March 2008

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

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FERC Daily Document Update/Customized Tracker Launched

The Federal Energy Guidelines tab now includes a Daily Document Update Service which is designed to provide access to all materials released each day and designated as final by FERC. These documents include: rulemakings, decisions, opinions, Office Director Orders, and decisions by Administrative Law Judges. This DDU includes a customizable tracker to help our subscribers keep up-to-date with the key energy issues and developments. Our subscribers receive an e-mail every time documents are posted or they can customize their tracker to receive an e-mail only when documents are posted on selected topics. The topics include: Electric Utilities, Natural Gas, Hydroelectric Power, Oil Pipelines, Crude Oil, Critical Energy Infrastructure Information, Rulemakings, Policy Statements and Accounting Issues.

Nuclear Power

Lower NRC Inspection and Licensing Fees Proposed for 2008
Generally lower licensing and inspection fees for applicants and licensees have been proposed by the Nuclear Regulatory Commission for 2008. NRC is required to recover almost all of its budget authority (90 percent this year)—minus the $29 million appropriated from the Nuclear Waste Fund for high-level waste activities. The total amount to be recovered for fiscal year 2008--$779.1 million—is approximately $110 million more than last year. The two professional hourly rates previously charged by the agency for licensing and inspection services would again be replaced with one hourly rate of $238 for activities in both the nuclear reactor safety program and the nuclear materials and waste safety program. This represents a 7.7 percent decrease from the 2007 hourly rate of $258 per hour. While most annual fees would be lower for 2008, most power reactor licensees would have to pay $4,237,000 in annual fees, up from last year’s $4,043.000. (CCH Nuclear Regulation Reporter ¶4234.)

Utility Entitled to $40 Million for Diminished Plant Value
A utility was entitled to damages totaling more than $40 million because the Department of Energy’s (DOE) failure to accept the utility’s spent nuclear fuel on a timely basis diminished the value of the nuclear plant the utility was selling, the U.S. Court of Federal Claims has ruled. The federal government has a long-established responsibility for the permanent disposal of SNF and was obligated by contract to begin disposing of it by January 31, 1998. According to the court, the utility demonstrated that it had incurred substantial and foreseeable costs in mitigating DOE’s acknowledged delay and that the delay was a substantial causal factor both in its respective expenditure decisions and in the diminished value of the plant due to the need for continued SNF storage. As a result, the utility, which retained its claims relating to DOE’s contract default, was entitled to $40,030,000 in storage costs that it included in the decommissioning trust fund that it provided to the purchaser. (Boston Edison Co., et al. v. U.S. (Fed.Cls.) CCH Nuclear Regulation Reporter ¶20,682)

Electric Utilities

Improved Operations for Wholesale Power Markets Proposed
New rules to improve operations in organized electric markets, boost competition and bring additional benefits to consumers have been proposed by the Federal Energy Regulatory Commission. The proposed reforms are designed to ensure just and reasonable rates, to remedy undue discrimination and preference, and to improve wholesale competition in organized markets. They address demand response and market pricing during a period of reserve shortage, long-term power contracting, improved market monitoring, and the responsiveness of regional transmission operators and independent system operators to stakeholders and customers. (CCH Federal Energy Regulatory Commission Reporter, Statutes and Regulations Edition ¶32,627 (ip access user))

Stronger Cross-Subsidization Safeguards Approved
Restrictions on affiliate transactions between franchised public utilities that have captive customers or that own or provide transmission service over jurisdictional transmission facilities and their market-regulated power sales affiliates or non-utility affiliates have been codified by FERC. The new rule expands the transactions and entities to which these restrictions apply in order to protect against inappropriate cross-subsidization of market-regulated and unregulated activities by the captive customers of public utilities. Specifically, the uniform affiliate restrictions require the Commission’s approval of all power sales by a franchised utility with captive customers to a market-regulated power sales affiliate and requires a franchised utility with captive customers to provide non-power goods and services to a market-regulated power sales affiliate at a price that is the higher of cost or market price (CCH Federal Energy Regulatory Commission Reporter, Statutes and Regulations Edition ¶31,264 (ip access user))

