FERC, CFTC, and State Energy Law Developments

On October 7, the North American Electric Reliability Corporation (NERC) issued a Recommendation to Industry (Recommendation) requesting that transmission owners review their current Facility Ratings Methodology for their transmission facilities to determine whether the methodologies incorporate the actual field conditions of the facilities. NERC is concerned that transmission owners have not considered the existing field conditions surrounding a transmission facility when establishing facility ratings. Under the Recommendation, all of the identified entities are required to submit a plan for how they will assess the actual condition of all of their transmission facilities, potentially leading to widespread revisions of transmission facilities ratings. Entities that formally received the Recommendation are required to submit a receipt of acknowledgment By October 20, 2010, and submit plans for assessing their transmission facilities By December 15, 2010. While the Recommendation is not itself an enforceable Reliability Standard, the reporting obligations are binding on the recipients pursuant to federal regulations.

The Recommendation arose out of a conductor-to-ground fault resulting from vegetation contact with a bulk power transmission line of a transmission owner. Upon a subsequent review using Light Detection and Ranging (LiDAR) technology, the transmission owner found more than 100 conductor-to-ground clearance issues that had previously gone undetected due to inconsistencies between the actual topography surrounding the transmission lines and the lines’ design. As a result of this finding, NERC issued the Recommendation as a way to prod the industry to identify and eliminate these inconsistencies. Read more…

On October 7, 2010 the Federal Energy Regulatory Commission (“Commission”) opened Docket No. RM11-2-000 to initiate rulemaking proceedings concerning Smart Grid Interoperability Standards.

The Energy Independence and Security Act of 2007 (“EISA”) promulgated the policy of the United States to update and modernize the national electric transmission system, and to design a regulatory structure to produce interoperability of smart grid technology, which includes model standards for information management. In furtherance of such policies, the National Institute of Standards and Technology (“NIST”) is directed By EISA to develop smart grid interoperability standards, which are then subjected to the administrative rulemaking process for potential approval when the Commission finds such standards meet a “sufficient consensus.” Although the Commission does not have the authority under EISA to enforce the final standards, it would consider mandating compliance with the standards under its authority delegated By the Federal Power Act.

Ten years ago, “transparency” within the natural gas markets was largely an ignored concept. The general public gave little thought to whether natural gas markets were transparent and federal regulators assumed that there was no issue to address.

In the wake of Enron’s demise, however, questions surrounding the transparency of natural gas markets were thrust into the headlines of major media outlets and to the forefront of the Federal Energy Regulatory Commission’s attention.

Consequently, since the turn of the century, a paradigm shift has evolved as FERC has undertaken a conscious effort to mandate additional transparency in the natural gas markets.
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During last week’s Open Meeting, the Federal Energy Regulatory Commission (FERC or Commission) firmly rebuffed challenges to its prior order directing the North American Electric Reliability Corporation (NERC) to revise its Rules of Procedure. The prior order was made to ensure that NERC responds to the Commission’s directives to make changes to Reliability Standards, as FERC holds that it is not sufficient for NERC to merely consider Commission-directed revisions in the Reliability Standards development process. While reiterating its order, however, the Commission softened its earlier language regarding NERC’s obligation to comply with FERC directives, explaining that NERC remains free to develop alternative approaches to address the issues underlying such directives. This order confirms that, while the Commission cannot “dictate the specific content” of a Reliability Standard, NERC is obligated to respond to such directives By developing appropriate changes.

The Commission has certified NERC as the Electric Reliability Organization (ERO) under Section 215 of the Federal Power Act. As the ERO, NERC is the sole entity that may draft Reliability Standards that are enforceable By the Commission, NERC, and the Regional Entities against all users, owners, and operators of the bulk-power system. However, this authority to draft Reliability Standards is subject to Commission oversight, and all Reliability Standards must be submitted to and approved By FERC before they can be enforced. As part of that oversight function, the Commission has the authority to direct the ERO to develop revisions to a Reliability Standard. Read more…

On September 20, the Federal Energy Regulatory Commission (FERC) issued Order No. 739, Promoting a Competitive Market for Capacity Reassignment. Order No. 739 permanently lifts the price cap for transmission customers reassigning electric transmission capacity. FERC explained that lifting the price cap is intended to facilitate the development of a market for electric transmission capacity reassignments as a competitive alternative to primary transmission capacity.

