August 2009
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
Electric Utilities
Policy To Accelerate Development of
Smart Grid Adopted
FERC’s Smart Grid Policy
Statement, which takes effect on September 16, 2009, sets priorities for
work on development of standards crucial to a smart grid. The policy is
intended to accelerate the development of a smart electric transmission
system that could provide long-term savings for consumers by improving
the efficiency and operation of the grid. Smart grid advancements will
apply digital technologies to the grid, enabling two-way communications
and real-time coordination of information from both generating plants
and demand-side resources. This is intended to improve the efficiency
of the bulk-power system with the goal of achieving long-term savings
for consumers. The new policy adopted as a Commission priority the early
development by industry of smart grid standards to: (1) ensure the cyber
security of the grid; (2) provide two-way communications among regional
market operators, utilities, service providers and consumers; (3) ensure
that power system operators have equipment that allows them to operate
reliably by monitoring their own systems as well as neighboring systems
that affect them; and (4)coordinate the integration into the power system
of emerging technologies such as renewable resources, demand response
resources, electricity storage facilities and electric transportation
systems. (Smart Grid Policy, 128 FERC ¶61,060
(ip
access users))
FERC's Oversight of ICR in ISO-New
England OK Under FPA
The Federal Energy Regulatory
Commission (FERC) had jurisdiction to review the Installed Capacity Requirement
(ICR) in the New England bulk power system because FERC's review of the
ICR did not constitute direct regulation of electrical generation facilities,
the U.S. Court of Appeals for the District of Columbia Circuit held. Under
the Federal Power Act, FERC has jurisdiction over rates but does not have
jurisdiction over facilities used for the generation of electricity. The
ICR represents the estimated amount of capacity the system will require
for reliability three years in the future, and is used as part of a “descending
clock'' auction that determines the market clearing price for ISO New
England, Inc. The Connecticut Department of Public Utility Control argued
that FERC did not have the authority to approve or modify the ICR because
any increase in the ICR would necessarily require the installation of
new capacity, which was outside of FERC's jurisdiction. The Court of Appeals
found that FERC was only claiming the authority to review capacity charges
to ensure that they were just and reasonable. Because determination of
the ICR necessarily affects rates within FERC's jurisdiction but not necessarily
new capacity construction, FERC's review of the ICR is within its jurisdiction.
(Connecticut Dept. of Public Utility Control v. FERC, DCCir 2009,
CCH Utilities Law Reporter ¶14,749).
Generators Receive Limited Refunds
for Network Upgrade Costs
Six independent power generators
that bore the full costs associated with network upgrades in order to
interconnect with three utilities' systems were entitled to a limited
refund of their upfront network payments, less their prior rate payments,
the U.S. Court of Appeals for the District of Columbia Circuit ruled.
Interconnection facilities allow generators to interconnect to a utility's
power system, and are paid for solely by the generators. Network upgrades
are made to improve the system for all users. Under the network agreements
approved in this case, the generators were required to bear the costs
of the network upgrades. Subsequently, the Federal Energy Regulatory Commission
(FERC) established a policy requiring utilities to bear network upgrade
costs by giving transmission service credits to an interconnecting generator
equal to their upfront payments. Under the Federal Power Act, FERC may
order refunds of amounts paid in excess of the just and reasonable rate
during a limited refund period only. FERC was required to offset the refunds
owed the generators by the amount of their prior rate payments in order
to avoid ordering prohibited retroactive relief. (ExxonMobil Corp.
v. FERC, DCCir 2009, CCH Utilities Law Reporter
¶14,750).
State PUC Should Have Fined Electric
Cooperative
The Michigan Public Service
Commission (PSC) erred in not imposing a fine upon an electric cooperative
which had been ordered to refund unauthorized overcharges, a Michigan
Court of Appeals held. During the period that a large resort service (LRS)
tariff had been in effect for electric service to Great Wolf Lodge of
Traverse City, a resort and water park, Cherryland Electric Cooperative
unilaterally increased the rate to its large commercial and industrial
(LCI) rate because, it said, Great Wolf did not met the minimum load requirement
for the LRS rate. The PSC ordered Cherryland to refund $72,550.16, but
declined to impose a fine or interest on the reward on the grounds that
Cherryland's interpretation of its duties was erroneous but reasonable.
