As this blog previously reported here, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) last month with the goal of requiring organized wholesale electricity markets (RTO/ISO markets) to modify their tariffs and rules to accommodate electric storage resources. FERC has received several comments and recently agreed to extend the deadline for filing comments until February 13, 2017.
FERC Proposes to Remove Barriers to Wholesale Market Participation for Electricity Storage and Distributed Energy Resource Aggregators
On November 17, 2016, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) that, if adopted, would require organized wholesale electricity markets (RTO/ISO markets) to modify their open access transmission tariffs and market rules to accommodate electric storage resources and allow participation of distributed energy resource aggregators. This NOPR is part of FERC’s ongoing efforts to remove barriers to participation in wholesale electric markets. FERC recognizes that electric storage resources and distributed energy resources are often constrained by antiquated wholesale market rules that were, as FERC puts it, “developed in an era when traditional generation resources were the only resources participating in the organized wholesale electricity markets.” This NOPR will promote far greater market participation by storage resources of all types, including batteries, flywheels, compressed air and pumped hydro, as well as distributed resources such as distributed generation, electric storage, thermal storage and electric vehicles.
For electric storage resources, which are defined as resources capable of receiving electric energy from the grid and storing it for later injection of electricity back to the grid, the NOPR would require each RTO/ISO to implement tariff provisions that will:
- Ensure an electric storage resource is eligible to provide services it is technically capable of providing
- Incorporate bidding parameters that reflect the physical and operational characteristics of the resources
- Ensure that electric storage resources can set the market clearing price as a seller or buyer
- Establish a minimum size requirement that does not exceed 100 kW
- Specify that sales and purchases must be made at the wholesale locational marginal price
Transmission Planning and Construction Right of First Refusal Ruled Unduly Discriminatory, Not Mobile-Sierra Protected
The provision contained in incumbent electric utility tariffs—conferring on the holder the right of first refusal (ROFR) to construct additions to the high-voltage electrical grid, regardless of who conceived of and proposed the addition—is unduly discriminatory, the U.S. Circuit Court of Appeals for the D.C. Circuit held in a July 1 decision in Oklahoma Gas & Electric Co. v. FERC, No. 14-1281. The court’s decision upheld utility-specific applications of the FERC mandate—a central open-access innovation of the agency’s Order No. 1000 (Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities)—that directed independent system operators and regional transmission organizations (ISO/RTO) to remove from their existing tariffs and membership agreements the ROFR provision (Removal Mandate).
Earlier in South Carolina Public Service Authority v. FERC, 762 F.3d 41 (D.C. Cir. 2014), the same court generally had upheld the Removal Mandate as applied to ISO/RTOs but had reserved judgment on whether the 60-year-old Mobile-Sierra presumption that the rates in negotiated arm’s length natural gas and power sales agreements are just and reasonable applied to the ROFR provisions of the ISO/RTO tariffs and membership agreements. In Sierra, the Supreme Court of the United States held that the presumption applies against not only the parties to a negotiated agreement but against FERC itself; thus, if it were found to apply to the ROFR, FERC could overcome the presumption only by showing that the ROFR seriously harmed the public interest.
The court could have resolved ISO/RTO and incumbent utilities’ challenges to the Removal Mandate in either of two ways. First, it could have determined that the context in which the ROFR provision was included in the tariffs and membership agreements prevented the presumption from applying in the first instance because of infirmities or unfair dealings in contract formation, such as fraud or duress. Second, it could determine that the presumption did apply and then address the question of whether FERC had overcome the presumption with evidence that the ROFR in member agreements seriously harmed the public interest. The court took the former course. It ruled that the Mobile-Sierra presumption never applied in the first instance because (quoting Order No. 1000 and citing South Carolina), the ROFR “created ‘a pre-existing [i.e., not negotiated] barrier to entry’ for nonincumbent transmission owners.” Citing precedent from the Seventh Circuit, the court found that “such terms” as the ROFR are “self-protective and anti-competitive [and] cartel-like.”
By cabining its holding to the anticompetitive effects of the ROFR, the court was able to bypass two other and possibly more complicated issues. First, it bypassed the issue of whether the Mobile-Sierra presumption applies not only to the rates in regulated natural gas and power sales agreements, but also to agreement terms that affect rates. As the court noted, both the petitioners and FERC argued the case based “on the premise” that the presumption applies to both to rates and agreements terms that affect rates. Second and possibly more nettlesome is whether the Mobile-Sierra presumption would protect other provisions of ISO/RTO tariffs even [...]
