January 2007

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

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Natural Gas

FERC Strikes Conduct Rules for Pipeline Non-Marketing Affiliates
The U.S. Court of Appeals for the District of Columbia Circuit rejected Federal Energy Regulatory Commission (FERC) orders that extended standards of conduct regulating natural gas pipelines’ interactions with their marketing affiliates to govern pipelines’ relationships with non-marketing affiliates as well. FERC relied on both an asserted theoretical threat of undue preference and a claimed record of abuse between pipelines and their non-marketing affiliates, stating that the record was similar to the record of abuse found in an earlier FERC order between pipelines and their marketing affiliates. The court, however, determined that, unlike the earlier order, FERC provided no evidence of a real problem with respect to pipelines' relationships with non-marketing affiliates: the record did not provide a single example of abuse by non-marketing affiliates, nor did the record disclose complaints from competitors of pipelines' non-marketing affiliates. National Fuel Gas Supply Corp. v. FERC, DC Cir., CCH Utilities Law Reporter ¶14,620) In response to the decision, FERC issued interim standards of conduct governing the relationship between natural gas transmission providers and their marketing affiliates. The interim regulations clarify that the standards of conduct apply only to the relationship between transmission providers and their affiliates. (FERC Statutes and Regulations ¶31,237)

Natural Gas Prices Expected to Fall
Despite increased natural gas consumption this winter, households in all regions of the country will pay significantly less for natural gas during the winter heating season due to lower prices, according to a report recently released by the federal Energy Information Administration (EIA). EIA predicts that, for the first time since the winter of 2001—2002, residential heating fuel prices are projected to be either lower than or close to prices prevailing during the previous winter. On average, households heating primarily with natural gas are expected to spend about $119, or 13 percent less than they paid last winter. Nationwide, 58 percent of all households depend on natural gas as their primary heating fuel. (FERC Statutes and Regulations, Report No. 477, December 2006)

Nuclear Power

DOE Must Pay Damages for Failure to Dispose of SNF
The Sacramento Municipal Utility District (SMUD) was awarded damages of $39,796,234 by the U.S Court of Federal Claims for certain costs it incurred from May 15, 1997 to December 31, 2003 because the Department of Energy (DOE) partially breached the standard utility contract it signed with SMUD through its failure to begin collecting spent nuclear fuel (SNF) by January 31, 1998. Although SMUD could not recover charges associated with its decision to use a dual purpose dry storage system because the need for this system was not foreseeable when the standard contract was executed, the district could recover costs for outside services, labor, materials and other charges. (Nuclear Regulation Reporter, No. 1359, Par. 20,674)

Tougher Safeguards Information Protections Proposed
More stringent protection of Nuclear Regulatory Commission (NRC) safeguards information (SGI) has been proposed by the agency to prevent the inadvertent release and unauthorized disclosure of this material. Such a release could compromise the security of nuclear facilities and materials, NRC said. The proposal would permit NRC to require fingerprinting of broader categories of individuals before they are given access to SGI. It would require background checks to include a criminal history check as well. (Nuclear Regulation Reporter, No. 1357, Par. 4284)

Electric Utilities

FERC Not Required to Consult with NMFS on Salmon Compliant
The Federal Energy Regulatory Commission (FERC) was not required to initiate a separate consultation with respect to an energy company's operation of a hydroelectric project under the project's existing, 1980 license agreement that authorized the energy company, Pacific Gas and Electric Co. (PG&E), to operate the project for 30 years, the U.S. Court of Appeals for the Ninth Circuit ruled. Environmental groups, in an effort to protect Chinook Salmon that were declared a threatened species in 1999, objected to a FERC decision not to initiate formal consultation with the National Marine Fisheries Service (NMFS) about the operation of the hydro project. The operative statute is the Endangered Species Act (ESA), which provides for formal consultation with NMFS to insure that ``agency action'' does not jeopardize continued existence of an endangered species. The continuing operation of the project by PG&E, however, was not an agency ``action'' that triggered the ESA's consultation requirement; nor was the listing of a species as endangered a triggering agency action, according to the court. (California Sportfishing Protection Alliance, et al. v. FERC, 9th Cir., CCH Utilities Law Reporter ¶14,622)

Wind Generator Connection Upgrades Not Network Facilities
The Commission has affirmed an administrative law judge’s finding that certain upgrades that were needed to interconnect Cabazon Wind Partners, LLC’s (Cabazon) wind generator to Southern California Edison Company’s (SCE) transmission system were not network facilities. Because a preexisting, 115 kV line was a non-integrated facility and not an integrated part of the California Independent System Operator’s (CAISO) system, no reimbursement to Cabazon was necessary. SCE wanted to treat the upgrades as non-integrated facilities and, as a result, directly assign the their costs to Cabazon rather than classifying them as upgrades to the integrated transmission network, the costs of which would not be directly assignable to the interconnection customer. The disputed facilities, however, did not satisfy the Mansfield five-factor test for network integration and so were not network facilities (Cabazon Wind Partners LLC v. Southern California Edison Co., Opinion No.490,. 117 FERC ¶61,212).

Midwest ISO’s Transmission Cost Allocation Accepted
In affirming an earlier order [114 FERC ¶61,106] that conditionally accepted and suspended proposed tariff revisions submitted by the Midwest Independent Transmission System Operator, Inc, (Midwest ISO), the Commission accepted the Midwest ISO’s proposed methodology for cost allocation for baseline reliability projects rated at 345 kV and above. The Commission found that the proposed 20 percent system-wide postage stamp rate for baseline reliability facilities was just and reasonable. The Commission also noted that different approaches to cost allocations worked for different regions of the country. The Midwest ISO had submitted proposed revisions to incorporate into its open access transmission and energy markets tariff the application for the Midwest ISO transmission planning protocols and to institute its transmission expansion cost allocation policy that assigns and recovers costs associated with new transmission projects and system upgrades within the Midwest ISIO transmission system as proposed by the Regional Expansion Criteria and Benefits task force (Midwest Independent Transmission System Operator, Inc., 117 FERC ¶61,241).

Incentive Rates Authorized for Transmission Expansion
The Commission has authorized a return on equity (ROE) of 10.2 percent for the regional transmission organization (RTO) proposed by ISO New England, Inc. and the New England transmission owners. The ROE includes an incentive rate to encourage badly needed transmission expansion and to ensure grid reliability in the New England region. While largely affirming an ALJ's findings supporting the calculation of the base-level return on equity, the order reversed the ALJ's finding that the 100 basis point incentive for new transmission investments was unnecessary (Bangor Hydro-Electric Co., et al. 117 FERC ¶61,129).