If you are new to the industry or simply want to brush up on the basics, the Federal Energy Regulatory Commission’s (FERC) consider the recently released Reliability Primer a gift. The comprehensive manual not only provides an overview of the FERC’s role in overseeing the reliable operation of the power grid, it provides a great overview of the electric power system. It should be required reading for electric utility employees, especially new hires and those with legal or regulatory responsibilities. This manual helps newcomers develop foundational knowledge in an industry riddled with acronyms and jargon. Its title, Reliability Primer, could very well have been Electricity 101 and 102.

Starting on page 10, the Primer begins with the basics, providing a detailed discussion about the three main functions of the electric system; generation, transmission and distribution. In the discussion regarding generation, the Primer explains the various types of power plants, ranging from thermal to renewables such as wind and solar. Data on energy sources is also provided. With the fracking boom, it is not surprising that natural gas is the leader with coal and nuclear rounding out the top three fuel sources.

If you want to understand the FERC’s authority under the Federal Power Act (FPA), section III of the Primer provides a detailed discussion. It explains the Energy Policy Act of 2005 and the FERC’s implementation of Section 215 of the FPA. The reader will gain an understanding of the FERC’s authority and oversight in the development and enforcement of mandatory reliability standards for the nation’s bulk power grid. The FERC states the Primer is written to be used as a traditional text or reference manual and I agree. 

Utilities and generators will find this recent decision by the Minnesota District Court interesting because the issues are similar to energy and environmental laws in other states. The plaintiffs include the State of North Dakota, the Industrial Commission of North Dakota, the Lignite Energy Council, Basin Electric Power Cooperative, the North American Coal Corporation, Great Northern Properties Limited Partnership, Missouri Basin Municipal Power Agency d/b/a Missouri River Energy Services, and Minnkota Power Cooperative, Inc. They filed suit against the Commissioners of the Minnesota Public Utilities Commission and the Commissioner of the Minnesota Department of Commerce alleging that Minn. Stat. § 216H.03 violates the Commerce Clause of the U.S. Constitution (Count I), the Supremacy Clause of the U.S. Constitution because the statute is preempted by the Clean Air Act and the Federal Power Act (Counts II and III, respectively), the Privileges and Immunities Clause of the U.S. Constitution (Count IV), and the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution (Count VI).

The statute at issue is Minnesota’s Next Generation Energy Act (“NGEA”). It establishes energy and environmental standards related to carbon dioxide emissions and seeks to limit increases in “statewide power sector carbon dioxide emissions,” stating:

Unless preempted by federal law, until a comprehensive and enforceable state law or rule pertaining to greenhouse gases that directly limits and substantially reduces, over time, statewide power sector carbon dioxide emissions is enacted and in effect, … no person shall:

  1. construct within the state a new large energy facility that would contribute to statewide power sector carbon dioxide emissions;
  2. import or commit to import from outside the state power from a new large energy facility that would contribute to statewide power sector carbon dioxide emissions; or
  3. enter into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions. For purposes of this section, a long-term power purchase agreement means an agreement to purchase 50 megawatts of capacity or more for a term exceeding five years.

In finding the law unconstitutional the Court emphasized that neither the parties, nor the Court, dispute that carbon dioxide emissions are a problem that this country needs to address.

The question here is not the environmental issue. The question is whether the Minnesota Legislature has the power, under the U.S. Constitution, to address that issue through the means articulated in Minn. Stat. § 216H.03. Because the Court finds that Minn. Stat. § 216H.03, subd. 3(2)–(3), violates the dormant Commerce Clause, the answer to that question is ‘no.’

Decision, Page 26

Providing me with flashbacks to first year Con Law, the court defines the dormant Commerce Clause as the negative implication of the Commerce Clause. States may not enact laws that discriminate against or unduly burden interstate commerce. The court then explained the three levels of analysis under the dormant Commerce Clause.

