Energy Legal Blog

Recent FERC Enforcement Efforts Reported

Tracy Davis — Mon, 17 Nov 2008 22:14:00 GMT

FERC's Office of Enforcement on November 6 released its "2008 Report on Enforcement," an annual report detailing FERC's enforcement program during the preceding fiscal year ending September 30. This report provides a statistical analysis of FERC's enforcement activities, including receipts of company self-reports and investigations opened by FERC staff. In a statement issued concurrently with this year's report, FERC Chairman Joseph Kelliher emphasized that the focus of FERC's enforcement program is on compliance, and the report is aimed at providing energy market participants with information to help them comply with applicable laws and regulations.

This year's report showed a significant jump in enforcement activity in 2008, with self-reports of violations more than doubling since 2007 (from 31 in 2007 to 68 in 2008), and with Office of Enforcement staff opening a significantly higher number of non-public investigations in 2008 than in 2007. The Staff entered into seven settlement agreements in 2008, which totaled more than $20 million in civil penalties. On an encouraging note — a note consistent with FERC assurances that it looks favorably upon self-auditors and self-reporters — the report showed that approximately 75% of the self-reports made in 2006 and 2007 were closed without any formal action or penalty assessment.

Better Markets Through Demand Response, Forward Contracting and Accountability

Tracy Davis — Mon, 27 Oct 2008 23:48:00 GMT

FERC issued a final rule October 17 to strengthen competition in organized wholesale electric markets. The rule (generally consistent with the proposed rule FERC issued last February) seeks to improve wholesale markets by establishing a more forceful role for demand response and long-term contracts in organized markets, strengthening market monitoring, and improving the responsiveness of regional transmission organizations' (RTO) and independent system operators' (ISO) to their customers.

• As to demand response, FERC directs each RTO/ISO to: accept bids for ancillary services from demand response resources; eliminate charges to buyers for voluntarily reducing demand during emergencies; permit market participants to aggregate retail demand responses (unless otherwise prohibited by state law); and allow market prices to reflect more accurately the value of energy during shortages, by adopting scarcity pricing to allow prices to rise during times of shortages and encourage an increase in supply. FERC also requires the RTOs/ISOs to assess and report on any remaining barriers to comparable treatment of demand response resources. Commissioner Suedeen Kelly dissented from the Commission's scarcity pricing decision, arguing her belief that before allowing scarcity pricing, FERC should ensure that the necessary generation and demand response infrastructure are in place to give consumers the ability to respond to higher prices.

• Because long-term contracts help market participants hedge against potential volatility in market prices and can help improve price stability, FERC urges more long-term contracting in organized markets. Finding there is no fundamental barrier to long-term contracts in organized markets, FERC sought to improve transparency in such contracting by requiring RTOs/ISOs to dedicate a portion of their websites to a transparent exchange of long-term sale offers and buy bids.

• To enhance the effectiveness of RTO/ISO market monitoring, the rule addresses the independence and functioning of RTO/ISO market monitoring units and information sharing. In apparent response to some of the difficulties faced by the PJM Interconnection and its market monitor last year, the final rule requires that market monitors report directly to RTO/ISO boards, as opposed to management. FERC also broadened market monitors' reporting duties by clarifying that market monitors must refer to FERC any instances of misconduct by the RTO or ISO, as well as by market participants, and by expanding market monitors' referral obligations to include perceived market design flaws.

• Finally, FERC sought to improve RTO/ISO responsiveness by requiring that they provide customers and other stakeholders with some form of direct access to their boards. FERC emphasized the importance of RTO/ISO boards being willingness to directly receive concerns and recommendations from customers and other stakeholders, and to consider fully and take action in response to such concerns and recommendations.

These reforms come on the heels of a report by the Government Accountability Office (GAO), issued last month, that questioned how well FERC has quantified the benefits of RTOs to electric consumers. Although not a direct response to the GAO report, the new rule appears aimed at some of the problems that have typically been identified with organized markets.

Fate of Ocean Power Projects Requires FERC and Interior Cooperation

Maria Urbina — Wed, 22 Oct 2008 21:50:00 GMT

Jurisdictional jockeying between FERC and the Department of Interior threatens development of Outer Continental Shelf (OCS) ocean power projects. The issue calls out for agency cooperation and possibly an interagency agreement similar to that between FERC and the U.S. Forest Service for licensing and permitting hydroelectric projects on Forest Service lands. Absent such cooperation, the matter will have to be resolved by the courts.

