October 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

Electric Utilities

Recalculation of Depreciation Expenses Ordered
In an initial decision, an administrative law judge (ALJ) ruled that Entergy Services, Inc. (Entergy) had to remake its yearly bandwidth payment calculation in order to properly determine average production cost. The average production cost was used to guarantee rough equalization among the Entergy Operating Companies. Louisiana PSC challenged the depreciation expenses used by Entergy in its 2008 bandwidth filing as being "unreasonable and unduly discriminatory." However, the ALJ determined that the Commission was not bound to accept the depreciation rates approved by state agencies setting retail rates. The ALJ found that the existing depreciation studies used by Entergy in setting rates were stale and could result in unjust and unreasonable bandwidth filings. The final depreciation issue addressed by the ALJ was that the Waterford 3 sale-leaseback ADIT should not be excluded from the bandwidth calculation because it did not fall within the exceptions set forth in the Entergy service schedule. 128 FERC ¶63,015

Verification of Demand Response Products Proposed
The Commission proposes to incorporate by reference in its regulations business practice standards adopted by the Wholesale Electric Quadrant of the North American Energy Standards Board (NAESB) to categorize various demand response products and services and to support the measurement and verification of these products and services in wholesale electric energy markets. The Phase I M&V Standards are primarily intended to enhance the transparency and consistency of the methods used to measure and verify demand response products in wholesale electricity markets administered by RTOs and ISOs. Specifically, the NAESB Phase I M&V Standards address transparency of the provision of four wholesale electric demand response products: Energy, capacity, reserves, and regulation. For each of these products, the standards require system operators to make information publicly available on: (1) Specific operational requirements listed in the business practice standards, e.g., notification requirements; (2) telemetry requirements, e.g., the telemetry interval shall not exceed five minutes; (3) after-the-fact metering requirements, e.g., the metering accuracy shall not exceed three percent of full scale; and (4) performance evaluation rules, e.g., the performance evaluation method applicable to the product being delivered. (FERC Statutes and Regulations Edition ¶32,646 (ip access users)

Marginal Line Loss Refunds Ordered
PJM Interconnection, LLC's (PJM) proposed revisions to its transmission tariff addressing the distribution of collected marginal line losses required by a previous Commission order [125 FERC ¶61,042 (ip access users) (IntelliConnect)] were accepted by the Commission. The Commission also directed PJM to pay refunds. Black Oak Energy, LLC, Epic Merchant Energy, L.P. and SESCO Enterprises, LLC (complainants) argued that arbitrageurs' financial transactions did not create a flow of physical energy and concomitant transmission line losses and, therefore, they should not be assigned marginal concomitant transmission line losses. The Commission directed PJM either to revise its tariff to include a credit to others who pay for the fixed costs of the transmission system in proportion to the load represented by their transmission usage or to show cause why its existing tariff provision was just and reasonable. PJM submitted revisions to its tariff that allocated the total transmission loss charges accumulated by PJM to each Network Service User and Transmission Customer in proportion to its ratio share of the total megawatt-hours of energy delivered to load in the PJM region The Commission found that PJM's proposal was a just and reasonable method of allocating the surplus. (PJM Interconnection, LLC, 128 FERC ¶61,262

ICC's Rate Decisions for ComEd Upheld
An order of the Illinois Commerce Commission allowing Commonwealth Edison Company (ComEd) to restructure and alter the rates it charged certain customers was upheld by an Illinois appellate court. ComEd was entitled to only fifty percent recovery in its rate base for the costs of an employee incentive plan because it had not demonstrated a sufficient nexus between the earnings-per-share portion of the plan and benefits to ratepayers. Furthermore, it was entitled to only recover about $25.3 million per year instead of the $30.2 million it sought for the cost of a contribution made to fund its employee pension because the lower amount represented the cost if it had issued long-term debt to raise the funds instead of making a cash contribution. However, the ICC's approval of the elimination by ComED of a provision from its tariff that provided a preferential rate for certain consumers of electricity used for space-heating purposes was reasonable, as was a change to the method used to fund construction of new facilities to serve two railroad systems. (Commonwealth Edison v. ICC (IllAppCt), CCH Utilities Law Reporter ¶27,066)

Fossil Fuels

Global Warning Nuisance Claims against Electric Power Companies Allowed
Eight states, the city of New York, and three land trusts were allowed by the U.S. Court of Appeals for the Second Circuit to bring federal nuisance claims against six electric power corporations that own and operate fossil-fuel-fired power plants in twenty states.

The plaintiffs had claimed that the power companies were contributing to the public nuisance of global warming, and sought to force the power companies to cap and reduce their carbon dioxide emissions. In reversing the lower court’s dismissal of their claims, the Court of Appeals noted that the plaintiffs were not attempting to fashion a comprehensive solution to global change, well-settled principles of law provided appropriate guidance to the lower court, and deciding the issue would not usurp executive and legislative prerogatives. The states had standing to bring the suit because they had an interest in safeguarding the public health and their resources.

