FERC, CFTC, and State Energy Law Developments

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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Nearly every business sector is influenced by the quickly evolving energy industry, where regulators have been changing the landscape with greater effect and frequency than ever before. As a result, both existing and new participants in the power, natural gas, and petrochemical markets are seeking new ways to maximize revenues, minimize costs, and avoid regulatory risks.

Leveraging our experience in navigating this complex web of US energy regulation, Morgan Lewis has released FERC Compliance: A Legal and Business Guide to help lead companies through the processes and procedures required to comply with and respond to the multifaceted challenges posed by the US Federal Energy Regulatory Commission (FERC).

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On August 30, the Commodity Futures Trading Commission (CFTC) requested comments on proposed amendments to its whistleblower awards process and anti-retaliation enforcement authority. The proposed amendments are intended to enhance the transparency of the award evaluation and review process and to clarify CFTC staff authority to administer the whistleblower program and take enforcement action where whistleblowers are retaliated against.

In a recent LawFlash, partner Lewis Csedrik, partner-elect Levi McAllister, and associate Pamela Tsang discuss these proposed amendments, which would make the CFTC’s whistleblower awards process more uniform with the SEC’s program, as well as enable the CFTC to bring enforcement actions against employers that retaliate against whistleblowers.

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The clarifications address concerns from market participants but leave some questions unanswered.

On May 19, the Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 816-A, which upholds and clarifies the Commission’s reforms to its market-based rate (MBR) program issued in Order No. 816 on October 16, 2015.[1] Order No. 816 streamlined a number of requirements for MBR filings, such as those related to horizontal market power wholesale market share and pivotal supplier indicative screens, and the asset appendices required of each MBR applicant. In upholding the prior reforms, the Commission addressed requests for rehearing from various entities, some of which concerned the following topics: reporting obligations for fully committed long-term generation capacity, reporting of long-term firm purchases, notices of change in status, new affiliation and behind-the-meter generation, waiver of Part 101 of the Commission’s regulations, and corporate organizational charts. We discuss the clarifications on these issues in further detail below.