January 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

Market-Based Rate Authority Standards Affirmed
Commission has affirmed its basic determinations in Order 697-A(CCH FERC Statutes and Regulations ¶31,268) and granted rehearing and clarification regarding certain revisions to its regulations and to the standards for obtaining and retaining market-based rate authority for sales of energy, capacity and ancillary services to ensure that such sales are just and reasonable. In response to requests for clarification concerning allocation of simultaneous transmission import limit capacity when conducting the indicative screens used in the horizontal market power analysis, the Commission clarified and reaffirmed that it will require applicants to allocate their seasonal and longer transmission reservations to themselves from the calculated simultaneous transmission import limit only up to the uncommitted first-tier generation capacity owned, operated or controlled by the seller and its affiliates. The Commission also reiterated that the owner of a facility is presumed to have control of the facility unless such control has been transferred to another party by virtue of a contractual agreement. The Commission has revised the definition of ``affiliate'' in its market-based rate regulations as well to delete the separate definition for exempt wholesale generators (EWGs), explaining that use of the same definition for EWGs as for non-EWG utilities is appropriate and that the definition adopted in Order No. 697-A for non-EWG utilities will not affect the substance of the Commission's analysis for market power issues. (CCH FERC Statutes and Regulations ¶31,285 (ip access users))

Refund Proceeding Designations Determined
The Commission accepted 24 parties' unopposed requests for designation as a "non-public utility" for the purposes of the California refund proceedings. The opposed requests for designation as a "non-public utility" from the City of Palo Alto (Palo Alto), the City of Redding (Redding), the Imperial Irrigation District (IID) and the Arizona Electric Power Cooperative (AEPCO) were also accepted. The Commission ordered certain governmental entities and other nonpublic utilities that participated in the centralized single clearing price auction markets operated by the California Independent System Operator (CAISO) and the California Power Exchange (PX) to make refunds for the period of October 2, 2000 to June 20, 2001. All the entities seeking designation as a "non-public utility" were ordered to make a filing requesting this designation. The Commission determined that the unopposed filings were sufficient to establish that the parties were "non-public utilities." The Commission granted the opposed requests of Palo Alto, Redding and IID because the purpose of the filings was to determine which entities might receive payment of past due amounts owed as non-jurisdictional sellers. The parties opposing their designation failed to allege that the three were not owed money for sale they made during the refund period. (San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Service into Market Operated by the California Independent System Operator Corp. and the California Power Exchange Corp., et al., 125 FERC ¶61,297 (ip user access)))

FERC Interpretation of PURPA Provision Upheld
The term “markets,” as used in a provision of the Public Utility Regulatory Policies Act (PURPA), encompasses both competitive and noncompetitive markets, the U.S. Court of Appeals for the District of Columbia held. PURPA provides that a utility is exempt from an obligation to purchase power from a qualifying facility (QF) if, among other situations, the QF has nondiscriminatory access to independently administered, auction-based day ahead and real time wholesale markets for the sale of electric energy, as well as wholesale markets for long-term sales of capacity and electric energy. The Federal Energy Regulatory Commission (FERC) interpreted the term “markets” in the second portion of that provision as including both competitive and non-competitive markets. FERC’s interpretation was reasonable and was consistent with common usage of the term “markets.” (American Forest and Paper Assoc. v. FERC, DCCir, CCH Utilities Law Reporter ¶14,726)

Entergy Power Capacity Agreement Upheld
The decision by the Federal Energy Regulatory Commission (FERC) to approve a long-term agreement allocating power-generating capacity among the affiliates the Entergy System was reasonable, the U.S. Court of Appeals for the District of Columbia Circuit decided. The FERC opinion allowed two of Entergy’s affiliates, Entergy Arkansas and Entergy Gulf States, to sell their capacity to two other Entergy affiliates, Entergy New Orleans and Entergy New Orleans. This had the effect of increasing costs for the transferring affiliates’ customers and lowering them for the receiving affiliates’ customers. While the Louisiana Public Service Commission objected to this proposal as discriminatory, the court found that it was not possible to attribute the entire increase in the costs for Entergy Gulf States solely to the transfer, and noted that Entergy Gulf States was slated for its own long-term allocations in the future. (American Louisiana Public Service Comm’n v. FERC, DCCir, CCH Utilities Law Reporter ¶14,728)