In addition, the court found that the states, the city, and the trusts alleged current and/or future injuries as the result of global warming, including harm to coastal infrastructure, agriculture, and various ecosystems, which the court found to be non-speculative because they were certain to occur as the result of the increased carbon dioxide in the atmosphere. Even though many other entities also emitted carbon dioxide, the court said that the plaintiffs were not required to show which of the specific injuries were caused by the defendants' emissions, nor were they required to show that the defendants' emissions alone caused their injuries. Furthermore, federal public nuisance claims were not displaced by federal legislation because Congress had not spoken directly to question at hand, and while the Environmental Protection Agency had proposed to find that greenhouse gases endangered public health and welfare, it had not yet done so. (State of Connecticut, et al. v. American Electric Power Company, Inc., et al, Docket Nos. 05-5104-cv and 05-5119-cv, 2nd Cir, September 21, 2009).

Non-Power Service Companies

Required Filing of Form No. 60 by Service Companies Proposed
A requirement that every centralized service company that provides non-power services to any public utility, natural gas company, or both, must file Form No. 60 (Annual Report of Centralized Service Companies) annually and abide by the Uniform System of Accounts, unless exempted or granted a waiver pursuant to agency regulations, has been proposed by the Commission. A centralized service company is defined to include any service company providing services such as administrative, management, financial, accounting, and other services to other companies in the same holding company system. The Commission believes that this proposed revision promotes transparency and is consistent with the Commission's regulatory obligation to regulate public utilities under the Federal Power Act (FPA) and natural gas companies under the Natural Gas Act (NGA) to ensure that rates are just and reasonable. (FERC Statutes and Regulations Edition ¶32,647 (ip access users)

Nuclear Power

NEPA Not Violated by Segmentation of Waste Management Issues
The Department of Energy (DOE) did not violate the National Environmental Policy Act (NEPA) by issuing an environmental impact statement (EIS) concerning waste management activities at the West Valley Project site, a portion of the Western New York Nuclear Service Center, that did not address long-term closure issues regarding the rest of the Center, a former commercial nuclear fuel processing plant, the U.S. Court of Appeals for the Second Circuit has determined. A public interest group and an individual argued that DOE violated NEPA and a previous agreement with the group which would deal with the closure of the entire Center. Segmentation of the two closure issues was permissible because agencies must often undertake multifaceted issues that have complex, interdependent environmental impacts; the agency must make reasonable judgments about what actions should be analyzed together and which should be analyzed separately. The EIS indicated that DOE's waste management actions entail shipping certain kinds of waste off-site and storing high-level waste at the West Valley site until it can be shipped to a geologic repository where it can be stored more safely. DOE acted completely within the framework envisioned by NEPA in arriving at its decision. (Coalition on West Valley Nuclear Wastes, et al. v.DOE. (2ndCir) CCH Nuclear Regulation Reporter ¶20,692)

Longer Term Limits for Specific ISFSI Licenses Proposed
The Commission seeks public comment on proposed changes to its licensing requirements for the storage of spent nuclear fuel, which would clarify the term limits for specific licenses for independent spent fuel storage installations (ISFSIs) and for certificates of compliance (CoCs) for spent fuel storage casks. The proposal would formalize the initial and renewal terms of a specific ISFSI license at a period of up to 40 years, instead of the current duration of up to 20 years. Currently, licensees must request an exemption if they desire a term of more than 20 years. Similarly, the proposed rule would allow CoC applicants to request initial and renewal terms of up to 40 years, provided they can demonstrate that all design requirements are satisfied for the requested term. For both site-specific licenses and CoCs, the proposed rule would require renewal applicants to provide time-limited aging analyses and a description of an aging management program to ensure that storage casks will perform as designed under the extended renewal terms. (CCH Nuclear Regulation Reporter ¶4228a)

Federal Energy Management

Royalty-in-Kind Program Ended
The Secretary of the Interior announced that he will reform and restructure the Department's management of U.S. energy resources, starting with the termination of the Minerals Management Service's (MMS) Royalty-in-Kind program that accepts oil and natural gas from producers in lieu of cash royalties. The Royalty-in-Kind program involved the federal government excessively in oil and gas markets and the Government Accountability Office had found the program could not ensure a fair return to the Treasury. (CCH Energy Management, Issue No. 1304, U.S. Department of the Interior Press Release, September 16, 2009).

President Orders Federal Sustainable Energy Strategy
The President issued an Executive Order on October 5, 2009, to establish an integrated strategy towards sustainability and to make reducing greenhouse gas emissions a priority for federal agencies. Federal agencies were ordered to increase energy efficiency; measure, report, and reduce their greenhouse gas emissions from direct and indirect activities; conserve and protect water resources through efficiency, reuse, and storm water management; eliminate waste, recycle, and prevent pollution; leverage agency acquisitions to foster markets for sustainable technologies and environmentally preferable materials, products, and services; design, construct, maintain, and operate high performance sustainable buildings in sustainable locations; strengthen the vitality and livability of the communities in which federal facilities are located; and inform federal employees about and involve them in the achievement of these goals. (CCH Energy Management ¶12,387).