Energy Update June 2009

June 2009

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

FERC

President Nominates John R. Norris for Commissioner
President Obama announced his intent to nominate John R. Norris, who is currently serving as Chief of Staff for Secretary Tom Vilsack at the U.S. Department of Agriculture, to the Commission. Prior to joining the USDA, Norris served as Chairman of the Iowa Utilities Board (IUB) from 2005 to 2009. As a member of the National Association of Regulatory Utility Commissioners (NARUC) he worked on the Electricity Committee and was Co-Chair of the 2009 National Electricity Delivery Forum. He served as a Board Member, Secretary and President of the Organization of Midwest Independent System Operator (MISO) States as well as Chairman of the MISO Demand Response Working Group. He also was a member of the FERC/NARUC Demand Response Collaborative. (FERC Opinions Orders & Decisions Edition, Report No. 1457, June 17, 2009)

Electric Utilities

Initial Smart Grid Interoperability Standards Released
U.S. Commerce Secretary Gary Locke and U.S. Energy Secretary Steven Chu announced an initial batch of 16 National Institute of Standards and Technology (NIST)-recognized interoperability standards for the Smart Grid on May 18, 2009. The initial batch of 16 NIST standards will help ensure that software and hardware components from different vendors will work together seamlessly, while securing the grid against disruptions. The list of standards is based on the consensus expressed by participants in the first public Smart Grid Interoperability Standards Interim Roadmap workshop.

The application of the standards include: (1) advanced metering infrastructure (AMI) and Smart Grid end-to-end security; (2) revenue metering information model; (3) building automation; (4) substation and feeder device automation; (5) inter-control center communications; (6) substation automation and protection; (7) application level energy management system interfaces; (8) information security for power system control operations; (9) phasor measurement unit (PMU) communications; (10) physical and electrical interconnections between utility and distributed generation (DG); (11) security for intelligent electronic devices (IEDs); (12) cyber security standards for the bulk power system; (13) cyber security standards and guidelines for federal information systems, including those for the bulk power system; (14) price responsive and direct load control; (15) home are network (HAN) communication, measurement, and control; and (16) HAN Device Communications and Information Model. (FERC Opinions Orders & Decisions Edition, Report No. 1454, May 27, 2009)

Transmission Relay Reliability Standard Proposed
The Federal Energy Regulatory Commission has proposed approval of the Transmission Relay Loadability Reliability Standard developed by the North American Electric Reliability Corporation. The proposed reliability standard requires certain transmission owners, generator owners, and distribution providers to set protective relays according to specific criteria in order to ensure that the relays reliably detect and protect the electric network from all fault conditions, but do not limit transmission loadability or interfere with system operators' ability to protect system reliability. While all relays detect and protect the electric network from fault conditions, the proposed reliability standard applies only to load-responsive phase protection relays. The standard would apply to (1) All transmission lines and transformers with low-voltage terminals operated or connected at 200 kV and above; and (2) those transmission lines and transformers with low-voltage terminals operated or connected between 100 kV and 200 kV that are designated by planning coordinators as critical to the reliability of the bulk electric system. The proposed reliability standard would also prescribe the settings that should be used when it is appropriate to use a 0.85 per unit voltage and a power factor angle of 30 degrees. (CCH FERC Statutes and Regulations, ¶32,642

NYISO Audit Found Notification Issues
The Commission’s Division of Audits in the Office of Enforcement conducted an audit of the New York Independent System Operator’s (NYISO) responsibilities as an Independent System Operator (ISO) and found two areas of concern. The audit evaluated NYISO’s compliance with: (1) the NYISO Agreement [88 FERC ¶61,229 (ip access user)]; (2) the NYISO Membership Agreement [90 FERC ¶61,015 (ip access user)]; (3) the NYISO Market Services Tariff; and (4) NYISO’s Open Access Transmission Tariff. First, the report found the NYISO’s internal Market Monitoring Unit (MMU) was insufficiently independent of its Market Structures unit, which included a number of functions related to market design and product development. The arrangement raised a potential conflict because the Vice President of Market Structures also had responsibility for market design. Second, the report found that NYISO had not always informed market participants on a timely basis and notified the Commission when it uncovered tariff-related problems.

