FERC, CFTC, and State Energy Law Developments

Consolidated Edison Company of New York, Inc. (Con Edison) and Orange and Rockland Utilities, Inc. (O&R) issued a draft joint Request for Proposals (RFP) on May 31 to competitively procure scheduling and dispatch rights from new energy storage projects. Through this initial solicitation, Con Edison and O&R are targeting at least 300 megawatts (MW) and 10 MW, respectively, of new energy storage facilities to meet the in-service deadline of December 31, 2022, set by the New York Public Service Commission (NYPSC) in its December 2018 Order (Storage Order) establishing New York’s three gigawatt (GW) energy storage deployment goal.

Both utilities will accept bids only for new storage projects sized over five MW and connected to the transmission or distribution system that can directly participate in New York Independent System Operator (NYISO) markets and provide distribution benefits, if applicable. These front-of-meter systems must be able to discharge for at least four hours 100 to 350 times per year, have at least 85% roundtrip efficiency, and maintain 98% availability for dispatch each contract year.

The supply chain risks facing electric utilities have long been a concern for industry stakeholders and regulators alike. Reflecting those concerns, NERC submitted a report on May 28 to FERC recommending the expansion of requirements addressing supply chain cybersecurity risks for electric utilities, concluding that the scope of those requirements needed to expand to match the scope of the cybersecurity risk. The development of such revised standards will itself be a lengthy process and subject to additional FERC review.

A recent grid reliability report issued by staff members of the Offices of Electric Reliability and Enforcement within FERC evaluating the upcoming operating season underscored the changing generation resource mix in the United States and its implications for grid operations.

Currently at issue before the US Court of Appeals for the First Circuit is whether the filed rate doctrine prevents a court from assessing the reasonableness of a utility’s rates in the retail market. Under the filed rate doctrine, any rate that is approved by the governing regulatory agency is per se reasonable in judicial proceedings. FERC holds exclusive authority to determine whether wholesale rates filed by utilities are just and reasonable. Therefore, if FERC determines that a rate is just and reasonable, a court does not approve a departure from that wholesale rate.

The May 16 Order on Rehearing affirms FERC’s jurisdictional authority, and refuses calls for state opt-outs.

The Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 841 early last year, a final rule amending FERC’s regulations to facilitate participation of electric storage resources in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). Several entities have since challenged key aspects of the final rule, urging the Commission on rehearing to reverse course or modify its approach on a number of issues. On May 16, the Commission issued Order No. 841-A, denying those requests for rehearing, thereby upholding the initial rulemaking while providing some additional clarification.

FERC issued an order on May 16 rescinding its 2009 policy[1] of issuing Notices of Alleged Violations (NAVs) after the subject of an investigation is given an opportunity to respond to FERC Enforcement Staff’s preliminary findings (the NAV Policy).[2] NAVs typically identify FERC’s targets (by name), and set forth abbreviated information concerning the subject matter of FERC’s enforcement attention, the time frame, and the particular statutes relevant to the alleged violations. Since FERC began implementing the NAV Policy in 2011, it has been monitoring its implementation and has now determined that the potential adverse consequences that NAVs pose for the subjects of FERC investigations are no longer justified in light of the limited transparency that NAVs provide.

A few years after FERC received enhanced enforcement authority in 2005, it instituted the NAV Policy to increase the transparency of the nonpublic investigations that its Staff conducts under Part 1b of FERC’s regulations. When it issued the NAV Order, FERC explained that issuing the NAVs after the preliminary findings stage balances “the need to protect the subject’s confidentiality in the early stages of an investigation with the public interest of promoting additional transparency during investigations.”[3] FERC has since determined that NAVs provide only limited guidance and information to market participants and that the various orders on enforcement matters and the reports and white papers its Staff issues are more informative and provide more transparency.

Recent developments over the last several weeks have intensified the ongoing struggle between the current administration of President Donald Trump and the federal judicial system concerning energy policy as it relates to the exploration and production of crude oil and natural gas. Below is a brief summary of these latest events.

Trump Issues New Presidential Permit Authorizing Construction of Keystone XL Pipeline

In the latest saga of the proposed Keystone XL pipeline, US District Court Judge Brian Morris, sitting in the Great Falls Division of the District of Montana, issued an order on November 8, 2018, blocking early construction efforts on the project. In a case filed by several environmental groups, including the Indigenous Environmental Network, Judge Morris ruled that the environmental reviews conducted by the US Department of State had failed to consider the cumulative greenhouse gas emissions impacts of the Keystone XL project when combined with the expansion of another proposed Canadian pipeline, and also that the reviews failed to take into account updated information on the risk of leaks or spills. Accordingly, the court halted any further activities “in furtherance of the construction or operation of Keystone.”

FERC Staff issued a report on March 29 on Commission-led critical infrastructure protection (CIP) reliability audits completed for fiscal years 2016 through 2018. The report provides lessons learned from those audits, as well as voluntary recommendations on cybersecurity practices to enhance the protection of electric infrastructure from cyberattacks. Even though many of these recommendations go beyond what is necessary for compliance with the mandatory CIP reliability standards, FERC is likely to view implementation of these recommendations as evidence of a strong cybersecurity culture that proactively addresses best cybersecurity practices and evolving threats. That can, in turn, have positive ramifications for utilities undergoing cybersecurity reviews by FERC, NERC, or the Regional Entities.

In its updated guidance issued on April 30, the US Department of Justice Criminal Division places effectiveness at the epicenter of its factors to be utilized when evaluating a company’s compliance program in the context of a criminal investigation. As corporate compliance programs continue to be closely scrutinized, companies and their boards, senior management, and legal and compliance departments should tailor their corporate compliance programs to issues and risk areas specific to the company’s business. Senior management plays a critical role in identifying these issues and risk areas and must serve as an example and enforcer of good compliance practices. Companies cannot let their compliance programs get stale and must continue to innovate, revamp, and enhance their corporate compliance practices based on lessons learned. DOJ emphasizes that “one hallmark of an effective compliance program is its capacity to improve and evolve.”

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