The dispute flared most recently when Pacific Gas & Electric Co. asked FERC to issue preliminary permits for two sites located partially in state waters and partially on the OCS. PG&E contemplates placing between 8 and 200 wave energy conversion devices in water with depths of 60 to 600 feet and delivering the energy from the two projects via underwater cables connected to the PG&E transmission grid. The two projects would each generate about 40 MW. FERC considers them hydroelectric projects because they generate electricity through ocean waves.

While Interior does not contest FERC's jurisdiction over such projects in state waters, it contends that FERC has no authority over the OCS sites. Interior argues that "navigable waters" (the touchstone for FERC jurisdiction) does not include waters beyond the 3 mile boundary of the U.S. territorial waters. Interior’s position derives from the definition of navigable waters in a number of statutes, including the Clean Water Act and the Rivers and Harbors Act of 1899. Rejecting this argument, FERC says the Federal Power Act (FPA) definition of navigable waters is broader and extends to "bodies of water over which Congress has jurisdiction" under the commerce clause, including OCS waters. FERC also asserts authority under the FPA to issue licenses for projects located on "lands and other interests in lands owned" by the U.S., again including the OCS.

By empowering Interior to lease the OCS for non-oil and gas energy sources, the Energy Policy Act of 2005 (EPAct 2005), according to Interior, made Interior the lead agency for OCS wave energy projects. Not so, says FERC, asserting EPAct 2005 limited Interior's authority to OCS activities not otherwise authorized by "other applicable law" and that hydro licensing is otherwise authorized by the FPA. No end to the debate is in sight.

Employee Function Replaces Corporate Separation as Cornerstone of FERC's New Standards of Conduct

Bill Wolf — Tue, 21 Oct 2008 20:54:00 GMT

The Federal Energy Regulatory Commission adopted revised Standards of Conduct (Standards of Conduct) for Transmission Providers ― both natural gas pipelines and electric transmission systems ― in its October 16 Order No. 717. The single largest change from earlier SC is replacement of corporate separation requirement adopted in 2003 with an “employee functional approach” that dates back to the original 1988 natural gas Standards of Conduct and the 1996 electric transmission Standards of Conduct. Order No. 717 will take effect 30 days after publication in the Federal Register, likely sometime in late November.

In order to prevent preferential access to natural gas pipelines and electric transmission systems, the Standards of Conduct originally separated employees engaged in transmission from others engaged in natural gas or electricity marketing and required them to operate independently of each other. In response to the unbundling of gas sales and transportation and the proliferation of electric power marketers, FERC in 2003 changed the Standards of Conduct to require a corporate separation of transmission employees not only from those in marketing, but also from employees broadly and ambiguously characterized as "energy affiliates." The found these changes difficult to implement and an obstacle to both competitive procurement and integrated resource planning. The natural gas industry sought judicial review, and a court invalidated the 2003 Standards of Conduct revisions on "energy affiliates" as to the natural gas industry. Order No. 717 responds to the natural gas and power industries' complaints and the court's decision by jettisoning the "energy affiliate" concept and reverting to separation of employees by transmission and marketing function and no longer requiring corporate separation.

In regard to merchant employees, FERC clarified that designation comprises only employees involved in natural gas or electricity sales. The Standards of Conduct do not apply to purchases and should therefore have not adverse effect on competitive procurement. And as to transmission employees, the Standards of Conduct apply only to employees involved in the day-to-day operation of pipelines or electric transmission systems; they do not apply to planning activities and therefore should not be a limitation on integrated resource planning, which has a long history in the electric power industry.

In addition to the adoption of the employee functional approach and the elimination of the concept of “energy affiliates,” Order No. 717 also made a variety of other clarifications to its Standards of Conduct regulations in response to industry comments. FERC’s hope is that the narrowing of the scope of its Standards of Conduct regulations will facilitate compliance. For that reason, the new Standards of Conduct is likely to take center stage in future FERC enforcement actions.

