January 2010
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
Federal Energy Regulatory Commission
Norris Confirmed as Commissioner by
U.S. Senate
The U.S. Senate voted to confirm Mr. John Norris to the Commission
on December 24, 2009. Mr. Norris previously served as Chief of Staff to
Secretary Tom Vilsack of the U.S. Department of Agriculture. Prior to
joining the USDA, Mr. Norris served as Chairman of the Iowa Utilities
Board from 2005 to 2009. As a member of the National Association of Regulatory
Utility Commissioners, he worked on the Electricity Committee and was
Co-Chair of the 2009 National Electricity Delivery Forum. Previously,
Mr. Norris also served in various positions with the Midwest Independent
System Operator. (Federal Energy Regulatory Commission Reporter,
No. 1486, January 7, 2010).
Enforcement Process Made More Transparent
The Commission has acted to
make its energy market enforcement process more transparent to market
participants and consumers. The Commission authorized the Secretary of
the Commission to issue a "Staff's Preliminary Notice of Violations"
after the subject of the investigation had an opportunity to respond to
staff's preliminary finding letter. This would take place upon authorization
of the Director of the Office of Enforcement. The order would benefit
the public interest by informing the regulated community about the views
of the Office of Enforcement regarding the matter, which could contribute
to a better understanding of compliance obligations. The order would also
increase transparency by informing consumers of matters under investigation
by the Commission Office of Enforcement. Notice would not confer a right
on third parties to intervene in the investigation or any other with respect
to the noticed investigation. Further, the Commission formalized a process
by which the Office of Enforcement would provide exculpatory evidence
to subjects of its investigations and respondents in administrative enforcement
proceedings. (Enforcement of Statutes, Regulations, and Orders,
129
FERC ¶61,247 (ip
access users) (Intelliconnect)
; 129
FERC ¶61,248 (ip
access users) (Intelliconnect))
Electric Utilities
Normal Operations Planning Reliability
Standard Interpreted
In response to a request, the
North American Electric Reliability Corporation (NERC) provided an interpretation
of the Commission-approved Transmission Operations Reliability Standard
for Normal Operation Planning, which the Commission approved. NERC clarified
that each transmission operator was required to have a study in advance
of each day that can be applied to the system conditions in advance and
during the day, but it was not necessary to generate a unique study for
each day. A transmission operator could use a study for multiple days
if system conditions on those days were similar to study conditions. Further,
NERC clarified that the requirements gave no mandate on a particular type
of review or study, which "may be based on complex computer studies
or a manual reasonability review of previously existing study results."Finally,
NERC clarified that studies provided real-time and near real-time information
that should be used both to determine new system operating limits (SOLs)
and identify potential "exceedences" of established SOLs, based
on potential or current conditions. NERC specified that if the transmission
operator determined that prior studies and SOLs may be outdated, a new
study had to be performed. (North American Electric Reliability Corp.,
129
FERC ¶61,191) (ip
access users) (Intelliconnect)
Reliability Standards for Interchange
Scheduling Adopted
Three updated Interchange Scheduling
and Coordination (INT) reliability standards developed by the North American
Electric Reliability Corporation (NERC): INT-005-3, Interchange Authority
Distributes Arranged Interchange; INT-006-3, Response to Interchange Authority;
and INT-008-3, Interchange Authority Distributes Status have been adopted
by the Commission. The changes provide consistency in responding to interchange
requests by clarifying timing requirements for all affected entities and
facilitate the reliable operation of the bulk-power system by providing
Western Electricity Coordinating Council (WECC) sufficient time to assess
and respond to requests for interchange service before the underlying
E-tags for these expire and by clarifying the timing requirements for
the affected entities. Finally, the Commission found that separating the
WECC and Eastern-Interconnection/Electric Reliability Council of Texas
(ERCOT) requirements at the timing tables added clarity for entities operating
in the WECC system. Retaining the slightly modified version of the prior
timing tables for the sale of Eastern Interconnection and ERCOT helped
to ensure consistency in responding to interchange requests in those areas
as well. (Revised Mandatory Reliability Standards for Interchange
Scheduling and Coordination, Order No. 730, 129
FERC ¶61,223) (ip
access users) (Intelliconnect)
Need for Demand Response in Electric
Markets Reaffirmed
The Commission has reaffirmed
that demand response during periods of operating reserve shortages 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. In an order denying rehearing of Order No.
