FERC, CFTC, and State Energy Law Developments

On January 7, 2011, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in Murray Energy Corp. v. FERC, No. 09-1207 (D.C. Cir. Jan. 7, 2011), denied a petition for review By Murray Energy Corporation (Murray) of Federal Energy Regulatory Commission (FERC) orders authorizing construction of Rockies Express Pipeline LLC’s (REX’s) REX-East pipeline. The court rejected arguments concerning agency delegation of authority, fulfillment of certificate conditions, and consideration of safety issues.

In an Order on Complaint issued November 18, the Federal Energy Regulatory Commission (Commission) made it clear that all long-term firm point-to-point transmission service must be provided pursuant to a transaction-specific service agreement. Such transmission service cannot be provided pursuant to an "umbrella" service agreement. The Commission's reiteration of its policy requiring transaction-specific service agreements reaffirms a longstanding requirement originally established in Order No. 888.

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The Federal Energy Regulatory Commission (FERC or Commission), in an order released on November 18, has directed changes to the definition of the term "Bulk Electric System," a definition that determines which facilities are subject to mandatory Reliability Standards. According to the order, the North American Electric Reliability Corporation (NERC) may either adopt the Commission's preferred approach and define all facilities operated at or above 100 kV as part of the Bulk Electric System, or develop its own recommendation to address the Commission's concerns with the present definition that would be "as effective, or more effective than, the Commission's proposed approach." The imposition of a 100 kV bright-line threshold within the Northeast Power Coordinating Council, Inc. (NPCC) Region and the Western Electricity Coordinating Council (WECC) Region will result in capturing a significant number of facilities that have previously been considered non-Bulk Electric System facilities.

On November 18, the Federal Energy Regulatory Commission (FERC) issued orders clarifying aspects of its policy on Return on Equity (ROE) determinations for electric transmission projects. FERC clarified its policy through orders on rehearing requests in four separate proceedings that concerned up-front rate incentives for new transmission facilities: Potomac-Appalachian Transmission Highline, L.L.C., 133 FERC ¶ 61,152 (2010); Atlantic Path 15, LLC, 133 FERC ¶ 61,153 (2010); Startrans IO, L.L.C., 133 FERC ¶ 61,154 (2010); and Nevada Hydro Co., Inc., 133 FERC ¶ 61,155 (2010).

In the rehearing requests, the parties had contested recent orders in which FERC appeared to mandate that the proxy group used in the development of an applicant's ROE must be composed of companies in geographic proximity to the applicant. Read more…

In a Notice of Proposed Rulemaking (NOPR) issued on November 18 in Docket No. RM10-11-000, the Federal Energy Regulatory Commission (FERC) proposes several reforms to the pro forma Open Access Transmission Tariff (OATT) that are intended to remove barriers to the integration of variable energy resources (VERs) into the transmission grid.Comments on the VER NOPR will be due 60 days after its publication in the Federal Register.

Through the NOPR, FERC responds to comments filed on its Notice of Inquiry on the Integration of VERs (NOI), where FERC sought comment on the state of VER integration in various regions of the country. Based on the comments it received concerning the NOI, FERC preliminarily finds in the NOPR that the practice of hourly scheduling, a lack of VER power production forecasting, and the lack of a clear mechanism to recover the cost of providing generator regulation service may be contributing to undue discrimination and unjust and unreasonable rates in light of the entry and increasing presence of VERs on the transmission grid. Read more…

On November 17th, Morgan Lewis and Ernst & Young presented a joint webcast on structuring your company’s compliance program to avoid repetitive reliability violations.

Topics included:

  • How to avoid repeat violations of NERC and Regional Entity Standards
  • Ways to properly structure your compliance program
  • Strategic, tactical, and operational approaches
  • How to develop appropriate monitoring tools

A recording of the webcast and associated materials are available:

On October 28, the Federal Energy Regulatory Commission (Commission) issued an order approving a $2.7 million settlement relating to allegations that North America Power Partners (NAPP) engaged in fraudulent conduct in violation of the Commission’s prohibition against market manipulation and committed multiple violations of the PJM Interconnection, LLC’s (PJM) Open Access Transmission Tariff (OATT). The Commission’s order resolves an Office of Enforcement investigation into NAPP’s conduct that occurred more than two years ago. NAPP did not admit or deny the allegations contained in the settlement with the Office of Enforcement.

The Office of Enforcement’s investigation stems from NAPP’s activities in PJM’s Demand Response Programs during 2007 and 2008. NAPP, a Curtailment Service Provider, acts as an agent for individual resources that seek to participate in PJM’s Demand Response Programs. In March 2008, PJM referred certain issues relating to NAPP’s participation in PJM’s Synchronized Reserve Market (SRM), Interruptible Load for Reliability Program (ILR), and the Interchange Energy Market (IEM) to the Office of Enforcement. Through the course of its investigation, the Office of Enforcement alleged the following:   Read more…

On October 21, the Federal Energy Regulatory Commission (FERC or Commission) denied rehearing of its ruling in Arizona Public Service Co. (APS), 132 FERC ¶ 61,064 (2010), where it announced that the prohibition against buy/sell transactions applies equally to intrastate pipelines engaged in NGPA Section 311 transactions and to Hinshaw pipelines. At the same time, the Commission issued a Notice of Inquiry (NOI) in Docket No. RM11-1 seeking comments on whether and how holders of firm interstate capacity on intrastate pipelines and Hinshaw pipelines can allow others to use their capacity, including whether buy/sell transactions should be permitted.  Read more…

On October 15, 2010, the North American Electric Reliability Corporation (“NERC”) submitted in Docket No. RM06-22-000, to the Federal Energy Regulatory Commission (“FERC”), a status report concluding that all of the balance of plant within a nuclear facility is subject to the cyber security standards of the Nuclear Regulatory Commission (“NRC”), and not subject to NERC’s Critical Infrastructure Protection (“CIP”) Reliability Standards.

In Order No. 706, FERC directed NERC to determine whether the balance of a nuclear power plant facility is subject to CIP regulation. The purpose of the directive is to assure that there is no regulatory “gap” between the CIP standards and the NRC cyber security regulations. Further, in Order No. 706-B, FERC directed NERC to find “bright-line” criteria to determine whether the balance of a nuclear plant’s equipment is subject to the CIP standards. Read more....

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…