Energy Update January 2011

January 2011

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

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We are pleased to announce that Oil Spill Intelligence Report and the WK Energy News Watch blog have been added to Intelliconnect. Since 1978, the Oil Spill Intelligence Report has been known for its timely, comprehensive, worldwide coverage of developments in every aspect of the oil spill world: coverage of oil spills worldwide, contingency planning, cleanup and control equipment, scientific research, prevention efforts, international treaties, conferences and courses, training and drills, spill legislation and litigation, and publications and reports.

The WK Energy News Watch blog allows WK editors to supplement our print and electronic subscription reporters with daily updates on breaking developments in the energy field. Topics covered include a daily energy news summary, renewable and alternative energy, federal energy legislation, executive branch activities, government agency actions, and judicial decisions.

Approval of System Operating Limits Standards Proposed

The Commission proposes to approve a System Operating Limits standard developed by the Western Electric
Coordinating Council (WECC) and submitted to the Commission for approval by the North American Electric Reliability Corporation (NERC). The proposed standard would apply to transmission operators for the transmission paths in the most current table titled ``Major WECC Transfer Paths in the Bulk Electric System'' (WECC Transfer Path Table) located on the WECC Web site. NERC states that the primary purpose of the regional Reliability Standard is to ensure that actual flows and associated scheduled flows on Major WECC Transfer Paths do not exceed system operating limits for more than 30 minutes. The standard contains two requirements, which can be summarized as follows, it: (1) Requires a transmission operator of a major WECC transfer path to take immediate action to return actual flows that are in excess of the path's system operating limits to within the system operating limits in no longer than 30 minutes; and (2) Requires a transmission operator of a major WECC transfer path to ensure that the net scheduled interchange across the path does not exceed the path's system operating limits, when the transmission operator implements its real-time schedules for the next hour. (CCH FERC Statutes and Regulations Edition ¶32,668) (ip access users) (Intelliconnect)

Entergy Arkansas Ordered To Pay Refunds

In an initial decision, an administrative law judge (ALJ) found that Entergy Arkansas, Inc. (EAI) had to pay refunds to the various Entergy Operating Companies because EAI violated the Entergy System Agreement by making off-system sales. The Louisiana Public Service Commission (LPSC) alleged that EAI was selling excess electric energy generated by its low-cost, owned-and-operated generation facilities to third parties that were neither native load customers nor parties to the system agreement. First, the ALJ determined that EAI's wholesale opportunity sales and the associated energy and costs allocation for the period 2000-2009 violated the Entergy System Agreement. EAI's off-system opportunity sales harmed the other operating companies by causing them to absorb the difference between the sale price of energy and a price that approximated replacement incremental cost. Second, the ALJ found that the record clearly showed that Entergy violated the system agreement in making the sales without first complying with the system agreement, thereby harming the other operating companies. (Louisiana Public Service Commission v. Entergy Corp., et al., 133 FERC ¶63,008

ERO Penalty Monies Can Apply to NERC

Rehearing requests of a Commission decision [132 FERC ¶61,024 (ip access users)(Intelliconnect)] regarding the treatment of penalty monies collected from the Florida Reliability Coordinating Council (FRCC) and Southwest Power Pool (SPP) in their roles as registered entities, were granted by the Commission. North American Electric Reliability Corporation (NERC), SERC Reliability Corporation, FRCC, and SPP requested that the Commission direct the modification to agreements so that the penalties assessed against FRCC and SPP should be paid to NERC and used to offset NERC's statutory budget. The Commission found that the group's proposal that NERC receive the penalty money would resolve its concern that penalty monies should not revert to a regional entity against whom a penalty was assessed. The Commission found that requiring penalty monies collected from a regional entity for violations of its actions as a registered entity to be paid to NERC and used to reduce NERC's statutory budget would more equitably spread the benefit of the penalties across the assessments paid by the load-serving entities. (North American Electric Reliability Corp., 133 FERC ¶61,190

Federal Authorities Must Comply with Reliability Standards

A request by the United States Army Corp. of Engineers, Tulsa District (Corps-Tulsa District) that the Commission revisit and reverse its earlier determination that the Federal Power Act (FPA) applied to federal agencies [129 FERC ¶61,033 (ip access users)(Intelliconnect)], or in the alternative, find that federal agencies were not subject to monetary penalties under the FPA, was denied by the Commission. Corps-Tulsa was challenging the North American Electric Reliability Corporation's (NERC) authority to propose a zero dollar penalty against it for alleged violations of reliability standards. The Commission affirmed its prior finding that federal agencies were required to adhere to mandatory reliability standards adopted under the FPA because it did not find any error in analysis of the statutory language in its previous decision. Further the Commission found that the question of whether federal entities were subject to monetary penalties for violations of a mandatory reliability standard did not need to be addressed because no monetary penalty was currently proposed. (North American Electric Reliability Corp., 133 FERC ¶61,214