Last week the Commodity Futures Trading Commission (CFTC) issued a notice of proposed order and request for comment proposing to allow a private right of action to enforce violations of the anti-manipulation, anti-fraud or scienter based provisions (Anti-fraud provisions) of the Commodity Exchange Act (CEA) in organized electricity markets. The proposal is a controversial reversal of policy that critics say could open electricity market participants to increased costs and liability. (more…)
Timing Is (Almost) Everything: FERC Implements D.C. Circuit Guidance on NEPA Review of Multiple Pipeline Construction Projects
In the wake of two recent D.C. Circuit decisions, the Federal Energy Regulatory Commission (FERC) has begun to implement its new policy concerning the review of natural gas pipeline construction proposals under the National Environmental Policy Act (NEPA). To decide whether a NEPA review must include other projects proposed by the pipeline, FERC will look at the timing and maturity of other proposals and the independence of the projects.
In the first decision, Delaware Riverkeeper Network, the U.S. Court of Appeals for the D.C. Circuit held that FERC failed to consider the cumulative environmental impact of four projects that had been separately proposed by the same pipeline. The D.C. Circuit held that the projects were not financially independent and were “a single pipeline” that was “linear and physically interdependent,” so the cumulative environmental impacts must be considered concurrently.
In the second decision, Minisink Residents for Environmental Preservation and Safety, the D.C. Circuit held that FERC had properly considered and rejected an alternative site to build a natural gas pipeline compressor station. Contrasting the decision to Delaware Riverkeeper, the court clarified that the “critical” factor in the previous decision was that all of the pipeline’s projects were either under construction or pending before FERC for environmental review at the same time.
In several recent orders, FERC has implemented the D.C. Circuit’s guidance in addressing claims of improper segmentation. For example, FERC recently authorized Transcontinental Gas Pipe Line Company (Transco) to construct and operate the Leidy Southeast Project. The Leidy Southeast Project will include nearly 30 miles of new pipeline loop and four compressor stations to provide capacity from supply areas in Pennsylvania to various receipt points as far south as Choctaw County, Alabama. Opponents of the pipeline project (coincidentally Delaware Riverkeeper Network) claimed that FERC should have also considered in its NEPA review three other Transco projects—one already constructed and two proposed projects.
FERC rejected opponents’ request to conduct a joint NEPA review. FERC emphasized that (1) the first Transco project was approved nearly a year before Transco proposed the Leidy Southeast Project; (2) the other two Transco projects “were not fully defined ‘proposals’ at any time during the period that the Leidy Southeast Project was receiving consideration;” and (3) the Leidy Southeast Project was not “connected” to the other Transco projects, as it did not “rely on” other projects for its operation and “would have been built even if” the first project had not been constructed.
The Federal Energy Regulatory Commission (the Commission) issued an order on Thursday, March 19, 2015, refusing to allow the abandonment of certificated working gas capacity when the reason for the request was unrelated to the physical characteristics of the storage facility and unsupported by engineering or geological data. The applicant had sought the abandonment authorization for the sole purpose of reducing its lease payments, which are largely based on the certificated working gas capacity of the facility.
The order, Tres Palacios Gas Storage LLC, 150 FERC ¶ 61,197 (2015), was issued following an application by Tres Palacios Gas Storage LLC (Tres Palacios) for authorization to abandon a significant amount of its certificated working gas storage capacity in a salt dome storage facility in Matagorda and Wharton Counties, Texas. Tres Palacios claimed that abandonment was justified because market conditions were such that it could not sell the capacity at rates that it considered acceptable.
In denying the application, the Commission ruled that Tres Palacios’s request was inconsistent with Commission policy, which requires specific facility parameters for each cavern, such as cushion gas capacity, working gas capacity and minimum pressures, and was inconsistent with Tres Palacios’s certificate authority, which authorizes specific parameters for each cavern. In addition, the Commission explained that no geological or engineering data was submitted to support the change. The order reaffirmed that certificated capacity is based on the physical attributes of a facility and that certificated working gas capacity is “unrelated to the amount of working gas capacity the storage company is able to sell.”
Karol Lyn Newman and Jessica Bayles represented the lessor, Underground Services Markham, LLC, in the proceeding before the Commission.
FERC Commissioner Moeller Convenes Public Meeting Focusing on Resolving Natural Gas Supply Challenges for Electric Generators
Commissioner Philip Moeller of the Federal Energy Regulatory Commission (FERC) held a public meeting on September 18, 2014 to discuss ideas to facilitate and improve the way in which natural gas is traded and to explore the concept of establishing a centralized natural gas trading platform. Although not an official FERC conference, the ideas at issue were an extension of FERC’s recent focus on gas-electric coordination. During the well-attended meeting, Commissioner Moeller presided over a large roundtable discussion of stakeholders, including electric generation owners, natural gas producers, pipelines and marketers, who engaged in a spirited discussion of whether natural gas supplies are meeting the needs of electric generators and improvement in supply practices. The central focus of the meeting was the creation of a natural gas information and trading platform containing bids and offers for the purchase and sale of commodity and capacity for receipt and delivery on points across multiple pipeline systems.
