August 2007

From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH energy publications.

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Electric Utilities

FERC Asks High Court Not to Review Energy Crisis Contracts Cases
The Federal Energy Regulatory Commission (FERC) has requested that the U.S. Supreme Court deny a petition for review (Docket Nos. 06-1454, 06-1457, 06-1462, and 06-1468) of a ruling by the U.S. Court of Appeals for the Ninth Circuit finding that FERC erred in its procedural reliance on the ``Mobile-Sierra’’ public interest standard of review and in the substantive standard FERC used in determining that a series of forward energy contracts entered into by power companies in three Western states during the 2000-2001 energy crisis did not affect the public interest [see Public Utility District No. 1 of Snohomish Cty, Wash. v. FERC and Public Utility Comm’n of Cal., et al. v. FERC, CCH Utilities Law Reporter ¶14,625 and ¶14,626, respectively]. The lower court remanded the cases to FERC to determine, first, whether Mobile-Sierra review of the challenged contracts is appropriate; second, if so, to apply the modified form of Mobile-Sierra review outlined by the Ninth Circuit in one of the cases; and third, if not, to apply full “just and reasonable” review to the challenged contracts. FERC contends in its opposition brief filed on August 6 that it should be allowed to address the issues on remand as ordered by the court of appeals. FERC argues in its brief that the Petitioners overstate the breadth of the lower court’s opinions, which do not overturn long-term power contracts, nor overturn the Mobile-Sierra doctrine. Instead, FERC states that the opinions merely remand to FERC for further inquiry and that they apply the principles of Mobile and Sierra to the “highly unusual context of the 2000-2001 western energy crisis, the worst electricity-market crisis in American history.” FERC contends that the lower court’s decisions stand for the narrow proposition that, if there is a credible claim that severe market dysfunction has affected the formation of a market-based contract, FERC must take that fact into account in determining whether the public interest standard of Mobile-Sierra applies to its review of that contract. FERC asserts that “[t]aken as a whole, the decisions of the court of appeals allow the Commission sufficient discretion on remand to consider all relevant factors in determining whether the contracts at issue should be upheld or reformed.”

House Passes Energy Legislation
The U.S. House of Representatives passed energy legislation on August 4 by a vote of 241 to 172. A key provision of H.R. 3221 is an amendment creating an incremental federal standard for electric utilities to provide 15 percent of their electricity from wind, solar, other renewable energy sources, and efficiency by 2020. If enacted into law, the amount of electricity provided by renewable energy sources would be 2.75 percent by 2010, gradually increasing thereafter to meet the 2020 goal. Suppliers could meet these requirements by purchasing credits from other entities who have obtained credits by producing renewable energy. In addition, the bill sets forth a statement of policy on the modernization of the electricity grid. The statement asserts that it is the policy of the United States to support the modernization of the nation’s electricity transmission and distribution system to incorporate digital information and controls technology and to share real-time pricing information with electricity customers to achieve a ``smart grid.’’ Features of the smart grid would include (1) increased reliability, security and efficiency of the grid; (2) optimization of grid operations and resources, with full cyber security; (3) deployment and integration of distributed resources and generation; and (4) deployment of ``smart’’ technologies for metering, communications concerning grid operations and status, and distribution automation.

Market-Based Rate Reforms Prevent Exercise of Market Power
Fundamental reforms to the Federal Energy Regulatory Commission’s market-based rate program which will strengthen competitive markets and protect consumers by reinforcing regulations designed to promote just and reasonable wholesale electric power sales have been adopted by the Commission. The reforms are intended to protect consumers from an electric power seller’s exercise of market power. Among the new rule’s major elements are: (1) the Commission’s four-prong analysis for determining whether a wholesale seller of electric energy, capacity or ancillary services qualifies for market-based rate authority is collapsed into a two part test covering horizontal (generation) and vertical (transmission and other barriers to market entry) market power; (2) restrictions on affiliate abuse will be codified in regulations and must be satisfied as a condition of obtaining and retaining market based rate authority; and (3) the exemption for all generation built after July 9, 1996 is eliminated. The Commission was concerned that retaining the exemption could allow a seller to gain a dominant position in the market without being subject to any generation market power analysis. (FERC Statutes and Regulations Edition ¶31,252)

Deadline for Submitting OATT Compliance Filing Extended
The date by which transmission service providers must submit a compliance filing containing a new attachment to their pro forma open access transmission tariffs (Attachment K) describing a coordinated and regional planning process to ensure that transmission service was provided on a non-discriminatory basis in accordance with Order 890 (CCH FERC Statutes and Regulations ¶31,241) has been extended by the Commission to December 7, 2007 from October 11, 2007. In addition, FERC is requiring transmission providers to post a draft of their Attachment K filing on or before September 14, 2007, in order to facilitate the development of these filings. To help transmission providers prepare their Attachment K drafts, the Commission will hold a round of technical conferences that will take place between October 27 and November 27. (Preventing Undue Discrimination and Preference in Transmission Service, 120 FERC ¶61,103)

Nuclear Power

Two Utilities Entitled to $77 Million for DOE’s Failure to Accept SNF
Two utilities were entitled to damages totaling more than $77 million because of the Department of Energy’s (DOE) failure to accept the utilities’ spent nuclear fuel (SNF) and high-level radioactive waste on a timely basis. The federal government, which had a long-established responsibility for the permanent disposal of these wastes, partially breached a 1983 contract that it signed with the utilities in which the government agreed to dispose of their SNF beginning no later than January 31, 1998. Although DOE argued that many, if not most, of the storage costs incurred by the utilities as a result of DOE’s failure to take possession of the SNF would have been incurred regardless of the delay, the utilities demonstrated that they had incurred substantial and foreseeable costs in mitigating DOE’s acknowledged and substantial delay in the performance of its contractual obligations and that the delay was a significant causal factor in the utilities’ expenditure decisions. As a result, they were entitled to reimbursement for the mitigation costs they incurred. (Southern Nuclear Operating Co. v. U.S ,(ClCt), Nuclear Regulation Reporter, ¶20,675)

Consent Decree for Nuclear Cleanup Preempted by AEA
A consent decree entered into by the State of Missouri and Westinghouse Electric for the decontamination of a site containing nuclear waste was preempted by the Atomic Energy Act (AEA), which entrusted exclusive authority over the disposal of nuclear waste to the Nuclear Regulatory Commission. Missouri sought reimbursement from Westinghouse for costs it incurred in decontaminating the site, arguing that AEA did not apply to decommissioned facilities and that the site was partly contaminated with non-radiological materials—which are not controlled by the AEA. Both NRC’s interpretation of the AEA and existing case law make no distinction between NRC’s exclusive jurisdiction over nuclear safety at an operating facility and a decommissioned one—the AEA preempts state regulation of nuclear safety issues at both types of facilities. Missouri’s second argument also failed because , contrary to its assertion, the state did not attempt to restrict its regulation to non-radiological materials. (State of Missouri v. Westinghouse Electric, (EDMo), Nuclear Regulation Reporter, ¶20,676)