  • First, a state statute that has “an ‘extraterritorial reach,’ that is, … the statute has the practical effect of controlling conduct beyond the boundaries of the state,” is per se invalid. Cotto Waxo Co., 46 F.3d at 793 (citing Healy v. Beer Inst., Inc., 491 U.S. 324, 336 (1989)).
  • Second, a state statute that is discriminatory on its face, in practical effect, or in purpose is subject to strict scrutiny. Id. (citations omitted).
  • Third, a state statute that is not discriminatory, but indirectly burdens interstate commerce, is evaluated under the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

If you think this is not smart grid related think again. The court took the time to explain the unique nature of electricity, pointing out it is different from tangible products. Electricity cannot be shipped directly from Point A to Point B and MISO, the RTO for the utilities in this case, does not match buyers to sellers. Once electricity enters the grid, it is indistinguishable from the rest of the electricity in the grid. A North Dakota generation-and-transmission cooperative cannot ensure that the coal-generated electricity that it injects into the MISO grid is used only to serve its North Dakota members and not its Minnesota members. Consequentially, in order to ensure compliance with Minn. Stat. § 216H.03, subd. 3(2)– (3), out-of-state parties must conduct their out-of-state business according to Minnesota’s terms—i.e., engaging in no transactions involving power or capacity that would contribute to or increase Minnesota’s statewide power sector carbon dioxide emissions. This is the “paradigm” of extraterritorial legislation according to the court. Most likely there will be an appeal. Given the increase in interconnections and the growing RTO markets, this case will be watched by many.

The PG&E Metcalf substation has been getting a lot of attention for an event that occurred nearly 10 months ago. Several media outlets have recently reported details about an April 2013 attack at the Metcalf substation where two manholes were entered and fiber cables cut, eliminating some 911 services, landline service to the substation and cell phone service. Shortly after 1 a.m., more than 100 rounds were fired at several transformers in the substation, causing cooling oil to leak and the transformers to overheat and shut down. To date, those responsible have not been found. PG&E is addressing the matter as explained in this video.

It appears that, in reaction to current media reports, Senators Wyden, Feinstein, Reid and Franken wrote a letter requesting that the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) determine whether additional minimum standards regarding physical security at critical substations and other essential facilities are needed to assure the reliable operation of the bulk power system. Just yesterday, statements were issued by Commissioners Norris and Moeller. A detailed response by Acting Chairman LaFleur explains the landscape and that FERC will work with NERC to determine whether a mandatory reliability standard under section 215 of the Federal Power Act is needed to protect against physical attacks on our electrical infrastructure. This quote by Commissioner Norris provides grounding and a reminder that the risk is nothing new:

We have over 400,000 circuit miles of transmission in North America and 55,000 transmission substations. The vulnerability of our grid infrastructure to physical attack is a decades-old reality.

On Thursday, October 13, 2011 Chairman Wellinghoff will testify on “The American Energy Initiative: Transmission Issues, Including Topics Related to the Sitting, Planning, and Allocation of Costs for Electricity Transmission Infrastructure”, before the House Energy and Commerce Subcommittee on Energy and Power. It will take place at 9:30 a.m. in room 2322 of the Rayburn House Office Building.

According to the Committee on Energy and Commerce’s internal memo, the following issues will be examined at the hearing: 

  • The need for new electricity transmission infrastructure and the barriers and challenges to siting and constructing new transmission facilities.
  • The statutory authority of DOE and FERC with respect to the siting, planning, and pricing of electricity transmission infrastructure.
  • The roles and responsibilities of the following entities with respect to the siting, planning, and pricing of electricity transmission infrastructure:
    • DOE
    • FERC
    • State Public Utility Commissions
    • Regional Transmission Organizations
    • Electric utilities
  • The difference between traditional planning and cost allocation principles and those set forth in FERC Order No. 1000.
  • The scope, purpose, and implementation of Section 216 of the Federal Power Act, including its effect on jobs and the American economy.

Given the concerns over FERC Order No. 1000, this should be an interesting hearing. In addition to Chairman Wellinghoff, other panelists include: Ms. Lauren Azar, Senior Advisor, Office of the Secretary, U.S. Department of Energy, Commissioner Greg White, Michigan Public Service Commission, Commissioner Philip B. Jones, Washington Utilities & Transportation Commission, Mr. John DiStasio, General Manager & CEO, Sacramento Municipal Utility District, Mr. Steven A. Transeth, Principal, Transeth & Associates, PLLC,  Mr. Nicholas Brown, President & CEO, Southwest Power Pool, Inc. and Mr. Joseph Welch, Chairman, President & CEO, ITC Holdings Corp.