No electric utility could put in force any rate or change without PSC
approval, and any utility that willfully or knowingly or negligently failed
to comply with an order of the PSC was subject to fines. The PSC's findings
of fact set forth the evidence for the cooperative's violations, and imposition
of the fine was mandatory, the court said; its failure to impose the fine
was an unlawful violation of its statutory duty. (Great Wolf Lodge
v. Michigan PSC, MichCtApp 2009, CCH Utilities Law Reporter
¶27,060)
Need for Demand Response in Electric
Markets Reaffirmed
The Commission has reaffirmed
that demand response directly affects rates in wholesale electric markets
and, therefore, removing barriers to demand response is consistent with
FERC's duty to ensure the sound operation of those markets. FERC is seeking
to encourage long-term power contracts, enhance the role of market monitors
and increase the responsiveness to customers of the boards of directors
of regional transmission organizations and independent system operators
that run the organized markets. At the same time, the Commission stressed
that it is not challenging the role of the states to decide the eligibility
of retail customers to provide demand response to wholesale markets. (FERC
Statutes and Regulations Edition ¶31,292
(ip
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Law Firm Not disqualified from Representation
City of Santa Clara, California’s
(Santa Clara) and the Northern California Power Agency’s (NCPA)
motion to disqualify the law firm of Sidley Austin LLP (Sidley) and its
attorneys from representing Pacific Gas & Electric Company (PG&E),
was denied by the Commission. Santa Clara and NCPA objected because each
claimed to be an existing client with Sidley and that Sidley’s representation
of PG&E, which would be adverse to them, amounted to a violation of
ethical rules. It found that the proceedings would not be tainted if the
Sidley attorneys continued to represent PG&E. First, Sidley’s
representation of PG&E and Santa Clara was in an entirely separate
context. Second, the Sidley attorneys established effective procedures,
such as implementing “ethical walls” designed to protect any
confidential information obtained by Sidley’s municipal finance
attorneys. Third, the Sidley attorneys and PG&E agreed that, in circumstances
where PG&E would be directly opposed to Santa Clara, PG&E’s
in-house counsel would be the counsel of record. The Commission found
these measures were sufficient in removing the potential for, and the
appearance of, unethical conduct resulting from the attorneys’ representation
of PG&E. The Commission also concluded that the hardship to PG&E
was a factor that should be given significant weight because for PG&E
to either retain new counsel would present a significant burden to PG&E
in representing its interest before the Commission. Also, the public interest
in resolving the proceedings would be harmed by any further delay. (San
Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services
into Markets Operated by the California Independent System Operator Corp.
and the California Power Exchange Corp., et al., 128 FERC ¶61,009
(ip
access users))
MidAmerica to Join Midwest ISO
In a single order, the Commission
addressed three filings to facilitate MidAmerican Energy Company (MidAmerican)
joining Midwest Independent Transmission System Operator (Midwest ISO)
as a transmission-owning member. The Commission accepted Midwest ISO’s
open access transmission energy and operating reserve markets tariff (ASM
tariff), conditionally accepted Midwest ISO’s and MidAmerican’s
local planning provisions into the ASM Tariff as Attachment FF-MidAmerican,
and conditionally accepted Midwest ISO and MidAmerican’s joint filing
of amendments to the ASM tariff that identified and classified the grandfathered
agreements. MidAmerican announced its intent to join Midwest ISO as a
transmission owner and its plans to integrate its facilities into Midwest
ISO on September 1, 2009. The Commission accepted Midwest ISO’s
proposed revisions to the ASM tariff with respect to the partial-year
financial transmission rights allocation, which was effective June 2,
2009. The proposed revisions to the tariff provide the details needed
about the number of nomination and allocation stages by stating that Midwest
ISO will have a single-round nomination and allocation of he partial-year
financial transmission rights. The Commission required a compliance filing
that made a number of small changes outlined by the Commission. (Midwest
Independent Transmission System Operator, Inc., et al., 128 FERC
¶61,046
(ip
access users))
Enforcement Finds No Violation in Routing
Flows
The Commission adopted the report
of the Office of Enforcement which found that there was neither market
manipulation nor tariff violations in the placing of circuitous schedules
in the Lake Erie region. The investigation began at the request of the
NYISO Market Monitoring and Performance Department (MMP), following an
informal notification provided by the MMP and a subsequent written referral.
