FERC, CFTC, and State Energy Law Developments

On July 25, the Department of Energy (DOE) issued a final rule, effective August 24, to provide expedited authorization of applications to export liquefied natural gas (LNG) to non–Free Trade Agreement (FTA) countries (i.e., those countries with which the United States has not entered into an FTA) using “small-scale” natural gas export facilities. To qualify for expedited treatment, applicants must satisfy two criteria:

  1. The application must propose to export a volume of natural gas that does not exceed 51.75 Bcf/yr
  2. The application will not require DOE to issue an environmental impact statement (EIS) or an environment assessment (EA) pursuant to the National Environmental Policy Act of 1969 (NEPA)

Any non-FTA application that satisfies these two criteria will qualify as a “small-scale natural gas export” and therefore will be deemed to automatically satisfy DOE’s Natural Gas Act (NGA) Section 3 public interest standard. Additionally, DOE will not provide a public notice and comment period for qualifying small-scale natural gas export applications, nor will it apply other procedures typically used during its review of large-scale LNG export applications to non-FTA countries.

Pursuant to Section 3 of the NGA, applications to export natural gas or LNG to FTA countries are automatically deemed to be in the public interest and do not require DOE to conduct a detailed review process. Thus, DOE’s final rule will significantly streamline the review process for qualifying small-scale applications by putting them on equal footing with large-scale and small-scale FTA applications.

In the final rule, DOE agreed that small-scale exports will provide a variety of benefits both to the United States and to importing countries primarily located in the Caribbean, Central America, and South America. For the United States, some of the anticipated benefits include stimulating the natural gas market, generating economic growth, strengthening the global natural gas market, and enhancing US national security interests abroad. Additionally, DOE determined that small-scale exports will not adversely affect the availability of natural gas supplies to domestic consumers.

DOE welcomes suggestions, data, and information on additional deregulatory efforts that it could undertake with respect to its NGA Section 3 authority.

The Federal Energy Regulatory Commission recently issued two orders intended to alleviate concerns that jurisdictional natural gas pipelines may be over-recovering cost-of-service rates due to (1) a reduction of the federal corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act and (2) the DC Circuit Court of Appeals’ decision in United Airlines Inc. v. FERC, which found that FERC’s existing income tax allowance policy, when applied to pass-through entities such as master limited partnerships, creates a possibility of double recovery for income tax allowances under cost-of-service rates. The Commission will now require pipelines to submit informational filings identifying whether the benefits of federal tax reform have been passed on to ratepayers, and has also clarified its guidance that pass-through entity pipelines may eliminate the accumulated deferred income tax component from their rates when they exclude income tax allowances from their costs of service.

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The Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 848 on July 19, directing the North American Electric Reliability Corporation (NERC) to augment the cyber incident reporting requirements under the Critical Infrastructure Protection (CIP) reliability standards. The directive adopts the proposals from the December 2017 Notice of Proposed Rulemaking (NOPR) and reflects the Commission’s view that FERC and NERC need to significantly improve their awareness of the breadth and frequency of the cybersecurity risks that electric utilities encounter.

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Officials at the US Department of Homeland Security (DHS) confirmed yesterday to The Wall Street Journal that state-sponsored hackers successfully gained remote access to the control rooms of US electric utilities and likely had the ability to disrupt power flows. The report describes the activities as part of a long-running campaign targeting US utilities and suggests that the attacks are still ongoing. This is not the first time that a federal government agency has publicly confirmed the actual or potential threat posed by hackers to critical infrastructure (see our previous post on state-sponsored attacks). Instead, it marks yet another confirmed instance of hackers gaining access to the secure networks used by industrial control systems in what has become a disconcerting trend in recent years, and continues to underline the importance of strong vendor and supply chain cybersecurity controls.

On July 19, the Federal Energy Regulatory Commission (FERC or Commission) issued a Notice of Proposed Rulemaking (NOPR) proposing to revise its regulations restricting certain officers and directors of public utilities from holding “interlocking” positions (i.e., positions in which an individual is simultaneously a director or officer of two different types of business entities covered by the regulations). The NOPR proposes a limited measure of relief from some of the Commission’s longstanding regulatory hurdles for public utility executives.

FERC’s interlock rules implement Section 305(b) of the Federal Power Act, which was enacted to ensure arm’s-length dealings between public utilities and the organizations furnishing financial services or electrical equipment to those utilities. Under the regulations, any person seeking to hold any of the following interlocking positions must file an application for approval from FERC before being appointed:

On July 19, the Federal Energy Regulatory Commission (FERC) approved most of the revisions proposed by a North American Electric Reliability Corporation (NERC) petition to revise NERC’s rules of procedure (ROP) on operator certification, but rejected certain key changes. FERC concluded that NERC’s proposal to remove those provisions would strip substantive rules from the ROP and move them to NERC manuals, thus defeating the efficacy of FERC review because the ROP is subject to FERC review and approval but NERC manuals are not.

The US Court of Appeals for the Eleventh Circuit on July 11 affirmed the dismissal of a putative class action complaint seeking disgorgement and other relief from two Florida utilities (Utilities). The complaint also sought to invalidate provisions of a Florida statute relating to rate recovery for nuclear power projects on constitutional dormant Commerce Clause and preemption grounds.

The statute at issue in the proceeding—the Florida Renewable Energy Technologies and Energy Efficiency Act (Florida Act)—authorized the state regulatory body to incentivize investment in nuclear power plant construction. Acting on that authority in 2007, the Florida Public Service Commission promulgated the Nuclear Cost Recovery System (NCRS), a program that allows utilities to preemptively recover costs related to the construction of new nuclear power plant projects. The plaintiffs had sued the Utilities, arguing that the provisions authorizing the NCRS are invalid under the dormant Commerce Clause, which limits states from regulating interstate commerce, and preempted by federal statute. Plaintiffs argued that the Atomic Energy Act expressly reserves the authority to regulate nuclear power plant construction with the federal government, and that the provisions of the Florida Act that led to the creation of the NCRS were therefore preempted by federal law. The lower court dismissed these claims, and also denied plaintiffs’ motion to amend the complaint to join the State of Florida as a defendant.

President Donald Trump signed an executive order on July 10 to except the position of Administrative Law Judge (ALJ) from the federal government’s competitive service. This removes ALJs from the traditional “merit” selection process used for most federal government employees.

ALJs had been appointed through a competitive examination and competitive service selection process. However, pointing to the “expanding responsibility” that ALJs have for federal agency adjudications, and expanding on the US Supreme Court’s recent decision in Lucia v. Securities and Exchange Commission, the president concluded that all ALJs should be considered “Officers of the United States” subject to the Appointments Clause of the US Constitution and therefore be appointed by and serve at the discretion of the president or the head of the relevant agency. In Lucia, the Court had held that Securities and Exchange Commission ALJs are “Officers of the United States,” and are thus subject to the Appointments Clause.

Regional transmission operator PJM Interconnection, L.L.C. imposed a new requirement that generating entities experiencing direct or indirect changes in ownership or control notify PJM of such changes immediately. The new requirement is effective as of June 1 and, while it may add to the paperwork of generators in the region, it is not likely to be significantly burdensome so long as the documentation requirements are carefully tracked. Whether and how these submissions will affect PJM’s regular involvement in Federal Power Act Section 203 proceedings at FERC remains to be seen. 

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