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Yesterday, former Pennsylvania Public Utility Commissioner (PaPUC), Robert F. Powelson, was officially sworn in as a Federal Energy Regulatory Commissioner, ending a six month drought in which the Federal Energy Regulatory Commission (FERC) did not have a quorum. The FERC is responsible for permitting decisions on energy projects such as natural gas pipelines. The lack of a quorum sidelined at least 15 energy infrastructure projects with an approximate value between $15 billion and $25 billion and an estimated 75,000 jobs. The projects include the $2 billion Nexus pipeline in Ohio and Michigan; the $1 billion PennEast pipeline in Pennsylvania and New Jersey; and the $5 billion Atlantic Coast Pipeline in West Virginia, Virginia and North Carolina. This is the first time the FERC has been without a quorum in its 40-year history.

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Last week the Senate unanimously confirmed Powelson and Neil Chatterjee, an energy policy advisor to U.S. Senate Majority Leader Mitch McConnell (R-KY). Chatterjee was officially sworn in on Tuesday. As a Pennsylvania based regulatory attorney, I join the Pennsylvania Public Utility Commission and others here in the Keystone State in congratulating the FERC’s newest Commissioner, Robert F. Powelson. Now the rest of the country will discover the reasoned judgement Pennsylvania has experienced. Those looking to discover more about Commissioner Powelson might enjoy this interview I did with then PaPUC Chairman Powelson regarding Pennsylvania’s energy future.  

Photo Credit: FERC

The Board on Energy and Environmental Systems (BEES) of the National Academies of Sciences, Engineering, and Medicine provides independent advice to the United States government and the private sector on science and technology policy issues related to energy and the environment. Given the importance of electricity to our nation’s health, safety, and economy, BEES has researched methods to minimize the impact of extreme weather events, earthquakes, cyber-attacks and other disasters that have the potential to cause large-scale outages. BEES’ most recent report, Enhancing the Resilience of the Nation’s Electricity System will be publicly released at 11 a.m. EST on July 20, 2017.

To provide insight regarding important issues in the report, BEES will host a free webinar on July 20, 2017, at 2 p.m. EST. The following authors will be panelists on the webinar:

  • Granger Morgan, Chair, NAS, Carnegie Mellon University, Pittsburgh, Pennsylvania
  • Jeff Dagle, Pacific Northwest National Laboratory, Richland, Washington
  • William Sanders, University of Illinois-Urbana Champaign, Urbana, Illinois 

They will identify technologies, policies and organizational strategies that should be implemented on the federal, state, and local levels. At the conclusion of the presentation, webinar participants will have an opportunity to ask questions.

On July 20, 2017, you can download the report on the National Academies Press website at nap.edu. Go here to register for the free webinar.

Vice President Joe Biden recently spoke in Philadelphia to announce the release of the Quadrennial Energy Review (QER). According to a White House fact sheet, “the QER is envisioned as a focused, actionable document designed  to  provide  policymakers, industry, investors, and other stakeholders with unbiased data and analysis on energy challenges, needs, requirements, and barriers that will inform a range of policy options, including legislation.” The first installment of the QER examines how to modernize our nation’s energy infrastructure and is primarily focused on energy transmission, storage, and distribution (TS&D), the networks of pipelines, wires, storage, waterways and railroads. Each chapter provides recommendations to improve or remedy the issues discussed. At 347 pages, the QER provides an in-depth overview of the energy issues impacting our nation. If you are not interested in all of the topics or simply want to save some memory space, the Review’s homepage provides an individual PDF of each chapter. Here is a listing of the chapters:

Ensuring the Resilience, Reliability, Safety, and Security of TS&D Infrastructure

Modernizing the Electric Grid

Modernizing U.S. Energy Security Infrastructures in a Changing Global Marketplace

Improving Shared Transport Infrastructures

Integrating North American Energy Markets

Addressing Environmental Aspects of TS&D Infrastructure

Enhancing Employment and Workforce Training

Siting and Permitting of TS&D Infrastructure 

Before the chill of last winter’s polar vortex, many in the industry may not have even heard the term uplift payments. If you are still wondering exactly how it works, the Federal Energy Regulatory Commission (“FERC”) has a docket and workshop for you (Docket No. AD14-14-000). At this docket you will find an educational staff report on uplift payments in RTOs/ISOs. On Monday, September 8, 2014, FERC will hold a workshop to explore the technical, operational and market issues that give rise to uplift payments and the levels of transparency associated with uplift payments. The daylong informative workshop will begin at 8:45 a.m. and conclude at 5:15 p.m.

