June 2008
From the editors of Wolters Kluwer Law & Business, this update describes
important developments from CCH energy publications.
If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to pamela.maloney@wolterskluwer
Nuclear Power
Yucca Mountain License Application
Submitted by DOE
The U.S. Department of Energy
(DOE) has submitted a license application (LA) to the U.S. Nuclear Regulatory
Commission (NRC) for authorization to construct America’s first
repository for spent nuclear fuel and high-level radioactive waste at
Yucca Mountain, Nevada. The NRC will conduct an initial review to determine
whether to accept the application for formal review. The licensing process,
pursuant to the Nuclear Waste Policy Act and NRC regulations, is scheduled
to be conducted over a three-year period. The 8,600 page application describes
DOE’s plan to safely isolate spent nuclear fuel and high-level waste
in tunnels deep underground at Yucca Mountain. Currently, the spent fuel
is stored at 121 temporary locations in 39 states. The LA is accompanied
by a Final Environmental Impact Statement, as well as approximately 200
key supporting documents.(CCH Nuclear Regulation Reporter,
Report No. 1394, June 10, 2008)
Lower NRC Inspection and Licensing
Fees Approved for 2008
Generally lower licensing and
inspection fees for applicants and licensees have been approved by the
Nuclear Regulatory Commission for 2008. NRC is required to recover almost
all of its budget authority (90 percent this year)—minus the $29
million appropriated from the Nuclear Waste Fund for high-level waste
activities. The total amount to be recovered for fiscal year 2008--$779.1
million—is approximately $110 million more than last year. After
accounting for carryover and billing adjustments, to total amount to be
collected as fees is approximately $760 million. The two professional
hourly rates previously charged by the agency for licensing and inspection
services have again been replaced with one hourly rate of $238 for activities
in both the nuclear reactor safety program and the nuclear materials and
waste safety program. This represents a 7.7 percent decrease from the
2007 hourly rate of $258. The annual fees paid by licensees are generally
lower this year as well, although most power reactor licensees will have
to pay $4,167,000 in annual fees for 2008, up from last year’s $4,043,000.
The new fees take effect August 5 and will be reflected in full text at
that time. (CCH Nuclear Regulation Reporter, Report No.
1394, June 10, 2008)
FERC
FERC’s Policy Statement on Enforcement
Clarified
The Federal Energy Regulatory
Commission’s Policy Statement on Enforcement has been revised by
the Commission to give the public and the regulated community a fuller
picture of how its investigative process works, including the considerations
enforcement staff takes into account in determining whether to open an
investigation and, once opened, whether to close it without further action
or to recommend sanctions. The statement also sets forth in detail the
factors the Commission considers in determining whether a penalty is appropriate,
and, if so, the amount of the penalty. The Commission may impose civil
penalties of up to $1 million per day per violation of the Natural Gas
Act, the Natural Gas Policy Act, and the Federal Power Act. Penalties
will be determined on a case-by-case basis so that each case can be addressed
on its merits. In determining the seriousness of an offense, the Commission
will consider a number of factors, including: the harm caused by the violation,
particularly if it involved loss of life or personal injury; whether the
violation was the result of deceit and whether it was a repeat offense.
