September 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
Government Contractor Immunity Claim
Preempted by PAA
Contractors at the Hanford Nuclear
Weapons Reservation in southeastern Washington state, acting at the request
of the federal government, could not claim total immunity under the common
law general contractor defense from claims brought by individuals who
argued that they became ill because of radiation emissions at the site.
This defense was inapplicable as a matter of law because Congress enacted
the Price-Anderson Act (PAA) before the courts recognized the government
contractor defense and the PAA provides a comprehensive liability scheme
to compensate victims of nuclear accidents, thereby precluding the contractors’
reliance on such a defense. The contractors were strictly liable for radiation
emitted at the site. No federal standards governing emission levels existed
at the time of the radiation emissions at the site and the contractors
could not substitute tolerance doses recommended by government scientists
working at Hanford. These did not carry the force of law and therefore
could not provide the basis for a safe harbor from liability. (In
re: Hanford Nuclear Reservation Litigation , (9thCir), Nuclear
Regulation Reporter, ¶20,677)
GAO: NRC Actions to Protect Sealed
Sources Are Not Effective
Covert testing of the Nuclear
Regulatory Commission’s licensing process for radioactive sealed
sources by the U.S. Government Accountability Office (GAO) has indicated
that the actions previously taken by the Commission to strengthen this
process have not been effective. The testing was undertaken in light of
terrorist interest in obtaining enough radioactive material to construct
a dirty bomb. According to recent GAO testimony before Congress, Accountability
Office investigators were able to obtain a radioactive materials license
from NRC by using the name of a bogus business that existed only on paper.
After obtaining the license, GAO investigators altered it so it appeared
that the bogus company could purchase an unrestricted number of sealed
sources rather than the maximum listed on the approved license. GAO then
sought to purchase machines containing sealed radioactive material from
two U.S. suppliers and its letters of intent to purchase were accepted
by the suppliers. As a result of the GAO investigation, NRC suspended
its licensing program until it could determine what corrective actions
were necessary to resolve these weaknesses. ( CCH Nuclear Regulation
Reporter, No. 1376, September 11, 2007)
Electric Utilities
Stronger Cross-Subsidization Safeguards
Proposed
The codification of affiliate
restrictions on power and non-power goods and services transactions between
franchised public utilities with captive customers and their market-regulated
power sales affiliates or non-utility affiliates has been proposed by
the Federal Energy Regulatory Commission. The proposal 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 would require the Commission’s
approval of all power sales by a franchised utility with captive customers
to a market-regulated power sales affiliate and would require a franchised
public utility with captive customers to provide non-power goods and services
to a market-regulated power sales affiliate or a non-utility affiliate
at a price that is the higher of cost or market price. These restrictions
would also prohibit a franchised public utility with captive customers
from purchasing non-power goods or services from a market-regulated power
sales affiliate or a non-utility affiliate at a price above market price,
with one exception—a franchised public utility with captive customers
would be prohibited from receiving non-power services from a centralized
service company at a price above cost. These restrictions would help the
Commission meet the statutory requirement that a transaction not result
in inappropriate cross-subsidization of a non-utility associate company
and assure just and reasonable rates and the protection of captive customers
for all public utilities. (CCH FERC Statutes and Regulations Edition
¶32,618)
Additional Blanket Authorizations Under
FPA Proposed
Additional limited blanket authorization
for certain dispositions of jurisdictional facilities under the Federal
Power Act’s (FPA) merger and acquisition provisions has been proposed
by the Federal Energy Regulatory Commission. The proposal would authorize
a public utility, without prior Commission authorization, to dispose of
less than 10 percent of its voting securities to a public utility holding
company only if, after the disposition, the holding company and any associate
company will own, in the aggregate, less than 10 percent of the public
utility. The Commission believes that the disposition of such limited
voting interests with the proposed in-aggregate restriction and the existing
reporting requirements applicable to holding companies will not harm competition
or captive customers and will accommodate additional investment and market
liquidity in the electric industry. (CCH FERC Statutes and Regulations
Edition ¶32,619)
New Reliability Standards for Grid
Cyber Security Proposed
Eight new critical infrastructure
protection reliability standards that would help safeguard the nation’s
bulk electric power supply system against potential disruptions from cyber
attacks have been proposed by the Federal Energy Regulatory Commission.
The proposed standards would require certain users, owners and operators
of the grid to establish plans, protocols, and controls to safeguard physical
and electronic access to systems, to train personnel on security matters,
to report security incidents, and to be prepared to recover information.
