FERC, CFTC, and State Energy Law Developments

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.

On August 1, the Federal Energy Regulatory Commission (FERC or the Commission) issued a notice establishing the dates by which certain jurisdictional natural gas pipeline companies must file FERC Form No. 501-G, the “one-time” informational filing the Commission plans to review to ascertain whether the pipelines have, in light of the Tax Cuts and Jobs Act, accounted for reduced federal corporate income taxes in their cost-of-service rates (one-time report). The notice revises the submission dates in FERC Form No. 501-G’s Implementation Guide, which was released alongside FERC’s final rule in Order No. 849, the decision directing the natural gas companies to submit the one-time reports. The final rule is described in more detail in our previous LawFlash.

Under the revised Implementation Guide, natural gas pipeline companies that are required to FERC Form No. 2 or 2-A for calendar year 2017 are organized into three distinct groups. Group I must file FERC Form No. 501-G by October 11, 2018; Group II, by November 8, 2018; and Group III, by December 6, 2018. In its final rule, FERC explained that if a pipeline refuses to promptly submit the one-time report, or fails to correct a patently erroneous or incomplete one-time report, the Commission could consider the pipeline to be in violation of its reporting obligation under FERC’s rules and regulations, provided the Commission does not otherwise grant a waiver for good cause. FERC also emphasized that pipelines may file FERC Form No. 501-G earlier than these dates.

FERC is allowing interested parties to file interventions, protests, and comments in response to the submissions. Those filings will be due 12 days after each pipeline’s one-time report due date.

The Federal Energy Regulatory Commission recently issued two orders intended to alleviate concerns that jurisdictional natural gas pipelines may be over-recovering cost-of-service rates due to (1) a reduction of the federal corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act and (2) the DC Circuit Court of Appeals’ decision in United Airlines Inc. v. FERC, which found that FERC’s existing income tax allowance policy, when applied to pass-through entities such as master limited partnerships, creates a possibility of double recovery for income tax allowances under cost-of-service rates. The Commission will now require pipelines to submit informational filings identifying whether the benefits of federal tax reform have been passed on to ratepayers, and has also clarified its guidance that pass-through entity pipelines may eliminate the accumulated deferred income tax component from their rates when they exclude income tax allowances from their costs of service.

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The Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 848 on July 19, directing the North American Electric Reliability Corporation (NERC) to augment the cyber incident reporting requirements under the Critical Infrastructure Protection (CIP) reliability standards. The directive adopts the proposals from the December 2017 Notice of Proposed Rulemaking (NOPR) and reflects the Commission’s view that FERC and NERC need to significantly improve their awareness of the breadth and frequency of the cybersecurity risks that electric utilities encounter.

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Officials at the US Department of Homeland Security (DHS) confirmed yesterday to The Wall Street Journal that state-sponsored hackers successfully gained remote access to the control rooms of US electric utilities and likely had the ability to disrupt power flows. The report describes the activities as part of a long-running campaign targeting US utilities and suggests that the attacks are still ongoing. This is not the first time that a federal government agency has publicly confirmed the actual or potential threat posed by hackers to critical infrastructure (see our previous post on state-sponsored attacks). Instead, it marks yet another confirmed instance of hackers gaining access to the secure networks used by industrial control systems in what has become a disconcerting trend in recent years, and continues to underline the importance of strong vendor and supply chain cybersecurity controls.

On July 19, the Federal Energy Regulatory Commission (FERC or Commission) issued a Notice of Proposed Rulemaking (NOPR) proposing to revise its regulations restricting certain officers and directors of public utilities from holding “interlocking” positions (i.e., positions in which an individual is simultaneously a director or officer of two different types of business entities covered by the regulations). The NOPR proposes a limited measure of relief from some of the Commission’s longstanding regulatory hurdles for public utility executives.

FERC’s interlock rules implement Section 305(b) of the Federal Power Act, which was enacted to ensure arm’s-length dealings between public utilities and the organizations furnishing financial services or electrical equipment to those utilities. Under the regulations, any person seeking to hold any of the following interlocking positions must file an application for approval from FERC before being appointed:

On July 19, the Federal Energy Regulatory Commission (FERC) approved most of the revisions proposed by a North American Electric Reliability Corporation (NERC) petition to revise NERC’s rules of procedure (ROP) on operator certification, but rejected certain key changes. FERC concluded that NERC’s proposal to remove those provisions would strip substantive rules from the ROP and move them to NERC manuals, thus defeating the efficacy of FERC review because the ROP is subject to FERC review and approval but NERC manuals are not.

President Donald Trump signed an executive order on July 10 to except the position of Administrative Law Judge (ALJ) from the federal government’s competitive service. This removes ALJs from the traditional “merit” selection process used for most federal government employees.

ALJs had been appointed through a competitive examination and competitive service selection process. However, pointing to the “expanding responsibility” that ALJs have for federal agency adjudications, and expanding on the US Supreme Court’s recent decision in Lucia v. Securities and Exchange Commission, the president concluded that all ALJs should be considered “Officers of the United States” subject to the Appointments Clause of the US Constitution and therefore be appointed by and serve at the discretion of the president or the head of the relevant agency. In Lucia, the Court had held that Securities and Exchange Commission ALJs are “Officers of the United States,” and are thus subject to the Appointments Clause.

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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The Federal Energy Regulatory Commission (FERC) issued an order on the Minimum Offer Price Rule (MOPR) in the PJM Interconnection, L.L.C. (PJM) tariff on June 29, addressing recent controversies over the capacity market impact of some generators receiving state rate subsidies. In the June 29 order, FERC rejected two alternative proposals by PJM to modify the MOPR in response to concerns of state subsidization of new generation resources, granted a complaint filed by market participants against the MOPR, and instituted a paper hearing proceeding under Section 206 of the Federal Power Act (FPA) to determine the just and reasonable revisions to the PJM tariff that would be necessary to address the subsidization issues. The resulting FERC proceeding promises to significantly reshape the PJM capacity market, which has struggled for years to address in a manner that FERC would accept the market impacts of subsidies to specific resources. FERC’s decision, although limited to PJM, could also lead to widespread changes in other capacity markets dealing with the same issues.

Background

The MOPR is a feature of PJM’s Reliability Pricing Model (RPM), which is PJM’s capacity market. Through the RPM, PJM conducts a series of auctions to procure resources to meet regional reliability reserve requirements. A variety of resources may participate, including fossil-fuel, renewable, and demand response resources. Winners of the auction are awarded a fixed price for their capacity in exchange for a commitment to make their capacity available for dispatch by PJM.