The report recommended NYISO: (1) consider organization changes for its internal market monitoring function; (2) conduct and submit to the Commission a review of the adequacy of resources that have flowed into its MMU to determine if any market monitoring had been hindered; (3) conduct a formal review of processes used to identify tariff compliance problems and notify the Commission and stakeholders; and (4) develop written procedures to ensure that NYISO take timely actions when it identifies tariff problems. (New York Independent System Operator, Inc., 127 FERC ¶61,120 (ip access user))

Exelon and NGR Merger Approved
Exelon Corporation’s application seeking authorization for: (1) its acquisition of voting securities of NRG Energy, Inc. (NRG Energy) through a tender offer; (2) it’s acquisition of control over NRG Energy and its subsidiaries that were public utilities; and (3) the subsequent restructuring and consolidation of Exelon and NRG, was granted by the Commission. Exelon is a public utility holding company that distributes electricity to approximately 5.4 million customers in Illinois and Pennsylvania, and natural gas to 480,000 customers in the Philadelphia area. NRG is a wholesale power generation company that is engaged in the ownership, development, construction and operation of power generation facilities, transacting in and trading fuel and transportation services, and the trading of energy, capacity and related products in the United States and select international markets. Exelon is offering, through Exelon Xchange, to exchange 0.485 of a share of Exelon common stock for each share of NRG common stock that is validly tendered, at least 50 percent of the NRG common stock must be tendered and not withdrawn at the time the offer expires. If Exelon acquires a majority of NRG’s common stock, it will merge NRG with Exelon Xchange or another subsidiary in a “second-step merger,” for the purpose of acquiring the remainder of the share of NRG common stock.

The Commission found that based on Exelon’s representations, the combination of Exelon’s and NRG’s transmission and generation assets, as well as the combination of natural gas distribution and generation assets, would not harm competition. Exelon proposed, and the Commission approved, a provision to hold transmission customers harmless from merger-related costs. Finally, the Commission noted that Exelon must notify the Commission within 30 days of any change in circumstances that would reflect a departure from the facts the Commission relied upon in granting the application. (Exelon Corporation, 127 FERC ¶61,161 (ip access user))

Nuclear Power

$1.07 Billion NRC Budget Proposed for 2010
The Nuclear Regulatory Commission has proposed a budget of $1.07 billion for fiscal year 2010. This represents an increase of $25.6 million over the 2009 agency allocation of $1.02 billion. The budget would continue to be funded in large part through user fees, which are estimated at $887.2 million for the year. The additional funds reflect increased regulatory activities, driven primarily by a continued industry interest in constructing new nuclear facilities, oversight of existing reactors, and materials and waste licensing. The funds would support such projects as the oversight of operating reactors, review of renewal and new reactor applications, and to maintain the current level of the ongoing high level waste repository program at Yucca Mountain, Nevada. The agency allocation for nuclear reactor safety would be increased by more than $11 million over the 2009 appropriation to over $799 million, including approximately $248 million for new reactor activities. Approximately $237 million would be used for licensing tasks and an additional $36 million for license renewal activities. More than $242 million would be spent on reactor oversight. $261.2 million has been requested by the Commission for the nuclear materials and waste safety program, which is an increase of approximately $15 million over the previous year. This allocation would be used to conduct regulatory programs at fuel cycle facilities and support uranium recovery licensing activities. It would also be employed to conduct decommissioning activities at reactors and material sites and certify the interim storage of spent fuel from commercial nuclear reactors. ( CCH Nuclear Regulation Reporter, No 1418, June 16, 2009)

Codification of Emergency Preparedness Actions Proposed
The codification of the Nuclear Regulatory Commission's emergency preparedness (EP) requirements that govern domestic licensing of production and utilization facilities has been proposed by the agency for the protection of public health and safety. The proposed requirements would enhance the ability of licensees to take certain emergency preparedness and protective measures in the event of a radiological emergency; address security issues identified after the terrorist events of September 11, 2001; clarify regulations to effect consistent emergency plan implementation among licensees; and modify certain EP requirements to be more effective and efficient. Specifically, NRC would require licensees to review and update their evacuation time estimations (ETEs) periodically and submit them to the Commission for review and approval. The proposed rule would also require operators to provide a detailed analysis to show that on-shift personnel assigned emergency plan implementation functions are not assigned any responsibilities that would prevent them from performing their assigned emergency plan functions when needed. Finally, NRC would require all nuclear power plant licensees to include hostile action events in biennial evaluated exercises. The proposed rule would also ensure that scenarios would be sufficiently varied by requiring the use of a wide spectrum of radiological releases and events to properly train responders. ( CCH Nuclear Regulation Reporter, ¶4227)

