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FERC, CFTC, and State Energy Law Developments

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.

Background

The case arose following challenges to FERC’s Order No. 841 (and its order on rehearing), a 2018 rulemaking requiring grid operators (i.e., regional transmission organizations (RTOs) and independent system operators (ISOs)) to implement rules to facilitate the participation of electric storage resources in wholesale capacity, energy, and ancillary service markets.

The US Court of Appeals for the Fourth Circuit  resolved a question of first impression on February 11 on when the statute of limitations period commences for civil enforcement claims brought by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act (FPA or the Act) when the alleged violator opts for adjudication in federal district court instead of an administrative proceeding. Siding with FERC, the Fourth Circuit held in FERC v. Powhatan Energy Fund that when an alleged violator decides to pursue adjudication in court, FERC’s claim accrues, and thus the statute of limitations commences, when the alleged violator fails to pay within 60 days the amount set forth in FERC’s Penalty Assessment Order. The decision means that when an alleged violator opts for the district court, FERC can enforce civil penalties for an FPA violation up to 10 years after the date of alleged unlawful conduct.

Legal Framework

The FPA creates two procedural options by which FERC can assess civil penalties. Under one option, the “Default Option,” a FERC Administrative Law Judge (ALJ) will hear the dispute. Under the second option, the “Alternate Option,” adjudication occurs in federal district court. The alleged violator may chose the path.

A declaratory order issued by the Federal Energy Regulatory Commission (the Commission) on January 30 in Docket No. RP20-41-000 grants pipeline developers greater certainty in planning and siting construction. The order was issued after a split 2-1 vote. It may also significantly reduce pipeline developers’ expenses by avoiding costly disputes with states over the possession of state-owned land. The order resulted from a petition filed by a company (Pipeline) seeking to construct an approximately 116-mile greenfield natural gas pipeline designed to provide firm natural gas transportation service from receipt points in the eastern Marcellus Shale region, in Luzerne County, Pennsylvania, to delivery points in New Jersey and Pennsylvania (the Project). The petition requested the Commission’s interpretation of the scope of the eminent domain authority in Section 7(h) of the Natural Gas Act (NGA).

On June 24, the US Supreme Court issued its opinion in Food Marketing Institute v. Argus Leader Media, expanding the scope of information protected under Exemption 4 of the Freedom of Information Act (FOIA). FOIA establishes an expansive right for the public to access records from executive agencies to hold the government accountable. Limiting that broad right, FOIA includes several broadly worded exceptions whereby the release of certain information may not be compelled under FOIA. One such exemption, Exemption 4, states that “trade secrets and commercial or financial information obtained from a person” that are “privileged or confidential” are protected from mandatory public disclosure. The statute does not define “confidential,” so the question of what “commercial or financial information” is protected from disclosure has resulted in much litigation.

On June 14, the US Court of Appeals for the DC Circuit vacated and remanded two challenged orders and directed FERC to explain or reconsider whether data made available after a challenged rate increase becomes effective (i.e., post–rate increase information) should be considered. The court found that, prior to the challenged orders, FERC only reviewed the data from the two years preceding the rate increase (i.e., pre–rate increase information) to determine whether rate increases were substantially in excess of the actual cost increases that the pipeline incurred. The court did not opine on whether FERC’s consideration of post–rate increase data was appropriate, but held that FERC failed to explain why it departed from its practice of considering only pre–rate increase data, and why it considered post–rate increase data in evaluating the rate increases at issue.

Currently at issue before the US Court of Appeals for the First Circuit is whether the filed rate doctrine prevents a court from assessing the reasonableness of a utility’s rates in the retail market. Under the filed rate doctrine, any rate that is approved by the governing regulatory agency is per se reasonable in judicial proceedings. FERC holds exclusive authority to determine whether wholesale rates filed by utilities are just and reasonable. Therefore, if FERC determines that a rate is just and reasonable, a court does not approve a departure from that wholesale rate.

Recent developments over the last several weeks have intensified the ongoing struggle between the current administration of President Donald Trump and the federal judicial system concerning energy policy as it relates to the exploration and production of crude oil and natural gas. Below is a brief summary of these latest events.

Trump Issues New Presidential Permit Authorizing Construction of Keystone XL Pipeline

In the latest saga of the proposed Keystone XL pipeline, US District Court Judge Brian Morris, sitting in the Great Falls Division of the District of Montana, issued an order on November 8, 2018, blocking early construction efforts on the project. In a case filed by several environmental groups, including the Indigenous Environmental Network, Judge Morris ruled that the environmental reviews conducted by the US Department of State had failed to consider the cumulative greenhouse gas emissions impacts of the Keystone XL project when combined with the expansion of another proposed Canadian pipeline, and also that the reviews failed to take into account updated information on the risk of leaks or spills. Accordingly, the court halted any further activities “in furtherance of the construction or operation of Keystone.”

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.

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 US Court of Appeals for the Eleventh Circuit on July 11 affirmed the dismissal of a putative class action complaint seeking disgorgement and other relief from two Florida utilities (Utilities). The complaint also sought to invalidate provisions of a Florida statute relating to rate recovery for nuclear power projects on constitutional dormant Commerce Clause and preemption grounds.

The statute at issue in the proceeding—the Florida Renewable Energy Technologies and Energy Efficiency Act (Florida Act)—authorized the state regulatory body to incentivize investment in nuclear power plant construction. Acting on that authority in 2007, the Florida Public Service Commission promulgated the Nuclear Cost Recovery System (NCRS), a program that allows utilities to preemptively recover costs related to the construction of new nuclear power plant projects. The plaintiffs had sued the Utilities, arguing that the provisions authorizing the NCRS are invalid under the dormant Commerce Clause, which limits states from regulating interstate commerce, and preempted by federal statute. Plaintiffs argued that the Atomic Energy Act expressly reserves the authority to regulate nuclear power plant construction with the federal government, and that the provisions of the Florida Act that led to the creation of the NCRS were therefore preempted by federal law. The lower court dismissed these claims, and also denied plaintiffs’ motion to amend the complaint to join the State of Florida as a defendant.