Energy & Environmental Law Adviser

FERC Issues Notices of Proposed Rulemaking on Physical Security and Protection System Maintenance and a Final Order on Generator and Transmission Relay Loadability

Posted in Regulatory

At its meeting on July 17, 2014, FERC took three significant actions.

Physical Security NOPR

First, and most significantly, FERC issued a notice of proposed rulemaking (NOPR) proposing to approve NERC’s proposed Reliability Standard CIP-014-1, which addresses physical security of certain transmission substations that are the most critical to the operation of the Bulk-Power System.  In a blog article we posted last March, we reported that FERC had directed NERC to promulgate new standards related to physical security within 90 days after significant attention to the issue was raised in the press and in Congress earlier in the year.  Reliability Standard CIP-014-1 tracks the directives FERC had set forth in March to establish standards that provided for the identification of the substations most critical to Bulk-Power System reliability, development of risk assessments and security plans for such critical substations, and verification of those assessments and plans. Continue Reading

Seventh Circuit Remands FERC for the Second Time on Cost Allocation for High-Voltage Transmission Lines in PJM

Posted in Electric, Regulatory

In a split decision issued on June 25, 2014, the U.S. Court of Appeals for the Seventh Circuit remanded a Federal Energy Regulatory Commission (“FERC”) order allocating costs for certain new high-voltage network transmission lines within PJM Interconnection, L.L.C. (“PJM”).  In 2009, the Court previously remanded a FERC order in the same case in Illinois Commerce Commission v. FERC, 576 F.3d 470 (7th Cir. 2009).  In its June 25 decision, the Court held that FERC failed to comply with the Court’s 2009 decision remanding the case to it and must try again.

The question presented to the Court was the extent to which the members of PJM in its western region can be required to contribute to the costs of newly built or to-be-built 500 kV lines even though the lines are primarily in the eastern part of PJM.  The Court found that PJM’s western utilities are unlikely to obtain a significant additional supply of electricity from the new transmission lines.  However, the western utilities may benefit from the new high-voltage transmission lines in PJM’s eastern region, and to the extent they do, they can be required to contribute to the cost of building the new lines.

In its order on remand, FERC described four types of benefits associated with 500 kV facilities:  reduced congestion, reduced outages, reduced operating reserve requirements, and reduced losses.  FERC explained that these benefits radiate from the upgraded facility and are thus spread throughout the PJM region.  However, in its June 25 decision, the Court found that, of the four types of benefit listed by FERC, at least two – reduced electrical outages and reduced electricity losses – will definitely not be equally distributed between the utilities in the eastern region and those in the western region.  The Court found that some of the benefits of the new high-voltage transmission facilities will indeed radiate to the western utilities, but “some” is not a number and does not enable even a ballpark estimate of the benefits of the new transmission lines to the western utilities.  The Court concluded that FERC’s treatment of all benefits as equivalent resulted from its failure to conduct a cost-benefit analysis.

The Court explained that its concern is with the absence from FERC’s orders of even an attempt at empirical justification for the postage-stamp pricing it approved for high-voltage transmission facilities in PJM.  FERC assumed, but did not demonstrate, that the benefits of the eastern 500 kV lines are proportionate to the total electric power output of each utility, no matter how remote the utility is from the eastern projects that it must help pay for.  The Court found that this is a method guaranteed to overcharge the western utilities, as they will benefit much less than the eastern utilities from eastern projects that are designed to improve the electricity supply in the east.  The Court found that FERC had not met even the modest goal of showing that benefits are at least roughly commensurate with costs, because it did not make an effort to quantify the benefits.  Instead, FERC made only general statements regarding use and benefits of the 500 kV lines and unspecific assertions regarding the potential for changes over the 40-year life  of the facilities.

The Court found that the basic fallacy of FERC’s analysis is to assume that the 500 kV lines that have been or will be built in PJM’s eastern region are basically for the benefit of the entire regional grid.  According to the Court, this is not true – their purpose is to address specific reliability violations in the eastern part of PJM.  While there are bound to be benefits to the entire grid and therefore to the utilities connected to it, they are incidental.