The Commission will also consider if there was harm to the efficient and
transparent functioning of the market. (Revised Policy Statement on
Enforcement, 123
FERC ¶61,156 (ip
access user)
Order to Show Cause Rights Expanded
As part of a number of actions
designed to strengthen its enforcement program, the Federal Energy Regulatory
Commission has issued a final rule clarifying the rights of entities against
whom the Commission’s Office of Enforcement Staff has sought an
order to show cause. The rule states that Enforcement Staff, in all but
extraordinary circumstances, will notify the entity when it intends to
seek an Order to Show Cause. The subject will then have 30 days to respond,
and the response will be presented to the Commission together with Enforcement
Staff’s memorandum requesting an Order to Show Cause, both of which
will be non-public documents. The Commission’s rule amends its regulations
to expand and clarify the right of an entity to submit a written response
to the Commission in the event Staff intends to recommend that FERC initiate
a proceeding governed by the Commission’s Rules of Practice and
Procedure or make the entity a defendant in a civil action to be brought
by the Commission. Currently, that right is available to subjects of investigations
only in the latter instance, and then, only in the event that Staff finds
it appropriate and in the public interest. The amendment grants the right,
for both types of proceedings, in all cases except those in which extraordinary
circumstances make prompt Commission review necessary to prevent detriment
to the public interest or irreparable harm. The changes codify current
Staff practice regarding recommendations for orders to show cause. The
Commission states that the changes will allow subjects of investigations
a fuller opportunity to present their positions to the Commission. (CCH
FERC Statutes and Regulations Edition ¶31,270
(ip
access user))
Electric Utilities
High Court Requires FERC To Review
California Power Contracts
The Federal Energy Regulatory
Commission (FERC) must presume that the rates for electricity set in a
freely negotiated wholesale-energy contract met the “just and reasonable
requirement” of the Federal Power Act and that presumption, known
as the Mobile-Sierra doctrine, could be overcome only if FERC concluded
that the contract seriously harmed the public interest, the U.S. Supreme
Court ruled in Morgan Stanley Capital Group, Inc. v. Public Utility District
No. 1 of Snohomish County (Dkt. No. 06-1457). The high court's decision
affirmed and remanded the U.S. Court of Appeals for the Ninth Circuit's
decision in Public Utility District No. 1 of Snohomish County v. FERC
[CCH Utilities Law Reporter ¶14,625]. The Supreme Court's decision
reversed the Ninth's Circuit's finding that contract rates were presumptively
reasonable only when FERC has had an initial opportunity to review the
contracts without applying the Mobile Sierra presumption, and therefore,
that the presumption should not apply to contracts entered into under
“market-based” tariffs. FERC had initially determined that
the presumption applied and that the contracts did not seriously harm
the public interest. However, the Court did affirm the Ninth Circuit's
decision on alternate grounds, finding two defects in FERC's analysis:
(1) the analysis was flawed or incomplete to the extent that FERC looked
simply to whether consumers' rates increased immediately upon the conclusion
of the relevant contracts, rather than determining whether the contracts
imposed an excessive burden “down the line,” relative to the
rates consumers could have obtained (but for the contracts) after the
dysfunctional market that existed in 2000-2001 in the western United States;
and (2) it was unclear from FERC's orders whether it found adequate evidence
to support the claim that the petitioners engaged in unlawful market manipulation
that altered the playing field for contract negotiations. Under these
circumstances, the high court found that FERC should not presume that
a contract was just and reasonable. (CCH Utilities Law Reporter,
Report No. 1474, June 30, 2008)
Settlement for Redesigned ISO's Capacity
Market Upheld
The Federal Energy Regulatory
Commission's (FERC) approval of a comprehensive settlement agreement that
redesigned an independent system operator's (ISO) capacity market was
not arbitrary and capricious or contrary to law, the U.S. Court of Appeals
for the District of Columbia Circuit held. The key feature of the settlement
agreement was the “Forward Capacity Market,” under which there
would be annual auctions for capacity to be held three years in advance
of when the capacity was needed. The settling parties agreed that a three-year
lead time would provide for a planning period for new entry and allow
potential new capacity to compete in the auctions. A three-year gap between
the first auction and the time when the capacity procured in this auction
was addressed by the parties by negotiating a series of fixed payments
to be paid to generators during the transition period (“transition
payments”). The court concluded that FERC's finding that the transition
payments fell within a reasonable range of capacity prices was a reasoned
decision supported by substantial evidence. (Maine Public Utilities
Comm'n v. FERC (DCCir) CCH Utilities Law Reporter ¶14,962)
FERC's Bandwidth Remedy for Entergy's
System Upheld
The Federal Energy Regulatory
Commission's (FERC) decision to impose a bandwidth remedy, under which
the production costs of the five operating companies of a public utility
holding company, Entergy Corporation, must be “roughly equalized”
in a +/- 11 percent bandwidth around the holding company's power system
average each year, was not arbitrary or capricious, the U.S. Court of
Appeals for the District of Columbia Circuit ruled. Substantial evidence
in the record (i.e., large disparities of production costs existed among
the operating companies) supported FERC's finding that system costs were
out of “rough equalization” and needed correction. Moreover,
the court said that it owed FERC great deference in its selection of a
remedy, and that FERC had not abused its discretion in arriving at the
selection of a +/- 11 percent bandwidth. The court also ruled that substantial
record evidence supported FERC's decision that the Vidalia hydropower
plant in Vidalia, Louisiana should not be treated as a system resource
for Entergy's system in the calculation of the bandwidth remedy. Finally,
the court granted petitions for review by the Louisiana Public Service
Commission (LPSC) on two issues: (1) whether FERC acted arbitrarily in
declining to order retroactive refunds for the cost disparities that Louisiana's
ratepayers experienced when Entergy's power system was not in “rough
equalization;” and (2) whether FERC impermissibly delayed the implementation
of the bandwidth remedy it ordered imposed on the Entergy power system.
