In This Issue:
| A Message From PowerUp Legal's Founder |
 A year ago, 2016 opened with the sad news of the death of pop icon David Bowie. Bowie’s song Changes is one of my personal anthems, as it celebrates the virtues of change and constant reinvention. And so perhaps, it’s a fitting homage to David Bowie that change has been the theme of 2016 — for me personally and for our entire country. A new Congress has been seated, cabinet nominees are under review and next week, President-elect Donald Trump will be inaugurated as the next Commander in Chief - generating a mixture of fear and excitement depending upon one’s political inclinations. As for me, while I have my own personal preferences, I also believe like David Bowie that change, no matter the cause, always carries the promise of new opportunities.
And so, in the spirit of bringing change to the practice of energy law, I am excited to finally and formally launch a new venture, PowerUp Legal - the premier on-demand legal services marketplace for the energy industry. PowerUp Legal’s pool of experienced, business-savvy attorneys hail from energy regulatory agencies, Fortune 500 corporations and Big Law, and are available to supply energy legal talent for your law firm’s or law department’s project-based and temporary staffing needs. By employing a virtual platform and relying on seasons attorneys, PowerUp Legal eliminates bloated overhead and expensive training programs characteristic of many traditional firms, and can charge less without compromising excellence.
Since many of this newsletter’s readers are attorneys who work for law firms or in-house at energy companies, here are some of the ways that PowerUp Legal can help you:
- Appearances Energy attorneys frequently juggle matters before multiple regulatory agencies and courts, some of which continue for weeks or even months. PowerUp Legal attorneys can attend ongoing hearings so that your firm or company always has a physical presence or appear for your firm in the event of a scheduling conference. PowerUp Legal attorneys are more experienced than paralegals and more cost-effective than associates. Plus, by using PowerUp Legal attorneys for appearances, you can free up your firm’s lawyers or in-house staff for more important matters.
- Projects The practice of law is unpredictable, and when a matter explodes, a law firm or in-house department may find itself short-staffed. To use an energy analogy, PowerUp Legal attorneys can quickly plug-in and provide the excess capacity that your firm needs without the investment in new caseload resources.
- Expertise At times, a firm or law department needs access to hard-to-find expertise lacking in house. For example, a state-based energy firm may require assistance with a FERC matter, and conversely, a DC-based firm may need local counsel in a state proceeding. Or, a small, general in-house department or law firm without an energy practice may need an energy lawyer to assist with due-diligence on a sale of an energy project, or to negotiate a power purchase agreement. PowerUp Legal attorneys can take on these matters.
- Strategic Planning and Marketing Promoting an energy practice to sophisticated businesses is a challenging endeavor that requires keeping current on new developments in a constantly changing field, identifying for prospective clients the ramifications of 800-page complex regulations and generating original and intelligent content for blogs, newsletters, podcasts and white papers. Yet associates haven’t developed the insight to capably handle many of these tasks, and partners’ limited time is too valuable to devote to non-billable projects. Why not consider an experienced PowerUp Legal attorney to take on these marketing tasks? Our attorneys can adeptly prepare a one-time white-paper or seminar presentation for your firm, or write insightful articles for a blog or newsletter on an ongoing basis. Plus, you’ll easily recover the return on your modest investment in PowerUp Legal support when new work starts rolling through the door.
Interested in more information? Take a look at the wide range of services that PowerUp Legal can provide.
To celebrate our launch, PowerUp Legal is offering a 20 percent discount on all projects that begin before March 31, 2017. If you’d like to take advantage of this offer, please submit a project match request or email us at info@poweruplegal.com and mention this special offer.
Opportunities at PowerUp Legal : PowerUp Legal still has positions available for qualified experienced energy attorneys. Send a resume and inquiry to info@poweruplegal.com, or (preferably) complete our online application. In addition, PowerUp Legal is forming an advisory board. If you’re interested, please contact me directly at carolyn.elefant@poweruplegal.com
Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek. - Barack Obama
Happy 2017 - here's to a year of big changes but also endless opportunities.
Carolyn Elefant
| 2016 FERC Appellate Round-Up |
 Once again, it’s time for the annual roundup of federal appeals involving the Commission that I've been covering since 2011 (past reports available here). This year’s primary highlight on the appellate front was the two Supreme Court cases, FERC v. EPSA and Hughes v. Talen that together kind-of, sort-of define the division of power between the Commission and states over regulation of wholesale power markets. Both cases were wins for the Commission as well -FERC v. EPSA upheld the Commission’s demand response rule that was challenged as ultra vires while Hughes v. Talen re-affirmed the Commission’s preemptive authority over wholesale rates.