In Order No. 890, Preventing Undue Discrimination and Preference in Transmission Service, FERC had determined that it would be appropriate to lift the price cap for all transmission customers reassigning point-to-point transmission capacity, believing that the cap had served to reduce transmission options for customers and had impaired the development of a secondary market for transmission capacity. Read more…

On September 17, the Federal Energy Regulatory Commission (FERC or the Commission) issued a Revised Policy Statement on Penalty Guidelines (Revised Policy Statement), 132 FERC ¶ 61,216 (2010), which addresses comments received concerning the Commission’s Policy Statement on Penalty Guidelines issued on March 18, 2010. The Commission also issued revised Penalty Guidelines attached to the Revised Policy Statement. FERC reiterated that the purpose of the Penalty Guidelines is to ensure fairness, consistency, and transparency. The Commission directed its Office of Enforcement (Enforcement) to hold a technical conference one year from the issuance of the revised Penalty Guidelines to discuss how they have worked and to receive comments.

The Revised Policy Statement begins By noting that the Penalty Guidelines would continue to be based on the U.S. Sentencing Guidelines, and that the Penalty Guidelines would not affect Enforcement Staff’s exercise of discretion to close investigations or self-reports without sanctions. The Commission states that the Penalty Guidelines come into effect only after the Enforcement Staff determines that a violation has been committed and that such violation warrants the imposition of a penalty By the Commission. Read more…

In a Guidance Order issued on August 27, the Federal Energy Regulatory Commission (FERC or the Commission) provided guidance on how the North American Electric Reliability Corporation (NERC) and the Regional Entities responsible for the enforcement of mandatory Reliability Standards should assess repeated violations By the same or affiliated companies. The Commission expressed concern that NERC and the Regional Entities have not sufficiently considered repeated violations as an aggravating factor in approving monetary sanctions. To address this concern, the Commission provided new guidance that broadens the category of what will be considered a “repetitive” violation of a Reliability Standard in the future. As a result, the compliance risk presented By many Reliability Standards, particularly those dependent on human judgments and procedures, will significantly increase. Read more…

As new high-voltage transmission increasingly becomes a stand-alone business, the structures for ownership and financing of that business continue to evolve. Drivers for new high-voltage transmission include the need for reliability and for delivery from energy sources under renewable portfolio standards, the availability of federal stimulus funds or loan guaranties, the support of the Federal Energy Regulatory Commission with rate incentives, and other mechanisms including the adoption of the anchor-customer structure for merchant transmission.

Utilities and merchant transmission companies are currently exploring a whole host of creative structures and financing options for the development and construction of new transmission. While a number of difficult issues — including thorny issues associated with siting and cost allocation — remain to be addressed before these transmission projects are built, it is clear that the need for new transmission coupled with FERC’s incentives and ARRA funding are providing the impetus for new transmission proposals. Read more…

Our panelists discussed issues relating to FERC’s proposed rulemaking, including the specific reforms under consideration:

  • Greater regional coordination in transmission planning
  • Consideration of public policy requirements in transmission planning processes
  • Removal of obstacles to nonincumbent transmission provider participation in transmission planning processes
  • Increased interregional coordination in transmission planning through interregional planning agreements
  • Cost allocation of new transmission projects on an intra- and interregional basis and potential jurisdiction issues

A recording of the webcast and the associated materials are available.

The U.S. Department of Justice and the Federal Trade Commission recently issued proposed revisions to their horizontal merger guidelines. Because the Federal Energy Regulatory Commission’s analytical framework for assessing the competitive effects of horizontal electric utility mergers is based on the current DOJ/FTC horizontal merger guidelines, proposed revisions to the guidelines could trigger changes to FERC’s horizontal electric utility merger analysis and potentially lead to a significant divergence of merger analysis between FERC and the antitrust enforcement agencies. Read more…