FERC, CFTC, and State Energy Law Developments

In an effort to address anticipated electricity shortages and reliability challenges in California, the California Public Utilities Commission (CPUC) voted on November 7 to authorize the procurement of 3,300 MW of energy by 2023. The CPUC also intends to seek extensions of certain compliance deadlines from the State Water Resources Control Board for almost 4,800 MW of gas generation units due to retire soon because they use ocean water for so-called “once-through cooling,” which can have a detrimental impact on marine life.

For more details on the CPUC’s actions, read the full LawFlash.

FERC issued guidance on October 17, 2019, that may significantly aid hydroelectric developers in planning and siting potential projects. FERC issued a list, jointly developed with the secretary of the US Army, secretary of the US Department of the Interior, and secretary of the US Department of Agriculture (collectively, the Secretaries), of 230 existing nonpowered federal dams that FERC and the Secretaries agree have the greatest potential for nonfederal hydropower development. FERC also issued guidance to assist applicants for licenses or preliminary permits for closed-loop pumped storage projects at abandoned mine sites. These actions fulfill FERC’s requirements under the America’s Water Infrastructure Act of 2018 (AWAI) and are intended to encourage development of renewable energy resources by developing hydroelectric power at sites where the addition of hydroelectric capabilities would not add significant additional environmental impacts.

FERC has provided specific, detailed guidance for the first time on the use of voting trusts to eliminate ownership affiliation.

Direct and indirect owners of 10% or greater voting interests in FERC-regulated “public utilities” are typically treated by FERC as “affiliates” and as “holding companies” of their public utilities. These owners become subject to FERC regulation with respect to some mergers, acquisitions, divestitures, and changes in control, and with respect to their and their affiliates’ FERC-conferred right to sell electricity at wholesale.

FERC recently issued a pair of orders approving the electric storage market participation proposals of PJM Interconnection, Inc. (PJM) and Southwest Power Pool, Inc. (SPP). PJM and SPP submitted those proposals to comply with the directives of Order No. 841, FERC’s final rule addressing the participation of electric storage resources in the capacity, energy, and ancillary service markets operated by independent system operators and regional transmission organizations. The October 17 orders represent the agency’s first two approvals of Order No. 841 compliance filings, which have been under review since late last year.

FERC issued a notice of proposed rulemaking (NOPR) on September 19 announcing its intent to revise key rules governing the status and rights of Qualifying Facilities (QFs). These revisions include proposed changes to the rules for measuring QF size that could make it more difficult for certain projects to maintain QF status. The NOPR also proposes to provide greater flexibility to states in regulating the rates that QFs can receive from their interconnected utilities, as well as a number of other fundamental changes in the regulation of QFs.

For the first time, FERC has found that significant investments in an existing licensed hydroelectric facility by a licensee will be considered when establishing the license term in a relicensing proceeding, potentially aiding the licensee in obtaining a longer license term.

Section 15(e) of the Federal Power Act (FPA) provides that any license issued shall be for a term that FERC determines to be in the public interest, but no less than 30 years or more than 50 years. Under its 2017 Policy Statement on Establishing License Terms for Hydroelectric Projects, FERC established a 40-year default license term policy for original and new licenses. The Policy Statement included exceptions to the 40-year license term under certain circumstances, including establishing a longer license term upon a showing by the license applicant that substantial voluntary measures were either previously implemented during the prior license term, or substantial new measures are expected to be implemented under the new license.

The Federal Energy Regulatory Commission (FERC or Commission) on July 18 issued a rule, initially proposed in July 2016,[1] restructuring the way it collects certain data for market-based rate (MBR) purposes and significantly expanding the information it collects from MBR holders. Under the Final Rule, FERC will now collect MBR application and certain compliance information in a new database with multiple data tables relating to one another via entity-specific, unique identification numbering (FERC’s new “relational database”), an intricate and entirely new electronic reporting system that will become compulsory in early 2021.[2] Order 860 also adopts changes to the ownership and the gas and electricity “affiliate” information required in an MBR Seller’s compulsory disclosures.

The Final Rule will take effect on October 1, 2020, and baseline submissions will be due by February 1, 2021.[3] As of February 1, 2021, prior to filing an application for initial MBR authority, a new Seller will be required to make a submission into the relational database, which will itself create the required asset appendices and indicative screens that filers had previously prepared independently. FERC affirmed that after January 31, 2021, a Seller will no longer report its affiliated generating and related electric and gas assets in the current .XLS format (an Appendix B Excel spreadsheet).[4] Instead, the information will now be submitted in XML format and the data to be collected in the relational database, which the Final Rule claims will generate an asset appendix.[5]

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.