FERC, CFTC, and State Energy Law Developments

For years, the US electric power industry has witnessed a steady uptick in the total capacity of deployed energy storage resources. Part of that growth is attributable to more favorable economics for storage projects, a trend that is set to continue in the coming years—a recent study by Bloomberg NEF forecasted that the global energy storage industry will see $620 billion in new investments by 2040. While the development of stationary batteries is expected to be outpaced by other storage applications, such as electric vehicles, the study also suggests that rapidly sliding capital costs for battery systems will be advantageous for utility-scale projects.

The Federal Energy Regulatory Commission (FERC or the Commission) Office of Enforcement (OE) issued its 2018 Report on Enforcement on November 15. The report provides a review of OE’s activities during fiscal year 2018 (FY 2018), which begins October 1 and ends September 30 annually. Like last year, the report reveals likely areas of focus for FERC enforcement in the coming year, and provides guidance to the industry based on the wide variety of enforcement matters that are otherwise non-public by synthesizing some of the more disparate developments from audits, market surveillance, and other enforcement activities for the benefit of industry stakeholders.

A new market registration option is among the changes SPP is likely to propose in next month’s mandatory compliance filing.

We reported last week on steps that ISO New England has taken to finalize tariff revisions to meet the directives of Order No. 841, the Federal Energy Regulatory Commission’s (FERC or Commission) final rule on electric storage participation in Independent System Operator (ISO) and Regional Transmission Organization (RTO) markets. Order No. 841 requires RTOs and ISOs to submit proposed models that permit electric storage resources to participate in organized capacity, energy, and ancillary service markets by December 3, 2018 (read a more comprehensive overview of the final rule here). At the end of October, Southwest Power Pool, Inc. (SPP) moved closer towards meeting that goal when its board approved tariff revisions developed in response to FERC’s Order No. 841 directives, which should represent new opportunities for some of the 2.5 GW of pending electric storage resources in SPP’s generator interconnection queue.

Revisions aim to build on framework designed originally for pumped-storage hydro facilities and bring region closer to Order No. 841 compliance.

Earlier this year, the Federal Energy Regulatory Commission (FERC or Commission) issued Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators (Order No. 841), 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). As we reported previously, Order No. 841 requires RTOs and ISOs to devise an electric storage resource participation model that meets certain general criteria. The RTOs/ISOs must file the tariff revisions directed by Order No. 841 by December 3, 2018, and implement those changes, if approved, by December 3, 2019.

The August 2018 enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) came after more than two years of debate over the appropriate scope of jurisdiction for the Committee on Foreign Investment in the United States (CFIUS). Much has already been written about FIRRMA and its potentially ambitious reach, as well as about the interest by certain parties, including members of Congress, to keep CFIUS away from some transactions. The result was a law that amended a number of provisions defining CFIUS jurisdiction, both expanding and narrowing key parts of the Committee’s reach. The pilot program is focused on certain specific types of transactions, without regard to the country of the acquiring entity, that CFIUS can review under FIRRMA, including transactions involving “Nuclear Electric Power Generation;” “Petrochemical Manufacturing;” “Power, Distribution and Specialty Transformer Manufacturing;” “Storage Battery Manufacturing;” and “Turbine and Turbine Generator Set Units Manufacturing.”

Read the LawFlash.

An amendment to FERC’s M&A statute, Section 203 of the Federal Power Act, was signed into law on September 28. Public Law 115-247 (PL 115-347 or the amendment) makes a minor but helpful change to one provision of FPA Section 203 by immunizing one particular class of transactions from pre-consummation FERC M&A application and approval requirements.

Section 203’s sweep is broad; essentially any direct or indirect “disposition” of voting control over any FERC-jurisdictional “public utility” (almost every US generating company, wholesale power marketer, transmission provider, and traditional franchised utility) requires pre-consummation Section 203 authorization. Only selected types of transactions are exempt, usually those involving smaller “qualifying facility” generators and purely retail businesses and facilities. Some classes of “holding companies” of electric power businesses and assets are also subject to Section 203’s requirements. Numerous technically defined classes of transactions, such as many internal reorganizations, are blanket-authorized under FERC regulations and require no Section 203 applications or orders.

The US Court of Appeals for the Second Circuit on September 27 affirmed a decision of the US District Court for the Southern District of New York dismissing a complaint seeking to invalidate New York’s Zero Emissions Credit (ZEC) program. This decision comes on the heels of a Seventh Circuit decision affirming the validity of a similar ZEC program in Illinois. In its opinion, the Second Circuit noted that its conclusions accorded with the Seventh Circuit’s decision, which we wrote about in an earlier post. Read more.

The US Court of Appeals for the Seventh Circuit on September 13 affirmed a decision of the US District Court for the Northern District of Illinois that dismissed two complaints seeking to invalidate the Illinois Zero Emission Credits (ZEC) program.

Read more about the decision on Up & Atom.

The Environmental Protection Agency (EPA) proposed the Affordable Clean Energy (ACE) rule on August 21. The proposed rule would replace the Obama administration’s Clean Power Plan, establishing alternative guidelines for states to develop plans to reduce carbon dioxide emissions from existing fossil fuel-fired electric power plants. The ACE rule departs from the Clean Power Plan, among other ways, by removing incentives for natural gas and renewable energy use, limiting averaging and trading in state plans, giving states more flexibility in creating plans, slowing down state plan development and submission schedules, and proposing a new industry friendly test for the New Source Review permitting process. Overall, EPA has projected that the ACE rule will result in similar carbon dioxide emissions reductions in comparison to the Clean Power Plan.

Read the full LawFlash.

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.