric companies that have to pay more for CO2 allowances will pass the burden on to customers by raising electric costs.

While DNREC argues the CO2 allowances in reserve will keep costs competitive and prevent spikes in customer's electric bills, Stevenson argues many CO2 allowances were taken out of the pool.

He said with new plants opening in Dover and Smyrna, the number of allowances will not be nearly enough.  The cost of allowances will soar, and electric consumers will feel the effects, Stevenson said.

In the complaint, the plaintiffs ask the court to invalidate the secretary’s order and find O’Mara in violation of the Administrative Procedures Act.

O’Mara said the department’s authority to make changes to the greenhouse gas initiative is made clear in the Delaware Code.

He also said there is no evidence to support the assumption that the higher cost of CO2 allowances will force electric consumers to pay more.

Proceeds from the allowances are being invested into energy efficiency, which is also lowering the need to emit carbon dioxide, he said.

Electric providers buy fewer allowances now than in 2009 because plants are cleaner, O’Mara said. “The cleaner the power plants, the less allowances they have to buy,” he said.

O’Mara said the public was notified and given the opportunity to comment on the changes. The benefits of the program are greater than the costs, he said.

The agency is still discussing the content of its response to the lawsuit, O’Mara said.  He expects the agency will file its response brief in about three weeks.