Boucher-Dingell Bill Would Have FERC Run Cap-and-Trade Carbon Market

Andrew McLain — Tue, 21 Oct 2008 18:03:00 GMT

If the "discussion draft" carbon cap-and-trade bill recently released by Congressmen John Dingell (D-MI) and Rick Boucher (D-VA) becomes law, then FERC would run the carbon market. Within FERC, the bill would create a new Office of Carbon Market Oversight possessing jurisdiction over brokers, dealers and certain others involved in carbon trading. The draft bill would amend the Federal Power Act to add provisions empowering FERC to regulate carbon markets. Noteworthy provisions of the bill include:

· Jurisdiction: FERC would obtain jurisdiction over both domestic and foreign transactions involving instruments — defined as emission allowances, offset credits, and instruments whose values derive from the prices of allowances or credits — not otherwise regulated by the Securities and Exchange Commission. Brokers and dealers, as well as entities seeking to serve as Carbon Clearing Organizations (CCO), would need to register with FERC. The Environmental Protection Agency (EPA) would have the authority to manage certain carbon off-set programs, as well as establish industry-specific emission standards for sources that emit less than 25,000 tons of CO2 per year.

· Cap: The bill would cover approximately 88 percent of sources of U.S. greenhouse gas emissions. It would require these sources to be responsible for reducing "covered emissions" to six percent below 2005 levels by 2020, 40 percent below 2005 levels by 2040, and 80 percent below 2005 levels by 2050.

· Market Monitoring: FERC would monitor price and market manipulation of regulated instruments, and would be charged with promulgating regulations to prevent excessive speculation in regulated instrument trading.

· Penalties: FERC would be authorized to assess civil penalties of $1 million per violation of the cap-and-trade law or up to three times the monetary gain obtained as a result of the violation. FERC would also be the ultimate arbiter of decisions to suspend or expel certain participants in carbon trading activity.

· Preemption: The bill would explicitly preempt state and local initiatives to regulate GHG, such as the Regional Greenhouse Gas Initiate (RGGI) that is implementing a mandatory carbon dioxide cap-and-trade program in the Northeast and Mid-Atlantic states.

One might fairly ask what expertise or special competence FERC brings to running a carbon market. Only some of the emission sources are energy utilities that FERC historically has regulated. Why not instead the EPA, with its expertise in administering the Clean Air Act? Alternatively, in recognition that carbon allowances may need to trade internationally, comparable to currency, why not the Department of the Treasury? Some suggest that the answer is politics. By selecting FERC, representatives Dingell and Boucher appear to take jurisdiction over the program away from the Senate Committee on the Environment and Public Works, chaired by Sen. Barbara Boxer (D-CA), and transfer it to the Senate Committee on Energy and Natural Resources, chaired by Sen. Jeff Bingaman. Sen. Bingaman is on record favoring less aggressive carbon controls less than Sen. Boxer, a position more in sync with the Boucher-Dingell discussion draft.

Congressmen Dingell and Boucher have stressed that their "discussion draft" is aptly named; it is a draft only, and it is meant to stimulate discussion. Indeed, the bill contains blanks on some fundamental elements. For example, it proposes—and asks for comment—on four different mechanisms for allocating emissions allowances, running the gamut from free allocations to auctions.

FERC Issues Policy Statement on Compliance

Amanda Frazier — Tue, 21 Oct 2008 20:04:00 GMT

The Federal Energy Regulatory Commission (FERC) revised its Policy Statement on Compliance October 16. The revision posits four factors FERC will take into account when considering whether to reduce or eliminate civil penalties for violations: (1) The role of senior management in fostering compliance; (2) Effective preventative measures to ensure compliance; (3) Prompt detection, cessation, and reporting of violations; and (4) Remediation efforts.

FERC adopted a "compliance credit" approach resembling that of the Securities Exchange Commission and the Federal Sentencing Guidelines. Where a violation is not serious (does not involve significant harm or damage to the integrity of FERC's regulatory program), and the company has all 4 elements of vigorous compliance in place, FERC may then reduce a company's penalty to zero.

Energy Beneficiaries of Economic Stimulus Package

Andrew McLain — Mon, 13 Oct 2008 15:16:00 GMT

The Energy Improvement and Extension Act of 2008 embedded in the economic stimulus legislation (H.R. 1424) that President Bush signed into law on October 3, 2008, provides nearly $17 billion in various tax credits to promote clean power generation technologies, alternative fuels, renewable energy and energy efficiency.

