September 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
New Bonneville ASC Methodology Approved
The Commission has approved
the revised methodology for determining the average system cost (ASC)
used by Bonneville Power Administration in its Residential Exchange Program.
Bonneville's revised ASC methodology comprises the following three main
components: (1) Provisions related to the calculation of the Base Period
average system cost ; (2) provisions relating to the escalation (or change)
of the Base Period average system cost to the Exchange Period average
system cost; and (3) provisions relating to Bonneville's average system
review process and procedures. Bonneville explained that the revised ASC
methodology retained characteristics of the previous ASC methodology.
The key differences were how average system costs are calculated as well
as the substance of the costs included and excluded from the average system
costs calculation. Bonneville stated that the revised ASC methodology
adopted a streamlined approach to the average system cost calculations
by using a different source of average system cost data, i.e., FERC Form
1 data, instead of state retail rate orders. (CCH FERC Statutes
and Regulations Edition, ¶31,295)
ISO-NE Market Manipulation Allegations
Set for Hearing
Two complaints, one filed by
the Attorney General for the State of Connecticut (Connecticut Attorney
General) and jointly by the Connecticut Department of Public Utility Control
(CT DPUC) and the Connecticut Office of Consumer Counsel (CT OCC) relating
to the bidding activity of some market participants importing capacity
over the Northern New York AC interface, were set for hearing by the Commission.
Under the market rules in ISO New England (ISO-NE), participants with
installed capacity (ICAP) import contracts must submit a supply offer
or self-schedule for the energy equivalent of the import contract amount
for each operating day. The Connecticut parties alleged that between January
2005 and January 2009, every market participant that had submitted a supply
offer above $660/MWh over the Northern New York AC Interface failed to
perform every time it was dispatched, for a total of 108 such instances,
and they alleged that these market participants had been paid a collective
$85.5 million in capacity payments. In their amended complaint the Connecticut
Parties continued to seek a hearing and investigation into the allegedly
fraudulent, manipulative scheme conducted over the two-year period and
for which the parties were paid at least $50.9 million for reliability
services that their conduct demonstrated they never intended to provide.
The Commission noted that the disputed issue in the complaints was the
capacity importers’ intent behind the high-priced offers. However,
because of the unique history of the allegations, including the ISO-NE’s
inconsistency regarding the allegations, the Commission set the issues
related to the allegations regarding the capacity importers’ bidding
strategy and the market manipulation allegations for hearing. (Richard
Blumenthal, Attorney General for The State of Connecticut v. ISO New England
Inc., et al., 128 FERC ¶61,182
(ip
access users))
FERC Transmission Pricing for PJM Interconnection
Upheld in Part
The transmission of energy in
the PJM Interconnection using a Ohio utility’s facilities will be
priced at the marginal cost of transmitting the energy and will not reflect
sunk costs, the U.S. Court of Appeals for the Seventh Circuit ruled. The
American Electric Company’s facilities were built before PJM became
a Regional Transmission Organization in 2001, and because the facilities
were intended to service American Electric’s customers only, there
was no economic basis for shifting any part of their costs to other PJM
members. Judge Posner characterized the utility’s request as an
attempt to stand between western sellers of electricity and eastern buyers
and extract a toll that had no relation to the costs of actually providing
the transmission service. However, the court rejected FERC’s decision
to approve the financing of high-voltage transmission lines in PJM’s
system using a pro rata basis to the participating utilities, rather than
the previously-used method of allocating the costs according to the expected
benefit each utility would receive. (ICC v. FERC, 7thCir 2009,
CCH Utilities Law Reporter ¶14,752).
BP Energy To Pay $4.7 Million to NV
Energy
The Commission approved an uncontested
settlement between NV Energy, Inc. (NV Energy), formerly Nevada Power
Company, the Office of the Nevada Attorney General, Bureau of Consumer
Protection, and BP Energy Company (BP). After the Western energy crisis
of 2001, NV Energy filed a complaint with the Commission to modify contracts
signed during the crisis. The joint offer of settlement and settlement
agreement were fair and reasonable and in the public interest, according
to the Commission. BP agreed to make a one-time, lump-sum $4.7 million
payment to NV Energy in return for NV Energy’s and the Nevada Bureau
of Consumer Protection’s release of all claims against BP. The settlement
was a full and final settlement of the issues in the proceedings relating
to BP’s forward sales contracts executed with NV Energy’s
predecessor, Nevada Power Company, between March 12, 2001 and June 20,
2001, at market-based rates. (Nevada Power Co. v. BP Energy Co.,
128 FERC ¶61,185
(ip
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Natural Gas
Comments Sought on Quarterly Reporting
Proposal
The Commission is seeking public
comment on the proposed standardized electronic information collection
to be used by Natural Gas Policy Act (NGPA) and Hinshaw pipelines for
submitting the quarterly transactional reports as detailed in a recent
proposed rulemaking (See FERC Statutes and Regulations, ¶32,644.
