FERC, CFTC, and State Energy Law Developments

Public comments made last week by Federal Energy Regulatory Commission (FERC) Chief of Staff Anthony Pugliese before the American Nuclear Society indicate that the agency is working with other federal government officials to identify power plants that are “absolutely critical” to the grid, E&E News reported. In particular, Mr. Pugliese revealed that the US Department of Energy and the National Security Council are coordinating with FERC to classify those generators that are vital to ensuring that critical infrastructure, such as hospitals and military bases, remain online and operational. The comments also reflect a related concern that many large gas-fired generators could pose reliability and resiliency risks, as the natural gas infrastructure supporting those plants could be susceptible to physical attacks or cyberattacks.

On July 25, the Department of Energy (DOE) issued a final rule, effective August 24, to provide expedited authorization of applications to export liquefied natural gas (LNG) to non–Free Trade Agreement (FTA) countries (i.e., those countries with which the United States has not entered into an FTA) using “small-scale” natural gas export facilities. To qualify for expedited treatment, applicants must satisfy two criteria:

  1. The application must propose to export a volume of natural gas that does not exceed 51.75 Bcf/yr
  2. The application will not require DOE to issue an environmental impact statement (EIS) or an environment assessment (EA) pursuant to the National Environmental Policy Act of 1969 (NEPA)

Any non-FTA application that satisfies these two criteria will qualify as a “small-scale natural gas export” and therefore will be deemed to automatically satisfy DOE’s Natural Gas Act (NGA) Section 3 public interest standard. Additionally, DOE will not provide a public notice and comment period for qualifying small-scale natural gas export applications, nor will it apply other procedures typically used during its review of large-scale LNG export applications to non-FTA countries.

Pursuant to Section 3 of the NGA, applications to export natural gas or LNG to FTA countries are automatically deemed to be in the public interest and do not require DOE to conduct a detailed review process. Thus, DOE’s final rule will significantly streamline the review process for qualifying small-scale applications by putting them on equal footing with large-scale and small-scale FTA applications.

In the final rule, DOE agreed that small-scale exports will provide a variety of benefits both to the United States and to importing countries primarily located in the Caribbean, Central America, and South America. For the United States, some of the anticipated benefits include stimulating the natural gas market, generating economic growth, strengthening the global natural gas market, and enhancing US national security interests abroad. Additionally, DOE determined that small-scale exports will not adversely affect the availability of natural gas supplies to domestic consumers.

DOE welcomes suggestions, data, and information on additional deregulatory efforts that it could undertake with respect to its NGA Section 3 authority.

In response to concerns raised by authorization holders, potential liquefied natural gas (LNG) importers, and companies financing LNG export projects, the US Department of Energy’s Office of Fossil Energy (DOE/FE) issued a policy statement affirming its commitment to the non–free trade agreement (FTA) export authorizations it has granted and any export authorizations it grants in the future.

To date, DOE/FE has issued 29 final authorizations to export LNG to non-FTA countries. In each of the orders granting these authorizations, DOE/FE included a statement that it has the authority under Section 16 of the Natural Gas Act (NGA) to “make, amend, and rescind such [export] orders . . . as it may find necessary or appropriate.”

Commenters have asked DOE/FE to clarify the circumstances under which DOE/FE would exercise its authority to revoke an LNG export authorization. In response, DOE/FE has stated that it cannot identify all of the circumstances in which it would take such action but that it is authorized to exercise its authority to protect the public interest. DOE/FE noted that it has vacated one FTA order but that it was due to prolonged inaction by the authorization holder.

The Council on Environmental Quality (CEQ)—the US federal agency responsible for coordinating and overseeing federal agency implementation of the National Environmental Policy Act (NEPA)—moved one step closer on June 20 towards revising its longstanding NEPA-implementing regulations. Those regulations, which last underwent a major revision in 1986, govern the environmental review process for all “major federal actions,” including Federal Energy Regulatory Commission (FERC) license reviews for hydroelectric projects and certificates for natural gas facilities.

Now, in an Advance Notice of Proposed Rulemaking (ANPR), the CEQ signaled that it is ready to receive public comments on potential revisions that it hopes will “ensure a more efficient, timely, and effective NEPA process consistent with the national environmental policy stated in NEPA.” Comments are due July 20, 2018.

The White House announced late last week that President Donald Trump has directed Energy Secretary Rick Perry to “prepare immediate steps to stop the loss” of “fuel-secure power facilities,” noting that near-term retirements of these facilities could lead to “a rapid depletion of a critical part of our nation’s energy mix, and impact the resilience of our power grid.” Although the federal government has not yet disclosed what those steps might be or which generators are at issue, press reports from CNN and Bloomberg, among others, have emerged suggesting that the US Department of Energy (DOE) is considering a directive that would require Independent System Operators and Regional Transmission Operators (ISOs/RTOs) to purchase energy from designated “fuel-secure” plants for a period of up to, and possibly more than, 24 months to avoid any near-term decommissioning.

On January 8, 2018, the Federal Energy Regulatory Commission (FERC) issued an order rejecting the US Department of Energy’s (DOE’s) proposed changes to organized market rules that would have permitted certain baseload resources with at least 90 days of on-site fuel to be paid a cost-of-service rate rather than relying on compensation under market-determined prices. DOE’s September 29, 2017 proposal was focused on ensuring the “resilience” of energy service in these organized markets, and was widely viewed as benefitting primarily coal and nuclear generation.

In its order, FERC concluded that it lacked the record necessary for FERC to take the requested action to order changes to existing market rules under Section 206 of the Federal Power Act. Under that statute, FERC must first find that the existing rates are unjust and unreasonable and then replace it with a rate that is just and reasonable. According to FERC, the DOE proposal failed to satisfy either prong. First, FERC explained that none of the comments submitted by the RTOs/ISOs indicated any threat to resilience posted by past or future generator retirements. Second, FERC explained that allowing any resource that met DOE’s resiliency criteria to receive a cost-of-service rate would not be just and reasonable because that payment would not be tied to the need for the facility or the cost to the system of providing that payment.

In an admonishing response letter issued December 8, US Secretary of Energy Rick Perry granted the Federal Energy Regulatory Commission’s (FERC) request for a 30-day extension to consider final action on its Proposed Grid Reliability and Resiliency Pricing Rules. The proposed rules, if adopted, could provide economic support to coal and nuclear generation in organized markets.

FERC had emphasized in its request that extra time is needed to provide adequate opportunity for recently sworn-in Chairman Kevin J. McIntyre and Commissioner Richard Glick to consider the voluminous record in the proceeding that includes more than 1,500 comments in response to FERC’s solicitation for public comment on the proposed rules. Mr. Perry granted FERC’s request while noting in his letter that, as explained in his original directive, failure to act expeditiously within a 60-day timeframe would be unjust, unreasonable, and contrary to the public interest. Given the circumstances highlighted by FERC, he agreed to allow FERC to take final action by Wednesday, January 10, 2018. Despite granting the request, Mr. Perry strongly urged FERC to act before the deadline to ensure the “resilience and security of the electric grid.”