Renewable Energy Initiatives

While the 2008 Act provides notable incentives for investments in several emerging technologies such as hydrokinetics, fuel cells, geothermal and open-loop biomass facilities, solar and wind emerged as the biggest winners. For commercial-scale wind power producers, the Act provides a brief, although relatively costly, extension of the production tax credit as well as a variety of incentives for microturbines and residential-scale wind projects. For the solar industry, the Act extends the existing 30 percent investment tax credit for solar energy facilities and, perhaps most notably, eliminates the cap on the existing 30 percent tax credit for investments in residential solar.

Extension and Expansion of PTC — Section 45 of the Tax Code allows a production tax credit (PTC) for "qualified facilities" that generate electricity from "qualified energy resources." The 2008 Act expanded the definition of "qualified energy resources" to include "marine and hydrokinetic renewable energy." As a result, energy derived from marine resources such as waves, tides, and temperature differentials are now eligible for the PTC. The Act also expands the definition of "open-loop biomass facility," "trash combustion facility," and the definition of "non-hydroelectric dam."

The 2008 Act extends the PTC for commercial wind by one year for facilities placed in service by January 1, 2010. The Act also extends the PTC for other types of qualified facilities such as biomass, geothermal, solar, small irrigation and landfill gas, for two years, to January 1, 2011 and for marine and hydrokinetic energy facilities until 2012.

Long-Term Extension of Energy Property Tax Credit — Section 48 of the Tax Code provides tax credits (in addition to the PTC) for investments in energy property. The 2008 Act expands the scope of qualified energy property, removed or raised the caps on this tax credit, and extended the sunset for the credit in certain instances. Specifically, the Act extends through 2016 the 30 percent tax credit for investments in solar energy property and fuel cell property and the 10 percent tax credit for commercial microturbines. The Act amends the definition of energy property to provide a new 10 percent investment tax credit for combined heat and power sources and geothermal equipment that uses ground water for heating or cooling purposes. The Act also increases the tax credit available for investments in qualified fuel cells from $500 to $1,500 per half KW.

Long-Term Extension and Modification of the Residential Energy-Efficient Property Tax Credit — Section 25D of the Tax Code allows for a 30 percent credit for investments in residential solar and fuel cell properties. The 2008 Act extends through 2016 the credit available for solar property and adds residential small wind and geothermal heat pumps as qualifying property. Significantly, the Act eliminates the $2,000 cap on the 30 percent tax credit available for solar facilities; the credit can now be applied to the total cost of photovoltaic solar facilities.

For other facilities, the following caps continue to limit the available tax credits:

· $2,000 for solar water heating;

· $500 for each half KW of capacity of qualified fuel cell property;

· $500 for each half KW of capacity of wind turbines for which qualified small wind energy property expenditures are made (up to $4,000); and

· $2,000 for any qualified geothermal heat pump property.

Energy Conservation and Efficiency Initiatives

The 2008 Act offers states and municipalities, homeowners, contractors, as well as the commercial and manufacturing sectors financing and tax credit incentives for improving energy efficiency. Although the Act did not pick one industrial sector or clean technology as a clear winner, certain sectors faired better than others.

Among the biggest beneficiaries are producers of energy-efficient appliances (e.g., stoves and water heaters) as well as producers of smart meters and smart grid systems. For example, the Act extends until 2009 existing tax credits for homeowner investments in energy-efficient appliances and extended until 2013 the existing tax credit for the costs of energy-efficient property installed in commercial buildings. The combined value of these tax credits is nearly $2 billion. The Act also:

· Creates a new category of bonds to finance State and local initiatives to reduce greenhouse gas emissions;

· Extends the credit contractors receive for building new homes that achieve 30 to 50 percent reduction in cooling and heating energy consumption relative to comparable homes;

· Modifies and extends the tax credit manufacturers receive for producing energy-efficient appliances such as dishwashers, washing machines, and refrigerators;

· Accelerates depreciation (10 years) for utility investments in smart meters and smart grid systems; and

· Extends and modifies the qualified green building and sustainable design project bond.

Coal Projects and Coal Gasification Investment Credits

The 2008 Act provides new tax credits in section 48A of the Code for qualifying advanced coal electricity projects and in section 48B of the Code for qualifying coal gasification projects that demonstrate the greatest potential for carbon capture and sequestration. Credits are to be awarded through an application process, with priority given to projects demonstrating the greatest CO2 sequestration. To be considered qualifying, an advanced coal electricity project must capture at least 65percent of the facility's CO2 emissions and a coal gasification project must capture and sequester at least 75 percent of the CO2 emissions.

