Energy Update October 2007

October 2007

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

Nuclear Power

NRC Receives First Nuclear Power Plant Application in 29 Years
NRG Energy, Inc. and South Texas Project Nuclear Operating Company have announced that they are filing an application with the Nuclear Regulatory Commission (NRC) to build and operate two new nuclear units at the South Texas Project nuclear power station site. This marks the first nuclear power plant start application in 29 years. The total rated capacity of the new units, which are expected to come on-line in 2014 and 2015, respectively, will equal or exceed 2,700 megawatts. David Crane, NRG’s President and Chief Executive Officer, said advanced nuclear technology is the only currently viable large-scale alternative to traditional coal-fueled generation that will produce none of the traditional air emissions, notably carbon dioxide and other greenhouse gases. (CCH Nuclear Regulation Reporter, No. 1378, October 9, 2007)

Assessment of Aircraft Impact on New Reactor Designs Proposed
Applicants for new reactor design certification would be required to assess the effects of the crash of a large commercial aircraft on their nuclear power plant under the provisions of a new NRC proposal. On the basis of these assessments, applications would include a description and evaluation of design features, functional capabilities, and strategies to avoid or mitigate, as much as possible, the effects of the crash of the aircraft, with reduced reliance on operator actions. The applications would have to address core cooling capability, containment integrity, and spent fuel pool integrity, all of which could be compromised by the large fires and explosions that would likely result from the plane’s impact. The impact of a large aircraft is a beyond-design –basis event and the NRC’s requirements applicable to the construction, testing and operation of design features, functional capabilities and strategies for design basis events would not be applicable to design features functional capabilities or strategies selected by the applicant solely to meet the requirements of this rule. (CCH Nuclear Regulation Reporter ¶4232)

Utility Entitled to $116 Million for DOE’s Failure to Accept SNF
A utility was entitled to damages totaling more than $116 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 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. Although the U.S. argued that many of the costs would have been incurred regardless of DOE’s delay, the utility demonstrated that it had incurred substantial and foreseeable costs in mitigating DOE’s acknowledged, impending and substantial delay in the performance of its contractual obligations and that the delay was a substantial causal factor in its expenditure decisions. As a result, the utility was entitled to mitigation costs it incurred, largely through the off-site storage of spent fuel and the construction of a dry cask storage facility. Both of these decisions were reasonable and their costs were demonstrated with reasonable certainty. (Northern States Power Co. v. U.S. (ClCt) CCH Nuclear Regulation Reporter ¶20,678)

Electric Utilities

Commission Institutes Settlement Procedures for PJM
In a case concerning two complaints filed against PJM Interconnection, L.L.C. (PJM), alleging tariff violations and interference with the independence of PJM’s Market Monitor, the Commission found that PJM had not committed tariff violations and that the existing record was sufficient to support that finding. The Commission further found that the significant tension between PJM management and the Market Monitor could compromise the market monitoring unit’s (MMU) ability to perform its tariff-defined functions, requiring tariff modifications to reform that relationship. The complaints had been filed by a group of states, municipalities and cooperatives, and by the Organization of PJM States, Inc. (Allegheny Electric Cooperative, Inc., et al. v. PJM Interconnection, L.L.C., et al. 120 FERC ¶61,254 (ip access user)).

Entergy Ordered to Make Compliance Filing/Refunds
Consistent with an order of remand from the U.S. Court of Appeals for the District of Columbia Circuit [CCH Utilities Law Reports ¶14,648; see summary in Opinions, Orders and Decisions Report Letter 1357, July 25, 2007], the Commission directed Entergy Corporation (Entergy) to file a compliance filing that recalculated customers’ peak load responsibility to remove interruptible load from the computation of charges for the Entergy system since April 1, 2004. Entergy was also ordered to make refunds to Entergy’s Louisiana customers reflecting the difference between what Entergy charged, based on Opinion Nos. 468 [106 FERC ¶61,228 (ip access user)] and 468-A [111 FERC ¶61,080 (ip access user)], and what it would have charged had Entergy at that time immediately removed all interruptible load from the computation of peak load responsibility (Louisiana Public Service Commission, et al. v. Entergy Corporation, 120 FERC ¶61,241 (ip access user)).

Pipeline Proxy Group Issue Remanded, Risk Explanation Required
The Federal Energy Regulatory Commission (FERC) erred in its selection of ``proxy groups'' used to calculate the gas transmission rates for two natural gas pipeline companies, and in its placement of the companies within those proxy groups, by failing to explain how its proxy group arrangements were based on the principle of relative risk, the U.S. Court of Appeals for the District of Columbia Circuit held. The court determined that there was no adequate support in the record for the contention that FERC's proxy group arrangements were risk-appropriate. In its ruling for one of the pipeline companies, the court said that, while FERC stated that changes in the gas pipeline industry compelled a new approach to proxy groups, nothing in FERC's explanation stated why the companies selected were risk-comparable to the pipeline company.