By contrast, the federal appellate scene wasn’t particularly noteworthy. This year, sixteen Commission cases went up on judicial review, with the Commission prevailing in twelve cases for a 75 percent win rate. The number of cases heard and the Commission’s won-loss ratio place this term roughly in the middle of the road for the 2011-2016 period: just a dozen cases went up on review in 2012 compared to 2014’s high of 22 cases, while the Commission’s highest win rate was 92 percent in 2011, and a low of 61 percent in 2013. While I’d guess that the Commission’s 75 percent win rate has been stable over time, the number of FERC cases challenged during the past years doesn’t come close to 2008’s high of 38.
From a merits perspective, the cases weren’t all that interesting or diverse. Naturally, there were two more California energy crisis refund cases, as well as four cases brought by environmental organizations raising nearly identical challenges to the Commission’s failure to examine indirect effects and cumulative impacts in authorizing conversion of LNG facilities from import to export. With these environmental questions now well settled, hopefully we won’t see these same losing arguments return to the court for years to come - it’s simply a waste of resources.
Meanwhile, three other cases addressed a question left open by Order No. 1000, i.e., whether there were case-specific situations where an incumbent utility’s rights of first refusal had been preserved by contract, thus placing the Commission’s elimination of the right of first refusal in violation of Mobile Sierra doctrine. Turns out, this matter was a no-brainer as the three rulings held that Mobile Sierra doesn’t protect anti-competitive agreements - such as those for rights of first refusal - which block companies from competing to build construction projects in an incumbent’s territory.
By far, the case that garnered the most attention within industry was the D.C. Circuit decision in United Airlines v. FERC, holding that the Commission’s longstanding practice of allowing jurisdictional utilities organized as pass-through entities to recover the cost of income tax paid by investors in rates essentially allowed for double recovery, and therefore was unreasonable. The court sent the matter back to the Commission to develop a more equitable methodology, and at its final meeting of 2016, the Commission issued a Notice of Inquiry on the matter. The court’s holding raised questions as to whether other jurisdictional entities, who based rates in reliance on the Commission’s methodology, could face challenges in the future.
One final note for appellate practitioners - in December 2016, amendments to the Federal Rules of Appellate Procedure took effect, reducing the maximum number of words in an opening or reply brief to 13,000. Not sure that a 1000-word haircut is a large enough to make a difference in drafting - but nevertheless, it serves as a reminder that briefs should be what the name commands: brief.
FERC v. EPSA, 136 S.Ct. 760 (2016)
The year opened with a big win for the Commission before the Supremes in FERC v. EPSA, affirming the Commission’s authority to regulate demand response transactions. Back in May 2014, the D.C. Circuit in a 2-1 decision that I covered here voided Order No. 745, the Commission’s demand response compensation rule, holding that the rule impermissibly encroached on state regulation of retail markets, and that the rule’s compensation scheme — by which demand response providers and electric producers were paid the locational marginal price (LMP) — was arbitrary and capricious.
In a 6-2 opinion (Judge Alito did not participate), Justice Kagan, writing for the majority, found that the Commission’s demand response program was well within the scope of its authority to regulate practices affecting wholesale rates under § 824d(a) of the Federal Power Act. Although the Court acknowledged that by rewarding energy conservation through demand response could potentially raise retail rates or “lure” retail consumers (typically bundled together by third-party aggregators) into wholesale markets, it effectively concluded that these marginal effects didn’t warrant throwing the baby out with the bathwater. Ultimately, the Court was most persuaded by the fact that states cannot regulate demand response, thus leaving a regulatory gap that could put ratepayers at risk if the Commission was barred from asserting jurisdiction. Finally, the Court affirmed the Commission’s LMP pricing scheme, finding that the Commission had evaluated the issue carefully and that its approach was reasonable.
Justice Scalia (joined by Justice Thomas), in one of his last opinions before his death, lambasted the majority’s approach of using regulatory gaps as a basis for establishing jurisdiction: “That extravagant and otherwise-unheard-of method of establishing regulatory jurisdiction was not necessary to the judgments that invoked it, and should disappear in the Court's memory hole.” Instead, Scalia applied his trademark strict constructionist approach, concluding that because “demand response bidders indisputably do not resell energy to other customers, it follows that the [Commission demand response rule] does not regulate electric energy sales at wholesale, and 16 U.S.C. § 824(b)(1) therefore forbids FERC to regulate demand response transactions.
Ultimately, the majority’s pragmatic approach in EPSA is a mixed blessing. On the one hand, the ruling allows for innovative approaches to supply - such the Commission’s demand response rule. Yet, as Scalia warns, the Court’s failure to clearly define the boundaries of the Commission’s jurisdiction consistent with the statutory language means that “FERC’s authority regarding demand response would be almost limitless.”
