Spring/Summer 2018

Spring/Summer 2018 Feature Energy

The Legal Climate of Climate Change: Energy

By Amy Spooner

Mike Hardy, ’72, Thompson Hine LLP
Mike Hardy, ’72, Thompson Hine LLP

When Mike Hardy, ’72, and Jim Spaanstra, ’77, began practicing environmental law, the laws, the issues facing their clients, and the environment itself were different than they are now. Hardy became an environmental lawyer because his firm needed a young associate to figure out this burgeoning practice area; for Spaanstra—who considered former Michigan Law Professor and environmental law pioneer Joe Sax a mentor—it was the reason he came to law school.

Both Hardy and Spaanstra have spent the majority of their careers at law firms, where their client lists include coal-fired power plants, utilities, oil and gas companies, and others whom most environmental activists view as the biggest causes of the climate change problem, rather than part of the solution. 

“I’ve had people ask me how I sleep at night,” says Spaanstra, a senior counsel in the Denver office of Faegre Baker Daniels LLP who also has served for nearly a decade on the board of Great Outdoors Colorado, including a year as executive director. “I tell them to pick any person in the public sector, and I gladly will put my record of accomplishments in environmental protection and remediation against theirs.”

Hardy, who retired in May as senior counsel at Thompson Hine LLP in Cleveland, recalls his first big case was representing a utility whose emissions from its coal-fired power plant were contributing to the acidification of lakes and rivers hundreds of miles to the east—a phenomenon known as acid rain. “Everybody in environmental law practice at that time was very young, and we all were learning together,” Hardy says. “We were creating a precedent that eventually was adopted by many courts nationwide.”


“The left thinks the energy sector is evil because of its use of fossil fuels. But the power sector is completely on course to meet the commitments of the Paris Accord and the Clean Power Plan—not due to climate policy, but due to fuel switching.”

Marc Manly, ’77, Former Executive Vice President and Chief Legal Officer, Duke Energy
Jim Spaanstra, ’77, Faegre Baker Daniels LLP
Jim Spaanstra, ’77, Faegre Baker Daniels LLP

Legislation and economics

Beyond releasing the nitrogen oxides and sulfur oxides that caused acid rain, scientists now have proven that burning fossil fuels also releases carbon into the atmosphere. The carbon buildup is significantly accelerating the warming of the earth’s atmosphere and contributing to other changes to the earth’s climate. More than 40 years after his first case, Hardy says that most of his clients have switched from coal to natural gas and renewable energy—because of legislation and economics. “People are saying it’s more efficient, more environmentally acceptable to move away from coal-fired generation. For a historically coal-dominated state like Ohio, that’s an amazing transformation.”

Spaanstra noticed a significant change in his practice a little more than a decade ago, “when I really started to work with clients to deal with what I, and many of them, viewed as the inevitability that greenhouse gases were going to be regulated.” He says that while a strong scientific case for such regulation existed then, “there was significant tension between that reality and the drive for U.S. energy independence. By and large, geopolitics took precedence over environmental threats at that time, but many of my more thoughtful clients were telling me even then that we had to attempt to navigate that complexity. Ironically, for some, the evolution of fracking and horizontal drilling technologies in the production of natural gas has materially reduced those tensions in the interim.”

Spaanstra is not convinced that coal should be left in the ground, but says the industry should have been lobbying the federal government a decade ago for the technology to make it cleaner, rather than relying solely on relentless opposition to any carbon regulation whatsoever. Another way that business is navigating that fossil-fuel complexity is by moving toward natural gas, which is cheaper due in large part to the development of an extraction technique called hydraulic fracturing, also known as fracking. Yet that creates a different complexity. Fracking is controversial because of the amount of water required for the process and because it releases methane, another greenhouse gas (like carbon) that scientists believe to be a significant contributor to climate change. Both Hardy and Spaanstra have represented clients who frack, and both see it as a way to produce an important bridge fuel in the country’s move from fossil fuels like coal and oil to renewable energies like wind and solar. “It’s a technological innovation that has opened up many opportunities for lower-cost energy sources in the United States,” Hardy says, “but it has to be done right.”

That’s where big oil and gas companies, who have had a less-than-stellar reputation among environmental activists, can be unlikely allies, says Spaanstra. “They have the money to mitigate the potential for environmental harm in a way that smaller operations just don’t.” He also points to how some in the oil and gas industry got on board with Gov. John Hickenlooper’s 2014 push that made Colorado the first state to regulate methane emissions. “The regulated community doesn’t always wear the black hat. What they want is regulatory predictability, and on climate change, they see the current administration in D.C. as a regulatory bump in the road of having to limit greenhouse gas emissions. So the majority are long-term planning with this in mind.”

Marc Manly, ’77, Duke Energy
Marc Manly, ’77, Duke Energy

What are the rules, and will they remain consistent?

