September 2008
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 Dockets Yucca Mountain Application
The Nuclear Regulatory Commission
(NRC) has formally docketed the Department of Energy’s license application
for the proposed high-level nuclear waste repository at Yucca Mountain,
Nevada. The agency staff has also recommended that the Commission adopt,
with further supplementation, DOE’s environmental impact statement
(EIS) for the repository project. Docketing the application does not indicate
whether the Commission will approve or reject the construction authorization
for the repository, nor does it preclude the Commission from requesting
additional information from DOE during the course of its comprehensive
technical review. Docketing the application triggers a three-year deadline,
with a possible one-year extension, set by Congress for NRC to decide
whether to grant construction authorization. NRC officials have said that
meeting this deadline is contingent on the agency receiving sufficient
resources from Congress. (CCH Nuclear Regulation Reports,
No. 1401, September 23, 2008)
Criminal Penalties Proposed for Bringing
Weapons into Plants
Persons without authorization
who introduce weapons or explosives into specified types of facilities
subject to the regulatory authority of the NRC would be subject to federal
criminal penalties under the provisions of a recent Commission proposal.
These facilities include (1) production and utilization facilities; (2)
high level waste storage or disposal facilities and independent spent
fuel storage installations; and (3) uranium enrichment facilities, uranium
conversion facilities, and nuclear fuel fabrication facilities. The penalties
proposed, which are specified in the Atomic Energy Act, are fines ranging
up to $5,000 and a prison sentence of up to one year. (CCH Nuclear
Regulation Reporter ¶4210)
Electric Utilities
Utility Not Entitled to Refund of Revenue
Sufficiency Guarantee Charges
Refund relief sought by the
Michigan South Central Power Agency (Michigan South Central) has been
denied by the Federal Energy Regulatory Commission. The utility had asked
the Commission to direct the Midwest Independent Transmission System Operator
(Midwest ISO) to re-settle and refund certain revenue sufficiency guarantee
(RSG) charges. The Midwest ISO assessed these charges on virtual transactions
by Michigan South Central following the implementation of the Midwest
ISO’s Day 2 energy markets. Michigan South Central engaged in the
transactions that triggered the RSG charges because Constellation Energy
Commodities Group (Constellation) delivers power to it under a seller’s
choice contract using procedures that do not permit Michigan South Central
to utilize its carved-out grandfathered agreement (GFA) to deliver that
power to its members’ load centers. In denying Michigan South Central’s
request, the Commission noted in its order on GFA treatment in the Day
2 energy market, that an entity that did not want to become a market participant
for purposes of a carved-out GFA cannot avoid an obligation to become
a market participant for transactions not related to a carved-out GFA.
Although the utility argued that its virtual scheduling activity was related
to its GFA, the argument failed to acknowledge that GFAs are agreements
for transmission service which are not subject to RSG charges, and they
therefore do not encompass virtual supply offers and bids such as those
the utility made in the Midwest ISO energy market. Like any other virtual
supply offer, the virtual offers made by Michigan South Central caused
RSG charges to be incurred and it was therefore appropriate for the Midwest
ISO to assess the utility RSG charges. (Michigan South Central Power
Agency v. Midwest Independent Transmission System Operator, Inc.
124
FERC ¶61,180 (ip
access users))
12 CP Methodology Appropriate for SPS
System for Locked-in Period
In a rate revision case filed
by Southwestern Public Service Company (SPS), the 12 coincident peak demand
cost allocator methodology (12 CP methodology) was the appropriate methodology
to be applied to the SPS allocation system (System) from July 1, 2006
through June 30, 2008 (the locked-period), a Commission Administrative
Law Judge (ALJ) has concluded. The coincident peak method allocates to
each customer class a share of the test year costs of generating capacity
based on that class’s proportionate use of capacity at peak system
demand times. The Commission uses this method because it ensures that
the cost of generating capacity is proportionally born by those customers
who require the utility’s generated capacity. Commission precedent
supports the use of a 12 CP methodology—which uses a denominator
that represents the average total system peak demands for the 12 months
of the year—where a utility’s demand curve is relatively flat.