Panel 1 will address the basic issue of “What is uplift?” and explore issues that give rise to uplift payments as well as:

  • Drivers of uplift payments in RTOs/ISOs
  • Uplift payments that have been highly concentrated and persistent on a geographic or resource basis
  • Technical, operational and market issues driving uplift payments
  • The relationship between uplift payments and unit flexibility

Panel 2 will explore the impact of uplift on market participants.

Panel 3 will explore the adequacy of and the potential to enhance uplift transparency and recent market design changes that may address some of the causes of uplift.

Panel 4 will explore broader price formation issues and discuss next steps.

This agenda provides further details. As expected, the event will be held at the Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426. This workshop is free of charge and open to the public.

On June 30, 2014, the Supreme Court declined to hear Kansas City Power & Light Co.’s appeal of a lower court’s affirmation of the Missouri Public Service Commission order denying the utility the right to recover FERC-approved transmission costs, estimated at $100 million. The costs are for delivering power 500 miles from a natural gas plant in the Mississippi Delta to western Missouri customers. The Missouri PSC approved the purchase power but concluded the $5 million yearly interstate transmission cost at FERC-approved rates wasn’t “just and reasonable” because the plant was only used to meet summer peak demand. However, KCP&L was paying for transmission access all year and passing that cost on to its customers. KCP&L argued the decision to disallow FERC-approved transmission costs violated the supremacy clause of the U.S. Constitution, which gives federal law jurisdiction over state law.

The impact of the ruling further supports the concept that FERC approval no longer provides certainty regarding cost recovery. Billions of dollars in interstate transmission costs may or may not be recoverable from customers. It is already a hot summer and things could really heat up to the extent other state utility commissions consider denying recovery of FERC-approved transmission costs related to the growing area of distantly-sited generation, especially the popular natural gas and wind generation.

And there is more… I find the most interesting thing about this case is the fact that the Missouri PSC approved the recovery of the cost of the generation facility in base rates, yet denied the cost to transmit the power from the approved facility.

Bonus: The Solicitor General explains why cert should be denied.

The New York State Public Service Commission (“PSC” or “Commission”) recently petitioned the U.S. Court of Appeals for the Second Circuit to force the Federal Energy Regulatory Commission (“FERC”) to respond to the PSC’s pending requests for rehearing of FERC’s decisions to create a new capacity zone (“NCZ”) in the lower Hudson Valley. The PSC states that as a result of the NCZ, residential customers using 600 kWh/month in the lower Hudson Valley would experience increases in their total electric bill of between six percent to thirteen percent and industrial customers could experience a ten percent increase, causing unnecessary and unreasonable electricity price increases in the lower Hudson Valley.

Pending full judicial review of FERC’s decisions, the PSC has filed an emergency motion asking the Court to issue a stay of FERC’s decisions implementing the upcoming capacity auctions in the NCZ and ensure consumers are not harmed further. However, in previous pleadings, the New York ISO (“NYISO”) states that the NCZ Study determined that the Upstate New York/Southeast New York (UPNY/SENY) Highway interface into Load Zones G and H was constrained because it was bottling 849.2 MW of generation from Load Zones A through F, and therefore, NYISO is required to create a new capacity zone.

Entergy Nuclear also supports the creation of the new capacity zone and asserts that the erosion of the electric system in the lower Hudson Valley over time provides proof of the harm that results when inaccurate price signals fail to adequately value capacity in a region. It states that the capacity price signal for the lower Hudson Valley zones was suppressed by the excess capacity levels in the remainder of the Rest-of-State region that cleared against the NYCA curve, but were not deliverable to the lower Hudson Valley zones due to the UPNY/SENY constrained interface.

