Energy Update September 2011

September 2011

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

Standard for Restoration of Power During a System Emergency Approved

The Commission has approved the North American Electric Reliability Corporation's proposed interpretation of Reliability Standard, TOP-001-1, Requirement R8, which pertains to the restoration of real and reactive power during a system emergency. Reliability Standard TOP-001-1 (Reliability Responsibilities and Authorities) centers on the responsibilities of balancing authorities and transmission operators during a system emergency. Specifically, the stated purpose of Reliability Standard TOP-001-1 is to ensure reliability entities have clear decision-making authority and capabilities to take appropriate actions or direct the actions of others to return the transmission system to normal conditions during an emergency. Requirement R8 of the standard provides: during a system emergency, the Balancing Authority and Transmission Operator shall immediately take action to restore the Real and Reactive Power Balance. If the Balancing Authority or Transmission Operator is unable to restore Real and Reactive Power Balance it shall request emergency assistance from the Reliability coordinator. If corrective action or emergency assistance is not adequate to mitigate the Real and Reactive Power Balance, then the Reliability Coordinator, Balancing Authority, and Transmission Operator shall implement firm load shedding. (Electric Reliability Organization Interpretation of Transmission Operations Reliability Standard, 136 FERC ¶61,176)

Operating Personnel Credentials Standard Approved

The Commission has approved the North American Electric Reliability Corporation's NERC) Personnel Performance, Training and Qualification (PER) Reliability Standard PER-003-1 (Operating Personnel Credentials). This reliability standard requires reliability coordinators, transmission operators, and balancing authorities to ensure that system operators performing reliability-related tasks are certified through the NERC System Operator Certification Program when filling a real-time operating position responsible for control of the Bulk Electric System. It will ensure that all of these real-time operators are proficient to perform their role under normal and emergency conditions and that any non-NERC certified personnel performing any reliability-related task of a real-time operating position must be under the direct supervision of a NERC certified system operator. The standard was approved because the Commission found it to be just, not unduly discriminatory and in the public interest. By specifying minimum competencies which must be demonstrated to obtain and maintain a NERC system operator certification, PER-003-1 improves the currently effective reliability standard PER-003-0. (NERC, 136 FERC ¶61,177)

Postage Stamp Basis Appropriate for Utility's Collection of Fuel Costs

Texas Gas Service Company (Texas Gas) filed a complaint challenging the collection of fuel costs by El Paso Natural Gas Company (El Paso) on a postage stamp basis and proposing a distance-based methodology. The record, however, does not support Texas Gas position that the El Paso postage stamp fuel rate is unjust and unreasonable. Under its theory of the case, the El Paso postage stamp fuel rate is unjust and unreasonable because gas hauled to California and Arizona by the pipeline is transported further than to the more eastern markets, and, since it is hauled further, more fuel must be used to get it there. As a consequence, Texas argued, the more eastern markets are overpaying for fuel and the California and Arizona markets are underpaying, resulting in the former subsidizing the latter. In sum, to prove its prima facie case, Texas Gas had to show that (1) gas travels further between receipt by the El Paso system and delivery to California and Arizona than it does between receipt by the El Paso System and delivery to Texas and New Mexico and (2) that it costs more to haul gas to California and Arizona because of that additional distance than it does to haul gas to Texas and New Mexico. The record, however, does not establish either point. (Texas Gas Service Company v. El Paso Natural Gas Co., 136 FERC ¶63,010)

Arizona Pipeline Segment Replacement Upheld

A Commission order [132 FERC ¶61,228] which granted a request by El Paso Natural Gas Company (El Paso) to replace damaged pipeline segments across the San Francisco River in Greenlee County, Arizona has been upheld by the agency. In denying a rehearing request filed by the Center for Biological Diversity (Center), the Commission found that, although the permanent bank stabilization structure necessary for the project would be located within designated critical habitat for the federally listed threatened loach minnow, the Fish and Wildlife Service (FWS) issued a biological opinion concluding that the action as proposed was neither likely to jeopardize the continued existence of the loach minnow nor likely to destroy designated critical habitat for the species. The Commission prepared an Environmental Assessment (EA) for the project which considered its impact on the loach minnow and its critical habitat as identified in biological opinion. The EA concurred with FWS's findings. The Commission also rejected the Center's argument that the EA failed to consider viable alternatives. As required by the National Environmental Protection Act, the EA did take a ``hard look'' at the potential environmental consequences of the proposed action and found that the possible alternatives were not reasonable because, among other reasons, they were: inapplicable, involved other crossing locations that would result in new disturbances, and would still require crossing the river in critical habitat. For these reasons, the Commission concluded that there was not a preferred alternative to replacing the damaged pipeline. (El Paso Natural Gas Co., 136 FERC ¶61,175)

Indirect Overhead Costs Includable in Damages for DOE's Failure to Take SNF

Indirect overhead costs incurred by Southern California Edison Company (SCE) were properly included in the damages awarded the utility as the result of the Department of Energy's failure to take possession of SCE's spent nuclear fuel by January 31, 1998, the date specified in the contract signed by the two parties, the U.S. Court of Appeals for the Federal Circuit ruled in affirming the trial court's decision. The federal government, which had a long-established responsibility for the permanent 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 by that date The Nuclear Waste Policy Act of 1982 required utilities to enter into standard contracts with DOE for this purpose and these contracts obligated DOE to begin to accept the waste by the 1998 date in return for the fees paid by utilities. The agency had a clear contractual obligation to live up to its part of the bargain and could not claim that its failure to do so was unavoidable on the grounds that it had not yet prepared a permanent repository or that it had no authority to provide interim storage. It is uncertain when DOE will begin to accept the SNF. As a result of DOE's failure, SCE had to construct dry storage facilities, known as a Independent Spent fuel Storage Installation (ISFSI) to house its SNF and sought damages for, among other things, the overhead costs allocated to the ISFSI project. The costs were separated into three categories (Common Allocation, Corporate Administrative and General, and internal Market Mechanism. These included items such as plant security, emergency response systems, and lease payments. (SCE v. U.S. , CCH Nuclear Regulation Report¶20,714)

"Construction'' Definition Expanded
The Commission has adopted changes to its regulations for nuclear materials licenses that would change the meaning of ``construction'' and ``commencement of construction" and would allow some materials licenses to conduct certain site preparation activities before a license is issued. The changes apply to the licensing and approval processes for byproduct, source and special nuclear materials licenses and irradiators. The changes will make the definition of construction and commencement of construction consistent with NRC nuclear power plant applicants and licensees. Previously, applicants for uranium recovery, fuel cycle facilities and other materials facilities had to apply for exemptions to conduct site preparation activities similar to those that power plant applicants are allowed to perform.

The new rule will allow applicants to perform site preparation activities that do not implicate radiological health and safety or common defense and security considerations. Such activities include exploration; site clearing; grading; installation of drainage; erosion and other environmental mitigation measures; and construction of temporary roads and support buildings. The changes do not include a ``limited work authorization" provision similar to that in NRC regulations for nuclear power plants because recent exemption requests by material applicants will be satisfied by the revised definition of construction. (CCH Nuclear Regulation Reporter No. 1473, September 27, 2011)