Xcel Energy Services v. FERC , 815 F.3d 947 (D.C. Cir. March 6, 2016)
Xcel Energy sought review of three Commission orders, asserting that the Commission erred in denying a retroactive refund for unlawful rates that Xcel paid — after the Commission admitted its mistake in allowing Southwest Power Pool’s (SPP) rates to take effect without either suspending the rates or securing a refund commitment from the non-jurisdictional electric coop on whose behalf the rates were filed. In response, the Commission argued that it was without jurisdiction to require refunds of a non-jurisdictional entity and that in any event, Commission precedent bars retroactive relief. The court nixed both arguments, explaining that the Commission’s jurisdiction over the coop was irrelevant since Commission could exercise its remedial authority with respect to rates charged to Xcel by SPP, which were unlawfully inflated by the inclusion of the coop’s rates. Further, the court found that even if precedent denied retroactive rate relief, the Commission was nevertheless empowered under Section 309 of the FPA to take steps to correct its own errors and make parties whole. Accordingly, the court remanded the case to the Commission for further action consistent with the court’s order.
Rogers Decision, FERC Loss, Merits.
MISOTransmission Owners v. FERC , 819 F.3d 329 (7th Cir. April 6, 2016).
They’re back….- the rights of first refusal that the Commission, with certain exceptions, required transmission owners to excise from their transmission tariffs under Order 1000 . The scope of those exceptions is the subject of the Seventh Circuit’s decision in MISO Transmission Owners v. FERC which consolidated three separate cases, each related to elimination of rights of first refusal.
In the first case, incumbent transmission owners argued that the Commission’s elimination of rights of first refusal for transmission owners in MISO abrogated violated the Mobile-Sierra doctrine . The incumbents argued that they entered into MISO with the assumption that they would retain rights of first refusal and that the Mobile Sierra doctrine precluded the Commission from modifying the terms of these negotiated agreements. Judge Posner, who authored the court’s decision, disagreed, chastising the transmission owners for invoking Mobile Sierra to protect themselves from competition when the purpose of the doctrine was to prevent utilities from escaping the terms of competitively negotiated agreements Given Judge Posner’s pro-competition proclivities, his ruling isn’t surprising - but apparently the petitioners didn’t do much to help their cause. Quipped Posner, ‘If there are indeed good things to be said about the rights of first refusal claimed by the petitioners, they are not said in any of the voluminous filings in this case.”
In the second case, a non-incumbent argued that MISO improperly classified a reliability project spanning multiple price zones as “local,” thereby allowing it to avail itself of rights of first refusal - which Order 1000 preserved for local projects. The court sided with MISO, ruling that the costs would be allocated to the zone where the project was built and as such, it was properly classified as a local project.
The final case involved a challenge to the Commission’s approval to allow MISO to include in its tariff a provision to honor rights of first refusal created by state and local law. The court upheld the provision, reasoning that it made no sense for MISO to go through a competitive process only to discover that the bidder selected to build transmission was precluded from doing so by state law.
Posner Decision. FERC Win, Merits.
Hughes v. Talen, 136 S. Ct. 1288 (April 19, 2016).
Although the Commission wasn’t a party to Hughes v. Talen - which pitted the Maryland Public Service Program against wholesale sellers in PJM — the case represents a FERC win, nonetheless. In Hughes v. Talen, the Supreme Court took up on certiorari review the Maryland Commission’s challenge to a Fourth Circuit ruling invalidating a Maryland program designed to incentivize construction of low cost generation in Maryland by guaranteeing CPV, a generator a fixed cost, and making up the difference between the fixed rate and the rates set by CPV when bidding into the PJM wholesale market. However, because the guaranteed payments only kicked in if the CPV’s capacity cleared the PJM auction, CPV had incentive to bid its capacity at the lowest possible price - and could do so, knowing the state would make up the difference. CPV’s artificially low rates depressed prices throughout PJM, leading other wholesale market participants to challenge the program. The Fourth Circuit sided with CPV, ruling that Maryland’s program was preempted since it encroached on the Commission’s authority over wholesale pricing. The Supreme Court unanimously agreed, adopting “the Fourth Circuit's judgment that Maryland's program sets an interstate wholesale rate, contravening the FPA's division of authority between state and federal regulators.”
When I wrote about the Fourth Circuit’s ruling last year, there was concern that the ruling might interfere with states’ longstanding and unquestioned authority over procurement of generation resources, or preclude development of programs such as long-term contracting opportunities to promote renewable generation. The Court was sensitive to this concern, peppering its opinion with assurances that “Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures untethered to a generator’s wholesale market participation,” or “So long as a state does not condition payment of funds on capacity clearing the auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable.
The Court’s narrow holding notwithstanding, it appears that Hughes v. Talen will have a very long tail. Already, parties have invoked the case to challenge the constitutionality of programs as different as Connecticut’s renewable portfolio standard and New York’s proposed subsidy for nuclear plants. Ironically, a case that was apparently an easy call for the Supreme Court is likely to, down the road, further muddle the question of the extent of state authority to incentivize or protect generation resources.