FERC has stated it does not believe the new capacity zone will result in unjust and unreasonable rates. Higher capacity prices in the new capacity zone will help to encourage the development of new generation and/or transmission capacity to help alleviate the constraint NYISO has demonstrated. FERC’s position is that the price changes promote efficient decisions and are not unreasonable. The NCZ capacity auctions have begun and the PSC has filed a Petition for a Writ of Mandamus and Emergency Motion for Stay to prevent what it believes is irreparable harm to customers in the lower Hudson Valley:

Because FERC has not acted prior to the implementation of the NCZ capacity auctions, New York electricity ratepayers face the possibility of paying an additional $158 million for electricity in the summer of 2014, without realizing a corresponding benefit. If the Court reverses FERC it will be difficult, if not impossible, to rerun the auctions to reflect whatever relief the Court provides.

– PSC Petition and Motion page 10

These are interesting grid management issues. The industry will be watching the Second Circuit.

Because the grid is so critical to all aspects of our society and economy, protecting its reliability and resilience is a core responsibility of everyone who works in the electric industry.

– Federal Energy Regulatory Commission (“FERC”) Acting Chairman Cheryl LaFleur

This month, FERC directed the North American Electric Reliability Corporation (“NERC”) to develop Reliability Standards requiring owners and operators of the Bulk-Power System to address risks due to physical security threats and vulnerabilities within 90 days. The Reliability Standards will require owners and operators of the Bulk-Power System to take at least three steps to protect physical security:

  1. Owners and operators must perform a risk assessment of their system to identify facilities that, if rendered inoperable or damaged, could have a critical impact on the operation of the interconnection through instability, uncontrolled separation, or cascading failures of the Bulk-Power System.
  2. Owners and operators of critical facilities must evaluate potential threats and vulnerabilities to those facilities.
  3. Owners and operators must develop and implement a security plan to address potential threats and vulnerabilities.

FERC recognizes that compliance with the Reliability Standards described above could contain sensitive or confidential information that, if released to the public, could jeopardize the reliable operation of the Bulk-Power System. As a result, NERC is also directed to include in the Reliability Standards a procedure that will ensure confidential treatment of sensitive or confidential information but still allow for the Commission, NERC and the Regional Entities to review and inspect any information that is needed to ensure compliance with the Reliability Standards.   

The industry understands the continuing need to address physical security and resilience. This latter point is critical because absolute protection from attack, physical or cyber, can never be promised. It is a risk embedded in our freedom. So a healthy ongoing focus on resilience is critical and grid owners and operators address these issues frequently if not daily. So I can’t help but wonder whether the recent media frenzy about Metcalf and a looming national blackout has FERC fighting back, not just with statements but this order.

Entergy’s strategy related to its integration into MISO received another high hurdle this week. The Mississippi Public Service Commission (“MPSC”) denied the Joint Application to transfer ownership and control of Entergy Mississippi’s high voltage transmission system to a subsidiary of ITC Holding Corporation. In its joint application, Entergy and ITC provide several reasons for the transaction, including the need for major capital investment to modernize the transmission grid:

Utilities and their regulators are faced with the question of how best to manage the increasing and evolving requirements that will be imposed to modernize the transmission grid, particularly in the light of capital requirements also facing the generation and distribution functions. The  proposed ITC Transaction, for which approval is being sought in this Joint Application, is part of EMI’s solution to address these escalating requirements for new  capital investment.[1]

Entergy also said the transfer would facilitate and build on the benefits of the Day 2 wholesale market that will be available when Entergy joins MISO.

However, MPSC did not find those or other stated benefits compelling enough to approve the transaction. In fact, the Commission took 99 pages to opine on why the transfer of Entergy’s transmission assets to ITC is not in the best interest of Entergy Mississippi’s customers. A long and interesting read, this phrase from paragraph 5 of the Decision reflects the gist of the Commission’s sentiment regard the transaction,

…offers with certainty only significant cost to ratepayers and complete loss of this Commission’s rate jurisdiction over the transmission assets at issue.

Although the MPSC seems to think it can still happen[2], this decision, along with the SPP remand, places Entergy in an interesting position regarding the MISO integration.

[1] Joint Application, page 4.
[2] Paragraph 18 of the decision directs Entergy to work with staff and file an initial plan regarding transmission upgrades 90 days after Entergy’s integration into MISO.