The Court held that FERC failed to comply with its order remanding the case to it and must try again.  If FERC continues to argue that a cost-benefit analysis of the new transmission facilities is infeasible, it must explain why that is so and what the alternatives are.  The Court found that the lines at issue in the case are part of a regional grid that includes the western utilities.  However, all the lines at issue are located in PJM’s eastern region, primarily benefit that region, and should not be allowed to shift a grossly disproportionate share of their costs to western utilities on which the eastern projects will confer only future, speculative and limited benefits.  Accordingly, the Court granted the petitions for review and remanded the matter once again to FERC for new proceedings.

The Court’s decision is available here.

FERC Approves First Settlement Stemming from the September 2011 Southwest Blackout Inquiry

Posted in Electric, Regulatory

Agreement with Arizona Public Service Company Suggests More to Come

Background

On July 7, 2014, the Federal Energy Regulatory Commission (FERC) issued the first, but likely not the last, Enforcement Order addressing the events of the September 8, 2011 Southwest Regional Blackout.  As described by the Commission in its new release, “[t]he agreement marks the first settlement stemming from the FERC-[North American Electric Reliability Corporation (NERC)] joint investigation into the outage, which left more than 5 million people in Southern California, Arizona and Baja California, Mexico without power for up to 12 hours.”  The Order approves a Stipulation and Consent Agreement between FERC Enforcement, NERC, and Arizona Public Service Company (APS) and assesses a $3.25 million civil penalty, $1.25 million of which is in the form of an offset for the cost of remediation and mitigation under the Agreement.   See Arizona Public Service Company, 148 FERC ¶ 61,009 (2014) (Order). In describing the events in the Southwest on September 8, 2011, the Commission identifies a series of cascading failures that lead to outages that began with a three-phase fault which led to the loss of APS’ Hassayampa-N.Gila 500kV transmission line (H-NG).  The H-NG line is part of the Southwest Power Link (SWPL), which is a major transmission corridor transporting power east-west from generators in Arizona, through the Imperial Irrigation District (IID), into Southern California.  The failure of the H-NG line rendered the SWPL ineffective and resulted in the re-distribution of power throughout the Pacific Southwest and Southern California. Ultimately, approximately 2.7 million customers were without power, some for multiple hours extending into the next day.  Continue Reading

Despite Customer Opposition, FERC Accepts CAISO’s Proposed Entergy Imbalance Market for the Western Interconnection and PacifiCorp’s Proposal To Be the EIM’s First Participant

Posted in Electric, Regulatory

On June 18, 2014, FERC issued an order conditionally accepting California Independent System Operator Corporation’s (CAISO) proposal to implement an Energy Imbalance Market (EIM).  The EIM tariff would allow neighboring balancing authorities to participate in CAISO’s real-time market to buy and sell five-minute real-time energy to meet energy imbalance needs.  Participation in the EIM is voluntary, and there is no exit fee for leaving the EIM.  Unlike other regional transmission organizations that administer similar real time markets, CAISO will not assume operational control over the transmission facilities in the balancing authorities participating in the EIM, except to the extent a transmission owner may have separately placed them under CAISO’s control.  In a related order, FERC conditionally accepted in part revisions to PacifiCorp’s open-access transmission tariff to reflect the utility’s participation in the EIM as its first participant. CAISO and PacifiCorp conducted a study projecting annual consumer benefits of up to $129 million from economic efficiencies, improved renewable integration and increased reliability. Continue Reading

