FERC, CFTC, and State Energy Law Developments

Revisions aim to build on framework designed originally for pumped-storage hydro facilities and bring region closer to Order No. 841 compliance.

Earlier this year, the Federal Energy Regulatory Commission (FERC or Commission) issued Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators (Order No. 841), a final rule amending FERC’s regulations to facilitate participation of electric storage resources in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). As we reported previously, Order No. 841 requires RTOs and ISOs to devise an electric storage resource participation model that meets certain general criteria. The RTOs/ISOs must file the tariff revisions directed by Order No. 841 by December 3, 2018, and implement those changes, if approved, by December 3, 2019.

The August 2018 enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) came after more than two years of debate over the appropriate scope of jurisdiction for the Committee on Foreign Investment in the United States (CFIUS). Much has already been written about FIRRMA and its potentially ambitious reach, as well as about the interest by certain parties, including members of Congress, to keep CFIUS away from some transactions. The result was a law that amended a number of provisions defining CFIUS jurisdiction, both expanding and narrowing key parts of the Committee’s reach. The pilot program is focused on certain specific types of transactions, without regard to the country of the acquiring entity, that CFIUS can review under FIRRMA, including transactions involving “Nuclear Electric Power Generation;” “Petrochemical Manufacturing;” “Power, Distribution and Specialty Transformer Manufacturing;” “Storage Battery Manufacturing;” and “Turbine and Turbine Generator Set Units Manufacturing.”

Read the LawFlash.

An amendment to FERC’s M&A statute, Section 203 of the Federal Power Act, was signed into law on September 28. Public Law 115-247 (PL 115-347 or the amendment) makes a minor but helpful change to one provision of FPA Section 203 by immunizing one particular class of transactions from pre-consummation FERC M&A application and approval requirements.

Section 203’s sweep is broad; essentially any direct or indirect “disposition” of voting control over any FERC-jurisdictional “public utility” (almost every US generating company, wholesale power marketer, transmission provider, and traditional franchised utility) requires pre-consummation Section 203 authorization. Only selected types of transactions are exempt, usually those involving smaller “qualifying facility” generators and purely retail businesses and facilities. Some classes of “holding companies” of electric power businesses and assets are also subject to Section 203’s requirements. Numerous technically defined classes of transactions, such as many internal reorganizations, are blanket-authorized under FERC regulations and require no Section 203 applications or orders.

The US Court of Appeals for the Second Circuit on September 27 affirmed a decision of the US District Court for the Southern District of New York dismissing a complaint seeking to invalidate New York’s Zero Emissions Credit (ZEC) program. This decision comes on the heels of a Seventh Circuit decision affirming the validity of a similar ZEC program in Illinois. In its opinion, the Second Circuit noted that its conclusions accorded with the Seventh Circuit’s decision, which we wrote about in an earlier post. Read more.

The US Court of Appeals for the Seventh Circuit on September 13 affirmed a decision of the US District Court for the Northern District of Illinois that dismissed two complaints seeking to invalidate the Illinois Zero Emission Credits (ZEC) program.

Read more about the decision on Up & Atom.

The Environmental Protection Agency (EPA) proposed the Affordable Clean Energy (ACE) rule on August 21. The proposed rule would replace the Obama administration’s Clean Power Plan, establishing alternative guidelines for states to develop plans to reduce carbon dioxide emissions from existing fossil fuel-fired electric power plants. The ACE rule departs from the Clean Power Plan, among other ways, by removing incentives for natural gas and renewable energy use, limiting averaging and trading in state plans, giving states more flexibility in creating plans, slowing down state plan development and submission schedules, and proposing a new industry friendly test for the New Source Review permitting process. Overall, EPA has projected that the ACE rule will result in similar carbon dioxide emissions reductions in comparison to the Clean Power Plan.

Read the full LawFlash.

Public comments made last week by Federal Energy Regulatory Commission (FERC) Chief of Staff Anthony Pugliese before the American Nuclear Society indicate that the agency is working with other federal government officials to identify power plants that are “absolutely critical” to the grid, E&E News reported. In particular, Mr. Pugliese revealed that the US Department of Energy and the National Security Council are coordinating with FERC to classify those generators that are vital to ensuring that critical infrastructure, such as hospitals and military bases, remain online and operational. The comments also reflect a related concern that many large gas-fired generators could pose reliability and resiliency risks, as the natural gas infrastructure supporting those plants could be susceptible to physical attacks or cyberattacks.

The US Court of Appeals for the Eleventh Circuit on July 11 affirmed the dismissal of a putative class action complaint seeking disgorgement and other relief from two Florida utilities (Utilities). The complaint also sought to invalidate provisions of a Florida statute relating to rate recovery for nuclear power projects on constitutional dormant Commerce Clause and preemption grounds.

The statute at issue in the proceeding—the Florida Renewable Energy Technologies and Energy Efficiency Act (Florida Act)—authorized the state regulatory body to incentivize investment in nuclear power plant construction. Acting on that authority in 2007, the Florida Public Service Commission promulgated the Nuclear Cost Recovery System (NCRS), a program that allows utilities to preemptively recover costs related to the construction of new nuclear power plant projects. The plaintiffs had sued the Utilities, arguing that the provisions authorizing the NCRS are invalid under the dormant Commerce Clause, which limits states from regulating interstate commerce, and preempted by federal statute. Plaintiffs argued that the Atomic Energy Act expressly reserves the authority to regulate nuclear power plant construction with the federal government, and that the provisions of the Florida Act that led to the creation of the NCRS were therefore preempted by federal law. The lower court dismissed these claims, and also denied plaintiffs’ motion to amend the complaint to join the State of Florida as a defendant.

Regional transmission operator PJM Interconnection, L.L.C. imposed a new requirement that generating entities experiencing direct or indirect changes in ownership or control notify PJM of such changes immediately. The new requirement is effective as of June 1 and, while it may add to the paperwork of generators in the region, it is not likely to be significantly burdensome so long as the documentation requirements are carefully tracked. Whether and how these submissions will affect PJM’s regular involvement in Federal Power Act Section 203 proceedings at FERC remains to be seen. 

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The Federal Energy Regulatory Commission (FERC) issued an order on the Minimum Offer Price Rule (MOPR) in the PJM Interconnection, L.L.C. (PJM) tariff on June 29, addressing recent controversies over the capacity market impact of some generators receiving state rate subsidies. In the June 29 order, FERC rejected two alternative proposals by PJM to modify the MOPR in response to concerns of state subsidization of new generation resources, granted a complaint filed by market participants against the MOPR, and instituted a paper hearing proceeding under Section 206 of the Federal Power Act (FPA) to determine the just and reasonable revisions to the PJM tariff that would be necessary to address the subsidization issues. The resulting FERC proceeding promises to significantly reshape the PJM capacity market, which has struggled for years to address in a manner that FERC would accept the market impacts of subsidies to specific resources. FERC’s decision, although limited to PJM, could also lead to widespread changes in other capacity markets dealing with the same issues.

Background

The MOPR is a feature of PJM’s Reliability Pricing Model (RPM), which is PJM’s capacity market. Through the RPM, PJM conducts a series of auctions to procure resources to meet regional reliability reserve requirements. A variety of resources may participate, including fossil-fuel, renewable, and demand response resources. Winners of the auction are awarded a fixed price for their capacity in exchange for a commitment to make their capacity available for dispatch by PJM.