Entergy Corporation announced that two of its subsidiaries, Entergy Nuclear Vermont Yankee, LLC (“ENVY”) and Entergy Nuclear Operations, Inc. (“ENOI”) have filed a complaint in U.S. District Court for the District of Vermont seeking a judgment to prevent the state of Vermont from forcing the Vermont Yankee Nuclear Power Plant to cease operation on March 21, 2012.

The April 18, 2011 request for declaratory and injunctive relief follows the federal Nuclear Regulatory Commission’s (“NRC”) March 21, 2011, renewal of Vermont Yankee’s operating license authorizing the plant’s operation through March 21, 2032. The NRC’s action came after a thorough and exhaustive five-year safety and environmental review of the plant.

The lawsuit is primarily based on the following legal principles:

  • “Atomic Energy Act Preemption. Under the Supremacy Clause of the U.S Constitution, the U.S. Supreme Court held in 1983 in a case involving Pacific Gas & Electric that a state has no authority over (1) nuclear power plant licensing and operations or (2) the radiological safety of a nuclear power plant. In violation of these legal principles, Vermont has asserted that it can shut down a federally licensed and operating nuclear power plant and that it can regulate the plant based upon Vermont’s safety concerns.
  • Federal Power Act Preemption and the Commerce Clause of the U.S. Constitution. Vermont is prohibited from conditioning post-March 2012 operation of the Vermont Yankee Station on the plant’s agreement to provide power to Vermont utilities at preferential wholesale rates. The Federal Power Act preempts any state interference with the Federal Energy Regulatory Commission’s exclusive regulation of rates in the wholesale power market. The Commerce Clause of the U.S. Constitution bars a state from discriminatory regulation of private markets that favors in-state over out-of-state residents.“ Entergy Press Release

This battle between Entergy and the State of Vermont can be traced back to the 2002 Memorandum of Understanding (“MOU”) that settled the litigation related to Entergy’s purchase of Vermont Yankee from Vermont Yankee Nuclear Power Corporation. Paragraph 12 of the MOU will no doubt be analyzed at least a hundred times before this litigation is resolved. Part of it states the parties, “expressly and irrevocably agree[s]: (a) that the Board has jurisdiction under current law to grant or deny approval of operation of the VYNPS beyond March 21, 2012 and (b) to waive any claim each may have that federal law preempts the jurisdiction of the Board to take the actions and impose the conditions agreed upon in this paragraph to renew, amend or extend the ENVY CPG and ENO CPG to allow operation of the VYNPS after March 21, 2012, or to decline to so renew, amend or extend.”

The world has changed since the 2002 agreement and Entergy believes political maneuvers by the state legislature has now voided the provision Entergy agreed to in good faith. For starters, in 2006, a law was passed prohibiting the Public Service Board from issuing a Certificate of Public Good without express approval from the General Assembly. In an open letter to Vermonters, Entergy provides further details. Given the NRC’s approval, which addresses the safety issue, Vermonters stand to lose 650 jobs and $16,484,000 in state and local taxes based on a 2008 benefits statement.

Last week, FERC issued a final rule amending regulations under the Federal Power Act regarding Demand Response Compensation in Organized Wholesale Energy Markets, putting an end to industry speculation over the value of demand response…hopefully. Regional Transmission Organizations (“RTO”) and Independent System Operators (“ISO”) must balance generation and load when clearing the day-ahead and real-time energy markets. Balancing can be accomplished by changes in supply or demand. The Commission found that in the organized wholesale energy market, demand response has the same balancing effect on supply and demand as generation. Therefore, demand response resources should be compensated on an equal basis to generation resources. However, two conditions must be met:

  1. The demand response resource has the capability to provide the service, i.e., the demand response resource must be able to displace a generation resource in a manner that serves the RTO or ISO in balancing supply and demand.
  2. The payment of LMP for the provision of the service by the demand response resource must be cost-effective as determined by the net benefits test.

What is the net benefits test? When is a demand response cost-effective? We will have to wait a little longer to completely answer these questions. RTOs/ISOs are ordered to conduct two studies: By July 22, 2011, RTOs/ISOs must submit an historical analysis of supply curves and revised tariffs. More than a year later by September 21, 2012, a dynamic benefits study must be filed. While time may not be a friend, EnerNOC is having an awesome month at FERC!