719-A [FERC Statutes and Regulations Edition ¶31,292], the Commission
ruled that its definition of aggregators of retail customers (ARCs) as
entities that aggregate demand response bids is correct and that the language
of Order No. 719-A does not restrict the relevant electric retail regulatory
authority's ability to determine and enforce qualification for ARCs. It
also refused to provide special treatment to a particular group of aggregators
by exempting them from Order No. 719-A's small system provision. (Wholesale
Competition in Regions with Organized Electric Markets, Order No.
719-B, 129
FERC ¶61,252) (ip
access users) (Intelliconnect)
Natural Gas
Cost-of-Service Justification Calculation
Clarified
An administrative law judge (ALJ) clarified SFPP, LP's (SFPP)
tariff's cost-of-service (COS) justification calculation. The COS proposed
rate increases for all petroleum products movements on SFPP's West Line
between Watson Station Los Angeles County, California and Phoenix, Arizona.
SFPP was requesting a COS justification because it had expanded its East
Line and expected the volume on the West line to decrease. Not all Shippers
addressed every issue, but generally each supported any position of other
Shippers or Staff which would lower the proposed cost of service, or challenged
the justness and reasonableness of SFPP's proposed rate increase. SFPP
will need to make necessary adjustments based upon the ALJ's findings
that purchase accounting adjustments should be excluded from calculations
pertaining to the equity component of its capital structure, and the inclusion
of commercial paper in the cost of long term debt calculations. The ALJ
found that no adjustment should be made to the equity rate of return to
reflect the inclusion of the income tax allowance and SFPP was entitled
to the income tax allowance. In general the ALJ found that SFPP's application
of the Massachusetts Formula was appropriate and complied with Commission
precedent. Further, the ALJ agreed with SFPP that environmental remediation
costs should be part of the cost of service because there were real and
recurring costs that would continue for at least 10-15 years. Finally,
the ALJ determined that the just and reasonable rates were those calculated
after the adjustments were made consistent with his findings. (SFPP,
LP, 129
FERC ¶63,020) (ip
access users) (Intelliconnect)
Transfer of Responsibility for Gas
Line Repair from Consumer OK’d
A decision by the Ohio Public
Utilities Commission to make Columbia Gas of Ohio, Inc., responsible for
the repair and replacement of hazardous gas service lines that were formerly
the responsibility of the consumer was upheld by the Ohio Supreme Court.
The service lines run from the curb to the homeowner’s meter, and
before the Commission’s decision, a homeowner was responsible for
repairing or replacing a damaged service line, and service was terminated
until the repair or replacement was complete. During the period 2000 to
2006, at least four risers for service lines failed, resulting in explosions.
The court found that the Commission had the statutory authority to make
Columbia responsible for the lines’ repair or replacement. In addition,
the record showed that the present system had resulted in serious safety
problems and that the Commission’s solution would reduce the hazards.
(Utility Service Partners, Inc. v. Pub. Utilities Comm’n of
Ohio (OhioSCt) CCH Utilities Law Reporter ¶27,080)
Jordan Cove LNG Import Terminal Authorized
The Jordan Cove Energy Project,
L.P., a new liquefied natural gas (LNG) import terminal and the related
Pacific Connector Gas Pipeline, LP, were approved by the Commission. The
projects were meant to serve the growing energy demand in the Pacific
Northwest. The Jordan Cove LNG import terminal would be located in the
North Spit of Coos Bay in Coos County, Oregon, and would provide up to
1 billion cubic feet of gas per day to customers in the Pacific Northwest
through interconnections with several existing pipeline systems. The 234-mile
Pacific Connector pipeline would transport the gas from the terminal to
a point near Malin, Klamath County, Oregon, on the Oregon/California border.
