Energy Legal Blog

Making Waves ― FERC Turns Attention to Ocean Power

The Federal Energy Regulatory Commission has put the spotlight on a lesser known but potentially valuable source of renewable energy by announcing an interim policy and inviting public comment on how to process preliminary permit applications for ocean energy: wave, current, and instream hydropower technologies.  The Commissioners expressed interest in promoting these technologies, but also concern about their reliability, environmental and safety implications, and commercial viability. 

While various other countries, including the United Kingdom, are more advanced in developing ocean energy, interest is growing in the U.S. and FERC has already issued several preliminary permits for ocean energy projects.  FERC’s jurisdiction extends from the same section of the Federal Power Act that controls licenses for hydroelectric dams.  A preliminary permit under the FPA gives the permit holder first priority in applying for a license for a project, but does not authorize construction. 

With more parties seeking preliminary permits and licenses, FERC chose to announce an interim policy to give applications strict scrutiny while seeking comment on alternative approaches, including moderate scrutiny or declining altogether to issue permits.  The stricter approach entails more scrutiny of permit applications and narrowing the scope of any permits that are granted, and is intended to promote competition and prevent applicants from site-banking, that is, reserving sites without an intent of developing them.  FERC has also asked for public comment on how it should enforce permits once they are issued. 

Senator Investigates Recent Natural Gas Price Volatility

Citing the "critical consumer protection issue" of natural gas price volatility, on February 6, Senator Jeff Bingaman (D-NM) sent letters to FERC Chairman Joseph Kelliher and Commodity Futures Trading Commission (CFTC) Chairman Reuben Jeffrey, posing a series of questions to both agencies about how they monitor gas futures trading on the New York Mercantile Exchange (NYMEX) and on the Intercontinental Exchange (ICE).  The Senator, who is the current chair of the Senate Energy and Natural Resources Committee, also asked for the agencies' cooperation in monitoring future market activity. 

At the heart of Senator Bingaman's concerns were price volatility seen at the end of January, as well as last fall's collapse of hedge fund Amaranth.  Amaranth, which had large positions in financial natural gas markets, lost hundreds of millions of dollars when it bet in the wrong direction on gas prices.  In the wake of the collapse, some at the company expressed concern that the markets had been subject to manipulation.  Senator Bingaman also cited a recent GAO report, which found that gas commodity prices have risen 190% since 1993 and that more of these costs are being passed on to end-use consumers. 

In his letter to Kelliher, Senator Bingaman asked how FERC can continue to find contract prices pegged to NYMEX price indices "just and reasonable" in light of this increased price volatility.  Senator Bingaman also highlighted the increased authority given to FERC by the Energy Policy Act 2005 to review transactions in financial markets, as well as the increased cooperation promised by FERC and the CFTC in an October 2005 Memorandum of Understanding.  The letter to CFTC focused additionally on whether ICE had been responsive to recent requests by CFTC for information related to the Amaranth collapse.

EEI, EPSA Endorse National Mandate on Greenhouse Gas Emissions

Last week EPSA and EEI became the first major energy trade groups to advocate a federal mandate to control greenhouse gas emissions.  Both groups' endorsements of national emissions  legislation are predicated on sets of guiding principles reflecting the interests of their members.  EPSA's statement indicated its concern that programs currently being implemented or developed in states across the country, with their differing and inconsistent demands, will present compliance difficulties for utilities and power generators.  EPSA hopes that a federal mandate will preempt the state programs and achieve consistency across states and regions.  At the same time, EPSA emphasized that national carbon control legislation should ensure that funding and incentives for carbon emission-reducing technology are available to industry participants on a competitive basis.  

EEI's new global warming principles represent a departure from EEI’s past opposition to carbon taxes and mandatory greenhouse gas emissions caps.  EEI's new policy advocates carbon legislation that ensures the development of a range of “climate-friendly” technologies, minimizes disruptions to consumers and the economy, and applies to all sectors of the economy, including transportation.  Beneath these general principles, however, EEI's membership remains divided on major issues such as how to allocate carbon emission allowances to electric utilities and other industrial emission sources. 

Neither industry group has endorsed any of the specific carbon control bills working their way through Congress.  Nor have they advocated for specific greenhouse gas reduction levels or timetables.  These statements of support for a national greenhouse gas emissions mandate, however, reflect a shift in industry thinking.  With increasing numbers of climate change-related bills before Congress, and the steady drumbeat of  demands that global warming be reversed ─ including EEI Chairman and Duke Energy President, Chairman, and CEO James Rogers' recently-announced support for the U.S. Climate Action Partnership ─  regulated utilities as well as generators have apparently concluded to take a seat at the table before negotiations approach end game.