Natural Gas

Storage Leases Qualify as Adjoining Property for Well Test Rules
Northern Natural Gas Company had the right to conduct well tests upon wells owned by Nash Oil & Gas, Inc., to determine ownership of the gas produced by those wells because they were considered to be on ``adjoining property,'' the U.S. District Court for the District of Kansas ruled. The certified boundary of Northern's underground storage field did not touch or adjoin the section containing Nash's wells, but Northern obtained storage lease rights extending from the certified boundary to the section containing the wells or an adjoining section. Under Kansas law, an injector of natural gas has the right to test wells on adjoining property to determine if the injector's gas migrated into the wells because the injector maintains title to the gas it injected into the underground storage. The relevant sections of the statute did not expressly limit its application only to areas that are approved or certified as storage fields, the court found, and the statute was clearly designed to protect the title to all injected gas. The application of the statute to storage rights obtained by eminent domain or otherwise would include storage leases such as those held by the injector. Therefore, Northern's storage lease area can qualify as part of its underground storage fields, despite the fact that the lease area was not yet certified by the state public service commission. (Northern Natural Gas Company v. L.D. Drilling, Inc., et al. (DKan) CCH Utilities Law Reporter ¶14,743).

Pipeline Right of Way Did Not Guarantee Access at Easiest Point
A natural gas pipeline company did not have the right to access its right-of-way on a landowner's property from any point that it deemed appropriate, according to the U.S. District Court for the Eastern District of Arkansas, Western Division. The district court found that the right-of-way documents did not give TE Products Pipeline Company, LLC (TEPPCO) the right to access the pipelines by the nearest and least intrusive route, as it had claimed, and there was no precedent granting the pipeline company this right. Although it was inconvenient for the pipeline company to access the right-of-way at the points where the right-of-way entered onto or exited from the landowner's property, the landowner was not required to allow the pipeline company access by the easiest means. The court noted that a portion of the private road actually qualified as a public road under Arkansas law because a cemetery sat on that portion. However, TEPPCO did not have the right to access the property via that road. (TE Products Pipeline Co., LLC v. Davidson Ranch, Inc. (EDArk) CCH Utilities Law Reporter ¶14,745).

Voluntary Repayment Doctrine Did Not Bar Consumer Complaints
A class-action complaint that Georgia Natural Gas charged its existing retail customers an amount in excess of that permitted by the Georgia Natural Gas Competition and Deregulation Act (Gas Act) was not barred by the voluntary payment doctrine, the Georgia Court of Appeals ruled, over the dissents of three judges. Two customers alleged that GNG overcharged its customers both as to a customer service charge and to a per-therm charge by not offering them a plan provided to new customers that might have saved them money. The voluntary payment doctrine provides that money paid with knowledge of all the facts and without fraud or duress cannot be recovered merely because of mistake or ignorance of the law. Because the Gas Act has a clearly remedial purpose of protecting consumers, the appellate court found, it should be liberally construed. Therefore, the voluntary payment doctrine should not be applied to bar actions by gas consumers to recover overpayments made to GNG. Furthermore, because it was unclear from the bills sent to the customers how the customers could have determined what they should have been charged, their payments could not have been voluntary because they did not have knowledge of all the facts. (Ellison v. Southstar Energy Services, LLC (GaCtApp) CCH Utilities Law Reporter ¶27,051).

Oil and Gas

Secretary Salazar Seeks Clarification to OCS Court Ruling
Secretary of the Interior Ken Salazar asked the Department of Justice to seek clarification from the U.S. Court of Appeals for the District of Columbia Circuit on the scope of its April 17, 2009 decision [CCH Energy Management ¶9608] that Bush Administration officials did not conduct sufficient scientific and environmental analysis before scheduling oil and gas lease sales on the Outer Continental Shelf off Alaska.

The court vacated the entire 2007-2012 OCS oil and natural gas leasing program two years after lease sales began. At Salazar's request, the Department of Justice is asking the court to confirm its interpretation of the decision as not requiring retroactive invalidation of prior leases and to allow it to move forward and fix the shortcomings in the environmental analysis for the 5-year plan without developing and approving an entirely new 5-year program. (Department of the Interior Press Release, May 11, 2009, CCH Energy Management, Report No. 1289, June 11, 2009)