The court remanded these matters back to FERC for further proceedings
consistent with its opinion. (Louisiana Public Service Comm'n v. FERC
(DCCir) CCH Utilities Law Reporter ¶14,695)
PJM Energy Offer Price Mitigation Exemptions
Removed by Commission
A request from the Maryland
Public Service Commission (PSC) that the Commission remove certain market
rule provisions exempting certain generation resources on PJM Interconnection,
LLC’s (PJM) system from energy offer price mitigation was accepted
by the Commission. Under PJM’s rules, a generator is subject to
offer price mitigation whenever a transmission constraint arises that
fails a market power screen and PJM is required to commit the unit out
of merit. Exempted from the general rule are: generation resources used
to relieve limits on certain interfaces, which include the West, Central,
and East in the Mid-Atlantic Area Council (MAAC) control zone (interface
exemptions), and the AP South interface; and generation resources that
were built between April 1, 1999, and September 30, 2003 (construction
exemptions). In its complaint, the Maryland PSC argued that the mitigation
exemptions were preferential, discriminatory, and produced unjust and
unreasonable energy prices. The Commission agreed that the construction
and interface exemptions in PJM’s tariff had become unjust and unreasonable
because of changes in the PJM market, and that eliminating them and applying
the same mitigation measures to all generators was just and reasonable.
However, the Maryland PSC’s request for retroactive relief was denied
because there was no evidence that PJM violated its tariff. (Maryland
Public Service Comm. v. PJM Interconnection, L.L.C., 123
FERC ¶61,169 (ip
access user))
ISO’s Capacity Allocation Practices
Upheld
A complaint by Cargill Power
Markets, LLC, alleging that Central Maine Power Company, New England Power
Company, NSTAR Electric Company, The United Illuminating Company (collectively,
the Companies), and ISO New England Inc. had improperly processed certain
transmission requests was denied by the Commission. Cargill and three
other companies had submitted a transmission service request over the
interconnection between the Hydro-Quebec TransEnergie in Canada and ISO
New England, Inc. for service. Because the amount of service requested
exceeded the capacity of the interconnection, the nine transmission providers
in New England who are Interconnection Rights Holders (including the Companies)
allocated the capacity according to their business practices. Cargill
was awarded only 176 MW of capacity instead of the 597 MW it requested.
Cargill argued that the transmission queue should be reallocated under
the first-come, first-serve provisions of the tariff, in which case it
would receive 264 MW, rather than receiving 176 MW as its pro rata share.
The Commission disagreed, stating that the ISO was required to abide by
the provisions of Order No. 890 [CCH FERC Statutes and Regulations,
Regulations Preambles 2006-2007 ¶31,241
(ip
access user)] as of October 11, 2007. The Commission noted that Cargill
had not demonstrated it had suffered economic harm from its reduced allocation
of capacity, and reallocating the queue as Cargill requested would cause
actual harm to third parties who have relied upon capacity they were awarded.
(Cargill Power Markets, LLC v. ISO New England Inc., et al.,
123
FERC ¶61,132 (ip
access user))
Hydroelectric Power
FERC Properly Enforced Hydro Project
License
The Federal Energy Regulatory
Commission's (FERC) enforcement of a license granted to an operator of
a hydroelectric project after finding that the operator violated the license
by granting a developer an easement for a wastewater discharge pipe and
permission to build a seawall was reasonable and in accordance with law,
the U.S. Court of Appeals for the District of Columbia Circuit held. FERC
ordered that construction of the seawall cease and that the project operator
take detailed steps to mitigate the harm already caused. Lot owners, homeowners,
and residents (Petitioners) of a historic resort and district that bordered
the lake on which the hydroelectric project was located challenged FERC's
decision, alleging that FERC violated the National Environmental Policy
Act (NEPA), the National Historic Preservation Act (NHPA), and the Clean
Water Act (CWA). According to the court, FERC's responsibilities with
respect to the discharge pipe and the seawall extended no further than
to its obligations under the license it granted to the project operator.
