October 2006

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

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Electricity

FERC: Emergency Transformer-Sharing Will Maintain Power Grid
An agreement reached by electric utilities for sharing electric transformers will maintain the integrity of the nation’s transmission system in the event of a future terrorist strike, according to the Federal Energy Regulatory Commission, which recently approved the arrangement. The Spare Transformer Equipment Program was designed to increase the inventory of spare electric transformers in order to ensure that the industry has sufficient capability to restore service in the event of ``coordinated, deliberate destruction of utility substations.’’ (FERC Statutes and Regulations, No. 474, September 16, 2006)

NERC Report Shows Electric Demand Outpacing Capacity
Electricity demand in the U.S. over the next ten years will outstrip the increase in confirmed power capacity by just over three times, according to the North American Electric Reliability Council's (NERC) first reliability assessment since being named the Electric Reliability Organization (ERO) for the U.S. Demand for electricity is expected to increase 19 percent over the next ten years, while confirmed capacity will increase by only 6 percent, according to the NERC report. In the next two to three years, capacity margins are projected to drop below minimum target levels in Texas, New England, the Mid-Atlantic area, the Midwest, and the Rocky Mountain area. NERC President and CEO, Rick Sergel, noted that expansion and strengthening of the transmission system continues to lag behind growth and expansion of generating resources in most areas. Total transmission miles are seen increasing by less than 7 percent in the U.S. through 2015. Among the recommendations found in NERC's report are: (1) adding power generation facilities; (2) adding new and upgraded transmission facilities; (3) stronger contracts and other methods for the reliable supply and delivery of fuel to power generation facilities; (4) more demand-side measures, such as business and consumer energy-efficiency programs; and (5) addressing aging workforce issues in the electric industry. The full, 134-page report can be read on NERC’s web site at www.nerc.com. (CCH Utilities Law Reports, Number 1433, September 18, 2006, by Sarah Borchersen-Keto, CCH News Bureau Staff Writer)

Procedures for Accessing CEII Simplified
Procedures for accessing critical energy infrastructure information (CEII) have been simplified by the Federal Energy Regulatory Commission to define CEII more narrowly as specific engineering, vulnerability, or detailed design information about existing or proposed energy infrastructure that relates details about the production, generation, transportation, transmission, or distribution of energy (FERC Statutes and Regulations ¶31, 228).

FERC Conditionally Approves Redesign of the CAISO Market
FERC conditionally accepted the California Independent System Operator's (CAISO) Market Redesign and Technology Upgrade (MRTU) proposal in a 400-page order issued on September 21, 2006. In doing so, FERC concluded that the tariff reforms will bring important corrections and improvements to the CAISO markets necessary to enhance reliability of the grid, protect customers from market manipulation, and promote infrastructure development. Among the many MRTU tariff revisions that address known market-design flaws are those that contributed to the California energy crisis of 2000-2001. These were flaws that impeded the ability of the CAISO to reliably deliver low-cost energy and that unnecessarily restricted customers from access to supplies of choice, including long-term supplies. FERC noted that ``the changes are incremental and supplement the existing market structure,'' and called the redesigned market an important step in promoting the development of effectively competitive markets that will bring benefits to power customers. In setting November 1, 2007, as the effective date for implementing the new market design, FERC emphasized that it is ``strongly committed to a sound and orderly MRTU implementation plan and will not allow that to be sacrificed for the sake of expedience.'' As such, the Commission ordered protections to ensure that systems are tested and ready before they are implemented (California Independent System Operator Corp., 116 FERC ¶61,274).

Petitions for Review Dismissed in California Energy Crisis Case
A FERC order that (1) rejected the California Independent System Operator's (Cal-ISO) proposed amendment to its operating tariff that would permit rescission of double payments to energy sellers during the period from April 1, 1998 to September 9, 2000, and (2) approved Cal-ISO's proposal to re-run certain settlement statements using a total negative uninstructed imbalance energy accounting method, under which only those parties who caused energy imbalances would bear the expense of balancing the electricity grid, was not clearly erroneous, and so was controlling, the U.S. Court of Appeals for the Ninth Circuit ruled. As a result the court dismissed Cal-ISO's petition for review of FERC's order for lack of jurisdiction (Pacific Gas and Electric Co. v. FERC (9thCir) CCH Utilities Law Reporter ¶14,609).

Nuclear Power

Utilities Awarded $143 Million for DOE’s Failure to Accept SNF
Three utilities were entitled to damages totaling $143,000,000 because the Department of Energy (DOE) failed to accept the utilities’ spent nuclear fuel (SNF) beginning January 31, 1998, as required by contract. The utilities demonstrated that they had reasonably incurred substantial and foreseeable costs in attempting to mitigate DOE’s acknowledged and substantial delay in carrying out its contractual obligations. They were therefore entitled to recover the mitigation costs they incurred, largely through the reracking of their spent fuel pools and constructing independent spent fuel storage installations. (CCH Nuclear Regulation Reporter ¶20,670)

OCRWM: House Bill Will Advance Repository Project
The recently introduced Nuclear Fuel Management and Disposal Act (H.R. 5360) will enable Congress to advance the Yucca Mountain, Nevada nuclear waste repository project, according to the director of DOE’s Office of Civilian Radioactive Waste Management (OCRWM). The legislation would grant DOE access to the Nuclear Waste Fund to ensure that adequate funding is available to construct and operate the repository and eliminate the current statutory 70,000 metric ton cap on disposal capacity at Yucca Mountain to allow for the maximum use of the mountain’s true capacity (CCH Nuclear Regulation Reporter, No. 1354, September 10, 2006)

Hydroelectric Power

Guidance Provided on Hydroelectric Licensing Proceedings
In a recently issued Policy Statement addressing settlements in hydropower licensing proceedings under the Federal Power Act (FPA), the Commission listed basic principles that should be included as conditions in measures proposed for project licenses. These measures must be based on substantial evidence in the record of the licensing proceeding, must be within the Commission’s jurisdiction. should be as narrow as possible, and should establish a relationship between the proposed measure and the project’s effects or purposes (Settlements in Hydropower Licensing Proceedings under Part I of the Federal Power Act, 116 FERC ¶61,270).