Power & Pipes

FERC, CFTC, and State Energy Law Developments

On November 29 and 30, 2011, FERC hosted a technical conference to explore the progress made on addressing concerns raised at the February 8, 2011 Reliability Technical Conference. The first day of the conference focused on the effectiveness of NERC’s prioritization tool and addressed issues relating to the NERC compliance and enforcement process. With regard to FERC’s directives, the panelists stated that they need greater clarity, more relaxed time frames, and a streamlined system that encourages input from industry members. FERC Chairman Jon Wellinghoff asked the panelists for suggestions on how FERC can accelerate the development of robust standards that minimize the risk of outages. In response, the panelists suggested that FERC Staff participate on taskforces, offer written input while reliability standards are being developed, focus audits on issues FERC finds most important, and focus directives on high-level, instead of specific, issues.

The second panel explored methods to better incorporate “lessons learned” into NERC priorities. Broad communication and effective implementation were identified as the two primary challenges. Most panelists applauded the NERC Alerts, but some panelists cautioned against their overuse. A number of panelists highlighted the struggle between remediating compliance concerns and completing an event analysis and/or investigation. While the panelists recognized that completing an investigation for every event would be difficult and an inefficient use of time, they expressed support for the implementation of a disciplined process to analyze an event and quickly identify preventive measures to avoid a recurrence of the event.

The second day of the conference was dedicated to discussing the impact of the new Environmental Protection Agency (EPA) regulations on reliability. Gina McCarthy, the Assistant Administrator for the Office of Air and Radiation of the EPA, made opening remarks on the new regulations and reiterated the health concerns that the new regulations were intended to address. Ms. McCarthy argued that the assumptions made in the studies conducted By NERC and PJM led to inaccurate conclusions in that they did not account for the tools available to industry members to alleviate the challenges in maintaining reliability while implementing the new regulations.

The panelists participating in the third panel were in agreement that the three-year timeline is insufficient to implement the regulations while maintaining reliability. At least four years, and for some, upwards of six years, will be required to implement the EPA regulations, as they will involve a significant amount of generation retirement and retrofitting. Among the challenges industry members identified were the need for new investment strategies and cost-efficient options to be created, an increased demand for materials and labor, and the need to develop environmental controls. Additionally, industry members will need to coordinate outages with one another to maintain reliability. If the EPA holds to the proposed three-year timeline, industry members predicted that they will be forced to choose between reliability and compliance because the rate at which units will have to be retired and retrofitted will threaten reliability and likely cause blackouts. After hearing the panelists’ remarks, FERC’s commissioners expressed their willingness to grant extensions of time on a case-By-case basis.

The last panel focused on the integration of multijurisdictional processes including the state-integrated resource planning and the safety valve proposal. The panelists expressed support for the safety valve proposal but focused their comments on the insufficiency of the proposed three-year time frame and the difficulties industry members would face if it is strictly applied. The remarks of the participants of the fourth panel echoed those made By the third panel. Additionally, the panelists requested a more flexible process that would allow industry members to understand the implications of the reliability efforts, a notice period for generation retirement exceeding two years, greater certainty regarding the process, and increased coordination among agencies to ensure that the industry members’ efforts to comply with one agency’s regulations do not lead to noncompliance with another agency’s regulations.