FERC Stay of Hydropower License Upheld
A decision by the Federal Energy Regulatory Commission (FERC) to stay an order granting a new license to the operator of a hydroelectric facility was upheld by the U.S. Court of Appeals for the First Circuit because a state court had already decided the issue. The Clean Water Act required the licensee, FPL Energy Maine Hydro LLC, to obtain a state certification or demonstrate that the state waived certification by failing or refusing to act on a request for certification within one year before its license could be renewed by FERC. FERC renewed the license after the Maine Department of Environmental Protection granted certification at the end of the one-year period, but subsequently stayed the license renewal after the state later rescinded the certification. The Maine Supreme Judicial Court held that the one-year time limitation was satisfied by the state’s decision within the one-year period, even though the rescission took place afterwards. FPL did not show that disregarding res judicata would be in the public interest or that the standard of review in the federal proceeding was any different from that in the state proceeding, the First Circuit said. (FPL Energy Maine Hydro LLC v. FERC, 1stCir, CCH Utilities Law Reporter ¶14,727)

Nuclear Power

DOE Cites Need for Interim SNF Storage Capacity
Congress has been informed by the Secretary of Energy of the need for interim storage capacity for spent nuclear fuel (SNF) and high-level radioactive waste (HLW). The Department was required by the Consolidated Appropriations Act of 2008 to develop a plan to take custody of SNF currently stored at decommissioned reactor sites. The Department has reviewed its authority to accept this SNF for interim storage and has concluded that under current law it has no such authority. The Secretary also summarized the contractual arrangement the government and utilities have under the Standard Contract for Disposal of Spent Nuclear Fuel

And/or High-Level Nuclear Waste, related litigation, and financial liabilities resulting from the Department’s delay in performance under these contracts. He also identified legislative changes and actions which would be necessary for the Department to develop an interim storage facility and demonstration program for commercial SNF. (CCH Nuclear Regulation Reporter, No. 1407, December 23, 2008)

Purchaser of Plant Entitled To Claim Damages Against DOE
A purchaser of a nuclear power plant was entitled to seek damages for breach of contract against the Department of Energy for its failure to accept the utility’s spent nuclear fuel and high-level radioactive waste on a timely basis, the U.S. Court of Federal Claims has determined. The language of the purchase and sale agreement unambiguously assigned to the purchaser assets including all spent nuclear fuel at the plant. The seller retained only the right to pursue off-set claims related to the one-time fee that the seller was obligated to pay prior to DOE’s actual acceptance of the SNF. (CCH Nuclear Regulation Reporter ¶20,867)

Natural Gas

Posting Rule Will Improve Market Transparency for NG Pipelines
A final rule requiring the posting of important market information intended to improve price transparency in the interstate natural gas markets by providing information about the supply and demand fundamentals that underlie those markets has been issued by the Commission. The rule establishes new posting requirements under the natural gas market transparency rules of the Natural Gas Act (NGA). It requires interstate and certain major non-interstate pipelines to post on their publicly accessible web sites daily operational information, such as scheduled volume information and design capacity for certain receipt and delivery points. A major non-interstate pipeline is a pipeline that is not classified as a natural gas company under the NGA and delivers on average more than 50 million MMBtu (British thermal units) of gas annually over a three-year period. The rule requires these non-interstate pipelines to post daily specific scheduled flow information at each receipt or delivery point with a design capacity of 15,000 MMBtu per day or more. The rule also will require interstate natural gas pipelines to post information regarding the provision of no-notice service, as provided by FERC regulations. (CCH FERC Statutes and Regulations ¶31,283 (ip access users))

Oil and Gas Leasing

Rules Allocating Funds from Certain Gulf Leases Finalized
The regulations that govern the distribution and disbursement of royalties, rentals, and bonuses was amended to include the allocation and disbursement of revenues from certain leases on the Gulf of Mexico (GOM) Outer Continental Shelf (OCS), under a final rule from the Mineral Management Service. The rule implements portions of the Gulf of Mexico Energy Security Act of 2006 (GOMESA). GOMESA lifted the moratorium on oil and gas leasing in a part of the Central GOM and mandated lease sales in 181 Eastern Planning Area and 181 South Area. For fiscal years 2007 through 2016, 50 percent of qualified OCS revenues from these two areas will be deposited into a special account in the U.S. Treasury; of the remaining 50 percent, 25 percent will be disbursed to the Land and Water Conservation Fund and 75 percent will be allocated among the states of Alabama, Louisiana, Mississippi, and Texas, based upon a formula including their inverse proportional distance from the leases in the 181 Areas. (CCH Energy Management ¶9546).