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FERC, CFTC, and State Energy Law Developments

The Federal Energy Regulatory Commission (FERC) issued Order 569‑A on May 21, significantly revising the methodology used to analyze the base return on equity (ROE) of a public utility’s rates under the Federal Power Act. Because the order remains subject to further legal challenge and FERC had last revised its guidance on acceptable methodologies six months earlier in Order 569, uncertainty in acceptable methodologies may continue for some time.

FERC issued a proposal on May 21 to modify its policy regarding requests for waiver of public utility tariff provisions that are subject to FERC’s review and approval under the Federal Power Act and the Natural Gas Act.

In light of federal court opinions that have discussed FERC’s authority to change a filed rate, the Commission acknowledged that past orders approving tariff waivers have “drifted beyond the limits imposed by the filed rate doctrine” and the related rule against retroactive ratemaking.

The Federal Energy Regulatory Commission (FERC) issued a notice on May 20 that it will convene a Commissioner-led technical conference to consider the ongoing, serious impacts that the emergency conditions caused by the coronavirus (COVID-19) pandemic are having on the energy industry. The conference will be free, open to the public, and held remotely on Wednesday and Thursday, July 8-9, 2020. Attendees may preregister online here.

In mid-March the Commission began issuing guidance to address the immediate needs of FERC-jurisdictional entities, including various waivers and extensions necessary to assist energy companies with managing their regulatory responsibilities while dealing with the pandemic. The conference will be more forward-looking, and is expected to focus on the potential longer-term impacts from the pandemic on energy companies, energy markets, energy system reliability, and consumer protection.

The US Department of the Treasury issued a letter on May 7 stating that it plans to modify the continuity safe harbor for both the production tax credit (PTC) and the energy investment tax credit (ITC). Under the current law, taxpayers seeking to claim a PTC for electricity produced from qualifying facilities or an ITC for qualifying energy property must generally begin construction on the qualifying facility or property by specified dates.

To be considered to have begun construction, the taxpayer must start physical work of a significant nature, or must satisfy the safe harbor requirements by incurring 5% or more of the total cost of the facility or property. The taxpayer must then demonstrate continuous efforts to complete construction, and must place the facility or property in service within four years to meet the requirements for a continuity safe harbor.

In response to President Donald Trump’s declaration of a national emergency due to the coronavirus (COVID-19) pandemic, the Pipeline Hazardous Materials Safety Administration (PHMSA) issued a notice that it does not intend to take enforcement action related to certain new gas pipeline safety regulations with which gas pipeline operators must comply by July 1, 2020.

PHMSA stated that it will resume its normal enforcement processes and sanctions after December 31, 2020, but retains the discretion to enforce the July 1, 2020 compliance deadlines in the event of a significant safety issue or if otherwise warranted. Similar to PHMSA’s prior notice of enforcement discretion (which we discussed in our March 27 posting), this notice recognizes that gas pipeline operators may be facing personnel resource constraints due to the COVID-19 pandemic.

The Commodity Futures Trading Commission (CFTC) indicated on April 24 that it is conducting a review of the $40-per-barrel plunge in the WTI crude price that occurred on April 20. The CFTC stated that it is conducting the review to understand why the pricing happened, to ensure that the market functioned properly, and to rule out foul play.

As market participants are no doubt aware, the WTI May contract ultimately settled at negative $37.63 at the close of April 20. That price occurred just the day before the May contract expiry, which reflects the market realization that traders holding long May futures positions must either be prepared to take delivery of the physical WTI following expiry and settlement or find a buying counterparty through which the long position could be liquidated. Given the ongoing international production dispute, the collapse of domestic demand, and the tight storage market at Cushing, Oklahoma (and elsewhere), the inability to take delivery seemingly prompted the historic price crash.

President Donald Trump signed an executive order on May 1 declaring that the use of bulk-power system equipment supplied by companies controlled by certain foreign nations poses an extraordinary threat to the US power grid. The order observes that the bulk-power system is a valuable target for malicious actors, and any attack on that system could pose serious risks to the economy, public health and safety, and national security.

In light of those risks, the executive order declares a national emergency with respect to the power grid and moves to ban the unrestricted import or use of bulk-power system electric equipment from foreign adversaries. Although the order calls for coordination among multiple executive branch heads, including the Director of National Intelligence and the Secretary of Homeland Security, it primarily tasks the Secretary of Energy with fulfilling the President’s directives.

Our colleagues in the environmental practice have published a LawFlash analyzing the implications of the recent US Supreme Court ruling that the Clean Water Act (CWA) requires a permit when there is a direct discharge (or the functional equivalent of a direct discharge) from a point source into navigable waters.

The decision, which rejects US Environmental Protection Agency (EPA) guidance, will require EPA to revisit its interpretative statement and consider the issuance of administrative guidance on the application and implementation of the Court’s decision.

Read the full LawFlash >>

The US Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (CISA) issued Version 3.0 of its guidance on April 17 on identifying essential critical infrastructure workers amid the coronavirus (COVID-19) pandemic. The revised guidance adopts the latest safety recommendations from the Centers for Disease Control and Prevention (CDC) and builds on prior versions of the guidance by providing an expanded breakdown of job roles that CISA considers essential, particularly in the energy sector. The guidance also addresses the manner in which localities can ensure that essential workers can travel to and perform their jobs.

Recognizing that employers of essential workers have had difficulty ensuring that those workers can physically travel as needed for their jobs, the revised guidance urges that such workers be “exempted from curfews, shelter-in-place orders, and transportation restrictions or restrictions on movement.” The guidance also urges local governments to establish guidance that lets essential workers cross jurisdictional boundaries with neighboring jurisdictions.

In an order issued on April 17, the Federal Energy Regulatory Commission (FERC) agreed to defer implementation of certain cybersecurity and operational reliability standards administered by the North American Electric Reliability Corporation (NERC) that had important compliance milestones later this year, including the suite of supply chain risk management standards that have been under development for several years and were set to take effect on July 1. The move by FERC is intended to provide some measure of relief from impending compliance burdens and to allow electric utilities to focus their resources on responding to the coronavirus (COVID-19) pandemic.