Midwest ISO Transmission Planning Process Updated

In response to a Commission order [129 FERC ¶61,060 (ip access users)(Intelliconnect)], the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) and Midwest ISO Transmission Owners (parties) filed an updated tariff which established a new Multi Value Projects (MVP) category, that the Commission accepted. The MVP designation is for projects that will enable the reliable and economic delivery of energy in support of documented energy policy mandates or laws that address, through the development of a robust transmission system, multiple reliability and/or economic issues affecting multiple transmission zones. The Commission accepted the MVP filing because it was just and reasonable. The MVP process would identify projects that provide regional benefits and allocate the costs of those projects accordingly. The Commission expected the MVP selection to allow Midwest ISO to achieve a number of goals: (1) to identify transmission projects that would benefit the grid and that could also satisfy documented energy policy mandates or laws; (2) to ensure thorough, transparent consideration of the many factors that will determine which transmission projects should receive regional cost allocation; (3) to allow Midwest ISO flexibility to move forward MVPs to maximize benefits within and across the region; and (4) to further progress toward the goal of facilitating efficient regional transmission planning. (Midwest Independent Transmission System Operator, Inc., 133 FERC ¶61,221

CAISO Small Generator Interconnection Procedures Updated

The California Independent System Operator Corporation's (CAISO) proposed revisions to its generator interconnection process, intended to harmonize its large generator interconnection procedures (LGIP) and its small generator interconnection procedures (SGIP), were approved by the Commission. The generator interconnection procedure (GIP) proposal would reduce the timelines for the Phase I and Phase II interconnection studies by a total of six months. In addition, instead of having three discrete queue clusters and application windows with queue clusters, the GIP would establish two cluster application windows for each interconnection study cycle with fixed dates to provide customers more certainty. Also, the GIP would change the initial interconnection study deposit from the flat $250,000 fee to a deposit equal to $50,000 plus $1,000 per megawatt of electrical output of the generating facility, up to a maximum of $250,000. The Commission accepted as just and reasonable CAISO's proposed tariff revision establishing a combined GIP cluster study process with two alternative study processes for generators seeking to interconnect with CAISO transmission grid. (California Independent System Operator Corp., 133 FERC ¶61,223

No Reimbursement of Litigation Fees in Condemnation Action

A federal statute allowing landowners to seek reimbursement of cost and fees incurred in connection with a condemnation proceeding instituted by a federal agency if the proceeding was abandoned by the United States did not include proceedings brought by private entities under authority granted by the Federal Energy Regulatory Commission (FERC), the U.S. Court of Appeals for the Ninth Circuit held. After a landowner refused a pipeline's compensation offers in a condemnation action, FERC approved the pipeline's request to reroute, and the court dismissed the action. The landowner then sought reimbursement for its litigation fees under the federal statute, arguing that the Act defined a "federal agency" as including any person who had authority to acquire property by eminent domain under federal law, and that the plain meaning of the term "United States", which was undefined in the Act, included federal agencies. However, the court found the legislative history and the plain meaning of the statute indicated that a private entity exercising federally granted condemnation power did not fall under the statute's reimbursement provision. (Transwestern Pipeline Co., LLC v. 17.19 Acres of Property (9th Cir) CCH Utilities Law Reporter ¶14,793

Hurricane Damage Surcharge Mechanism Approved

In an initial decision, an administrative law judge (ALJ) found that Sea Robin Pipeline Company, LLC's (Sea Robin) proposed surcharge mechanism to recover its hurricane-related expenses (Hurricane Surcharge) was just and reasonable. The damage to Sea Robin's offshore production system was caused by Hurricane Ike in 2008. The ALJ agreed with all the parties that operation and maintenance (O&M) costs and carrying costs should be included in the Hurricane Surcharge because they related to reimbursing Sea Robin for expenses incurred in returning the system to operability in the wake of Hurricane Ike. The ALJ also found that capital costs should be included within the Hurricane Surcharge. However, the ALJ determined that Asset Retirement Obligation costs recovered through Sea Robin's Tariff Rates, salvage values received from plant replacements, and any company O&M costs or capital costs should not factor into determining the Hurricane Surcharge. Further, the ALJ determined the appropriate recovery period for the Hurricane Surcharge. Lastly, the ALJ found that the Commission could, and should, modify the discount agreements that Sea Robin had with shippers to permit the imposition of the Hurricane Surcharge. The ALJ reasoned that if Sea Robin could not collect the Hurricane Surcharge from all of its customers, it would not recover all of its Hurricane Ike related repair costs. (Sea Robin Pipeline Co., LLC, 133 FERC ¶63,009