Sierra Club v. FERC, 827 F.3d 36 (June 28, 2016) (Freeport)
Sierra Club v. FERC , 827 F.3d 59 (D.C. Cir. June 28, 2016) (Sabine Pass) are companion cases that address both the test for organizational standing in environmental cases and the adequacy of FERC’s environmental review over indirect and cumulative impacts arising out of FERC’s approval, under Section 3 of the Natural Gas Act, (NGA) of expansions or redesigns of existing LNG facilities in anticipation of increased gas exports.
Around 2012, faced with a glut of domestic natural gas, Freeport and Sabine Pass, two LNG facility owners, petitioned the Department of Energy for authorization to export natural gas. In anticipation of a favorable ruling from DOE, Freeport and Sabine Pass also sought authorization from the Commission under Section 3 of the NGA from the Commission to expand or redesign their existing LNG facilities to accommodate gas exports - an action which triggered the Commission’s environmental review obligations under the National Environmental Policy Act (NEPA). The Commission concluded that neither expansion would cause significant environmental impacts and approved both projects.
In both cases, Sierra Club challenged the Commission’s NEPA review as inadequate because the Commission failed to consider (1) the indirect effects of each project on inducing additional gas production and (2) the cumulative impacts of the each project on when combined with other export projects nationwide that had been recently approved, or were still pending.
The the court briskly determined that DOE’s export authorization caused the indirect effects claimed by Sierra Club, not the Commission’s expansion approval, and therefore the Commission was absolved of responsibility to include in its NEPA analysis indirect effects that it "could not act on" and for which it cannot be "the legally relevant cause."
As for cumulative impacts, the Freeport court found that requiring a nationwide analysis including other approved or pending LNG gas export projects across the United States “draws the NEPA circle too wide for the Commission” which requires only effect of project on past, present or future actions in the same geographic area as project under review. Finding scant connection between the Freeport project and national markets, the court concluded that the Commission was not arbitrary and capricious to not consider cumulative impacts.
Finally, the court concluded that the Sierra Club had organizational standing to challenge the Commission’s approval of the LNG terminal expansion, based on an affidavit from one member asserting that the project would interfere with her enjoyment of the nearby beach and would disrupt her daily activities.
The Sabine Pass decision reached identical conclusions on standing, indirect impacts and cumulative impacts analysis, largely adopting the court’s reasoning in Freeport, (albeit without the colorful food analogies).
Freeport Order: Millett Decision - FERC Win, Merits
Sabine Pass Order: Brown Decision - FERC Win, Merits
United Airlines v. FERC, 827 F.3d 122 (D.C. Cir. July 1, 2016)
At first blush, this case comes across as nothing more than a run-of-the-mill review of a cost-of-service rate. Yet United Airlines v. FERC is anything but. The case sounded alarms throughout the industry because of the decision’s broad implications for any jurisdictional company organized as pass-through entities. Siding with the shippers challenging SFPP’s cost of service tariff for transport of petroleum products, the court ruled that the Commission failed to adequately justify its current policy of granting pass-through entities that own and operate jurisdictional utilities the authority to recover from ratepayers the cost of income taxes paid by partner-investors on their share of the partnership income. The court agreed with the shippers that “because the Commission’s ratemaking methodology already ensures a sufficient after-tax rate of return to attract investment capital, and partnership pipelines otherwise do not incur entity-level taxes, the Commission’s tax allowance policy permits partners in a partnership pipeline to "double recover" their taxes. Accordingly, the court remanded the case to the Commission develop a mechanism “for which the Commission can demonstrate that there is no double recovery of partnership income tax costs.”
Three Morgan Lewis attorneys described the repercussions of the court’s ruling in Energy 360 . They write that because pipelines are often organized as pass through entities such as limited partnerships, they likely set past rates under the assumption that they could recover the costs that the D.C. Circuit has now determined may result in double recovery. The attorneys also suggested that the court’s ruling could also impact the electric utility sector which is similarly organized.
Postscript: On December 15, 2016, the Commission, as directed by the D.C. Circuit embarked on development of a new mechanism that avoids double recovery with the issuance of a Notice of Inquiry ,seeking guidance from the industry on methods through which the Commission can ensure an adequate return for the company without giving rise to duplicative cost recovery.
Sentelle decision, FERC Loss, Merits.
Oklahoma Gas & Electric v. FERC, 827 F.3d 75 (D.C. Cir. July 15, 2016).
This case is the D.C. Circuit’s take on elimination of rights of first refusal in the Southwest Power Pool. OG&E and other utilities alleged that their respective membership agreements with SPP which had preserved rights of first refusal, and therefore, elimination of these rights violated the Mobile Sierra doctrine. The Commission took the position that the Mobile Sierra doctrine protected only negotiated agreements - such as rate agreements or bilateral contracts, but did not extend to rights of first refusal which were merely general terms of a utility tariff and not negotiated agreements. The D.C. Circuit found that Mobile Sierra did not apply, but for different reasons than the Commission. The court disagreed with the Commission's view that doctrine doesn't extend to tariffs (indeed, the D.C. Circuit noted that to the contrary, Mobile Sierra would apply to tariffs because they impact rates), and instead, like the Seventh Circuit in MISO Transmission Owners, held that rights of first refusal and other terms by which the parties are seeking to protect themselves from competition from third parties are a “far cry from the original Mobile Sierra cases. Accordingly, the court affirmed the Commission order.