A second referral, on a related matter, was received from Potomac Economics,
Inc., the independent market monitor of the Midwest Independent Transmission
System Operator, Inc. (Midwest ISO). The OE Report concluded that the
uplift experienced by the NYISO’s customers as a result of Lake
Erie region scheduling practices, between January 1, 2008 and July 22,
2008, was due, in substantial part, to: (1) the lack of seams coordination
among the NYISO and neighboring RTOs, namely, between NYISO, PJM, the
Midwest ISO, and Ontario’s Independent Electricity System Operator;
(2) the incentive created by certain proxy bus pricing changes that the
NYISO put into effect in 2007; and (3) the NYISO’s methodology for
incorporating loop flow in NYISO’s day-ahead modeling. The market
participants responsible for the scheduling practices did not commit any
tariff violations or violate the Commission’s anti-manipulation
rule. Therefore, no further action was warranted. (New York Independent
System Operator, Inc., 128 FERC ¶61,049
(ip
access users))
Natural Gas
More Flexibility for Interstate NG
Industry Proposed
The Commission is proposing
to amend its regulations prescribing standards for interstate natural
gas pipeline business practices and electronic communications to incorporate
by reference standards adopted by the Wholesale Gas Quadrant of the North
American Energy Standards Board (NAESB) for Index-Based Capacity Release
and Flexible Delivery and Receipt Points. The proposed standard for Flexible
Delivery and Receipt Points allows natural gas-fired generators easier
access to fuel at times when capacity is scarce by affording shippers
greater flexibility on the receipt and delivery points for redirects of
scheduled gas quantities. The proposed standard for Index-Based Capacity
Release provides clarity on the timing and use of price indices for pricing
and arranging index-based capacity release transactions. The index pricing
standards also provide rules under which releasing and replacement shippers
can create rate formulas for capacity release that will better reflect
the value of capacity. (FERC Statutes and Regulations Edition
¶32,645
(ip
access users))
Gas Used By Pipeline to Power Gas Transport
Subject to Sales Tax
Louisiana sales tax could be
imposed on customer-supplied natural gas used by Columbia Gas Transmission
Company to power the compressors used in its natural gas system, a Louisiana
Court of Appeals held. Louisiana imposes a sales tax upon the sale at
retail, the use, the consumption, the distribution, and the storage for
use or consumption in the state of each item or article of tangible personal
property. Because all the requirements for a sale were met, the gas is
taxable, the court concluded. However, the court remanded the issue of
the amount of sales tax owed because there were too many issues of fact
yet to be determined. (Columbia Gas Transmission Co. v. Bridges,
LaCtApp 2009, CCH Utilities Law Reporter ¶27,057).
Office of Enforcement Resolves Four
Flipping Investigations
The Office of Enforcement (Enforcement)
and Piedmont Natural Gas Company, Inc. (Piedmont), Wasatch Oil & Gas
Corporation (Wasatch Oil & Gas) and its affiliate Wasatch Energy,
LLC (Wasatch Energy), ProLiance Energy, LLC (ProLiance), and Sequent Energy
Management, LP (Sequent Management) and Sequent Energy Marketing, LP (Sequent
Marketing) entered into Stipulation and Consent Agreements, which the
Commission approved, to resolve investigations into possible flipping.
Flipping is a term that describes transactions that avoid the posting
and bidding requirements for discounted rate firm capacity. Enforcement
and Piedmont agreed that Piedmont would pay a $1.25 million civil penalty
and submit semi-annual monitoring reports to Enforcement for a period
of one year with the option of a second year at staff’s discretion.