Marc Manly, ’77, spent much of his career navigating regulatory uncertainty, first in the telecommunications industry as a partner at Sidley Austin LLP, then in the energy sector as a general counsel. For more than a decade, he was the chief legal officer and corporate secretary for Duke Energy, which is one of the nation’s largest electric utilities. Prior to retiring in 2015, he also served as executive vice president and president of Duke Energy’s commercial portfolio organization, including Duke Energy Renewables. “The industry is trying to make 50-year investment decisions, and having uncertain and unpredictable policy is incredibly frustrating,” Manly says. “I think the majority of utilities are not as concerned with the precise requirements of the rules, as long as they generally make sense. They just want to know what the damn rules are and have some certainty that they will stay consistent.”

When Manly first came to the energy sector as general counsel of a startup in 2000, climate change was not a topic. Acid rain was the primary environmental focus, and regulation centered on how to curb nitrogen oxide (NOx) and sulfur oxide (SOx) emissions that were causing acid rain. “There’s a saying that history repeats itself because we don’t learn from our mistakes, but there’s a flip side: We apparently don’t learn from our successes either. Industry and the country were incredibly successful under the Clean Air Act with a bipartisan cap-and-trade program that dramatically reduced NOx and SOx emissions,” Manly says, noting that although the electric sector invested billions of dollars to reduce both of these emissions by more than 80 percent, the resulting increase in utility rates was less than that of inflation. “We let the market determine how best to reduce NOx and SOx emissions through cap-and-trade. But now, when it comes to similar talk for reducing carbon emissions, Democrats don’t like it because it smacks too much of a market, and Republicans don’t like it because it smacks too much of a tax. This partisan divide leaves us unable to reach agreement on what to do, and unwilling to extend demonstrably successful approaches.”

Manly says the Obama administration tried to sidestep the divide by issuing executive orders and agency mandates instead of continuing to butt heads with Congress. He cites 2014’s Clean Power Plan, where the president deployed a rarely used provision of the Clean Air Act of 1970 that gave the Environmental Protection Agency (EPA) the authority to issue regulations on carbon dioxide. “Instead of relying on the market, the Clean Power Plan relied on directives. It would’ve been a colossal bureaucratic morass,” says Manly. At the same time, Spaanstra notes, President Obama’s initiatives were successful in pushing the envelope. “The regulations were, in part, intended to drive innovation to meet environmentally protective standards that seemed impossible to achieve. Along the way, EPA’s push perhaps beyond the outer edge of what was bureaucratically achievable and legally defensible had the intended result, I believe, of motivating companies and jurisdictions nationwide to plan for the inevitability of having to address climate change.” Spaanstra says the industry’s shift in thinking was evident when the leadership of his utility client, Xcel Energy, appeared next to Obama when he announced the Clean Power Plan. “They recognized early on that their business plan had to change, and in my view, that recognition isn’t going to be affected materially by who’s in the White House at any given time.”

Steven Fetter, ’79, Regulation UnFettered
Steven Fetter, ’79, Regulation UnFettered

People expect the lights to come on.

A March 2018 Gallup Poll found that 59 percent of Americans think the United States should prioritize the environment over energy production. How much more would that same 59 percent be willing to pay in order to protect the environment better? And what about those who struggle to pay their existing utility bills?

“Everyone expects that when you flip a switch, the lights will come on,” says Steven Fetter, ’79. “But there’s only a limited amount of funds you can pull from the customers to accomplish that. Alternatively, if you lay the burden on investors, they will lose interest in supporting the utility sector with its long-term financial needs, both equity and borrowing in the form of bonds.” Democratic Gov. Jim Blanchard appointed Fetter to the Michigan Public Service Commission in 1987, and Republican Gov. John Engler elevated him to chairman in 1991 and reappointed him in 1993. Fetter later was managing director and head of the global power group at Fitch IBCA Duff & Phelps, which determines bond ratings for the utility industry. These ratings are important for utilities to secure long-term funding for multiyear projects like building new plants, since they cannot rationally recoup the entirety of those costs by immediately placing them into customer rates. Rather, support from the financial community allows utilities to build plants with cost recovery coming over an extended period from current and future customers who will benefit from the utility infrastructure.

Today, Fetter is a Seattle-based consultant who provides expert witness testimony, usually in support of a utility, but also at times on the consumer side. He also serves on the board of Central Hudson Gas and Electric in New York State. He worries about the costs of mitigating climate change, and who will shoulder the burden. “Regulated utilities believe that if they take prudent steps to comply with the law or with regulation from a state or federal commission, then they should receive 100 percent recovery on the expenditures they incur in order to be compliant.” The pressure, says Fetter, stems from regulators’ sensitivity about the cost of electricity and natural gas, and its impact on the populace. “You can’t mandate utility actions through regulation and then either not compensate them or expect them to be able to collect the added costs from their customers without limit. Those customers span everyone from the largest of corporations to people who rely upon social welfare programs to get by day to day, so financial cost and recovery is an incredibly complex issue.”