Wilkins Decision, FERC Win, Merits
American Transmission System v. FERC , Docket NO. 14-1085 (D.C. Cir. July 1, 2016).
And it’s yet another case concerning rights of first refusal and Mobile Sierra, this time, courtesy of PJM. As in the two earlier cases out of MISO and SPP, the transmission utilities argued that the Order 1000 elimination of rights of first refusal violated Mobile Sierra. Unfortunately, there was just one small glitch in the utilities’ argument: seems that the petitioners failed to preserve any argument before the Commission that either the Owners Agreement or the Operating Agreement actually contained a right of first refusal that is even arguably subject to Mobile-Sierra protection. Accordingly, the court concluded that it lacked jurisdiction to entertain their challenges to the Commission’s determination that Mobile-Sierra does not apply to their agreements, and the petitions for review must be dismissed.
Per Curiam Decision, FERC Win, Merits.
Earth Reports v. FERC, 828 F.3d 949 (DC CIr. July 15, 2016).
Another month, another enviro challenge - this time by Patauxent Riverkeeper — to approval of an LNG facility conversion based on the Commission’s alleged failure to consider the indirect environmental effects of exports as a result of induced gas production. Finding the petitioner’s challenges identical to those in Freeport and Sabine Pass, the court held that DOE - the agency that authorized exports - was likewise, the appropriate forum for review of associated environmental effects. Accordingly, the Commission was not arbitrary and capricious when it did not include indirect impacts within the scope of its NEPA review.
The court did identify one challenge raised by petitioners - the Commission’s failure to apply a “social cost of carbon analysis” that stemmed from the Commission’s approval of the LNG facilities and not exports authorized by DOE. But the court found that the Commission’s decision to forego a social cost of carbon analysis as part of NEPA was reasonable given the lack of scientific consensus over appropriate methodology and questions regarding the accuracy its accuracy.
Rogers Decision - FERC Win, Merits.
BP Energy Co v. FERC 828 F.3d 959 (D.C. Cir. July 15, 2016). BP
BP challenged as discriminatory the Commission’s approval of the terms of a turnback service opportunity that Dominion offered to Statoil in 2012 in connection with the conversion of Cove Point LNG Terminal from an import to export facility. Marketed through a “reverse open season,” the turnback service allowed customers taking service from Cove Point as originally designed to relinquish existing transportation rights on the Cove Point Pipeline, but not for LNG storage and re-gasification capacity at Cove Point. None of Dominion’s customers accepted the offer because without transportation service to ship imported gas, the terminal capacity was rendered useless. Thereafter, Dominion offered a deal to Statoil, allowing it early termination of pipeline capacity and LNG storage and regasification capacity. BP challenged Dominion’s “sweetheart deal” with Statoil as discriminatory, but the Commission approved it anyway, finding that BP and Statoil were not similarly situated.
Incredulously, the Commission contested BP’s standing to challenge the ruling, arguing that BP could not demonstrate that it was harmed by Statoil’s early termination. The court disagreed, finding that the Commission’s decision deprived BP of the same opportunity to turn back services and save $25 million. Therefore, BP’s standing was “self-evident.” As to the merits, the court could not figure out how the Commission relied upon its finding that Dominion’s turn back agreements with Statoil was not unduly discriminatory, and remanded the case for further explanation.
Rogers - FERC Loss, Merits.
MPS Merchant Services v. FERC , Docket No. 15-70803 et. al. (9th Circ. August 6, 2016).
The only thing more annoying than The Song That Doesn’t End — at least for purposes of my Annual Appellate RoundUp — is the dispute that doesn’t end. MPS Merchant Services and another case — Exelon Generation Company LLC — resolved the same day are yet two more of the Ninth Circuit decisions birthed by the epic California energy crisis refund proceedings that have been ongoing for more than a decade. No surprise, the Ninth Circuit held that FERC did not abuse its discretion in determining that the petitioners — electric sellers in the CAISO energy market -violated the CAISO tariff and Market Monitoring and Information Protocol.
Per Curiam, FERC Win, Merits
Exelon Generation Company LLC v. FERC, Docket 15-73836 (9th Cir. August 6, 2016)(unpublished)
Another helping of Mobile Sierra — this time with respect to whether the doctrine applied to Exelon’s forward sales in the California ISO that the Commission found unjust and unreasonable. The Ninth Circuit said no, affirming the Commission’s finding that Mobile Sierra did not apply because the California ISO had preserved for itself the ability to unilaterally seek modifications to contract rates and in doing so, had contracted out of the Mobile Sierra doctrine. The court also agreed with the Commission’s finding thatExelon's forward sale "was very similar to OOM spot transactions . . . previously found unjust and unreasonable.. and mitigated.”
