FERC, CFTC, and State Energy Law Developments

A recent advisory published by the Commodity Futures Trading Commission’s Division of Enforcement and comments of the division director have highlighted the CFTC’s attention toward investigating potential violations of the Commodity Exchange Act (CEA) that involve foreign corrupt practices. On March 6, CFTC Director of Enforcement James M. McDonald addressed this very issue in remarks before the ABA National Institute on White Collar Crime. At the same time, the division issued an Enforcement Advisory providing guidance on how the CFTC will treat instances of self-reporting and cooperation concerning CEA violations that also involve foreign corrupt practices.

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In a decision with significant implication for international organizations as well as project opponents and counterparties, the US Supreme Court ruled on February 27 that, rather than an international organization’s immunities being at the zenith of those ever held by any foreign government, an international organization’s immunities can be no greater than those held by foreign governments, under US law, when those immunities are asserted.

FERC adopted a new rulemaking on February 21 that will substantially simplify requirements applicable to persons holding “interlocking” director and/or officer positions involving more than one public utility, or a public utility and an electric equipment supplier.[1]

Under the Federal Power Act, a person may not hold a director or officer position with one public utility and simultaneously hold another “interlocking” director or officer position with (1) any other public utility; or (2) certain suppliers of electrical equipment, without first receiving FERC authorization.[2] Pre-incumbency applications to FERC are required for interlocks, except in cases in which only certain positions with affiliated public utilities are held, and in those cases pre-appointment affidavit filings and disclosures must be publicly submitted to FERC as “informational reports.”[3] In general, even affiliated utility appointments must also be annually reported to FERC; FERC’s interlock requirements include both initial application (or informational reports) and annual disclosure filings.[4] If an incumbent position-holder is to be appointed to a new entity within a group of affiliated public utilities, then new affidavit filings and “informational reports” will typically be required.

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.”

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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.

Regional transmission operator PJM Interconnection, L.L.C. imposed a new requirement that generating entities experiencing direct or indirect changes in ownership or control notify PJM of such changes immediately. The new requirement is effective as of June 1 and, while it may add to the paperwork of generators in the region, it is not likely to be significantly burdensome so long as the documentation requirements are carefully tracked. Whether and how these submissions will affect PJM’s regular involvement in Federal Power Act Section 203 proceedings at FERC remains to be seen. 

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Like similar laws in many other states, Pennsylvania’s Alternative Energy Portfolio Standards Act (the AEPS Act) requires electric distribution companies (EDCs) and competitive retail electric generation suppliers (EGSs) to purchase an increasing percentage of energy from renewable energy sources. The AEPS Act also includes a “set-aside” that requires some of that renewable energy—as measured in alternative energy credits (AECs)—to be derived from solar photovoltaic (solar PV) facilities.

Until recently, Pennsylvania EDCs and EGSs could meet their solar PV requirements using solar AECs generated from solar PV facilities located anywhere within PJM, the regional transmission organization that includes Pennsylvania and all or part of 13 other states (including Washington, DC). Now, under Act 40 of 2017, signed into law on October 30 by Governor Tom Wolf, the rules have changed.

On July 7, the US Court of Appeals for the District of Columbia Circuit issued its opinion in NRG Power v. FERC, vacating in part and remanding a May 2013 order by the Federal Energy Regulatory Commission (FERC) that had accepted PJM Interconnection, L.L.C.’s (PJM’s) revisions to the Minimum Offer Price Rule (MOPR) in the PJM electricity capacity market subject to PJM’s acceptance of certain modifications.

The court held that in directing the modifications to the PJM proposal, FERC created “a new rate scheme that was significantly different from [both PJM’s proposed and existing rate designs],” thereby exceeding FERC’s authority under Section 205 of the Federal Power Act (FPA). The court also held that PJM’s consent to FERC’s modifications did not cure FERC’s regulatory overreach because utility customers did not receive an opportunity for notice and comment on the modified rate.

Following this most recent decision, FERC will need to exercise caution in proposing modifications to a utility’s filing under Section 205.

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On May 23, the Federal Energy Regulatory Commission (FERC) issued a notice inviting comments on the interplay between state policy goals and organized wholesale electricity markets. The referenced state policy goals involve state support for zero-carbon-emitting power plants, including nuclear power plants, generally in the form of tax credits.

FERC is asking for comments to further explore information presented on this topic at a technical conference convened by FERC commissioners and staff on May 1 and 2, 2017. FERC seeks comments on the five potential paths for reconciling the two policies already identified by the FERC staff. It also seeks broader comments on any “conceptual level” changes that would need to be implemented, and whether the necessary changes could be implemented and in what time frame. Finally, the notice seeks input on the larger principles that should drive reconciliation of the two separate policy goals, including any necessary procedural requirements.

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At its last open meeting on Jan. 19, 2017, the Federal Energy Regulatory Commission (FERC) issued a policy statement that serves to reaffirm FERC’s efforts to encourage the development of electric storage resources. Of all the publications from FERC so far in calendar year 2017, this policy statement is one of the most important for entities in the electric power sector.

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