Office of Enforcement required Wasatch Oil & Gas and Wasatch Energy
to pay a $320,000 civil penalty and required either Wasatch entity, if
it resumes interstate gas transmission operations within four years of
the effective date of the settlement, to submit a one-time compliance
monitoring report covering the first 12 months of activity. Enforcement
required ProLiance to pay a $3 million civil penalty, to disgorge $195,959.44
plus interest of unjust profits from ProLiance’s shipper-must-have-title
violations, and submit to semi-annual monitoring reports to Enforcement
for a period of one year with the option of a second year at staff’s
discretion. Sequent Management and Sequent Marketing admitted that they
engaged in the flipping transactions and buy/sell transactions, but did
not admit nor deny that they violated the prohibition against buy/sell
transactions. Sequent Management and Sequent Marketing agreed to pay a
$5 million penalty, to disgorge $53,728.18, plus interest, and to submit
semi-annual monitoring reports to Enforcement for a period of one year
with the option of a second year at Enforcement’s discretion. (In
re Piedmont Natural Gas Co., Inc., In re Sequent Energy Management, LP,
et al., In re ProLiance Energy, LLC, In re Wasatch Oil & Gas Corp.,
et al., 128 FERC ¶61,319
(ip
access users), ¶61,320
(ip
access users), ¶61,321
(ip
access users), ¶61,322
(ip
access users))
Nuclear Power
Use of Risk Data To Refine Cooling
Requirements Proposed
The voluntary use of risk information
to refine NRC requirements governing how nuclear power plants must safely
handle loss-of-coolant accidents (LOCA) of various significance has been
proposed by the Commission. The proposed rule would allow current and
certain future power reactor licensees and applicants to choose to implement
a risk-informed alternative to the current requirements for analyzing
the performance of emergency core cooling systems (ECCS) during these
accidents. It would divide all coolant piping breaks currently considered
in emergency core cooling requirements into two groups: breaks up to and
including a transition size, and breaks larger than the transition size
up to the largest pipe in the reactor coolant system. The change would
focus plant resources on the areas of higher risk significance. NRC, however,
believes that it is necessary for a licensee to demonstrate that its seismic
LOCA frequency is sufficiently low before the implementation of the alternative
ECCS requirements. NRC will review for approval analysis methods used
to evaluate plant response to LOCAs larger than the transition break size
as well. The Commission also has modified the risk-informed change process
considerably by reducing the scope of the facility changes for which a
risk assessment is required. (CCH Nuclear Regulation Reporter
¶4228)
Stronger Oversight of Radioactive Materials
Proposed
Stronger oversight of radioactive
materials has been proposed by the Commission, which wants to limit the
amount of radioactive material allowed in generally licensed devices.
The proposed rule would require owners of approximately 1,800 devices,
an estimated 1,400 general licensees nationwide, to apply for specific
licenses for the devices. This change applies primarily to fixed industrial
gauges. Requiring specific licenses for such devices would improve the
safety, security and control over the gauges by bringing them under increased
regulation, making it harder to accumulate a risk-significant amount of
radioactive material or to procure a device through subterfuge. The devices
that would be affected by the proposal fall into Category 3 or the upper
limits of Category 4 of the International Atomic Energy Agency’s
(IAEA’s) categorization of radioactive sources. The U.S. government
considers Category 1 and Category 2 sources to be the most sensitive from
a security standpoint. While sources in lower categories are considered
less sensitive, the NRC is concerned that a small number of Category 3
or certain Category 4 sources together could be equivalent to a Category
2 amount of radioactive material. Such an aggregation could be used in
the construction of radiological dispersion devices (``dirty nuclear bombs'').
The proposed rule would require specific licenses for devices containing
radioactive material equal to or greater than 1/10th of the IAEA’s
Category 3 level. (CCH Nuclear Regulation Reporter ¶4222)
Mineral Management Service
MMS/FERC Release Guidance on Hydrokinetic
Energy Projects
The staffs of the U.S. Department
of the Interior's Mineral Management Service (MMS) and the Federal Energy
Regulatory Commission (FERC) issued guidance as part of an ongoing effort
to clarify jurisdictional responsibilities for hydrokinetic projects in
offshore water on the Outer Continental Shelf (OCS). The goal was to develop
a cohesive, streamlined process that will help accelerate the development
of hydrokinetic energy projects. The guidance document is designed to
provide information to applicants and stakeholders about the respective
responsibilities of each agency and how to best navigate the process of
obtaining a hydrokinetic lease and license on the OCS. It uses a format
of frequently asked questions (FAQs) to address regulatory issues. The
document is intended to explain and provide more detail about the roles
of the MMS and the FERC in authorizing the use of the OCS for hydrokinetic
activities. The most current version is available on www.mms.gov and www.ferc.gov.
(CCH Energy Management, Issue No. 1302, August 13, 2009)
S. Elizabeth Birnbaum Becomes MMS Director
S. Elizabeth Birnbaum assumed
duties as Director of the Mineral Management Service (MMS) on July 15,
2009. As director, Birnbaum will administer programs that ensure the effective
management of renewable energy, such as wind, wave, and ocean current
energy; and traditional energy and mineral resources on the nation's Outer
Continental Shelf, including the environmentally safe exploration, development,
and production of oil and natural gas, as well as the collection and distribution
of revenues for minerals developed on federal and American Indian lands.
Before her appointment, she was staff director for the Committee on House
Administration, were she oversaw strategy development, budget management
and staff activities for the committee that manages legislative branch
agencies. From 2001-2007, she was Vice President for Government Affairs
and General Counsel for American Rivers, where she directed advocacy programs
for the nation's leading river conservation organization. (CCH
Energy Management, Issue No. 1302, August 13, 2009)