Carbon Dioxide and Sequestration Tax Credit

New Section 45Q to the Tax Code provides tax credits for qualifying CO2 sequestration facilities. The Act provides a $20 credit per ton of CO2 captured and transported from an industrial source for permanent storage in a geologic formation and a limited $10 credit per ton for CO2 captured and transported from industrial sources for use in enhanced oil recovery. Qualifying facilities must capture at least 500,000 metric tons of CO2 per year.

Plug-in Electric Vehicle and Bike Credit

The Act offers a new tax credit in section 30D of the Code ranging from $2,500 to $7,500 for the purchase of the first 250,000 plug-in electric vehicles. It also proposes a refueling property credit for alternative fuel vehicles and adds electricity to the type of fuel qualifying for the credit. New section 30C of the Tax Code grants a 30 percent credit for the cost of refueling property placed into service during the year up to $30,000 for properties subject to depreciation and $1,000 otherwise.

Commuting by bike is also encouraged. The 2008 Act allows employers to provide fringe benefits of up to $20 a month to employees who bike to work. Bicycle commuters may spend the benefits on maintaining, repairing or buying bicycles.

Alternative Fuels Credit

The alternative fuels tax credit under section 6426 of the Tax Code is extended through December 31, 2009, for all fuels except hydrogen. Alternative fuels are considered compressed or liquefied gas derived from biomass; liquefied petroleum gas; compressed or liquefied natural gas; liquefied hydrogen; liquid fuel derived from coal and liquid hydrocarbons derived from biomass.

GAO Report Urges FERC to Be More Specific on Costs, Benefits of RTO Membership

Tracy Davis — Thu, 09 Oct 2008 13:47:00 GMT

The Government Accountability Office (GAO) issued a report to Congress on September 26 urging FERC to take additional steps to analyze the benefits and performance of the Regional Transmission Organizations (RTOs) that manage regional transmission grids. FERC's development of RTOs has been controversial from the beginning, with many arguing that they ultimately increase electricity prices. Highlighting this debate, the GAO stated: "Many agree that RTOs have improved the management of the transmission grid and improved generator access to it; however, there is no consensus about whether RTO markets provide benefits to consumers or how they have influenced consumer electricity prices. . . ." The GAO specifically criticized FERC's failure to develop standardized measures to track RTO grid operator performance, finding that this failure bred uncertainty about the benefits of RTO membership and led to missed opportunities for FERC to direct improvements in RTOs' operations and markets.

In its analysis, the GAO discussed several areas in which it found FERC's oversight of RTOs to be lacking and offered recommendations. Specifically, the GAO concluded that FERC does not adequately review RTO financial reports and budgets. To remedy this, the GAO urged FERC to develop a consistent approach for reviewing RTO budgets, including routine assessments of the accuracy, completeness, and reasonableness of the financial reports that RTOs submit to FERC.

The GAO also determined that FERC has failed to undertake a comprehensive review of broader RTO performance and benefits, and that this failure resulted in missed opportunities for developing new market rules and improvements in RTO operations. The GAO suggested FERC work with RTOs, stakeholders, and other interested parties to develop measures to track grid operations and markets. FERC should also submit an annual report to Congress describing its review and identifying any changes that should be made to address performance concerns.

In response to the report, FERC Chairman Joseph Kelliher generally agreed with many of the GAO's recommendation, in particular, that FERC should increase its review of RTO performance and costs. Chairman Kelliher noted that FERC Staff is evaluating possible approaches for implementing the GAO's recommendations and that FERC plans to perform periodic audits of financial information in RTOs' financial reporting forms (FERC Form No. 1). Chairman Kelliher did push back on the GAO's assessment that RTOs stand in a "position of greater public trust" than other public utilities, stating there is no policy reason to view RTOs differently than public utilities.

Demand “Very Strong” in Nation's First Carbon Allowance Auction

Andrew McLain — Fri, 03 Oct 2008 15:12:00 GMT

Despite the market turmoil and liquidity concerns on Wall Street in recent weeks, the nation's first government-run auction of carbon dioxide emissions allowances met with "very strong demand," according to the coalition of ten states, the Regional Greenhouse Gas Initiate (RGGI), that is implementing a mandatory carbon dioxide cap-and-trade program in the Northeast and Mid-Atlantic United States. The next auction will take place on December 17, 2008.