``Goodwill'' Can Justify Decommissioning Exemption

A new proposed standard would apply to transmission operators for the transmission paths in the most current table titled ``Major WECC Transfer Paths in the Bulk Electric System'' (WECC Transfer Path Table) located on the WECC Web site. NERC states that the primary purpose of the regional Reliability Standard is to ensure that actual flows and associated scheduled flows on Major WECC Transfer Paths do not exceed system operating limits for more than 30 minutes.
The standard contains two requirements, which can be summarized as follows, it: (1) Requires a transmission operator of a major WECC transfer path to take immediate action to return actual flows that are in excess of the path's system operating limits to within the system operating limits in no longer than 30 minutes; and (2) Requires a transmission
operator of a major WECC transfer path to ensure that the net scheduled interchange across the path does not exceed the path's system operating limits, when the transmission operator implements its real-time schedules for the next
hour.. ( CCH Nuclear Regulation Reporter ¶20,708)

NRC: Spent Fuel Can Be Stored Safely for 60 Years

The Commission is revising its generic determination on the environmental impacts of storage of spent nuclear fuel (SNF) at, or away from, reactor sites after the expiration of reactor operating licenses. The revisions reflect findings that the Commission has reached in an update and supplement to the 1990 Waste Confidence rulemaking. The Commission currently finds that, if necessary, spent fuel generated in any reactor can be stored safely and without significant environmental impacts for at least 60 years beyond the licensed life for operation (which may include the term of a revised or renewed license) of that reactor in a combination of storage in its spent fuel storage basin or at either onsite or offsite independent spent fuel storage installations (ISFSIs). It also finds reasonable assurance that sufficient mined geologic repository capacity will be available for disposal of spent fuel when necessary. This reflects the Commission's opinion that the indefinite storage of SNF and high level waste is not an option: when the 60-year time limit nears without the availability of a repository, the Commission will revisit the Waste confidence rulemaking. The Commission had hoped that 2025 would be the start date for a new repository program, but it cannot provide reasonable assurance that this will occur because it is not possible to predict when a political and social consensus on the repository will be reached. (CCH Nuclear Regulation Reporter, No. 1456, January 11, 2011)

Hydropower

FERC Refusal To Impose Conditions on Hydropower Project Upheld

The refusal by the Federal Energy Regulatory Commission (FERC) to impose new ramping rate and minimum flow conditions on a hydroelectric project's annual license to preserve an Indian tribe's trout fishery was consistent with FERC regulations and precedents, the U.S. Court of Appeals for the District of Columbia Circuit ruled. FERC regulations gave the agency a great deal of discretion in deciding whether to impose conditions on annual licenses, the court said. FERC clearly articulated a long-applied standard of imposing interim conditions on a hydroelectric plant if there were "unanticipated, serious impacts" on fishery resources and applied that standard in rejecting the tribe's claims. While FERC may not have previously applied this standard in a case involving interim license conditions, the court observed that the circumstances had not often previously arisen, and federal agencies had the authority to establish standards by general rule or by individual litigation. (Hoopa Valley Tribe v. FERC (DCCir) CCH Utilities Law Reporter ¶14,794)

Oil Spill Commission's Final Report Released

The National Commission (Commission) on the BP Deepwater Horizon Oil Spill and Offshore Oil Drilling has released its final report on the oil spill and the offshore drilling industry. The Commission was appointed by the President Obama, and charged to determine the causes of the disaster, as well as to improve the country's ability to respond to spills, and to recommend reforms to make offshore energy production safer.
The main findings of the reports are:

The explosive loss of the Macondo well could have been prevented.
The immediate causes of the Macondo well blowout could be traced to a series of identifiable mistakes made by BP, Halliburton, and Transocean that reveal such systematic failures in risk management that they place in doubt the safety culture of the entire industry
Deepwater energy exploration and production, particularly at the frontiers of experience, involve risks for which neither industry nor government has been adequately prepared, but for which they can and must be prepared in the future.
To assure human safety and environmental protection, regulatory oversight of leasing, energy exploration, and production require reforms even beyond those significant reforms already initiated since the Deepwater Horizon disaster. Fundamental reform will be needed in both the structure of those in charge of regulatory oversight and their internal decision making process to ensure their political autonomy, technical expertise, and their full consideration of environmental protection concerns.
Because regulatory oversight alone will not be sufficient to ensure adequate safety, the oil and gas industry will need to take its own, unilateral steps to increase dramatically safety throughout the industry, including self-policing mechanisms that supplement governmental enforcement.
The technology, laws and regulations, and practices for containing, responding to, and cleaning up spills lag behind the real risks associated with deepwater drilling into large, high-pressure reservoirs of oil and gas located far offshore and thousands of feet below the ocean's surface. Government must close the existing gap and industry must support rather than resist that effort.
Scientific understanding of environmental conditions in sensitive environments in deep Gulf waters, along the region's coastal habitats, and in areas proposed for more drilling, such as the Arctic, is inadequate. The same is true of the human and natural impacts of oil spills.
The full text of the report is available at www.oilspillcommission.gov/final-report.