Although SPS had historically used a 3 coincident peak demand cost allocator
methodology, in which the denominator represents the average of total
system peak demands during the three months most likely to have the highest
demands in a given year—in the case of SPS, June, July, and August—the
use of the 12 CP methodology was warranted because the utility demonstrated,
by means of the three load ratio tests used by the Commission, that its
demand curve was relatively flat—its on and off peak test load ratio
was 19 percent or less, its low to annual peak test loads ratio was 66
percent or greater, and SPS’s average to annual peak test load ratio
was 81 percent or greater. (Southwestern Public Service Company,
124
FERC ¶63,015 (ip
access users))
Comments Sought on Consolidated Definition
of ``Affiliate’’
In response to requests for
rehearing of Order No. 697-A (FERC Statutes and Regulations ¶31,268
(ip
access user), the Commission is revising the definition of the term
``affiliate’’ adopted in that order and seeks supplemental
comment on this issue by October 20. The Electric Power Supply Association
and Mirant Entities requested rehearing of the Commission’s determination
in Order No. 697-A to codify in it’s market-based rate regulations
a definition of affiliate that distinguishes between exempt wholesale
generators (EWGs) and non-EWG’s. They argued that the Commission
erred in adopting a separate definition for EWGs, stating that the five
percent ownership threshold for EWGs imposes substantially greater burdens
on EWGs and achieves no useful regulatory purpose. Although the provisions
of the Federal Power Act (FPA) that deal with sales by EWG’s require
the Commission to apply a five percent voting interest threshold to certain
transactions—such as evaluating EWG rates for wholesale sales of
electric energy—the Commission is not required to use the five percent
standard in a definition of affiliate developed for the general task of
assessing market concentration and market power. Upon reconsideration,
the Commission believes that using the same definition of affiliate for
both types of generators is appropriate and the definition adopted in
Order 697-A for non-EWG utilities would not affect the substance of the
Commission’s analysis of market power issues. The relevant portion
of the definition will therefore include the ten percent ownership threshold
currently included in the non-EWG definition—i.e., an affiliate
of a specified company will be defined as a person or company that owns
or controls ten percent or more of the outstanding voting securities of
that company. (Market-Based Rates for Wholesale Sales of Electric
Energy, Capacity, and Ancillary Services by Public Utilities, (124
FERC ¶61,213 (ip
access users))
National Corridor Complaint Dismissed
for Lack of Jurisdiction
The U.S. District Court for
the Middle District of Pennsylvania ruled that it lacked jurisdiction
over a challenge by the Pennsylvania Public Utilities Commission (PUC)
to a Department of Energy (DOE) order designating a national interest
transmission corridor because jurisdiction was exclusively in the court
of appeals under the Federal Power Act (FPA) by virtue of the Department
of Energy Organization Act of 1977 (DOE Act). As amended by the Energy
Policy Act of 2005 (EPAct 2005), the FPA vested DOE with the authority
to issue orders designating national interest electric transmission corridors,
which would permit the construction of electrical transmission lines over
the objection of the states in which the lines would be located. The Secretary
of Energy and DOE (defendants) moved to dismiss the PUC’s complaint
for lack of jurisdiction, claiming that jurisdiction to review DOE's order
was exclusively in the courts of appeal under section 313 of the FPA (pertaining
to rehearings and court review of orders). Alternatively, the PUC argued
that jurisdiction was exclusively in the district court under section
317 of the FPA (relating to jurisdiction of offenses and enforcement of
liabilities and duties). While the DOE Act did not contain a section dealing
with judicial review, it provided that judicial review would be as specified
in the statute conferring functions on DOE (or the Federal Energy Regulatory
Commission (FERC)) or as otherwise specified statutorily. Section 313
of the FPA provided that if “the Commission” denied rehearing,
judicial review may be had in a court of appeals. The applicable DOE Act
section broadened the DOE entities whose decisions were subject to review
under that section, the court said. The court held that since the FPA
vested DOE with the authority to issue the national corridor order, judicial
review was required to proceed as specified under the FPA, which would
be exclusively in a court of appeals as provided under section 313. (CCH
Utilities Law Reporter, Pennsylvania Public Utility Comm'n
v. Bodman, et al., MD Pa., ¶14,708)
Congressional Activity
House Passes Comprehensive Energy Tax
Legislation
House lawmakers voted along
party lines to approve the Comprehensive American Energy Security and
Consumer Protection Act (HR 6899) on September 16. By a vote of 236 to
189, lawmakers approved the measure, which includes the Energy Tax Incentives
Act of 2008. GOP lawmakers said the measure fails to truly permit offshore
oil drilling, and the $18 billion worth of revenue raisers in the measure
would lead to higher gasoline prices. Republicans have criticized the
measure because it would require multinational oil companies to forgo
certain tax breaks and use those tax revenues to pay for certain renewable
energy tax incentives and conservation efforts. (Update: While the bill
was originally passed with a partial drilling ban that would have allowed
drilling in the Atlantic and Pacific Outer Continental Shelf further than
50 miles from the coastline, Democrats have since agreed to drop the ban.)
The Bush administration issued a veto threat on the bill. An administration policy statement called several of the provisions “poison pills'' that would invite a presidential veto if they remained in a final package. Specifically, the White House said it opposes ”targeted tax increases'' on energy companies and requiring deepwater oil and gas leaseholders to renegotiate the terms of certain leases issued in 1998 or 1999 or pay an “excessive fee'' to remain eligible to bid on new leases. However, the president supports extension of existing renewable energy tax credits “by creating a single tax incentive program that would be carbon-weighted, technology-neutral, and long-lasting,'' according to a September 16 policy statement. (CCH Energy Management, No. 1280, September 24, 2008)
Oil & Gas
Electronic Payment for Cost Recovery
Fees Required
Lessees, operators, pipeline
right-of-way holders, and permittees are now required to submit payments
for cost recovery service fees electronically, under a final rule issued
by the Minerals Management Service, effective September 24, 2008. This
rule applies to fees for the processing of plans, applications, and permits.
Checks, money orders, and cashier's checks will no longer be accepted.
The federal government maintains a secure web site to accept credit card
and automated payments. In addition, MMS has adjusted certain cost recovery
fees for inflation. MMS last updated some of these fees in 2005, which
have been increased by about 9 percent, and others in 2006, which have
been increased by about 6 percent. MMS collected about $12 million in
cost recovery fees in fiscal year 2007, which it expects to increase by
about $800,000 because of the increases. (CCH Energy Management¸
No. 1280, September 24, 2008, ¶9536.)