Return on Equity: After Several Years of Uncertainty, FERC Takes Action

Posted in Electric, Regulatory

On June 19, 2014, at its Open Meeting, the Federal Energy Regulatory Commission (FERC or Commission) adopted a new methodology for determining the rate of return on equity (ROE) for FERC-jurisdictional electric utilities, and applied this new methodology in a pending complaint case involving the New England transmission owners. The Commission also set for hearing and settlement judge procedures in five complaints involving challenges to electric utility ROEs that have been pending for several years, expressing hope that the New England decision would provide guidance. Finally, the Commission acted on a partial remand from the United States Court of Appeals for the D.C. Circuit (D.C. Circuit) of the Southern California Edison Company’s (SoCal Edison) base ROE case. Continue Reading

Supreme Court Limits USEPA’s Greenhouse Gas Regulations, Refuses to “Wave Goodbye” to Separation of Power Principles

Posted in Air

In a major reversal for the United States Environmental Protection Agency (USEPA), the Supreme Court on June 23, 2014, limited USEPA’s authority to regulate greenhouse gases (GHGs), holding that USEPA did not have the authority to change a statutory applicability term of the Clean Air Act (Act).  Utility Air Regulatory Group v. Environmental Protection Agency, et al. (UARG), No. 12-1146, slip op. (June 23, 2014).  “Were we to recognize the authority claimed by EPA in the Tailoring Rule, we would deal a severe blow to the Constitution’s separation of powers.”  Id. at 23.  As a result, the Court concluded that USEPA cannot require a Title V or Prevention of Significant Deterioration (PSD) permit solely on the basis of a source’s GHG emissions. Continue Reading

FERC Approves Cameron LNG for Exports

Posted in Natural Gas

Over the objections of leading environmental groups and others, FERC recently approved a second application to export LNG.  Specifically, FERC granted Cameron LNG, LLC’s (a Sempra Energy affiliate) request pursuant to Section 3 of the Natural Gas Act to modify its LNG terminal in Cameron Parish, Louisiana to permit LNG exports up to approximately 14.95 million metric tons per annum (or the equivalent of 2.33 Bcf per day). [https://www.ferc.gov/whats-new/comm-meet/2014/061914/C-1.pdf (Order).]  In its Order, FERC also approved Cameron Interstate Pipeline, LLC’s (Cameron Interstate) application to construct and operate pipeline and compression facilities to transport domestically-produced natural gas to the Cameron LNG terminal for processing, liquefaction, and export.  The facilities must be placed in service within 5 years. Continue Reading

Can NAESB “Fix” FERC’s Gas Scheduling Proposal?

Posted in Natural Gas

FERC took the unprecedented step of delaying the filing of comments in its March 20 NOPR, proposing changes to the gas pipeline nomination and scheduling timetable (Docket No. RM14-2; http://www.ferc.gov/whats-new/comm-meet/2014/032014/M-1.pdf) to provide the North American Energy Standards Board (NAESB) the opportunity to develop a counterproposal broadly supported by the industry.  The NOPR requires NAESB to submit any counterproposal developed by the industry by September 16, 2014.  NAESB filed a status report with FERC on June 18, 2014.  This post is the second in a series addressing various issues related to gas-electric coordination. Continue Reading

FERC Issues NOPR to Simplify Market-Based Rate Program Administrative Burdens

Posted in Regulatory

On June 19, 2014, the Federal Energy Regulatory Commission (Commission) issued a notice of proposed rulemaking (NOPR) titled “Refinements to Policies and Procedures for Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities.”  Recognizing that the current Order No. 697 market-based rate program imposes administrative burdens on applicants that may outweigh the benefits in certain circumstances, the NOPR proposes to make several changes to simplify the Commission’s market-based rate program for wholesale sales of electric energy, capacity and ancillary services. Continue Reading

USEPA to Phase Out Use of Older Standard Practice for Site Assessments

Posted in CERCLA

A Phase I Site Assessment is used primarily to investigate commercial real estate for environmental conditions.  The American Society for Testing and Materials (ASTM) International provides a Standard Practice for environmental professionals undertaking a Phase I Site Assessment.  Last fall, ASTM International published a revised version of the Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process or “ASTM E1527-13.”   Continue Reading