Panel, FERC Win, Merits
El Paso Electric v. FERC, 832 F.3d 495 (5th Cir. August 8, 2016)
The El Paso case arises out of WestConnect’s Order 1000 compliance filing - which proposed a non-binding cost allocation scheme. Because Order 1000 mandates binding cost allocation, the Commission rejected WestConnect’s compliance filing. After two more tries, WestConnect ultimately submitted a revised compliance filing that required binding cost allocation and was approved by the Commission. Thereafter, El Paso and other utility members of WestConnect challenged the Commission’s approval, arguing that because non-jurisdictional utilities - which accounted for half of WestConnect’s membership - are excluded from binding cost allocation, the jurisdictional WestConnect members would wind up footing the entire tab of transmission development. El Paso argued that WestConnect’s compliance filing resulted in unjust and unreasonable rates by allowing non-jurisdictional utilities to benefit from transmission projects without paying their share of the costs, in violation of cost-causation principles, and encouraged free-ridership by non-jurisdictional utilities. But the Commission defending the binding cost allocation requirement, reasoning that utilities could invoke reciprocity principles to encourage non-jurisdictional utilities to participate in transmission planning.
The Fifth Circuit rendered a split decision. The majority concluded that “absent a more reasoned explanation for why the non-jurisdictional utilities will participate in the binding cost allocation process, or why their lack of participation will not result in unjust and unreasonable rates…the Compliance Orders are arbitrary and capricious and cannot be approved in their current form.” The dissent disagreed, urging deference to the Commission’s decision which was based on its balancing of problems of free-ridership against other policy goals such as encouraging participation of non-jurisdictional utilities in transmission planning to expand opportunities for more cost-effective regional transmission projects.
Haynes (majority) and Reavely (dissent) - FERC split (2-1) win, merits.
Petro Star v. FERC , 835 F.3d 97 (D.C. CIr. August 30, 2016)
Petro Star challenged the Commission’s methodology for calculating monetary adjustments between oil companies that use the Trans Alaska Pipeline System (TAPS) to transport oil in a commingled stream, contending that the this approach undervalued Petro Star’s crude oil in an unjust and unreasonable manner. The court found that the Commission failed to respond to new evidence by Petro Star and thus, remanded the order for further consideration. The court also rejected the Commission’s claim that use of its chosen formula was justified in light of Petro Star’s alleged failure to propose an alternative valuation proposal. Of note to practitioners, the Petro Star ruling shows that even decisions based on fact findings by an ALJ and/or involving complicated matters within the scope of the Commission’s expertise are not impervious to reversal or remand even under the highly deferential standard of review that applies in these circumstances.
Srinivasan, FERC Loss, Merits
Public Citizen v. FERC, Docket 14-1244 (D.C. Cir. October 25, 2016).
According to FERC Solicitor Robert Solomon, the Commission has deadlocked on a decision only six times in its 80-year history . Public Citizen v. FERC addresses the effect of these rare deadlocks on the reviewability of a Commission action.
Public Citizen challenged the capacity rates produced the NE ISO’s forward capacity auction, alleging that they resulted from a unilateral exercise of market power and asking the Commission to set the rates for hearing. Sixty-one days after NEISO filed deficiency responses, the Commission issued a notice stating that the forward capacity auction rates were deemed effective by operation of law. The notice was accompanied by separate statements from several of the four sitting Commissioners indicating that they had been deadlocked 2-2 over whether to approve the rates or set them for hearing. Public Citizen appealed to the the D.C. Circuit which ruled that the Commission’s deadlock does not constitute agency action because without a majority vote, the Commission is not authorized to act under 16 U.S.C. §792. Accordingly, the notices were neither final and reviewable actions under either the Federal Power Act or the APA.
Brown, FERC Win, Merits.
Sierra Club v. FERC , Docket No. 15-1133 (November 4, 2016) (unpublished).
Believe it or not, this case raised yet another challenge - the fourth of the term - to the Commission’s environmental review of an LNG Terminal for failing to consider the indirect impacts associated with increased exports or cumulative impacts of increased greenhouse gas emissions. And no, the fourth time wasn’t the charm; the court was no more enamored with the enviros’ argument this time around than on three prior occasions - and affirmed the Commission’s decision in a three-paragraph per curium opinion.
Panel, FERC Win, Merits.
New Energy Partners Capital v. FERC, Docket No. 13-1277 (December 2, 2016).
In a per curiam decision, the court rebuffed petitioner’s challenge to the Commission’s denial of the petitioner’s motion to intervene that was filed six years after the deadline. Given the high quality of the D.C. Circuit bar, its’ not often that I come across many appeals at the D.C. Circuit that are clearly DOD (destined for denial) from the outset. This was one of them.
