April 2007
From the editors of Wolters Kluwer Law & Business, this update describes
important developments from CCH energy publications.
If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to pamela.maloney@wolterskluwer
Nuclear Power
Tighter Design Basis Threat Security
Requirements Established
More comprehensive design basis
threat (DBT) security requirements have been established by the Nuclear
Regulatory Commission. These changes specify the DBT that nuclear power
plants and certain related facilities must be able to guard against with
a high level of assurance. Plants will be required to defend against one
or more assault teams consisting of adversaries who were willing to kill
and be killed and who were knowledgeable about specific target selection.
They will also have to defend against a wide range of assault weapons
and incapacitating agents and protect themselves against assault by land
and water vehicles. (Nuclear Regulation Reporter, ¶9302).
NRC: Fuel Leak at Kewaunee Was a Significant
Safety Issue
The failure of the operators
of the Kewaunee Nuclear Power Plant to promptly evaluate and take action
to correct a diesel generator fuel leak in June 2006 was of substantial
importance to the safety of the Wisconsin plant, the Nuclear Regulatory
Commission has determined. Plant personnel had identified a leak in one
of two emergency diesel generators at the plant which supply electrical
power to plant safety systems if the normal connection to off-site power
sources is lost, but did not follow prescribed procedures to evaluate
the condition. They subsequently saw a substantial increase in the fuel
leaking from the generator, which was declared inoperable. The utility
tested the defective equipment and concluded that the leaking fuel oil
systems components would have failed after four hours of diesel operation
if the generator was required to supply power to plant safety systems.
The utility’s corrective actions included replacing the leaking
components and emphasizing to plant personnel the need to follow procedures
for entering issues into the plant’s corrective action program.
Findings of substantial safety significance normally result in additional
NRC inspections and meetings with the utility. (CCH Nuclear Regulation
Reports, Number. 1366, April 13, 2007).
Electric Utilities
83 NERC Reliability Rules Approved
In order to assure the reliability
of the nation’s bulk power system, the Federal Energy Regulatory
Commission has approved 83 reliability standards proposed by the North
American Electric Reliability Corporation (NERC), the FERC-certified electric
reliability organization. NERC is responsible for developing and enforcing
mandatory reliability standards. The standards approved by the Commission
include those for resource and demand balancing, critical infrastructure
protection, emergency preparedness, and communications. Also, approved
were standards for interchange scheduling and coordination, transmission
planning and operations, and personnel training and performance. While
approving the mandatory reliability standards, FERC observed that much
work remained to be done, noting that many of the reliability standards
need substantial improvement. (CCH Federal Energy Regulatory Commission
Reports—Statutes & Regulations Edition ¶31,242
and 14,250—14,253).
Proposal Would Remove QF Exemption
from Reliability Standards
The elimination of the exemptions
available to qualifying facilities (QFs) from the recently added electric
reliability provisions of the Federal Power Act has been proposed by FERC.
According to the Commission, from a reliability perspective, there does
not appear to be a meaningful distinction between QF and non-QF generators
that would warrant the exemption of QFs from the mandatory reliability
standards. Moreover, the Commission believes that the adoption of this
proposal would increase the reliability of the North American Bulk Power
System. (CCH Federal Energy Regulatory Commission Reports—Statutes
& Regulations Edition ¶32,613).
Electricity Task Force Submits Report
to Congress
The Electric Energy Market Competition
Task Force established under the Energy Policy Act of 2005 to conduct
a study of competition in wholesale and retail markets for electricity
in the United States has submitted its final report to the U.S. Congress.
The report contains the observations of the Task Force on competition
in wholesale electric power markets , as well as on retail market competition.
The report notes that the goal of increasing competition in electric power
markets was to overcome the perceived shortcomings of traditional cost-based
regulation. It was expected that in a competitive market environment,
prices should guide consumption and investment decisions. Specifically,
the report posits that the market-based pricing of electricity will reflect
more accurately the underlying costs of production. Ideally, these prices
should align the price of electricity with the value customers place on
electricity, leading to a more efficient allocation of electrical resources
and lower overall prices. (CCH Federal Energy Regulatory Commission
Reports—Statutes & Regulations Edition, Number 482,
April 19, 2007).
Commission Directs Interconnection/Transmission
Services
Brazos Electric Power Cooperative,
Inc.’s (Brazos) request for interconnection and transmission services
under the Federal Power Act was granted by the Commission when it directed
TXU Electric Delivery Company (TXU Electric Delivery) to provide interconnection
with Brazos’ proposed transmission line. The Commission also directed
TXU Electric Delivery and CenterPoint Energy Houston Electric, LLC (CenterPoint)
to provide transmission services for power flows into and out of the Electric
Reliability Council of Texas (ERCOT) over Brazos’ proposed transmission
line. (Cottonwood Energy Company, LP 118 FERC ¶61,198).
Midwest ISO Cost Allocation Proposals
Approved
The Midwest Independent Transmission
System Operator, Inc.’s (Midwest ISO) proposed revisions to its
open access transmission and energy markets tariff (TEMT) to incorporate
a proposed cost allocation methodology for regionally beneficial projects
were conditionally accepted by the Commission effective April 1, 2007.
