FERC, CFTC, and State Energy Law Developments

In the first quarter of 2017, more than 100 stakeholders, including utilities, technology providers, system operators, and state regulators submitted comments on the extensive notice of proposed rulemaking (NOPR) initiated by the Federal Energy Regulatory Commission (FERC) to encourage deployment of energy storage and aggregated distributed energy resources. While there has been no further official action at FERC (perhaps due to a lack of quorum from February 4 to August 9, 2017 and the need for a new commission to reassess priorities), an increasing number of states and utilities continue to advance investments in energy storage technologies:

  • In mid-October, the Washington Utilities and Transportation Commission issued a policy statement directing utilities to consider energy storage in their resource planning and procurement activities. While the statement does not go as far as setting a procurement mandate, it establishes an expectation that utilities will, among other things, model the sub-hourly benefits of a range of different storage technologies and include a storage alternative in their analysis of resource options.
  • Also last month, the Massachusetts Department of Public Utilities launched an investigation of the eligibility of energy storage systems for net metering and the role of net-metered resources in forward capacity markets.

A recent Smart Electric Power Alliance report on US energy storage deployments underscores that energy storage will continue to expand even though the timing and scope of federal regulation remains unknown. According to the report, utilities interconnected more than 200 megawatts (MW) of energy storage to the grid in 2016, bringing the total energy storage in operation nationwide to 622 MW across 2,399 systems. Even more staggering, GTM Research currently forecasts an elevenfold growth in the size of the 2016 market to 2.5 gigawatts (GW) by 2022.

Today, the Federal Energy Regulatory Commission (FERC) Office of Enforcement (OE) issued its 2017 Report on Enforcement. The report provides a review of OE’s activities during fiscal year 2017, which begins October 1 and ends September 30 annually, revealing likely areas of focus for FERC enforcement in the coming year.

The report indicates that even though FERC lacked a quorum for much of 2017, OE continued to focus on the same areas of market and operational risk that have traditionally captured its attention, which include (i) fraud and market manipulation; (ii) anticompetitive conduct; (iii) conduct that threatens transparency in regulated markets; and (iv) serious violations of mandatory reliability standards. OE does not anticipate that its priorities will change for fiscal year 2018. FERC also addresses its continued litigation of contested cases in federal courts. Additionally, similar to fiscal year 2016, the report indicates that the vast majority of alleged violations that come to OE’s attention are addressed informally through corrective actions voluntarily implemented by the subject of the investigation, without the need for a formal settlement. But this year, OE provides detailed examples of surveillance inquiries initiated by its Division of Analytics and Surveillance that are closed without referral to the US Department of Justice. Details on the topics in the 2017 Enforcement Report will be further described in a future LawFlash that will be posted as part of Morgan Lewis’s Power & Pipes energy law web postings. These issues will also be discussed in further detail during an upcoming webinar hosted by Morgan Lewis linked below.

2017 Year in Review: FERC Enforcement Webinar >>

We are changing the name of our FERC Law Updates blog, but we will continue to be your go-to source for concise analyses on law, policy trends, and developments affecting the energy industry.

Blog posts, LawFlashes, and webinar announcements from Morgan Lewis's energy team and other related practice areas will keep you up to date on these topics.

Like similar laws in many other states, Pennsylvania’s Alternative Energy Portfolio Standards Act (the AEPS Act) requires electric distribution companies (EDCs) and competitive retail electric generation suppliers (EGSs) to purchase an increasing percentage of energy from renewable energy sources. The AEPS Act also includes a “set-aside” that requires some of that renewable energy—as measured in alternative energy credits (AECs)—to be derived from solar photovoltaic (solar PV) facilities.

Until recently, Pennsylvania EDCs and EGSs could meet their solar PV requirements using solar AECs generated from solar PV facilities located anywhere within PJM, the regional transmission organization that includes Pennsylvania and all or part of 13 other states (including Washington, DC). Now, under Act 40 of 2017, signed into law on October 30 by Governor Tom Wolf, the rules have changed.

The US Senate has confirmed Kevin McIntyre and Richard Glick to join the Federal Energy Regulatory Commission (FERC), restoring the Commission to a full complement of five commissioners for the first time in over two years. Although FERC has had a quorum for two months, the full complement of commissioners should help the agency work through the backlog of pending proceedings that piled up in the six months that the Commission lacked a quorum. Major actions awaiting Commission action include the Department of Energy’s (DOE’s) notice of proposed rulemaking (NOPR) on generation resiliency, FERC’s 2016 electric storage NOPR, and numerous infrastructure proposals. Given the high speed at which the Commission is considering the DOE resiliency proposal, with an initial ruling due around the end of November, that action could be the first opportunity for the new commissioners to make their mark on a major policy initiative.

The Commodity Futures Trading Commission (CFTC) has delayed implementation of the reduction in the de minimis threshold by an additional year. Under the de minimis exception, a person is not considered to be a swap dealer unless its swap dealing activity exceeds an aggregate gross notional amount threshold. Currently, that threshold is set at $8 billion, and is subject to a phase-in period after which the threshold will be reduced to $3 billion. The phase-in period was scheduled to terminate on December 31, 2018, but on October 26, the CFTC issued an order extending the phase-in period by one year, terminating on December 31, 2019 instead of December 31, 2018. The CFTC previously extended the phase-in period by one year in October 2016, and at that time explained that the extension provides additional time for further information to become available to reassess the de minimis exception.

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FERC’s October 5 Order on Rehearing in Equitrans, L.P. provides a good reminder to market participants that the commitments made in a precedent agreement may subsequently be rejected by FERC when the negotiated rate transportation agreement is filed for Commission approval. Equitrans, L.P. (Equitrans) filed a non-conforming negotiated rate transportation agreement that it entered into with EQT Energy, LLC (EQT Energy) for new service on Equitrans’ Ohio Valley Connector Project. The agreement included the following three non-conforming provisions for service:

  1. A provision that gave EQT Energy the right to participate in any future open season for an expansion of the system with the benefits and designation of a Foundation Shipper (the Foundation Shipper provision);
  2. A provision that gave EQT Energy most-favored nation status, which would allow EQT Energy to match the decreased negotiated rate if Equitrans contracts for a lower negotiated rate with another shipper; and
  3. A provision that imposed stricter creditworthiness requirements for EQT Energy.

The North American Electric Reliability Corporation (NERC) filed a petition on September 26 requesting approval from the Federal Energy Regulatory Commission (FERC or the Commission) for a suite of Reliability Standards that focus on vulnerabilities in vendor products and services and would regulate the utility procurement process.

Read the full LawFlash.

In a declaratory order issued on October 4, the Federal Energy Regulatory Commission (FERC) clarified that prior approval under Section 203 of the Federal Power Act is not required for certain types of tax equity investments, substantially simplifying and expediting regulatory requirements.

Read the full LawFlash.