The court rejected the argument that NEPA required FERC to prepare an
environmental impact statement of the installation of the discharge pipe
and construction of the seawall; ruled that FERC fully met its responsibilities
under the NHPA; and rejected the allegation that FERC violated the CWA.
Finally, the court ruled that FERC provided ample notice and opportunity
to Petitioners to participate in proceedings relating to FERC's enforcement
of the license. (Duncan's Point Lot Owners Ass'n Inc., et al. v. FERC
(DCCir) CCH Utilities Law Reporter ¶14,693)
Hydro Facility Owner's Suit Barred
by Statute of Limitations
An action by the owner of three
small qualifying hydroelectric facilities (QFs) to reverse a decision
by the New Hampshire Public Utility Commission (PUC) to rescind the final
10 years of a 30-year rate schedule applicable to the QFs was barred by
the statute of limitations, the U.S. Court of Appeals for the First Circuit
held. The court reversed the district court's ruling granting summary
judgment to the owner and enjoining the PUC from enforcing the rescission
order and the subsequent orders denying reconsideration. According to
the appellate court, the owner's seventeen-year delay in challenging the
PUC's order modifying the rate schedule from 30 to 20 years did not comply
with the applicable limitations period, which, because the federal statute
did not contain a statute of limitations, was the most analogous statute
of limitations in the state where the action was brought—here, a
New Hampshire law claim of tortious interference with contractual relations.
Such claims were governed by New Hampshire's general three-year statute
of limitations. The owner's claim accrued in 1988 when the New Hampshire
Public Utilities Commission turned away the owner's challenge to the PUC's
rescission order. Therefore, the court said, the three-year limitations
period began running in 1988, but no action was brought by the owner until
2005. (Greenwood v. New Hampshire Public Utilities Comm'n (1stCir)
CCH Utilities Law Reporter ¶14,696)
Oil & Gas
Bush Urges End of Off-Shore Drilling
Ban
By Paula Cruickshank,
CCH White House Correspondent
President Bush on June 18 urged Congress to end the federal ban
on Outer Continental Shelf oil drilling, allow oil exploration in the
Artic National Wildlife Refuge (ANWR) and adopt measures to increase refinery
capacity and tap into oil shale. The president acknowledged that none
of these proposals would help to reduce gasoline prices or lessen U.S.
dependency on foreign oil in the short run. Expanding access to off-shore
oil production could produce an estimated 18 billion barrels of oil, Bush
noted. The White House argued that advances in technology would make it
possible to conduct oil exploration in an environmentally responsible
way. The president urged federal lawmakers to pass legislation lifting
the federal ban and giving states the option to drill off their coasts.
Once Congress lifts the legislative ban, Bush said he would end an executive
ban against off-shore drilling. He also urged Congress to establish a
form of revenue-sharing between the federal government and states from
new oil leases. (CCH Utilities Law Reporter, Report No.
1473, June 16, 2008)
House Votes on Energy Speculators,
Oil & Gas Leases
By Sarah Borchersen-Keto,
CCH News Bureau Staff Writer
The House of Representatives
voted 402 to 19 to pass the Energy Markets Emergency Act of 2008 (H.R.
6377), which allows the Commodity Futures Trading Commission (CFTC) to
utilize its authority, including its emergency powers, to curb the role
of excessive speculation in energy futures markets. House Speaker Nancy
Pelosi (D-Cal.), said that she has written to President Bush calling on
him to direct the CFTC to use its emergency powers to take immediate action
to curb speculation. The CFTC told the House Subcommittee on Oversight
and Investigations that it will report to Congress by September 15th on
the scope of commodity index trading in the oil futures markets, and offer
recommendations for improved practices and controls should they be necessary.
The House was unsuccessful, however, in passing H.R.6251, the Responsible
Federal Oil and Gas Lease Act, also known as the “Use it or Lose
It” legislation. The bill would have prohibited the Secretary of
the Interior from issuing new federal oil and gas leases to holders of
existing leases if they do not diligently develop the lands subject to
their existing leases, or else relinquish the leases. Another piece of
legislation was introduced by House Energy and Commerce Committee Chairman
Rep. John D. Dingell (D-Mich.) and co-sponsored by ranking member Rep.
Joe Barton (R-Tex.) on June 11 (H.R. 6238) that would authorize the Secretary
of Energy to investigate the factors affecting the price of crude oil
and petroleum products by gathering information from various federal agencies
and commissions. (CCH Utilities Law Reporter, Report
No. 1474, June 30, 2008)