(CCH FERC Statutes and Regulations Edition ¶32,620)
FERC Order Requiring City to Refund
Overcollection Vacated
The Federal Energy Regulatory
Commission (FERC) was neither arbitrary nor capricious in subjecting the
transmission revenue requirement (TRR) of the City of Vernon, California
(Vernon), to the just and reasonable standard under §205 of the Federal
Power Act (FPA), the U.S. Court of Appeals for the District of Columbia
Circuit held. However, the court also ruled that FERC lacked the authority
to order Vernon, a participating transmission owner (PTO) of the California
Independent System Operator Corporation (CAISO), to issue refunds to CAISO
for overcollection of the city's transmission revenue requirement. (Transmission
Agency of Northern California, et al. v. FERC (DCCir), CCH
Utilities Law Reporter ¶14,657)
Court: FERC Must Reconsider Rejection
of Energy Crisis Refunds
The U.S. Court of Appeals for
the Ninth Circuit has ruled that the Federal Energy Regulatory Commission
(FERC) must reconsider its decision to deny refunds to wholesale buyers
of electricity that purchased energy in the short-term supply market at
unusually high prices in the Pacific Northwest during the 2000--2001 western
energy crisis. Moreover, the court held that FERC abused its discretion
in denying potential relief for transactions involving energy that was
ultimately consumed in California. FERC also should have considered new
evidence of intentional market manipulation submitted by parties to the
proceeding with FERC approval. The court remanded the case to FERC with
instructions to address the market manipulation evidence, to include the
California-consumed energy in its analysis, and to further consider its
refund decision. (CCH Utilities Law Reporter ¶14,660)
Initial Decision Addressing Enron's
Data Submissions Affirmed
An initial decision [119 FERC
¶63,009] by an administrative law judge (ALJ) that found no unethical
or improper conduct in connection with Enron's data submissions sufficient
to warrant disqualification under the Federal Energy Regulatory Commission's
(FERC) Rules of Practice and Procedure in the Pacific Northwest proceeding
[115 FERC ¶61,230] was affirmed by the Commission. This proceeding
resulted from litigation surrounding transactions in the Pacific Northwest
spot market. An ALJ in an earlier proceeding had issued orders directing
parties to submit data on their transactions in the Pacific Northwest
to FERC using a specific template. The ALJ concluded in the initial decision
that there was ``absolutely no evidence in this case that any person engaged
in any unethical or improper professional conduct in connection with the
data on Enron transactions in contravention of the involved 2001 Data
Orders.'' The ALJ also recommended that no action by FERC was necessary
and that the proceedings be terminated. In affirming the initial decision,
FERC found that the ALJ ``conducted comprehensive hearing procedures that
afforded a full and fair inquiry into whether any unethical or improper
professional conduct occurred in connection with the data Enron submitted
to the Commission in response to the 2001 data orders.'' FERC noted its
agreement with the conclusions reached in the initial decision. In response
to the comments filed by Port of Seattle alleging that facts unknown at
the time of the evidentiary hearing in the Pacific Northwest proceeding
revealed other circumstances in which false or misleading information
appeared to have been provided to the Commission and that the ALJ did
not address evidence presented by Port of Seattle at the hearing conducted
to determine whether there was unethical or improper conduct in connection
with Enron's submission of data in response to the 2001 data orders, FERC
said that Port of Seattle had not complied with FERC rules and procedures
for responding to the initial decision and, therefore, FERC's discussion
of any issue raised in Port of Seattle's comments was purely discretionary.
FERC also noted that the issues presented by Port of Seattle had already
been raised in the context of another proceeding, still pending before
FERC, and that proceeding was the appropriate forum for consideration
of the allegations. (Enron Power Marketing, Inc., et al., FERC
Opinion No. 497, 120 FERC 61,119; CCH Utilities Law Reporter
¶14,656)
Texas Holdings Asset Transfer Authorized
The transfer of jurisdictional
assets owned by Oncor Electric Delivery Company (formerly TXU Electric
Delivery Company) and TXU Portfolio Management Company, LP (formerly known
as TXU Energy Trading Company) through the acquisition of their parent
company, TXU Corporation, by Texas Energy Future Holdings Limited Partnership
was authorized by the Commission. Blanket authorization for certain transfers
of equity ownership interests in the general partner of Texas Holdings
for a limited time period following the transaction was also granted (Oncor
Electric Delivery Co., et al., 120 FERC ¶61,215).