In 2011, Entergy announced it would be joining the Midwest Independent Transmission System Operator (“MISO”). Entergy’s transmission lines are currently connected to both MISO and Southwest Power Pool’s (“SPP”) networks. In order to fully absorb Entergy’s electricity — which is based in Arkansas, Mississippi, Louisiana and Texas — MISO proposed transferring some of the electricity over SPP’s lines. Entergy’s Arkansas arm is scheduled to connect to the MISO network by the end of 2013. SPP objected and said the proposal violated a joint operating agreement that allowed MISO to use its lines only if it was moving electricity from a third party. Once MISO absorbs Entergy, SPP argued, the utility would no longer be a third party.

Section 5.2 of the Joint Operating Agreement is the center of the dispute:

Sharing Contract Path Capacity. If the Parties have contract paths to the same entity, the combined contract path capacity will be made available for use by both Parties. This will not create new contract paths for either Party that did not previously exist. SPP will not be able to deal directly with companies with which it does not physically or contractually interconnect and the [MISO] will not be able to deal directly with companies with which it does not physically or contractually interconnect.

SPP argues that an RTO cannot have a “contract path to” itself or to part of itself. Thus, once Entergy Arkansas joins MISO, Section 5.2 will no longer apply. After the parties negotiated for some time in vain, MISO petitioned FERC for a declaratory judgment on the interpretation of Section 5.2. FERC adopted MISO’s reading, finding that the term “contract path” was broad enough to encompass any physical or contractual interconnection, and that “entity” could include any operating entity, whether or not it was part of one of the RTOs. Order, 136 FERC ¶ 61,010 at PP 61-62; Order on Rehearing, 138 FERC ¶ 61,055

On appeal, SPP told the three-judge D.C. Circuit panel that FERC did not consider evidence that supported SPP’s interpretation of the joint operating agreement. The D.C. Circuit unanimously agreed, vacating FERC’s order and sending it back to the Commission to reconsider.

…we find that the Commission failed to provide a reasoned explanation for its decision. It leapt to an interpretation of one item of evidence without explaining its implicit rejection of alternative interpretations, and, equally without explanation (or at least adequate explanation), it disregarded evidence that the applicable law required it to consider. See Order on Petition for Declaratory Order, 136 FERC ¶ 61,010 (2011) (“Order”), rehearing denied, Order on Rehearing, 138 FERC ¶ 61,055 (2012) (“Order on Rehearing”). Accordingly, its decision was arbitrary and capricious, and we vacate and remand the orders. Opinion page 2.

Like most litigation, this underscores the importance of understanding when negotiating contract terms. You never know which clause will mean millions of dollars when the unanticipated occurs. In light of this dispute, I presume other transmission owners will review similiar language in their agreements.

Last week the Federal Energy Regulatory Commission (“FERC”) issued a final rule allowing interstate natural gas pipelines and electric transmission operators to share non-public operational information to promote the reliability and integrity of their systems. After extensive technical conferences with stakeholders from both the electric and gas industries, Order No. 787 adopts the revisions to Parts 38 and 284 of the Commission’s regulations as stated in the Notice of Proposed Rulemaking without modification.

The new rule provides explicit authority to interstate natural gas pipelines and public utilities that own, operate, or control facilities used for the transmission of electric energy in interstate commerce to voluntarily share non-public, operational information with each other for the purpose of promoting reliable service or operational planning on either the public utility’s or pipeline’s system.

To protect against undue discrimination and ensure that the shared information remains confidential, the rule also adopts a No-Conduit Rule that prohibits recipients of the information from disclosing it to an affiliate or a third party. However, the No-Conduit Rule applies only to the information that an interstate natural gas pipeline or an electric transmission operator exchange pursuant to this final rule. The No-Conduit Rule does not affect current communications among interstate and intrastate natural gas pipelines, local distribution companies and gatherers regarding conditions affecting gas flows between these physically interconnected parties, nor does it affect communications between transmission system operators and load serving entities.

The rule refers to both interstate natural gas pipelines and public utilities that own, operate, or control facilities used for the transmission of electric energy in interstate commerce collectively as “transmission operators.” An electric transmission operator can seek Commission authorization if they wish to share information received from an interstate pipeline with a local distribution company.