Power & Pipes

The Federal Energy Regulatory Commission (FERC or the Commission) announced during its March 18 open meeting two recent actions to promote greater use of distributed energy resources and demand response. First, FERC has amended regulations on distributed energy resource aggregation in the capacity, energy, and ancillary markets operated by a Regional Transmission Organization (RTO) or an Independent System Operator (ISO). Second, and related to its distributed energy resource amendments, FERC is seeking public comment on whether to revise regulations barring RTOs and ISOs from accepting bids of certain demand response aggregations.

In May 2020, US President Donald Trump issued Executive Order 13920, banning the unrestricted import or use of certain categories of bulk-power system electric equipment from foreign adversaries, with a focus on Russian and Chinese equipment suppliers. The future of that regulation is now up in the air.

Our colleagues in the tax practice recently prepared a LawFlash examining the final regulation on the Section 45Q carbon capture tax credit issued by the US Department of the Treasury and Internal Revenue Service. We discussed the draft regulations in an earlier LawFlash, which also provides background on the Section 45Q credit. Because the final rule was published and took effect before the inauguration of President Joe Biden, the regulation is not subject to the regulatory freeze issued by the new administration.

FERC has issued a notice of inquiry inviting comments on potential changes to its regulations requiring financial assurance measures in licenses and other authorizations for hydroelectric projects. As of December 2020, FERC has identified at least 88 of the approximately 1,600 hydroelectric projects under FERC license that are nonoperational, primarily due to the licensees’ lack of financial resources. FERC expressed concern that inadequate financing may result in threats to public safety and environmental resources. Therefore, in order to fulfill its responsibilities to the public, FERC is considering whether to take additional measures to ensure licensees have the financial resources to operate and maintain their projects for the life of the project, including under unforeseen circumstances.

At its December open meeting, FERC proposed to establish rules for incentive-based rate treatments for voluntary cybersecurity investments by a public utility. If approved, the regulations would provide incentives for utilities to invest in cybersecurity improvements above and beyond existing mandatory requirements, provided the investments are related to the jurisdictional transmission or sale of electric energy. Traditionally FERC has worked to enhance the cybersecurity of the bulk-power system by directing the development and expansion of mandatory NERC Critical Infrastructure Protection (CIP) reliability standards. The proposed rules here would be quietly revolutionary by offering the “carrot” of financial incentives for cybersecurity enhancements, rather than relying exclusively on the “stick” of monetary sanctions that result from violations of mandatory requirements.

FERC has issued a final rule, Order No. 874, expanding the eligibility criteria for Qualifying Facilities (QFs) as defined under the Public Utility Regulatory Policies Act of 1978 (PURPA) to enable certain fuel cell–based electric generation to receive QF status. The final rule amends the definition of useful thermal energy output of a topping-cycle cogenerator in its regulations implementing PURPA by adding a new paragraph to specifically include thermal energy that is used by a fuel cell system with an integrated steam hydrocarbon reformation process for production of fuel for electricity generation. This new paragraph, along with the rest of Order No. 874, removes ambiguity as to whether such fuel cell technology may be included in the eligibility criteria for a cogeneration facility to be a QF.

The secretary of the US Department of Energy (DOE) issued an order on December 17 prohibiting electric utilities from installing equipment or components provided by Chinese companies in electric facilities serving designated “Critical Defense Facilities.” Relying on authority from Executive Order 13920 on Securing the United States Bulk-Power System, the order identified threats to the electric supply chain from China and concluded that prohibiting Chinese equipment in these sensitive facilities is necessary to respond to the Chinese government’s plans to undermine the bulk-power system.

The US Department of Energy (DOE or Department) finalized a rulemaking proceeding last week that revises its National Environmental Policy Act (NEPA) implementing procedures pertaining to certain authorizations under the Natural Gas Act (NGA). This update limits DOE’s review of environmental impacts associated with natural gas exports to certain countries; DOE’s review will only consider the environmental effects of marine transportation, which DOE has also determined as not creating a significant environmental impact.

FERC has issued a final rule, Order No. 872, revising the Commission’s regulations governing qualifying small power producers and co-generators (collectively, qualifying facilities or QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA). The Commission stated that the rule addresses significant changes that have occurred in the US energy markets and the Commission’s desire to modernize its PURPA regulations to protect consumers and preserve competition while meeting the Commission’s statutory obligations. The revisions will have significant implications for all utilities required to purchase the output of QFs, as well as generators that rely on PURPA rates and obligations. The final rule takes effect 120 days after publication in the Federal Register.

On July 10, the US Court of Appeals for the DC Circuit found that the Federal Energy Regulatory Commission was well within its rights to prevent states from prohibiting energy storage resources from participating in wholesale (i.e., sales for resale) energy markets. The court’s order is the latest judicial affirmation of FERC’s authority to regulate activities on wide portions of the electric grid, including facilities reserved to state regulators, if those activities affect wholesale rates.