FERC, CFTC, and State Energy Law Developments

On July 16, the Federal Energy Regulatory Commission (FERC) issued an order directing market operators in New York and neighboring regions to submit a long-term solution to loop flow issues. In the order, FERC also adopted the findings of an investigation By its enforcement staff into allegations that loop flow issues between the New York Independent System Operator (NYISO) and neighboring markets were a result of market manipulation.

The FERC investigation grew out of a referral By the NYISO’s internal market monitor, who alleged that market participants had submitted circuitous transmission schedules that traversed the systems of multiple Regional Transmission Organizations (RTOs) when more direct routes were available. The internal market monitor claimed that the circuitous scheduling, which utilized paths in the Lake Erie region, increased loop flows and associated uplift costs borne By customers, and violated the rule against market manipulation.  Read more…

On July 16, the Federal Energy Regulatory Commission (FERC) issued a policy statement providing guidance on the development of smart grid technology for the electric transmission system and adopting an interim rate policy to encourage investment in smart grid technology. According to FERC Chairman Jon Wellinghoff, the new policy statement will “inform and accelerate the smart grid standards development process” while also “providing cost recovery assurances to early moving utilities that invest in smart grid technologies that meet specified criteria.”  Read more…

Since early 2009, the U.S. House of Representatives and the U.S. Senate have been separately drafting legislation that, if enacted, would fundamentally alter the way that the United States generates, transmits, and consumes energy. Morgan Lewis's Energy Practice hosted a webinar discussing the energy-related legislation presently pending in Congress.

The Senate's bill, the American Clean Energy Leadership Act of 2009, addresses U.S. energy policy, including various aspects relating to the Federal Energy Regulatory Commission's regulation of electric, gas, and renewable energy. The House's bill, the American Clean Energy and Security Act of 2009, addresses both U.S. energy policy and U.S. climate change policy.

Morgan Lewis partners Ronald J. Tenpas, Michael C. Griffen, and Floyd L. Norton, IV and associate Levi McAllister discussed the House and Senate bills, including the present status of each bill, with a summary of the most recent legislative actions relating to either bill; highlights of notable provisions contained in the House and Senate bills; differences between the House and Senate bills; and next steps: potential legislative developments that may arise as Congress works to enact comprehensive energy legislation in 2009.

On July 1, the North American Electric Reliability Corporation issued draft security guidelines providing guidance to entities that are required to identify Critical Cyber Assets under NERC Standard CIP-002 R3. Under that standard, certain entities must develop a list of Critical Cyber Assets that are essential to the operation of the entities’ Critical Assets.

As stated in the draft guidelines, CIP-002 R3 is applicable to Responsible Entities, which include reliability coordinators, balancing authorities, interchange authorities, transmission service providers, transmission and generator owners and operators, load serving entities, regional entities, and nuclear facilities that have non-safety Critical Assets not subject to the Nuclear Regulatory Commission’s cyber security regulations.  Read more…

On July 1, the North American Electric Reliability Corporation issued draft security guidelines providing guidance to entities that are required to identify Critical Cyber Assets under NERC Standard CIP-002 R3. Under that standard, certain entities must develop a list of Critical Cyber Assets that are essential to the operation of the entities’ Critical Assets.

As stated in the draft guidelines, CIP-002 R3 is applicable to Responsible Entities, which include reliability coordinators, balancing authorities, interchange authorities, transmission service providers, transmission and generator owners and operators, load serving entities, regional entities, and nuclear facilities that have non-safety Critical Assets not subject to the Nuclear Regulatory Commission’s cyber security regulations.  Read more…

On June 18, the Federal Energy Regulatory Commission (FERC) issued orders addressing two separate petitions for declaratory order submitted By NorthWestern Corporation d/b/a NorthWestern Energy (NorthWestern). In the first petition, NorthWestern, a public utility, and its affiliate Mountain States Transmission Intertie, LLC (MSTI), requested certain approvals in connection with the MSTI transmission project, which consists of a proposed 500 kV transmission line running from a substation near Townsend, Montana, on NorthWestern’s transmission system, to an interconnection with Idaho Power Company. MSTI and NorthWestern also requested that FERC authorize MSTI to charge negotiated prices for transmission rights over the MSTI project.  Read more…

On June 24, 2009, the Federal Energy Regulatory Commission (Commission) upheld central aspects of its prior decisions on Violation Severity Levels (VSLs) proposed By the North American Electric Reliability Corporation (NERC). In acting to approve two compliance filings from NERC addressing VSL issues, the Commission turned back challenges to its current policy regarding the development of VSLs, including the treatment of VSLs for subrequirements that are merely conditions for meeting the actual core requirement and the double-jeopardy concerns presented By employing separate VSLs for the requirements and subrequirements of a Reliability Standard.

The first compliance filing addressed in the order dealt with the “binary” requirements and subrequirements found in the original 83 Reliability Standards approved By the Commission. Unlike most requirements, which have VSLs addressing increasing degrees of noncompliance, binary requirements are those requirements where an entity is either fully compliant or completely out of compliance. NERC’s compliance filing revised the VSLs for these binary requirements and subrequirements so that all violations of these binary requirements would be assessed as “severe.” In the second compliance filing addressed in the order, NERC submitted modified VSLs for those VSLs to which the Commission had previously granted rehearing. The Commission approved both of these compliance filings.  Read more…

On May 21, 2009, the Federal Energy Regulatory Commission (FERC) approved a participant funding arrangement for a proposed international transmission project that would connect the Hydro-Quebec TransEnergie (Hydro-Quebec) transmission system with the ISO New England transmission system. The project is designed to allow the importation of hydropower from Canada into the United States for the purpose of serving customers in the New England region.

Northeast Utilities Service Company (Northeast), NSTAR Electric Company (NSTAR), and Hydro-Quebec are presently collaborating on the design and construction of a 1,200-megawatt transmission line that would connect Hydro-Quebec to ISO New England’s 345 kV transmission system. As proposed, Hydro-Quebec will fund construction of the project and will assume responsibility for the project’s risks. In return for its commitment, Hydro-Quebec will receive 1,200 megawatts of capacity on the completed transmission line for the transmission of hydropower into the United States. Under such a proposal, the costs of the project will not be recovered through the rates for transmission service under the ISO New England’s tariff.  Read more…

Yesterday, Senate Homeland Security and Governmental Affairs Committee Chairman Joseph Lieberman (I-CT) and House Homeland Security Committee Chairman Bennie Thompson (D-MS) introduced a bill that would dramatically increase the authority of the Federal Energy Regulatory Commission (FERC) to respond to cyber threats to the nation’s power grid. Under the proposed bill, the Critical Infrastructure Protection Act (H.R. 2195 and S. 946), FERC would have the authority to immediately respond to cyber threats identified By the Department of Homeland Security (DHS). In introducing the bill, Senator Lieberman stated: “We rely on cyberspace for so much of what is at the heart of our way of life. And our systems are not protected. We are focusing on the electricity cyber structure today because electricity is what so many critical sectors of the economy depend on.”

The proposal is a direct response to recent events and threats, including news reports noting that the U.S. electrical system has been “routinely penetrated and compromised” By foreign actors, and the ongoing industry efforts to connect grid control systems to open networks. In addition, the bill notes that industry compliance with the existing Critical Infrastructure Protection (CIP) Reliability Standards has been problematic, as revealed By the recent North American Electric Reliability Corporation (NERC) report indicating that only 23% of utilities reported having Critical Cyber Assets. The bill suggests that this indicates that “many utilities are underreporting their assets, potentially to avoid compliance requirements.”  Read more…