Per Curiam
Panel, FERC Win, Merits.
| Energy Policy...what lies ahead? |
Marcia Anderson, PowerUp Legal Attorney
 There is no doubt that change will come with the inauguration of President Trump. Mr. Trump’s campaign goals included both protecting clean air and water, and, according to the Trump-Pence America Energy First Plan, the “unleash[ing]” of untapped shale oil, natural gas and clean coal reserves. Mr. Trump does not have a history that gives us a clear indication of how he plans to implement these competing goals.
Trump’s proposed choices for leaders of the Environmental Protection Agency and the Interior and Energy Departments, indicate that Mr. Trump is serious about cutting regulations, which are predicted to include rescinding the Clean Power Plan and others to promote fossil fuel production and creation of jobs. However, Mr. Trump has acknowledged ‘some connectivity’ between climate change and human activity, and he has said that he has an open mind about the U.S.’s participation in the Paris climate accords.
Those of us, who have been practicing in the energy field for many years, and through many administrations headed by both Republicans and Democrats, know that energy policy does not change quickly and the devil is in the details. The balance between protecting the environment (Trump’s stated objective of protecting clean air and water) and extracting, transporting and using fossil fuels is a balancing act.
While we wait to see what Trump’s administration brings as far as changes in regulations and energy policy, there are some telling initiatives in the state and local sectors that indicate, no matter the federal policy, attitudes and initiatives related to renewable energy and risks related to increased fossil fuel production.
In Iowa, MidAmerican Energy, a local gas and electric utility, has a stated goal to have 100% of their electric generation produced by renewables. In 2015, approximately 41% of their electric generation was produced by wind and 37% coal. For example, Mid American Energy’s 100% Renewable Vision Paper reports that the company has a project, the 2,000 megawatt Wind XI Project, which will increase MidAmerican’s wind generation to 85% of their retail electric demand by 2019. MidAmerican’s renewable program is supported by 91% of their surveyed ratepayers.
The City of Fort Collins’ has a goal to reduce carbon emissions 20 percent below 2005 levels in 2020 and 80 percent by 2030, with hopes to be carbon neutral by 2050. A competition sponsored by the City of Fort Collins and Innosphere, a Colorado technology incubator, focused on electric vehicles and the effect of charging demand and the management of the City’s core utilities distribution system as charging demand for electric vehicles increases. The winner of the competition was a company called Qmulus. Qmulus invented an adapter, which collects metering data when the electric vehicle supply equipment and the vehicle are connected, which then provides the City’s electric utility with the data needed to manage demand.
Both Oklahoma and Texas have experienced increased earthquake activity in recent years, which activity may directly be related to wastewater injection and oil and gas extraction. Oklahoma experienced over 900 magnitude 3+ earthquakes in 2015 as compared to 585 magnitude 3+ earthquakes in 2014 and 109 in 2013. The Oklahoma Corporation Commission is issuing directives to wastewater disposal operators, “based on the general view that injection of disposal of wastewater into the basement rock presents a potential risk for triggering seismicity. The Texas Railroad Commission, on the other hand, determined that there was not enough evidence to demonstrate that two producers’ disposal wells were contributing to seismic activity in the Azle-Reno area. Should the seismic activity in Texas increase, perhaps the Texas Railroad Commission will follow the Oklahoma regulators and limit wastewater injection.
Finally, last month, all eyes were on North Dakota and the protest by the Standing Rock Sioux Tribe against the Dakota Access Pipeline (“DAPL”). The underlying legal issue often gets lost in the new reports and social media. In July 2016, the Standing Rock Sioux Tribe (“Tribe”) sued the Army Corps of Engineers (“Corps”). There are a variety of issues, but one issue is whether the Corps “consulted” with the Tribe regarding the construction of DAPL as required by the National Historic Preservation Act (“NHPA”). NHPA requires that Native Americans be “consulted” related to the preservation of sites with “religious and cultural significance,” which do not have to be on land owned by the affected tribe. It is clear that the Tribe does not believe that the consultation process related to DAPL was adequate.
On December 4, 2016, the Corps denied a permit for construction of the DAPL which halted construction - but stated that a reroute would be explored. Even so, the protests continue at great expense to all involved. We will have to watch to see whether the project will move forward again under the next administration or whether this case will reinforce for companies and agencies the adequate “consultation” with Native Americans required by NHPA, as this will most likely affect any infrastructure project to be built in the U.S.
As lawyers practicing in the energy industry, it is important for us to be cognizant of all constituencies when advising our clients. Scientists, citizens, policymakers, media and industry all have an opinion about what we do in the energy field and how it affects our environment. Our clients, in implementing their plans to satisfy the demand for energy, must also consider the impact their actions have and their ability to meet the expectations of not only ratepayers and owners, but also the communities impacted by energy production, transportation and use.
