FERC, CFTC, and State Energy Law Developments

At its open meeting on November 21, FERC announced organizational changes to enhance the agency’s focus on cybersecurity threats and challenges to electric infrastructure. Commission staff unveiled five “focus areas” related to grid cybersecurity and announced organizational changes within the Office of Energy Projects (OEP) and Office of Electric Reliability (OER) designed to better position Commission resources to address cybersecurity concerns.

New Strategic Focus Areas

Commission staff developed the following five focus areas based on their review of threat reports (public and nonpublic), global cybersecurity events, North American Electric Reliability Corporation (NERC) CIP standards, and OEP’s specialized security program for hydropower projects.

  1. Supply Chain/Insider Threat/Third-Party Authorized Access

    This is not the first time the Commission has made supply chain and third-party (or vendor) management security a priority. In 2016, the Commission directed NERC to develop mandatory supply chain risk management controls, which have since been approved and are set to take effect next year.

The Commodity Futures Trading Commission (CFTC) filed and settled charges on October 24 against Upstream Energy Services LLC (Upstream Energy) for acting as an unregistered futures commission merchant. The Commission’s order raises several important points for energy companies. First, while energy companies may view the Federal Energy Regulatory Commission (FERC) as their primary federal regulatory agency, certain types of transactions involving energy resources may fall under the purview of another regulatory authority, such as the CFTC. Second, a company that accepts and places futures and options order on behalf of another party must register as a futures commission merchant. Third, voluntary and full cooperation with an enforcement action can reduce greatly the nature and severity of any penalty sought.

A proposed rule by the US Environmental Protection Agency (EPA) could reduce costs for oil and gas producers and processors by eliminating certain air emission requirements. The EPA issued a proposed rule on August 29 to roll back new source performance standards (NSPS) established in 2012 and 2016 by removing sources in the transmission and storage segment from the source category; rescind the NSPS applicable to those sources, including methane and volatile organic compounds requirements; and rescind the methane-specific requirements of the NSPS applicable to sources in the production and processing segments. The proposed rule also includes an alternate proposal to rescind the methane-specific requirements of the NSPS applicable to all oil and natural gas sources, without removing any sources from the source category.

The Council on Environmental Quality (CEQ) published draft guidance on June 26 to address how agencies implementing environmental reviews under the National Environmental Policy Act (NEPA) should consider greenhouse gas (GHG) emissions. The new guidance would replace the Obama administration’s 2016 guidance, which has been on hold since April 5, 2017, pending “further consideration” pursuant to Executive Order 13783, Promoting Energy Independence and Economic Growth.

If adopted, the guidance could impact every federal agency proceeding that requires a NEPA analysis, including FERC natural gas pipeline certificate proceedings, liquefied natural gas (LNG) facility certificate proceedings, nuclear power plant decommissioning projects, and independent spent fuel storage installation facilities.

The guidance specifies that under the NEPA “rule of reason,” which defers to agency expertise in conducting NEPA analyses, as well as existing CEQ regulations, “[a]gencies preparing NEPA analyses need not give greater consideration to potential effects from GHG emissions than to other potential effects on the human environment.”

For the second time, PJM Interconnection, LLC (PJM) has suspended its 2019 Base Residual Auction (BRA) as directed by the Federal Energy Regulatory Commission (FERC). FERC found that delaying the auction until the Commission establishes a replacement rate would provide greater certainty to the market than conducting the auction under the existing rules.

PJM previously suspended the 2019 BRA when FERC granted PJM’s request to waive the auction timing requirements of its tariff to allow for a delay from May to August 2019.

Read FERC’s order.

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.”

The US Supreme Court has denied a petition for certiorari filed by the Delaware Riverkeeper Network, which challenged a decision by the US Court of Appeals for the Third Circuit concerning Pennsylvania’s water quality certification for Transcontinental Gas Pipe Line Company LLC’s (Transco’s) Atlantic Sunrise Project. The project expands Transco’s interstate pipeline network in Pennsylvania and on the East Coast. The Supreme Court’s April 29 denial comes as another success for the project, which has been defending against several challenges, first at the agency level and now at the appellate level, since Atlantic Sunrise first filed its FERC application to construct and operate the expansion facilities in March 2015.

Concurring and dissenting statements issued with the Federal Energy Regulatory Commission’s (FERC’s) February 21 order granting construction and operating authorization for a liquefied natural gas (LNG) export terminal highlight the increased scrutiny that gas construction projects are receiving concerning their potential effects on climate change. Despite misgivings from some Commissioners, FERC issued a 3-1 decision conditionally authorizing the construction and operation of the Calcasieu Pass Terminal and TransCameron Pipeline Project (Project), an LNG export terminal and an associated lateral pipeline project that will be located along the Calcasieu Ship Channel in Cameron Parish, Louisiana. The decision found that FERC Staff’s quantitative and qualitative assessments of greenhouse gas (GHG) emissions impacting the climate on a regional and global scale were sufficient.[1] However, even if FERC would like to use the decision as a blueprint to greenlight similarly stalled or pending terminal construction and expansion projects, it is unclear whether appellate courts might have the appetite to agree in analogous cases.

On February 19 and 21, the Federal Energy Regulatory Commission (FERC) issued several more determinations concerning whether jurisdictional natural gas service providers’ cost-of-service rates are just and reasonable given the recent reduction to the federal corporate income tax rate under the Tax Cuts and Jobs Act (TCJA). The recently released determinations ended approximately 21 separate “one-time report” proceedings without further action[1] and initiated a Natural Gas Act Section 5 rate investigation into Southwest Gas Storage Company’s rates (RP19-257).[2] FERC required the entities to file FERC Form No. 501-G, referred to as a “one-time report,” in light of the reduction from 35% to 21% of the federal corporate income tax rate. Morgan Lewis has developed several publications describing the “one-time report” proceedings, the most recent of which included a status update on the more than 100 proceedings that were initiated based on those submissions.

As discussed in our January 18 LawFlash, the Federal Energy Regulatory Commission is continuing to investigate whether jurisdictional natural gas pipelines’ current cost-of-service rates are appropriate in light of reductions to the federal corporate income tax rate under the Tax Cuts and Jobs Act.

That publication also included a table providing the status of numerous pipeline rate proceedings associated with the “One-time Report” the Commission requires pipelines to file in order to facilitate its investigations. Please feel free to reach out to the authors with any questions.