FERC, CFTC, and State Energy Law Developments

On the heels of the news reports describing cyberattacks on the energy sector that have continued to accumulate over the last few years, the US Department of Homeland Security (DHS) and the Federal Bureau of Investigation (FBI) issued a technical alert on March 15 describing ongoing attacks on critical infrastructure by hackers associated with the Russian government. The alert described the cyberattacks as part of a “multi-stage intrusion campaign by Russian government cyber actors” that targeted the energy sector networks, as well as computer systems used by entities in the nuclear, water, aviation, and critical manufacturing sectors. The alert is the latest in a string of reported cyberattacks on industrial control systems (ICS) in recent years, and can only serve to ratchet up the regulatory pressure on these industries to demonstrate their resilience in the face of these well-organized attacks.

The North American Electric Reliability Corporation (NERC) filed a Notice of Penalty summarizing an agreement by an unidentified electric utility to pay a $2.7 million penalty in connection with self-reported violations of the Critical Infrastructure Protection reliability standards related to sensitive data exposure by a vendor. Although the utility did not directly cause the improper data handling—and indeed the violation resulted from vendor noncompliance with utility policies—the Western Electricity Coordinating Council nevertheless concluded that the utility failed to adequately implement its information protection program by not preventing or immediately detecting the vendor’s actions and submitted the settlement to NERC. 

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In response to concerns that the ability of the electric system to provide frequency response following a system disturbance is falling across the United States, the Federal Energy Regulatory Commission (FERC) changed its generation interconnection requirements on February 15. Frequency response is, generally speaking, the ability of the system to quickly return to 60 Hz frequency following a system event such as the sudden loss of a generator. If frequency is not immediately corrected, over- or under-frequency events can occur, which would lead to more and more facilities tripping out of service. The ability of the bulk electric system to provide frequency response is therefore critical in order to avoid cascading outages.

Under the revisions to the pro forma Large Generator Interconnection Agreement (LGIA) and the Small Generator Interconnection Agreement (SGIA), nonsynchronous generators (typically renewable generation) will for the first time be required to have equipment that enables the generator to provide frequency response. Previously, only synchronous generators were required to have that capability because of concerns that nonsynchronous generators were not technically capable of providing that service. FERC found that with recent technological developments there is no longer a reason to treat synchronous and nonsynchronous generation differently on this issue.

The new requirements will apply only to new interconnection agreements, including those driven by changes at an existing generator that necessitate a new interconnection agreement.

In a landmark rulemaking announced at today’s open meeting, the Federal Energy Regulatory Commission (FERC or Commission) opened participation in organized wholesale markets to electric storage resources. The final rule aims to remove barriers to participation in organized markets, reflecting FERC’s view that existing market participation models can limit the availability of services that resources based on newer technology are capable of providing.

The final rule requires each regional transmission organization (RTO) and independent system operator (ISO) to revise their tariffs to establish a participation model that recognizes the physical and operational characteristics of electric storage resources and facilitates the participation of those resources in the organized markets. FERC staff’s accompanying presentation explained that those participation models must (1) ensure that a resource using the participation model in an organized market is eligible to provide all capacity, energy, and ancillary services that it is technically capable of providing; (2) ensure that a resource using the participation model can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer consistent with existing market rules; (3) account for the physical and operational characteristics of electric storage resources through bidding parameters or other means; and (4) set a minimum size requirement that does not exceed 100 kilowatts. The final rule also requires that the sale of electric energy from the organized markets to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price. The final rule will take effect 90 days after publication in the Federal Register. RTOs and ISOs will have 270 days after the effective date to submit compliance filings, with an additional 365 days to fully implement the new tariff provisions.

The Kleinman Center for Energy Policy invited energy practice partner Ken Kulak to discuss corporate America’s efforts to deepen their clean energy commitments during a recent episode of podcast Energy Now. During the podcast, Ken discusses increasing corporate commitments to sustainability and strategies for procuring renewable energy, including virtual power purchase agreements.

The Federal Energy Regulatory Commission (FERC) issued an order on January 18 approving four Emergency Operations (EOP) reliability standards: EOP-004-4 (Event Reporting), EOP-005-3 (System Restoration from Blackstart Resources), EOP-006-3 (System Restoration Coordination), and EOP-008-2 (Loss of Control Center Functionality). The newly-approved standards are intended to enhance the requirements for system restoration and related personnel training.

At today’s open meeting, the Federal Energy Regulatory Commission (FERC) proposed to approve new Critical Infrastructure Protection (CIP) Reliability Standards developed by the North American Electric Reliability Corporation (NERC) to protect the cybersecurity of the supply chains for critical utility systems. While recognizing the benefits of using a global supply chain to produce the assets used to operate the bulk electric system, FERC staff’s accompanying presentation recognized that relying on a global supply chain “also enables opportunities for adversaries to directly or indirectly affect the management or operations of generation and transmission companies in a manner that may result in risks to end users, such as through the insertion of counterfeits, unauthorized production, tampering, theft, or insertion of malicious software.”

A Supplemental Report of the US International Trade Commission Regarding Unforeseen Developments reaffirms the commission’s original conclusions and emphasizes that the increased imports of CSPV solar cells and modules were both “unforeseen” and the “substantial cause” of “serious harm” to the domestic industry for these products. This sets the stage for the likely imposition of tariffs and other remedies by the president.

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Nineteen states have asked the Federal Energy Regulatory Commission (FERC) to modify public utilities’ FERC-regulated cost-of-service revenue requirements to reflect the recent reduction in the federal corporate income tax rate. The states claimed that “[t]he Tax Cuts and Jobs Act significantly reduces the marginal federal corporate income tax rate from 35 to 21 percent. Unless the Commission adjusts… revenue requirements to reflect this federal corporate income tax reduction, utility customers nationwide will be overpaying for their electric and gas service by hundreds of millions of dollars.”

According to the states, the level of current corporate income tax expense incorporated into public utilities’ rates could render those rates unjust and unreasonable, and if FERC does not proactively reduce those rates, a significant amount of money would need to be refunded to customers in the future.

Over a half dozen natural gas rate proceedings are expected to be initiated at the Federal Energy Regulatory Commission in 2018, many of which will raise issues that are historically addressed in pipeline general rate case proceedings, as well as novel issues such as the impact of the new tax laws on rates and the inclusion of a pipeline modernization tracker in rates.

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