Regionally beneficial projects are economic upgrades that meet specific
standards. The Midwest ISO will be required to file annual reports to
aid the Commission, the Organization of MISO States (OMS) and stakeholders
evaluate the effectiveness of the proposed transmission expansion cost
recovery plan and provide the basis for any potential future modifications.
In a second order, the Commission addressed the Midwest ISO’s proposed
cost allocation methodology for baseline reliability projects rated at
345 kV or above (high voltage) (Midwest Independent Transmission System
Operator, Inc., 118 FERC ¶61,208; 61,209).
Natural Gas
Bangor to Pay $1 Million Penalty
A stipulation and consent agreement
between the Federal Energy Regulatory Commission’s Office of Enforcement
and Bangor Gas Company, LLC (Bangor) resolving certain self-reported violations
by Bangor of the Commission’s “shipper-must-have-title”
requirement was approved by the Commission. The violations were a result
of Bangor’s failure to hold title to the gas it transported on behalf
of certain customers. The agreement included a $1 million civil penalty
and a compliance plan to assure compliance with the capacity release program
and pipeline tariffs, including the “shipper-must-have-title”
requirement (In re Bangor Gas Company, LLC, 118 FERC ¶61,186).
Rejection of Pipeline's Force Majeure
Cost-Sharing Formula OK'd
The Federal Energy Regulatory Commission (FERC)
reasonably rejected a natural gas pipeline company's proposed formula
for sharing with shippers the costs of force majeure interruptions—interruptions
due to uncontrollable and unexpected factors or events—because it
was inconsistent with FERC policy, the U.S. Court of Appeals for the District
of Columbia Circuit held. FERC had previously determined that two cost-sharing
arrangements—one, a full credit after ten days, and a second, a
percentage credit over the entire interruption period—were equitable
and that they both incorporated a careful balancing of risk between shippers
and pipelines. The pipeline company had effectively cherry-picked the
most pipeline-favorable aspects of each formula for its hybrid formula,
altering the responsibility for force majeure events in favor of the pipeline
and against the shippers. The court also found that FERC reasonably rejected
the pipeline company's proposal to include scheduled maintenance as a
force majeure event so that shippers would have to share the cost of the
associated pipeline interruption. FERC had previously defined force majeure
events as events that were not only uncontrollable, but also unexpected.
Although some scheduled maintenance interruptions were uncontrollable,
the court said, they were not unexpected. (North Baja Pipeline, LLC
v. FERC (DCCir) CCH Utilities Law Reports ¶14,637)
Issue of Pipeline's Jurisdictional
Status Remanded
The Federal Energy Regulatory
Commission (FERC) failed to provide a sufficiently reasoned explanation
for why it found that an energy corporation's two pipelines transported
natural gas, which subjected them to FERC's jurisdiction under the Natural
Gas Act (NGA), as opposed to finding the pipelines performed a gathering
function, the U.S. Court of Appeals for the Fifth Circuit ruled. The court
said that FERC did not give a reasoned analysis of why it negated the
import of factors favoring a determination that Jupiter Energy Corporation's
lines served a gathering function in FERC’s application of a multi-factor,
primary function test. FERC was required to provide a reasoned analysis
for why certain existing, non-jurisdictional indicators were outweighed
by the remaining physical factors. Moreover, the court said, FERC did
not consider the non-physical factors supporting a gathering function
for the pipelines. These could not be ignored when conducting the primary
function test: the Fifth Circuit recognized non-physical factors as ``secondary
to the physical factors,'' but still required their consideration. (Jupiter
Energy Corp. v. FERC (5thCir) CCH Utilities Law Reports ¶14,638)
Oil and Gas Leases
Open, Nondiscriminatory Access in Outer
Continental Shelf Proposed
A new process for shippers who
believe that they have been denied open and nondiscriminatory access to
pipelines on the Outer Continental Shelf has been proposed by the Minerals
Management Service. In 2004, the U.S. Court of Appeals for the District
of Columbia (Williams Cos. v. FERC) upheld a lower court decision finding
that the Outer Continental Shelf Lands Act granted to the Federal Energy
Regulatory Commission only limited authority to enforce open-access rules
in the OCS, and that a number of FERC’s regulations were invalid.
In response, MMS issued an Advance Notice of Proposed Rulemaking asking
what regulatory changes it should make to ensure that the OCSLA requirement
that pipelines transporting oil or gas on or across the OCS provide open
and nondiscriminatory access to both owner and non-owner shippers is met.
This proposal builds upon that ANPR and subsequent public meetings.
The new regulations would implement complaint procedures and informal alternative dispute resolution processes. Decisions by the MMS Director would be enforceable by orders to transporters and by civil penalties. The regulations would be applicable to shippers transporting oil and gas from federal leases. MMS would defer to the FERC in the case of pipelines under the jurisdiction of the Natural gas Act or the Interstate Commerce Act, and the regulations would not apply to the pipeline connecting a deepwater port with an OCS pipeline. (CCH Energy Management ¶9310)