The Commission found that Jordan Cove's LNG import terminal was consistent
with the public interest. Further, the Pacific Connector Gas Pipeline
was required by the public convenience and necessity under the Natural
Gas Act. (Pacific Connector Gas Pipeline, LP, et al., 129
FERC ¶61,234) (ip
access users) (Intelliconnect)
Service Companies
Filing of Form No. 60 by Service Companies
Required
Every centralized service company
that provides non-power services to any public utility, natural gas company,
or both, will be required to file Form No. 60 (Annual Report of Centralized
Service Companies) annually and abide by the Uniform System of Accounts,
unless exempted or granted a waiver pursuant to agency regulations. A
centralized service company is defined to include any service company
providing services such as administrative, management, financial, accounting,
and other services to other companies in the same holding company system.
To clarify a potential gap in its regulations, the Commission will apply
these requirements to any centralized service company that provides non-power
services to any public utility or any natural gas company, or both, in
the same holding company system, so that the filing requirements will
apply to all the entities that the Commission envisioned covering in its
earlier orders. (FERC Statutes and Regulations Edition
¶31,300)
(ip
access users) (Intelliconnect)
Hydroelectric Projects
FERC License Surrender Order Upheld
An order by the Federal Energy
Regulatory Commission (FERC) granting a licensee’s application to
surrender its license was valid because the North Carolina water quality
certification upon which it was based was not invalid, the U.S. Court
of Appeals for the District of Columbia Circuit ruled. Jackson County
had challenged FERC’s decision to allow Duke Energy Carolinas, LLC,
to surrender its license to operate the Dillsboro hydroelectric project
and to remove the project’s dam and powerhouse. However, the court
found that the state’s failure to comply with the statutory notice
requirement was harmless because the county had timely actual notice of
the state certification application when it was served with a stamped
copy. Furthermore, FERC’s environmental assessment was not improperly
carried out and did not overlook valid alternatives. Finally, FERC lacked
authority to order the licensee to continue to maintain and monitor the
facilities. (County of Jackson v. FERC (DCCir) CCH Utilities
Law Reporter ¶14,758)
Nuclear Power
Utility Entitled to $38M for DOE’s
Failure To Accept SNF
A utility was entitled to damages
totaling nearly $38 million because of the Department of Energy's (DOE)
failure to accept the utility’s 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 utility
in which the government agreed to dispose of the company’s SNF beginning
no later than January 31, 1998. As a result, the utility was entitled
to reimbursement for the mitigation costs it incurred, largely through
the reracking of spent fuel casks in its spent fuel pool and private fuel
storage. These decisions were reasonable: they prevented the shutdown
of the power plant and their costs were demonstrated with reasonable certainty.
In addition, they were reasonably foreseeable by DOE at the time of contracting
as a logical consequence if the agency breached its contracts with the
utility. (Dairyland Power Co-op v. U.S. (ClCt), CCH Nuclear
Regulation Reporter ¶20,693)
Further Requirements To Retard Reactor
Vessel Aging Adopted
Alternate requirements that
pressurized-water reactor (PWR) licensees could use to account for some
effects of aging on their reactor vessels have been adopted by the Nuclear
Regulatory Commission. The new rule will increase the level of realism
used in calculations that examine a PWR's susceptibility to a phenomenon
known as pressurized thermal shock (PTS). This action is desirable because
the existing requirements are based on unnecessarily conservative probabilistic
fracture mechanics analyses. The rule will allow licensees of operating
PWRs to adopt voluntarily a more realistic technical approach for determining
the probability of vessel failure during a PTS event. This revised approach
was derived using data from research on currently operating PWRs that
indicate the overall risk of PTS-induced vessel failure after 60 years
of reactor operation is much lower than previously estimated. If a licensee
chooses to adopt the new approach, the rule would require PWR operators
to perform detailed analysis of both reactor vessel surveillance data
and the results of regular reactor vessel inspections. If the analysis
reveals that certain stress limits have been exceeded, the operator must
take steps to either limit the reactor vessel's exposure to neutron radiation
(which can make the vessel brittle) or determine how the reactor's systems
can be modified to prevent PTS-induced vessel failure. (CCH Nuclear
Regulation Reports, No. 1432, January 12, 2010)