The prevailing regulatory principle for the past century has been that utilities enjoy a monopoly in exchange for producing reliable power at the lowest reasonable cost. As they continue to increase in reliability and decrease in cost, renewable energy is changing the equation, Manly says. He points out that the majority of states also have passed renewable portfolio standards mandating that a percentage of electricity generation come from non-polluting wind, solar, or hydro power, but says that the economics of renewables justifies their choice, certainly over new coal or nuclear generation. “I was a great believer in unregulated business—like renewables in the early days—and the opportunities that unregulated business provided to do beta tests and be prepared for the unknown,” says Manly. “I was such an advocate for these businesses, that for my last years at Duke Energy, I was asked to run them.” As the head of Duke Energy Renewables, Manly was a self-proclaimed agnostic between wind and solar; he also oversaw renewable energy (mostly hydro) projects in Latin America. “Whichever project was the best in terms of reduced risk and highest returns got my support. At the end of the day, we were running a business required to achieve acceptable returns.”

Xiqin Fan, LLM ’09, GE Renewable Energy
Xiqin Fan, LLM ’09, GE Renewable Energy

The view from China

If Manly is an agnostic in the churches of wind and solar, China could be considered a zealot—the country leads the world in production of wind energy. China also relies heavily on hydro power as it moves away from fossil fuels. Xiqin Fan, LLM ’09, is at the forefront of this change as China general counsel for GE Renewable Energy. Based in Shanghai, she oversees legal affairs for the company’s onshore and offshore wind businesses and hydro business, as well as a wind blade manufacturer that GE acquired recently. Primarily an original equipment manufacturer (OEM), GE Renewable Energy in China sells wind turbines and blades, hydro turbines and generators, and related services for the renewables market, including parts, service, and digital solutions. “I joined GE’s renewables business because I think this is where the future will be,” she says. “I don’t know when renewable energy use will exceed traditional energy use, but we see the growth potential—and that is reflected by our company’s performance in the renewable business improving year after year.”

Renewable energy in China in the past has relied heavily on subsidies from the government, but Fan says those subsidies may diminish because the Chinese government is aiming for grid parity by 2020. Power generation companies, as a result, are expected to focus more on power generation efficiency and parameters like levelized cost of energy or internal rate of return. Accordingly, OEMs in the renewables sector need to pivot to introduce new or upgraded turbines, generators, and other parts that can demonstrate greater performance in power generation efficiency.

She thinks that to some extent, most Chinese share Americans’ general sense of complacency about the source of their power, as long as their power is reliable and cheap—but with one critical difference. While smog is legendary in Los Angeles and its suburbs, and becoming an increased concern in other cities, poor air quality in some parts of China—to the point where people wear masks, especially in the winter—has raised a lot of public concern. That is driving the government’s push toward renewable energy, as well as public awareness of the need to produce cleaner energy, Fan says. “China is growing, and it’s a relatively resource-restricted country, so the government has been very determined with regard to increasing the proportion of renewable energy as a source of electricity. And the average citizen’s consciousness about the need for renewable energy is increasing as air pollution affects their daily lives.”

Public awareness also will increase, she notes, if renewables move to a distributed energy model. Instead of a wind farm harnessing energy hundreds of miles away that then is transported to cities, a small group of homes or apartment buildings could share a renewable energy source, like a turbine, under this system. “It reduces the amount of investment needed to build a large-scale farm,” Fan says, “and it makes people see that renewable energy is powering their homes in a much more vivid way.”

China’s push to reduce carbon emissions is more than a domestic matter; it is equally determined to drive the global cooperation toward combatting climate change, says Fan. “We regret the Trump administration’s decision to withdraw from the Paris Accord, but China will continue its efforts to promote a fair and reasonable global climate governance system.”

The big middle ground wants action on climate change

Within the United States, individual states and businesses will continue their efforts, too, Manly says. In the last 10 years, the push away from coal to natural gas and renewables has reduced the energy sector’s total carbon emissions by 15 percent, and he sees the economic viability of environmentally friendly energy production continuing to be the driver of change. “The substance as well as the optics on this issue facing humanity are important, so I would hope a new administration will recommit to [the] Paris [Accord] or reestablish U.S. leadership in some way. But in the meantime, at least for the electric sector, whichis responsible for about 50 percent of carbon emissions, we are on track to meet the commitments of the Paris Accord by the due date of 2030.

“Between the ideological poles is the big middle ground of Americans who believe climate change is an issue and want something done about it,” Manly continues. “And they’re willing to support getting their energy from renewable sources—especially now that it doesn’t cost more.”