The court also addressed matters relating to the settlement agreement between one of the pipeline companies and gas shippers pertaining to shipping rates, ruling that FERC's rejection of the settlement agreement was neither arbitrary nor capricious. In addition, the court held that FERC's selection of a faster depreciation rate for the pipeline company's system was neither arbitrary nor capricious and was well within the considerable deference a court shows the agency in ratemaking cases. Finally, the court ruled that FERC's modification of its own formula that it used to determine the pipeline company's management fee was neither arbitrary nor capricious. FERC was not required to choose the best solution, only a reasonable one, and the pipeline company provided no evidence that FERC's approach was unreasonable, according to the court. (Petal Gas Storage, L.L.C. v. FERC (DCCir), CCH Utilities Law Reporter ¶14,665)

Court Upholds Terms of MISO's Tariff
Federal Energy Regulatory Commission (FERC) orders accepting the Midwest Independent System Operator's (MISO) proposed tariff under which MISO administers two competitive wholesale power markets—a day-ahead market that allows transmission to be scheduled in advance, and a real-time or ``spot'' market—were upheld by the U.S. Court of Appeals for the District of Columbia. Among its conclusions, the court found that FERC reasonably refused to direct MISO to use a market concentration measure to define narrow constrained areas (NCAs) under the ISO's proposed new tariff. The court also upheld FERC's conclusion that a fixed cost adder under MISO's new tariff was necessary ``to provide an efficient incentive to invest,'' stating that FERC's was a reasonable judgment about the future behavior of entities that FERC regulates. (Wisconsin Public Power Inc. v. FERC (DCCir), CCH Utilities Law Reporter ¶14,661)

PUC Could Not Rescind Portion of Long-Term QF Rate Schedule
The New Hampshire Public Utility Commission (PUC) could not rescind the final 10 years of a 30-year rate schedule applicable to three small qualifying hydroelectric facilities (QFs) because federal law preempted the field of rate regulation with respect to these generating facilities and precluded the PUC from modifying the rates initially set, the U.S. District Court for the District of New Hampshire held. Federal Energy Regulatory Commission (FERC) regulations, developed to implement the Public Utility Regulatory Policies Act (PURPA), require public utilities to purchase electricity from qualifying facilities at a rate equal to the utility's avoided cost unless the state PUC initially determined that a lower rate is in the public interest. Although the New Hampshire PUC argued that the rate schedule for the final 10 years of the arrangement it had with the QFs were not just and reasonable, FERC regulations specify that a QF has the right to receive the benefit of its long-term rate schedule even if, due to changed circumstances or faulty predictions of the utility's future avoided costs, the price at which the utility is obligated to purchase electricity at the time of delivery is unfavorable to the utility. (Greenwood v. New Hampshire Public Utilities Comm'n (DNH), CCH Utilities Law Reporter ¶14,662)

Natural Gas

Coverage Expanded for Blanket Certificate Abandonments
The Federal Energy Regulatory Commission has further expanded the scope of blanket certificate eligibility for natural gas pipelines. The Commission determined that its standard regulations for the abandonment of natural gas facilities under blanket certificate authority precluded abandonment of facilities built before 1982, the year that the blanket certificate program began. Previously, facilities were built on a case-specific basis. As a result, instead of restricting blanket certificate abandonments to facilities constructed after 1982 and comparing a facility’s original cost to the cost cap in effect at the time the facility was placed in service, companies will be required to compare the estimated current cost to replicate their existing facility using the current per-project cost cap. If the estimated current cost to replicate the facility would not exceed the currently effective project cost cap, the company will be permitted to employ blanket certificate authority to abandon a facility built under case-specific authority, provided that the existing facility could qualify for authorization under the current blanket program. (CCH FERC Statutes and Regulations Edition ¶19,646 (ip access user); ¶31,255 (ip access user))

Commission Authorizes Calhoun LNG Project
Calhoun LNG, L.P. (Calhoun) was granted authority to site, construct, and operate a liquefied natural gas (LNG) import terminal and associated facilities at the Port of Port Lavaca-Point Comfort in Calhoun County, Texas. Authorization was given to Point Comfort Pipeline Company, L.P. (Point Comfort) to construct and operate a pipeline, the Point Comfort Pipeline, from the tailgate of Calhoun’s proposed LNG terminal to various interstate and intrastate pipelines (Calhoun LNG, L.P., et al. 120 FERC ¶61,259 (ip access user)).

SESH/Southern Transmission Facilities Approved
Upon completion of its analysis of a proposed project by Southeast Supply Header, LLC (SESH) and Southern Natural Gas Company (Southern), the Commission has granted the requested authorizations, subject to certain conditions. SESH and Southern have proposed the construction and operation of 269 miles of new natural gas transmission facilities beginning near the Perryville Hub in Louisiana, continuing through Mississippi, and terminating in Alabama. The first 104.1 miles would consist of 42-inch diameter pipeline, and the remainder would consist of 164.9 miles of 36-inch diameter pipeline (Southeast Supply Header, LLC, et al,. 120 FERC ¶61,257 (ip access user)).

Complete Rewrite of MMS Pipeline Regulations Proposed
The Minerals Management Service has issued a proposed rule that would rewrite MMS regulations on pipelines and pipeline rights-of-way (ROW) in the Outer Continental Shelf. MMS stated that the purpose of the proposed rule is to bring the regulations up to date by incorporating new and revised industry standards into the regulations, along with several Notices to Lessees and Operators (NTLs) and a Letter to Lessees and Operators (LTL) that were issued since the regulations were last significantly updated in 1998. The regulations have also been rewritten in plain language. These regulations are generally located in Subpart J of Part 250 of the regulations. The rules would apply to all lessees, designated lease operators, and pipeline ROW holders operating in the OCS. Comments are due by January 31, 2008. (CCH Energy Management ¶9314)