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A Road Map to US Energy Regulation: Morgan Lewis’s FERC Guide

November 07, 2016

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).

The guide covers a wide range of topics, including FERC policies on enforcement, market-based rate regulations, affiliate issues, requirements for asset transactions, and interactions with the North American Electric Reliability Corporation (NERC). It also contains useful appendices featuring flow charts and diagrams that map complicated FERC procedures such as those regarding penalty assessments, reliability enforcement, and records retention standards.

The 14-chapter guide features entries on:

  • The Elements of a Regulatory Compliance Program
  • FERC’s Remedial Authority and Enforcement Process
  • Enforcement in Practice
  • Rules Against Market Manipulation
  • Affiliate Transactions
  • Power Sales at Market-Based Rates
  • Public Utility Holding Companies
  • Qualifying Facilities
  • FERC Regulation of Corporate, Financing, and Asset Transactions
  • NERC Reliability Standards and Compliance
  • Director and Officer Appointments
  • FERC Crude Oil Regulation
  • Natural Gas Regulation
  • FERC Records Retention Requirements

Q&A with Mark Williams and Levi McAllister

For more insight into the guide, we recently caught up with two of its principal authors, Mark C. Williams, who advises banks, insurers, pension funds, multinational institutional investors, hedge funds, private equity funds, and traditional investment funds on the complex regulatory requirements applicable to electricity and gas investments, and Levi McAllister, who represents natural gas and power marketers, local distribution companies, end users, producers, industrial consumers, liquefied natural gas (LNG) and shale gas developers, electric utilities, and renewable energy developers in energy regulatory matters.

Q: Why is the FERC Compliance guide vital at this time?

A: The energy industry is currently in a state of tremendous evolution in ways that impact virtually all market participants, and regulators have been changing the landscape with greater effect and frequency than at any time we’ve ever seen. Incumbents and new participants in the power, natural gas, and petrochemical markets are searching for ways to maximize revenues, minimize costs, and avoid regulatory risks, and we hope the guide will be a useful reference point for them.

Q: How did you select the topics you address?

A: Market participants need a tool that covers the breadth of FERC regulation. In the gas and petrochemical sphere, entities subject to FERC’s jurisdiction often struggle with similar issues. For example, it is important that natural gas and petrochemical marketers and shippers understand where FERC’s jurisdiction begins and where it ends. In the transactional area, even the most basic fundamentals—what approvals are required for a particular deal, and what closing a transaction commits me to doing in the future—have changed both dramatically and recently. In the traditional power and utilities sector, a majority of US electric utilities no longer control their own transmission systems, and most of these utilities have become power purchasers in FERC-regulated markets, while they address (and participate in) competition for new transmission asset investment opportunities.

In the enforcement space, FERC’s authority is substantial, and FERC has used the authority granted by Congress to aggressively police power and gas markets. Just five years ago, there was little meaningful guidance from FERC with respect to how FERC intended to pursue and exercise its enforcement authority. As a result of its increased enforcement activity in virtually all areas subject to FERC regulation, market participants now have information available that they can draw on when developing compliance programs, instituting companywide training, or creating company trading strategies whether those strategies relate to power trading in organized markets or natural gas trading. To be sure, many questions raise issues requiring a close look at applicable precedent. However, we aimed to provide entities subject to FERC’s electric, gas, and oil jurisdiction with a road map of applicable regulation that was explained in a business context, with enough detail to be useful.

Q: How do you hope the guide will be used?

A: Our desire is that the guide will be one of several tools that entities use in connection with their FERC-related issues. The guide is not intended to be exhaustive. For that reason, our hope is that legal and compliance personnel working in house at an energy investor or market participant will look to our guide as a reference that provides background on FERC’s regulatory paradigm; flags issues for consideration and analysis as entities navigate the complex world of FERC regulation; and conveys useful information and guidance on some of the more common questions that we encounter in our world as FERC practitioners.

Q: What are some of the most pressing problems or questions the guide addresses?

A: Electric, gas, and oil lawyers; investment and portfolio executives; and business managers all look at the same regulatory issues differently. Regulatory requirements create different issues for different kinds of enterprises and their people. The most important purpose the guide serves is providing these three different disciplines—legal, executive, and business management—with information that they use very differently but that they all need to understand. FERC regulation is so comprehensive and intricate that all three disciplines need a common, simplifying point of initial reference to help identify questions and, we think, develop resolutions to the business problems energy regulatory requirements can create.