Participants agreed that the natural gas industry is evolving and an increasing share of natural gas is being supplied to electric generators—customers with different needs than the local distribution companies the natural gas pipeline industry was traditionally designed to serve. Most participants further agreed that the needs of generators do not always align with pipelines’ traditional services.
Natural gas-fired generation owners voiced concerns regarding unknown or unreasonable commercial terms in pipeline service agreements, a lack of transparency surrounding available services and illiquidity in the natural gas market. Pipeline representatives highlighted the availability of new services such as extra nomination cycles, no-notice service and the ability to reverse flow as examples of services intended to accommodate generators. Nevertheless, the pipeline representatives also made the point that natural gas liquidity is outside pipelines’ control as they do not have title to the gas they transport. Marketers and organized exchange representatives added that they have been responding to generators’ needs by making available bespoke products and exploring new standardized products to match generators’ demands.
In addressing possible solutions to transparency and liquidity problems, most meeting participants urged incremental change and expressed a preference for industry solutions over FERC’s regulatory intervention. Electric generators preferred increased use of non-ratable service, no-notice service and new, shaped products. Other proposals included eliminating the shipper-must-have-title rule, facilitating competition between capacity release and pipeline overrun services and encouraging generators to purchase firm transportation service rather than interruptible service.
FERC has established a docket number to allow interested parties to file written comments on any issue that was discussed at the meeting. Comments are limited to five pages and are due by October 1, 2014.
Environmental Impact Analysis Required for Natural Gas Facilities Clarified in Court Decision Denying Residents’ Challenge to Compressor Siting Approval
A New York town’s challenge to the Federal Energy Regulatory Commission’s (FERC) siting authorization for a natural gas pipeline compressor station was rejected by the U.S. Court of Appeals for the D.C. Circuit in Minisink Residents for Environmental Protection and Safety v. FERC. The court’s August 15 decision denying the petition for review of residents of the Town of Minisink, when read in conjunction with its decision earlier this year in Delaware Riverkeeper Network v. FERC, delineates the scope of environmental impact analysis that the court will require of FERC under the National Environmental Policy Act (NEPA).
Residents of the Town protested the compressor station’s location and urged FERC and Millennium to pursue an alternative site referred to as the Wagoner Alternative. The Wagoner Alternative would have resulted in the compressor station being located in a less populous area but would have required the replacement of a seven mile pipeline segment (called the Neversink segment). In developing its environmental assessment, FERC had actively considered the Wagoner Alternative but concluded that because of the need to replace the Neversink segment, the environmental impact associated with the Minisink location would be less and the Minisink location was therefore preferable. FERC’s decision approving the Minisink proposal was split 3-2, with former Chairman Wellinghoff and current Chairman LaFleur dissenting, both Commissioners concluding that the Wagoner Alternative was the better option.
Fundamental to the D.C. Circuit’s decision was its finding that FERC had adequately analyzed the Wagoner Alternative and that there was ample evidence to support its determination that the Wagoner Alterative would have a greater impact due to the need upgrade the Neversink segment. The petitioners attempted to undermine this finding by pointing to a Millennium PowerPoint presentation that they alleged showed that even if the compressor station were to be located in Minisink, Millennium still planned to replace the Neversink segment. The court, however, did not consider the PowerPoint persuasive in light of both Millennium’s representation to FERC and Millennium’s counsel’s representation at oral argument that Millennium had no current plans to replace the Neversink segment.
In an instructive footnote, the D.C. Circuit contrasted this case to its recent decision in Delaware Riverkeeper, where it held that FERC improperly segmented and failed to consider the cumulative impact of four connected pipeline construction projects. The court clarified that the “critical” factor in Delaware Riverkeeper was that all of the pipeline’s projects were either under construction or pending before FERC for environmental review at the same time. The court acknowledged that the issue before them in Minisink Residents would potentially be “more troublesome” if Millennium were now planning to pursue the Neversink upgrade.
Appeals Court Validates FERC Regional Planning Mandate as Reasoned Evolution of the Open-Access Electricity Transmission System
The Federal Energy Regulatory Commission’s (FERC) Order No. 1000 mandate that going forward the high-voltage electric transmission grid be planned and fairly financed regionally by all of its operators and beneficiaries, survived myriad challenges from 45 petitioners in the unanimous August 15 decision of a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit in South Carolina Public Service Authority v. FERC. The rigorous 97-page opinion rejected challenges coming from all directions to the 2011 rulemaking entitled “Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities.”
