FERC, CFTC, and State Energy Law Developments

Morgan Lewis energy partner Ken Kulak takes a look at the role of regulation in defining the future of energy storage in Energy Policy Now, a podcast produced by the University of Pennsylvania Kleinman Center for Energy Policy. Ken also previews an upcoming FERC meeting during which the agency will consider plans submitted by regional transmission organizations to facilitate the participation of battery storage.

Listen to the podcast episode >

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.

Wholesale electricity sellers that are not government owned are subject to regulation by the Federal Energy Regulatory Commission. Obtaining FERC approval to sell wholesale electricity at “market-based rates” (which is nearly any sale regulated under the Federal Power Act that is not based on cost-of-service accounting) can be an intricate exercise, requiring the applicant to submit statistical horizontal market power screens. Within the FERC-regulated organized markets, the independent system operators and regional transmission organizations (ISOs/RTOs), monitoring staff and procedures, and transparent real-time and long-term demand and pricing information have led many market participants to conclude that the required market power statistical screen studies are of little value and function merely as an administrative impediment to doing business. On July 18, FERC issued a final rule, Refinements to Horizontal Market Power Analysis for Sellers in Certain Regional Transmission Organization and Independent System Operator Markets, Order No. 861, that relieves market-based rate (MBR) entities of the statistical screen requirements in some—but not all—of the ISO/RTO markets. This should streamline both the regulatory approval process for prospective MBR entities and the ongoing compliance process for MBR entities that file notices, triennial renewal applications, and similar documents with FERC.

Order No. 861 relieves MBR entities (most of which are independent generating companies and/or power marketers, and some of which are traditional franchised utilities) of the need to prepare and submit statistical screen analyses if the MBR applicant or holder is within the Northeastern and Central ISO/RTO markets—that is, ISO New England, New York ISO, PJM Interconnection, or Midcontinent Independent System Operator. In these ISO/RTOs, FERC found that the existence of both capacity and energy markets and the vigor of market monitoring and mitigation were sufficient to permit applicants to dispense with the horizontal screen studies.

When a business entity that is regulated by the Federal Energy Regulatory Commission (FERC) is closely related to another business entity, FERC takes the position that under some circumstances it may treat the two different legal entities as if they were one single entity.  FERC ruled recently that it “may disregard the corporate form in the interest of public convenience, fairness, or equity” and “[t]his principle of allowing agencies to disregard corporate form is flexible and practical in nature.”  As a result, a new power marketer could be barred by a Regional Transmission Organization (RTO) from participating in the market unless it paid off the debts to the RTO owed by another power marketer with the same business objectives and the same contacts and administrators as the bankrupt entity. This decision could make it difficult for public utilities to avoid the debts of their bankrupt affiliates, which could be attributed to the entire enterprise regardless of the final plan of bankruptcy, including the liquidation of the bankrupt entity.

When a debtor in bankruptcy is liquidated, or successfully emerges from bankruptcy, certain unsatisfied, unsecured pre-bankruptcy debts of that bankrupt debtor are discharged. The discharge functions as a defense by the debtor against the claims of the debtor’s creditors. Similarly, when a debtor in bankruptcy is affiliated (such as by common upstream ownership) with a non-bankrupt entity, the non-bankrupt affiliate is typically not presumed to be responsible for that bankrupt debtor’s unsatisfied obligations, unless some statutory, contractual or security arrangement makes the non-bankrupt affiliate liable for those obligations or one entity is viewed to be the “alter ego” of the other under applicable state law.