FERC's Rejection of Old Dominion's Rate Filing Upheld
An electric cooperative's contention that certain of its transmission facilities were network upgrades under a regional transmission organization's (RTO) tariff was properly rejected by the Federal Energy Regulatory Commission (FERC), the United States Court of Appeals for the District of Columbia Circuit held. Old Dominion Electric Cooperative, Inc. claimed that the PJM Interconnection L.L.C. Open Access Transmission Tariff (Tariff) did not apply to its rate filing because the facilities—1,800 feet of transmission line and a substation—could not be both transmission facilities and classified as network upgrades. The court found that FERC “sensibly” rejected Old Dominion's either/or contention when it determined that network upgrades also could serve as transmission facilities and noted that the Tariff made “no distinction … between network upgrades and transmission facilities.” Also, FERC was reasonable in its findings that the lack of designation of the facilities as network upgrades in the transmission owners' agreement (TOA) or the Tariff, or any other part of the record, was irrelevant. The only reason for designating the facilities as such would be to ensure that the cooperative “repay” another entity for the cost of constructing the facilities. However, the court said, there was no reason to designate Old Dominion's facilities as network upgrades when the cooperative already was paying for the construction costs itself. In addition, the court held that there was insufficient evidence in the record to support the contention that FERC’s determination that the Tariff precluded Old Dominion from recovering the cost of building the cooperative's interconnection facilities through transmission revenue was unduly discriminatory. (Old Dominion Electric Coop., Inc. v. FERC (DCCir) CCH Utilities Law Reporter ¶14,685)

Cross-Border Facilities Cost Allocation Plan Accepted
A compliance filing on fixed cost recovery policies for pricing transmission service between the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) and PJM Interconnection, L.L.C. (PJM) was accepted by the Federal Energy Regulatory Commission (FERC). FERC also rejected a complaint by American Electric Power Service Corporation (AEP) that challenged those policies. FERC had directed Midwest ISO and PJM, two broad multi-state regional transmission organizations (RTOs), to provide in a compliance filing more detail on their joint RTO planning model and to make use of the model transparent to their stakeholders and to FERC. The RTOs filed an Independent RTO Pricing Design (IRPD) proposal that would continue to use their existing inter-RTO rate design—a license-plate/zonal rate design—to price transmission service between the RTOs to take effect Feb. 1, 2008. AEP's complaint challenged the justness and reasonableness of the rate design and cost allocation methodology under the RTOs’ tariffs, and, alternatively, advocated a postage-stamp rate design for all new and existing high-voltage facilities across the combined Midwest ISO/PJM region. However, FERC could not find that the rate design under the Midwest ISO and PJM tariffs was unjust, unreasonable, or unduly discriminatory, nor that imposition of a postage-stamp rate design across the combined Midwest ISO/PJM region was required. Further, FERC determined that changing the license-plate rate design would produce significant cost shifts, which FERC said could pose potential risk to RTO membership. (American Electric Power Service Corp. v. Midwest Independent Transmission System Operator, Inc., et al., 122 FERC ¶61,083 (ip access user))

Cross-Border Facilities Cost Allocation Plan Accepted
A proposal submitted by Midwest Independent Transmission System Operator, Inc. (Midwest ISO) to establish a mechanism for allocating the cost of new transmission facilities that are built for reliability purposes in one Regional Transmission Organization (RTO) but that provide benefits to another RTO (cross-border facilities) as part of their joint operating agreement has been conditionally accepted by the Commission as just and reasonable. Midwest ISO and the other RTO, PJM Interconnection, LLC, (PJM) agreed to use a transfer distribution factor (DFAX) analysis to calculate the size of each RTO's flows affecting the constraint that a proposed cross-border facility was designed to relieve, but could not agree on how counterflow should be netted against positive flow in the allocation calculation. Each RTO then submitted its own proposal on how the issue should be resolved. Midwest ISO's proposal used the total net flow of each RTO on a constraint (all positive flow less all counterflow) as the basis for the cost allocation between the RTOs. PJM's proposal also considered the counterflow but only at the zonal level (Midwest Independent Transmission System Operator, Inc., et al., 122 FERC ¶61,084 (ip access user)).

Midwest ISO’s Market Proposal Conditionally Accepted
A proposal by the Midwest Independent Transmission System Operator (Midwest-ISO) to implement a day-ahead and real-time ancillary services market has been conditionally accepted by the Commission. Under the proposal, the Midwest ISO will determine operating reserve requirements and procure operating reserves from all qualified resources, in place of the current system of local management and the procurement of reserves by the 24 balancing authorities—entities responsible for maintaining the balance of loads and resources within particular physical boundaries. In addition, the proposal will create a single market for ancillary services that will allow for price competition among resources. The proposed real-time ancillary services market provides for greater participation by demand resources and scarcity pricing through the use of demand curves as part of the co-optimization process, the Commission said.(Midwest Independent Transmission System Operator, Inc., 122 FERC ¶61,172 (ip access user))