On September 29, 2008, RGGI announced that its first carbon allowance auction had generated approximately $38 million in revenues for six of the ten RGGI states that participated in the auction—Connecticut, Maine, Maryland, Massachusetts, Rhode Island, and Vermont. RGGI reported that the 59 participants represented diverse interests from across financial, energy, and environmental sectors. Demand was so strong that participants sought to purchase nearly four times the number of allowances available for sale at the auction. The price of allowances reflected this demand, with the 12,565,387 available allowances selling at a market clearing price of $3.07 per allowance. This figure is reported to be approximately 65 percent above RGGI's predetermined minimum floor price of $1.86, or 80 percent of the modeled 2009 allowance price.

PJM’s RPM Dodges Buyers' Bullets However Well Aimed

Maria Urbina — Tue, 23 Sep 2008 14:45:00 GMT

FERC stopped a rebellion of PJM Interconnection power buyers in a September 19 order that rejected their complaint against PJM's reliability pricing model (RPM) capacity obligation and auction. A motley crew of buyers and their representatives — coops, state commissions, the Department of Defense and other federal agencies, industrial and consumer advocates — had argued that recent phase-in auctions of capacity through the 2009-2010 delivery period occurred in a non-competitive market and produced unjust and unreasonable prices for that capacity. Not so, the agency ruled, rejecting the complainants' demand that it reset the price results of the already completed auctions. The phase-in ended in May when PJM concluded the first of five RPM auctions for delivery a full three years into the future in 2011-2012.

FERC opened with an acknowledgement that RPM complainants and apologists alike had presented expert testimony on whether RPM was working. Then it proceeded to reduce the complainants’ arguments to implementation angst: introducing a new system in such a hugely capital-intensive industry with long lead times will produce some surprises and some regrets, but so what? So long as PJM cleaved to the approved tariff, its regulator FERC was not going to change the auction results retroactively. And without better evidence of a problem or tariff violations, FERC is not going to make prospective changes either. FERC did, however, direct PJM to convene a conference of market participants to discuss how RPM can be improved.

FERC’s decision not to reopen the completed auctions was the right decision legally. It was also sound regulatory policy. Changing the results of an approved and completed program would defeat the settled investment-backed decisions and expectations of those who bid into the auction as well as those who elected to commit their resources elsewhere. But what should not be overlooked is that a number of the RPM buyers’ complaints were well founded. These include:

PJM's dreadfully slow process for studying generator interconnection requests prevented some generators from participating in the transition auctions.
PJM imposed on the load servers within its control area a capacity requirement equal to a gold-plated loss of load expectation of once in 25 years whereas most other control areas have traditionally used once in 10 years.
PJM ignores local load reduction programs in developing capacity requirements, even though consumers are paying for those programs in addition to RPM capacity payments.

Additional criticisms of RPM have been leveled by the Brattle Group, a consultant that PJM hired to evaluate the effectiveness of the RPM auctions. In addition to the buyer criticisms above, Brattle and sellers of both generation and demand resources have rightfully objected to PJM's practice of assuming in forward auctions the completion of transmission additions and expansions that can affect price even before they have been granted all need authorizations.

FERC Seeks Industry Input on Uniform Definition of "Affiliate"

Tracy Davis — Mon, 08 Sep 2008 16:13:00 GMT

Seeking to clear up an apparent inconsistency in the definition of an "affiliate" in its regulations, on August 29 FERC issued an order asking for the industry's input on a uniform definition of "affiliate" for purposes of the agency'smarket-based rate program. There are currently two differing definitions for affiliate: For companies that qualify as Exempt Wholesale Generators (EWG), a company or person is considered an affiliate of the EWG if it owns or controls 5% or more voting interest in the EWG. For non-EWG companies, the current affiliate threshold is 10%.

FERC had reiterated this distinction in its Order No. 697-A, issued April 21, 2008. Several interests requested rehearing, arguing that the inconsistency unnecessarily placed disparate burdens on companies that hold EWGs. These parties also argued that, although the Federal Power Act requires FERC to use a 5% threshold for certain transactions involving EWGs, FERC is not required to use the 5% threshold for a general assessment of market power or market concentration. In its order, FERC appeared to agree, and proposed to adopt a single definition of affiliate, with the 10% threshold, that would apply to both EWGs and non-EWGs. Comments on this issue are due October 20.