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| FERC Issues NOPR Aimed at Integrating Energy Storage and Distributed Energy into Wholesale Markets |
by Christina Switzer - Attorney, PowerUp Legal
 On November 17, 2016, in Docket No. RM16-23, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) proposing to expand opportunities for electric storage resources and distributed energy resources into organized wholesale markets operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), including capacity, energy, and ancillary services markets. FERC acknowledged that each RTO and ISO currently allows these resources to participate in organized markets to some extent, but found that outdated rules may create a barrier to new technologies. If adopted, each RTO and ISO would be required to revise its tariff to establish a market participant category for electric storage resources and revise existing market participant categories to allow distributed generation resources to participate in organized wholesale markets through aggregation.
Proposed Requirements
The NOPR is broken into two main sections – (1) the requirement to establish a market participant category for electric storage resources and (2) the requirement to modify existing market participant categories to allow for the participation of distributed energy resource aggregators. While FERC sets out the general requirements, it leaves many of the technical details to each RTO and ISO so they can tailor the market rules to their particular markets and operations.
(1) Energy Storage Resource Requirements
FERC proposes a relatively broad definition of “electric storage resource” that includes all types of electric storage technologies, regardless of size, storage medium, or whether located on an interstate grid or a distribution system. Specifically, FERC proposes to define electric storage resource as a resource capable of receiving electric energy from the grid and storing it for later injection of electricity back to the grid regardless of where the resource is located on the electric system.
As a starting point, FERC proposes to require RTOs/ISOs to create a market participant category specifically for electric storage resources that recognizes the unique physical and operational characteristics of these resources. The NOPR includes five requirements that RTOs and ISOs must abide by when creating the new category:
1. Electric storage resources must be eligible to provide all capacity, energy, and ancillary services that they are technically capable of providing. FERC also clarifies that RTOs and ISOs must allow an electric storage resource to de-rate its capacity to meet minimum run-time requirements to provide capacity or other services.
2. Bidding parameters must reflect and account for physical and operational characteristics of electric storage resources. RTOs and ISOs must require electric storage resources to provide a state of charge, upper charge limit, lower charge limit, maximum energy charge rate, and maximum energy discharge rate.
3. Electric storage resources must be permitted to be dispatched and set the wholesale clearing price as both a wholesale seller and wholesale buyer consistent with existing rules.
4. Minimum size requirement cannot exceed 100 kW.
5. Energy bought to charge an electric storage resources that is then sold back to the market must be at wholesale locational marginal price (LMP).
(2) Aggregated Distributed Energy Resources Requirements
In the NOPR, FERC finds that new distributed energy resources that are smaller and more geographically disperse may not be able to participate in organized markets because of their size. Thus, FERC proposes to allow these resources to participate through aggregation, similar to the way demand response resources may be aggregated under Order No. 719.
As with electric storage resources, FERC defines distributed energy resources broadly. Specifically, FERC defines a “distributed energy resource” as a source or sink of power that is located on the distribution system, or behind a customer meter. Examples of these resources include electric storage resources, distributed generation, thermal storage, and electric vehicles and their supply equipment.
As set out in the NOPR, FERC requires each RTO and ISO to modify the eligibility requirements for existing market participation categories as necessary to allow for the participation of distributed energy resources. The specific requirements include revising their tariffs to:
1. allow distributed energy resources eligible to participate in the organized wholesale electric markets through a distributed energy resource aggregator;
2. include locational requirements for distributed energy resource aggregations that are as geographically broad as technically feasible;
3. establish distribution factors and bidding parameters for distributed energy resource aggregations;
4. adopt information and data requirements for distributed energy resource aggregations that ensure the RTO or ISO can effectively model, dispatch and settle aggregation;
5. permit a distributed energy resource aggregator to add or remove individual distributed energy resources from its aggregation list without undue burden;
6. adopt metering and telemetry system requirements for distributed energy resource aggregations;
7. establish procedures to ensure coordination between the RTO/ISO, the distributed energy resource aggregator, and the distribution utility; and
8. draft a market participant agreement for distributed energy resource aggregators.
Outlook
If adopted as written, the rule would significantly expand opportunities for energy storage and distributed energy resources to participate in organized markets. However, the future of the rule is unclear as there are two hurdles it must clear before becoming final. First, must be a 60-day comment period before FERC can issue a final rule; thus, the earliest FERC could issue a final rule is in February or March. The new administration is expected to appoint three new commissioners, including a new Chairman, in early 2017. It is unclear what the new administration’s priorities will be and whether it will be supportive of regulations meant to allow energy storage and distributed energy resources to participate in organized markets.
Second, there is a question of how much the rule may cost to implement. Throughout the NOPR, FERC acknowledges that requiring RTOs and ISOs to change their market rules to accommodate electric storage resources and distributed generation resources will require RTOs and ISOs to change their current software, and that this could be an expensive endeavor. If RTOs and ISOs comment that it would be expensive to make the necessary modifications, then FERC, under the new administration, may decide to reject the rule as too costly.
Graphic Credit: Wikipedia
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