Natural Gas
FERC Reports Status of Alaska Gas Pipeline
Proposals to Congress
As required by the Energy Policy
Act of 2005, the Federal Energy Regulatory Commission (FERC) has submitted
its ``Fourth Report to Congress on the Progress Made in Licensing and
Constructing the Alaska Natural Gas Pipeline.'' In the 13-page document
submitted on August 15, FERC recognizes the success to date by the State
of Alaska in enacting the Alaska Gasline Inducement Act (AGIA) and in
implementing the request for applications (RFA). This latest report notes
that the following key events have occurred: the State of Alaska has enacted
and begun to implement its Alaska Gasoline Inducement Act (AGIA); the
U.S. Court of Appeals for the District of Columbia Circuit upheld FERC's
open season regulations; the Federal Coordinator has been active in discussions
with project stakeholders; the U.S. Department of Labor has issued a grant
to the state for pipeline worker training; FERC Commissioners and Staff
continue to prepare for the filing of any applications for an Alaskan
gas pipeline; and FERC Staff has toured potential routes of the pipeline.
Under the AGIA, Alaska's Commissioner of Natural Resources and Commissioner
of Revenue will review competitive applications from qualified project
sponsors seeking an exclusive and enforceable AGIA license that entitles
the licensee to state matching contributions of up to $500 million for
expenditures toward the planning and construction of an Alaskan natural
gas pipeline project and other state administrative benefits. The report
states that an AGIA license will be awarded on a competitive basis to
the project sponsor who proposes a gas pipeline project that will “sufficiently
maximize the benefits to the people of Alaska in accordance with the criteria
in the AGIA.”
Court Rejects Claims That Alaska Pipeline
Rules Were Invalid
Two Federal Energy Regulatory
Commission (FERC) regulations (18 C.F.R. §§157.36 and 157.37,
which govern pipeline capacity expansion and project design) were not
facially invalid, the U.S. Court of Appeals for the District of Columbia
Circuit ruled. Exxon Mobil Corporation (Exxon), in developing a proposal
to build a natural gas pipeline from the North Slope of Alaska to the
contiguous United States, sought pre-enforcement review of the regulations,
claiming that FERC's assertion of authority to condition a certificate
of public convenience and necessity (CPCN) on the project sponsor's willingness
to allow FERC to increase the capacity or expandability of the project
was facially invalid because it contravened the Alaska Natural Pipeline
Act and the Natural Gas Act. FERC stated that it has broad authority to
condition a CPCN on the sponsor of a proposed pipeline making a “design
change.” The court found that one regulation did not assert authority
to condition approval of a proposal to build an Alaska Pipeline upon an
increase in capacity above that proposed by the sponsor, and that the
other regulation authorized FERC to condition approval of a voluntarily
proposed expansion upon a different allocation of the added capacity,
not upon an increase in that capacity. (Exxon Mobil Corp. v. FERC,
et al. (DCCir), CCH Utilities Law Reporter ¶14,659)
FERC Order to Gas Companies to Expense
Testing Costs Upheld
A Federal Energy Regulatory
Commission's (FERC) order instructing natural gas companies to expense
(rather than capitalize) testing costs under the Pipeline Safety Improvement
Act of 2002 (PSIA) was reasonable and FERC's responses to a natural gas
association's comments were sufficient, the U.S. Court of Appeals for
the District of Columbia Circuit held. Under the Natural Gas Act (NGA),
FERC has jurisdiction to regulate the transportation and sale of natural
gas in interstate commerce, which includes the power to issue rules and
regulations governing pipeline companies' accounting practices. A prior
decision by FERC permitted capitalization of certain testing. The natural
gas association argued for the capitalization of testing costs, contending
that FERC deviated from its precedent in the prior decision without a
reasoned explanation. However, FERC's interpretation of the prior decision—that
it permitted capitalization of testing that (1) was done in connection
with major pipeline rehabilitation projects involving significant replacements
and modifications of facilities, (2) extended the overall pipeline system's
useful life and serviceability or otherwise benefited future accounting
periods, and (3) was not associated with any on-going maintenance program—was
a reasonable reading of the ruling, the court said. As such, FERC determined
that the prior decision did not cover PSIA testing because it did not
by itself increase the useful life of a pipeline asset or improve its
efficiency, and the primary aim of the integrity management programs that
included the testing regime was not to increase the capacity or efficiency
of the pipeline, but to maintain the integrity of the pipeline. These
comments were a reasonable response to, and negation of, the three prongs
of the prior decision's test, the court concluded. (Interstate Natural
Gas Ass'n of America v. FERC (DCCir), CCH Utilities Law Reporter
¶14,658)