California ISO Proposes Transmission Tailored to Renewable Energy

Picking up where one the state’s biggest utilities left off, the California Independent System Operator (CAISO) has proposed to FERC a new category of transmission that would facilitate development of renewable energy  ― particularly wind ― in regions short of adequate transmission capability.  If approved by FERC, the new type of transmission could bring on line further development of the productive Tehachapi region and help the state achieve its ambitious renewable portfolio standards. 

Driving the CAISO proposal is the fact that many of the most promising sites for wind energy development are far from existing transmission lines.  FERC’s transmission policies allocate most interconnection costs to the generator, which works against developers of remote wind farms.  The CAISO would lessen this entry barrier by allocating the initial costs of developing a multi-user interconnection line, or trunkline, to the regional transmission owner who, in turn, would recoup those costs over time through the CAISO’s transmission access charge.  Interconnecting generators would then pay their pro-rated share of the line’s costs once they start operations.  Other elements of the proposal are intended to limit cost impacts on ratepayers and ensure this type of transmission is used only for major projects.  

The proposal follows the efforts of Southern California Edison, which in 2005 sought FERC approval for rolling in the costs of a trunkline intended to allow interconnections with wind projects in the Tehachapi region.  In a split decision, FERC rejected the proposal on the grounds that the proposed roll-in did not benefit all transmission users, but there were indications that a proposal by the CAISO might be received more favorably. 

The leader in wind generation, Texas, has taken another path for developing needed transmission.  It will designate renewable energy development zones based on renewable energy potential, and then mandate transmission development from the zones to more populated areas.  Since most of Texas is not subject to FERC’s jurisdiction, however, that proposal did not require Washington's blessing.

Separately, FERC has been conducting a rulemaking to revise its Order 888 open-access tariff.  As part of the rulemaking, FERC has considered requiring transmitting utilities to offer a new category of conditional firm transmission service that would benefit wind and other intermittent sources of energy.  FERC is scheduled to discuss the rulemaking at its upcoming February ­­15 meeting and a final order will likely issue soon thereafter. 

Transco ITC Gets Boost from Alliant Sub's Voluntary Sale of Transmission Assets

With its decision to sell its transmission network to ITC Holdings Co. ("ITC"), Interstate Power & Light Company ("IP&L") ― a subsidiary of Alliant Energy ― became the first vertically integrated utility to volunteer to turn over its transmission assets to an independent transmission operator. 

ITC acquired its existing portfolio of transmission assets from utilities that had been ordered to divest them.  In contrast, IP&L's sale is based solely on perceived business interests.  IP&L has adopted the business strategy of avoiding heavy investment in transmission infrastructure while focusing on generation to meet growing Midwest power needs.  IP&L plans to use sale proceeds to finance new coal-fired and wind generation in Iowa.  Several other elements appear to have influenced IP&L's decision.  First, since ITC owns no generation, IP&L will not be competing with the transmission company for grid access.  Second, a hold-harmless clause in the sale agreement ensures that IP&L's retail customers will not experience increased rates due to the sale.   

California PUC Takes Steps Towards Reducing State's Emissions

In an effort to comply with a new state law limiting carbon dioxide and other greenhouse gas (GHG) emissions in California, on January 25 the California Public Utilities Commission (CPUC) adopted an interim Greenhouse Gas Emissions Performance Standard.  The interim standard requires the state's energy providers to source their power supply from plants that emit less than 1,100 pounds of CO2 per megawatt hour whenever they enter into any new or renewed power purchase commitments of five years or more.  That emission rate is equivalent to the CO2 emitted from a combined-cycle natural gas turbine.  Construction of new power plants and major investments by utilities in existing power plants would also be subject to the standard.  The interim standard will be in place until the CPUC can establish a permanent, enforceable load-based GHG emissions standard.

The CPUC's decision was seen as a challenge to traditional coal-fired generators whose CO2 emissions would not meet the interim standard, particularly those located outside the state that sell into California markets.  At present, California gets approximately 20% of its power from traditional coal plants that are located outside the state.  Clean coal plants with CO2 controls would be able to meet the interim standard.