FERC, CFTC, and State Energy Law Developments

The US Department of Energy (DOE) recently published proposed changes to its Contractor Employee Protection Program in the Federal Register. DOE’s Contractor Employee Protection Program appears in 10 C.F.R. Part 708 (Part 708) and extends employee protections to employees of DOE contractors and subcontractors modeled after the protections for federal employees that appear in the Whistleblower Protection Act (5 U.S.C. § 1201 et seq.).

The May 16 Order on Rehearing affirms FERC’s jurisdictional authority, and refuses calls for state opt-outs.

The Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 841 early last year, a final rule amending FERC’s regulations to facilitate participation of electric storage resources in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). Several entities have since challenged key aspects of the final rule, urging the Commission on rehearing to reverse course or modify its approach on a number of issues. On May 16, the Commission issued Order No. 841-A, denying those requests for rehearing, thereby upholding the initial rulemaking while providing some additional clarification.

FERC issued an order on May 16 rescinding its 2009 policy[1] of issuing Notices of Alleged Violations (NAVs) after the subject of an investigation is given an opportunity to respond to FERC Enforcement Staff’s preliminary findings (the NAV Policy).[2] NAVs typically identify FERC’s targets (by name), and set forth abbreviated information concerning the subject matter of FERC’s enforcement attention, the time frame, and the particular statutes relevant to the alleged violations. Since FERC began implementing the NAV Policy in 2011, it has been monitoring its implementation and has now determined that the potential adverse consequences that NAVs pose for the subjects of FERC investigations are no longer justified in light of the limited transparency that NAVs provide.

A few years after FERC received enhanced enforcement authority in 2005, it instituted the NAV Policy to increase the transparency of the nonpublic investigations that its Staff conducts under Part 1b of FERC’s regulations. When it issued the NAV Order, FERC explained that issuing the NAVs after the preliminary findings stage balances “the need to protect the subject’s confidentiality in the early stages of an investigation with the public interest of promoting additional transparency during investigations.”[3] FERC has since determined that NAVs provide only limited guidance and information to market participants and that the various orders on enforcement matters and the reports and white papers its Staff issues are more informative and provide more transparency.

Recent developments over the last several weeks have intensified the ongoing struggle between the current administration of President Donald Trump and the federal judicial system concerning energy policy as it relates to the exploration and production of crude oil and natural gas. Below is a brief summary of these latest events.

Trump Issues New Presidential Permit Authorizing Construction of Keystone XL Pipeline

In the latest saga of the proposed Keystone XL pipeline, US District Court Judge Brian Morris, sitting in the Great Falls Division of the District of Montana, issued an order on November 8, 2018, blocking early construction efforts on the project. In a case filed by several environmental groups, including the Indigenous Environmental Network, Judge Morris ruled that the environmental reviews conducted by the US Department of State had failed to consider the cumulative greenhouse gas emissions impacts of the Keystone XL project when combined with the expansion of another proposed Canadian pipeline, and also that the reviews failed to take into account updated information on the risk of leaks or spills. Accordingly, the court halted any further activities “in furtherance of the construction or operation of Keystone.”

FERC Staff issued a report on March 29 on Commission-led critical infrastructure protection (CIP) reliability audits completed for fiscal years 2016 through 2018. The report provides lessons learned from those audits, as well as voluntary recommendations on cybersecurity practices to enhance the protection of electric infrastructure from cyberattacks. Even though many of these recommendations go beyond what is necessary for compliance with the mandatory CIP reliability standards, FERC is likely to view implementation of these recommendations as evidence of a strong cybersecurity culture that proactively addresses best cybersecurity practices and evolving threats. That can, in turn, have positive ramifications for utilities undergoing cybersecurity reviews by FERC, NERC, or the Regional Entities.

In its updated guidance issued on April 30, the US Department of Justice Criminal Division places effectiveness at the epicenter of its factors to be utilized when evaluating a company’s compliance program in the context of a criminal investigation. As corporate compliance programs continue to be closely scrutinized, companies and their boards, senior management, and legal and compliance departments should tailor their corporate compliance programs to issues and risk areas specific to the company’s business. Senior management plays a critical role in identifying these issues and risk areas and must serve as an example and enforcer of good compliance practices. Companies cannot let their compliance programs get stale and must continue to innovate, revamp, and enhance their corporate compliance practices based on lessons learned. DOJ emphasizes that “one hallmark of an effective compliance program is its capacity to improve and evolve.”

Read the full LawFlash.

The US Supreme Court has denied a petition for certiorari filed by the Delaware Riverkeeper Network, which challenged a decision by the US Court of Appeals for the Third Circuit concerning Pennsylvania’s water quality certification for Transcontinental Gas Pipe Line Company LLC’s (Transco’s) Atlantic Sunrise Project. The project expands Transco’s interstate pipeline network in Pennsylvania and on the East Coast. The Supreme Court’s April 29 denial comes as another success for the project, which has been defending against several challenges, first at the agency level and now at the appellate level, since Atlantic Sunrise first filed its FERC application to construct and operate the expansion facilities in March 2015.

A recent policy statement from the Office of Management and Budget (OMB) instructs departments and agencies—including independent agencies like FERC—to submit “guidance documents, general statements of policy, and interpretive rules” to the OMB’s Office of Information and Regulatory Affairs (OIRA) for prepublication review. It also establishes guidelines for the OIRA to apply to properly classify regulatory actions and determine whether they are “major” rules for purposes of the Congressional Review Act (CRA). This major determination process will take full effect on May 11, 2019.

Electric power generation and sale customarily fall within the scope of FERC jurisdiction under the Federal Power Act, as amended, as do generator investment and ownership. Qualifying small power production facilities (Small Power QFs) of no larger than 20 MW (net AC) are usually exempt from FERC regulation of mergers, acquisitions, divestitures, power sale rates, and related regulation under the Public Utility Holding Company Act. Small Power QFs are also normally exempt from state utility commission regulation of corporate, financial, and power sales rate matters. These Small Power QF regulatory exemptions are widely viewed as helpful and appropriate by industry stakeholders ranging from generation investors to traditional franchised utilities, and residential and commercial generation users.

FERC issued a Notice of Inquiry (NOI) on March 21 seeking stakeholder comment on the scope and implementation of its electric transmission infrastructure development incentives regulations and policy. The NOI seeks answers to whether and how FERC should update its rules and policies in this area through more than 100 questions organized into four broad categories:

  • FERC’s incentive policies and how it should approach evaluating applicants’ requests for transmission development incentives, including its Return on Equity (ROE) adder policy
  • What expected benefits or project characteristics warrant incentives, including whether the Commission should consider reliability benefits, economic efficiency benefits, security, or resilience in that determination
  • Whether existing incentives, including the ROE adder, remain relevant and appropriate today
  • Whether particular types of infrastructure development incentives should automatically sunset, and under what certain circumstances that should happen