FERC Revisits Who in PJM Is Going to Pay for Transmission Upgrades

Bill Wolf — Wed, 03 Sep 2008 14:40:00 GMT

FERC conditionally approved a contested settlement on the allocation of transmission owner costs for projects approved through the regional transmission expansion plan (RTEP) of PJM Interconnection, LLC. The settlement directs how PJM will allocate the transmission owners’ costs of RTEP upgrades that operate below 500 kV among PJM members through a "beneficiary pays" approach. That approach will allocate the cost of a transmission upgrade in proportion to how much the load in each of PJM's transmission zones is determined to benefit from the upgrade. The settlement does not, however, address cost allocations of merchant transmission facilities. The settlement includes a three-year moratorium for revisiting these cost allocation issues.

Further litigation likely will contest how the costs of merchant transmission facilities should be allocated.

FERC Authorizes NYISO to Halt Circuitous Scheduling Around Lake Erie

Tracy Davis — Wed, 27 Aug 2008 19:34:00 GMT

On August 21, FERC issued an order accepting the New York ISO's (NYISO) emergency revisions to its tariff to prohibit certain scheduling practices around Lake Erie. In its order, FERC approved the NYISO's use of temporary action to reduce unscheduled power flows and directed that NYISO continue to work with market participants, neighboring ISOs, and the North American Electric Reliability Corporation (NERC) to develop longer-term solutions. FERC also noted that its Office of Enforcement has been investigating Lake Erie scheduling since May.

According to NYISO's July 21 filing, the offending scheduling practices allowed market participants to take advantage of pricing differences between NYISO and neighboring PJM. NYISO also argued that the circuitous scheduling resulted in market distortions, and increased congestion and uplift charges. However, NYISO argued that the scheduling behavior was not technically prohibited by its tariff; thus, NYISO proposed a set of tariff revisions that would allow the grid operator to stop roundabout scheduling in the short-term. FERC approved those revisions, which will take effect beginning July 22 through November 18, 2008.

NYISO's proposal is controversial, drawing fire from market participants, but support from customers, neighboring ISOs, and state officials. In a letter filed with FERC on August 12, Senator Charles Schumer (D-NY) estimated the improper congestion costs to be between $240-290 million and demanded that FERC investigate any possible links between the loop flow issues and New York consumers' spiking electric bills. FERC's continuing investigation will ensure that the issue remains at the forefront of the agency's and NYISO's agendas.

PG&E Announces Plans to Buy 800 MW of Solar Power

Tracy Davis — Tue, 19 Aug 2008 14:24:00 GMT

One of the largest utilities in California, Pacific Gas and Electric Company ("PG&E"), has signed two contracts to purchase up to 800 MW of power from two new solar plants that will be constructed by photovoltaic (PV) systems manufacturers, OptiSolar, Inc. and SunPower Corp., on the Carrizo Plain in San Luis Obispo County, California. Once completed, the new plants will dwarf existing solar plants' generating capacity. The deal has been heralded by industry observers as a momentous step forward for the development of large-scale solar projects. However, both agreements are contingent upon renewal of the federal investment tax credit, which is currently stalled in Congress.

Under the agreements, PG&E will purchase 550 MW of solar power from Topaz Solar Farms LLC (owned by OptiSolar), and another 250 MW of solar power from High Plains Ranch II LLC (owned by SunPower). The OptiSolar plant is expected to come on-line in 2012, and the SunPower plant expects to begin delivering power in 2010 and to be fully operational by 2012. While the companies will use different PV technology, both plan to deliver solar power to PG&E at prices comparable to other forms of renewable energy, although the exact prices were not disclosed publicly. PG&E will use the solar power to satisfy California's substantial renewable portfolio standard, which requires the state's utilities to obtain 20% of their power from renewable energy by 2010.

Texas Commission Selects Plan to Deliver Wind Power from Competitive Renewable Energy Zones

Amanda Frazier — Mon, 28 Jul 2008 21:22:00 GMT

The Texas Public Utility Commission (PUCT) recently selected one of the four transmission scenarios that the Electric Reliability Council of Texas (ERCOT) proposed for bringing a total of 18,456 MW of wind power from West Texas and the Texas Panhandle. The approved plan will deliver slightly more power and is more costly than the plan ERCOT initially recommended to the PUCT. It is expected that the new transmission facilities will cost Texas ratepayers $4.93 billion, and will take between four and five years to construct.