According to the panel, nearly all of the challenges misapprehended Order No. 1000’s regional planning mandate. The court repeatedly emphasized that Order No. 1000’s mandate is nothing new, but rather the next step in evolving efforts under section 206 of the Federal Power Act to combat undue discrimination. That evolution, the panel explained, began in 1996 when Orders No. 888 and No. 889 required that electricity transmission be “unbundled” from sales and offered via the internet pursuant to open-access tariffs, and 11 years later continued in Order No. 890’s directive that a transmission provider standardize how it measures available transmission capacity and open to its customers the process for planning transmission upgrades and expansions.
The panel’s decision affirmed FERC’s authority to require each of the key elements that FERC prescribed for regional transmission planning. Those elements include:
- All public utility transmission providers are required to participate in a regional planning process, and non-public utilities such as cooperative or municipal utilities effectively must also participate pursuant to a reciprocity requirement carried forward from Order No. 888.
- The planning process must include procedures for taking into account federal, state and local laws and regulations affecting transmission, such as federal air quality rules and state or local renewable portfolio standards.
- Transmission tariffs must be amended to remove provisions that confer on the incumbent transmission provider a right of first refusal to construct, own, and operate new regional transmission, thereby opening the regional process to input, innovation, and investment from non-incumbents and new entrants, subject to state and local restrictions on siting and eminent domain.
- A methodology must be added to transmission tariffs for allocating up-front the cost of new regional transmission facilities, consistent with six principles, including a causation principle directing that the allocation be roughly commensurate with the benefits received by those consumers required to pay, and a prohibition on one region allocating costs to its neighbors without their advance consent.
FERC Chairman Cheryl LaFleur promptly praised the panel’s decision upholding Order No. 1000 in its entirety as critical for inducing the “substantial investment in transmission infrastructure [needed] to adapt to changes in its resource mix and environmental policies.” In its decision the panel noted that the electric industry in 2008 estimated the infrastructure investment needed at $298 billion between 2010 and 2030.
Following FERC’s lead, the panel chose not rule at this time on challenges that elements of the regional planning mandate violate the Mobile-Sierra [...]
D.C. Circuit Rules that FERC May Not Segment Its Evaluation of the Environmental Impact of Related Natural Gas Pipeline Construction Projects, Regardless of Whether They Are Separately Proposed
The D.C. Circuit Court of Appeals recently issued an opinion holding that the Federal Energy Regulatory Commission (FERC) violated the National Environmental Policy Act (NEPA) when it segmented its evaluation of the environmental impact of four separately proposed but connected projects to upgrade the “300 Line” on the Eastern Leg of Tennessee Gas Pipeline Company’s natural gas pipeline system. Going forward, the court’s ruling will likely compel proponents of interrelated or complimentary pipeline projects to seek their certification on a consolidated basis and will require FERC to evaluate their cumulative impact.
Tennessee Gas’s challenged Northeast Project was the third of four proposed upgrade projects to expand capacity on the existing Eastern Leg of the 300 Line. The Northeast Project added only 40 miles of pipeline, while the four proposed projects combined to add approximately 200 miles of looped pipeline. FERC approved Tennessee Gas’s first proposed upgrade, the “300 Line Project,” in May 2010. While that project was under construction, Tennessee Gas proposed three additional projects to fill gaps left by the 300 Line Project, one of which was the Northeast Project. As part of its review of the Northeast Project, FERC issued an Environmental Assessment (EA) required by NEPA that recommended a Finding of No Significant Impact. The EA for the Northeast Project, however, addressed only the Northeast Project’s environmental impact without reviewing the cumulative impact of all four projects.
The D.C. Circuit held that FERC was in error for failing to consider the cumulative impact. Under NEPA, the D.C. Circuit explained, FERC must consider all connected and cumulative actions. The D.C. Circuit found no “logical termini,” or rational endpoints to divide the four projects and found the projects were not financially independent. Rather, the court found the Northeast Project was “inextricably intertwined” with the other three improvement projects that, taken together, upgraded the entire Eastern Leg of the 300 Line. The court held that FERC must analyze the cumulative impact of the four projects and remanded the case to FERC for consideration.
The Court emphasized that in this case, “FERC was plainly aware of the physical, functional, and financial links between the two projects.” Regardless of whether an interstate pipeline initially plans to embark on a series of related upgrades, once FERC is aware of the interrelatedness of proposed expansion projects, it must take care to review any cumulative environmental impacts that may arise.
The D.C. Circuit’s decision may also be a warning that FERC must pay greater attention to the NEPA review in pipeline construction projects. The D.C. Circuit also has before it this term a case alleging that FERC did not sufficiently consider the environmental review of the siting of a new pipeline compressor station in light of less environmentally intrusive alternatives. See Minisink Residents for Environmental Preservation and Safety v. FERC, Case No. 12-1481. Both cases take issue with the rigor of FERC’s environmental review under NEPA, and the D.C. Circuit’s decisions may signal a new era of increased focus on the [...]