This notice also extends the deadline for comments on the proposal from
October 27 to November 2, so that all comments will be due on the same
date. Under the proposal's provisions, these quarterly reports would have
to contain, for each transportation and storage service provided during
the preceding calendar quarter, information including: (1) The type of
service performed (i.e., firm or interruptible transportation, storage,
or other service); (2) the rate charged under each contract, specifying
the rate schedule/name of service and docket where the rates were approved--the
report also should separately state each rate component set forth in the
contract (i.e. reservation, usage, and any other charges); and (3) and
the primary receipt and delivery points covered by the contract, including
the industry common code for each point. (FERC Statutes and Regulations
Edition, ¶35,051)
Hedge Fund Settles Charges for $7.5
Million
The Commission approved the
uncontested joint settlement entered into by Amaranth Advisors LLC (Amaranth),
its subsidiaries, and the Commission’s Enforcement Litigation Staff
in order to settle all claims against Amaranth that arose out of conduct
alleged to have been in violation of the Commission’s trading regulations.
The settlement agreement also resolves claims brought by the Commodity
Futures Trading Commission. In the joint settlement, Amaranth did not
admit or deny the allegations set forth in the show cause order, but it
did stipulate to a number of facts concerning its trading activities.
Specifically, Amaranth admitted that the NG Futures Contract settlement
prices on February 24, March 29, and April 26, 2006, would have been different
if Amaranth had not traded during the settlement periods on those days,
and that the value of its swap positions would have been lower if the
NG Futures Contract settlement prices had been higher than it actually
was. Amaranth was obligated by the settlement agreement to pay $7.5 million
to the U.S. Treasury. The parties agreed that the order approving the
settlement agreement was final and non-appealable, and Amaranth waived
its right to rehearing and judicial review. (Amaranth Advisors LLC,
et al., 128 FERC ¶61,154
(ip
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Oregon’s Challenge to Bradwood
Denied
The State of Oregon’s
requested rehearing of a Commission order [126 FERC ¶61,035
(ip
access users)] denying another rehearing request of the Commission’s
grant of authority to Bradwood Landing LLC (Bradwood) and NorthernStar
Energy LLC (NorthernStar) to site, construct, and operate a liquefied
natural gas (LNG) import terminal on the Columbia River at Bradwood, Oregon
and the accompanying pipeline, was denied by the Commission. Oregon alleged
that, without a stay, it would have to expend additional time and money
reviewing NorthernStar’s mitigation plans and final designs and
attending meetings. The Commission found that Oregon did not meet its
burden to demonstrate that it would suffer irreparable harm absent the
granting of the stay. Oregon also argued that the Commission failed to
comply with the Endangered Species Act by not initiating formal consultation
with the National Marine Fisheries Service and the U.S. Fish and Wildlife
Service. The Commission noted that its order [126 FERC
¶61,035
(ip
access users)] fully addressed this argument and that it was fully
complying with the ESA. Finally, Confederated Tribes of the Umatilla Indian
Reservation’s (CTUIR) motion to intervene out-of-time was denied
again. CTUIR’s motion was filed more than two years after the deadline
for filing of timely interventions. Therefore, CTUIR would have to meet
a higher burden necessary to grant the late motion, and the Commission
found that it failed to do so. (Bradwood Landing LLC, et al.,
128 FERC ¶61,216
(ip
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Oil
Mobil Not Granted Authorization To
Charge Market-Based Rates
In an initial decision, an administrative
law judge (ALJ) determined Mobil Pipeline Company (MPLCO) should not be
granted authorization to charge market-based rates on its existing Pegasus
pipeline system (Pegasus) for the transportation of crude oil. The ALJ
also determined the appropriate origin market, whether MPLCO lacked significant
market power, and whether authorization to charge market-based rates would
result in rates that were just and reasonable. The Pegasus is an 858-mile,
20” diameter pipeline that transports crude oil from its origin
at Patoka, Illinois to Nederland, Texas. The ALJ found that MPLCO had
not established that currently there were no good economic alternatives
to Pegasus’ services in its’ origin market that would hold
Pegasus’ rates to reasonable levels. The ALJ concluded that MPLCO
had not shown that the origin market was sufficiently or workably competitive
such that an authorization by the Commission to charge market based rates
for its oil transportation services would result in rates that were just
and reasonable. Therefore, the ALJ recommended that MPLCO’s application
for market-based rate authority be denied. The potential for market abuse
exists through the exercise of market power possessed by MPLCO, as the
evolution towards a competitive market in which there was adequate pipeline
capacity between the Upper Midwest and the Gulf Coast was not yet complete;
the structure of Pegasus’ defined origin market was ill-equipped
for workable competition; and the supply/demand imbalance had caused market
disequilibrium. (Mobil Pipe Line Co., 128 FERC
¶63,008
(ip
access users)).
Hydro
Hydro Project Relicensing Order Vacated
The U.S. Court of Appeals for
the Second Circuit found that an action by the Federal Energy Regulatory
Commission (FERC) denying a municipal power authority’s request
to intervene during proceedings involving the relicensing of the School
Street Project Dam, located on the Mohawk River in New York, was not only
arbitrary and capricious, but may have constituted prejudicial error.
Because the court could not conclude that the outcome would have not been
different if Green Island Power Authority had been allowed to intervene,
it vacated the FERC order issuing the new license in 2007 and remanded
the case for further proceedings. However, the Adirondack Hydro Development
Corporation, which also sought to intervene in the action, lacked standing
to challenge any of the FERC orders. The Second Circuit found that Adirondack
offered no argument that its own hydroelectric project would be impacted
by the relicensing of the School Stream Project, and its purported interest
in developing future projects on the Mohawk River was too hypothetical.
(Green Island Power Authority v. FERC, 2ndCir 2009, CCH
Utilities Law Reporter 14,753).
Nuclear Power
Breach of Contract Award Must Be Based
on 1987 ACS
Two utilities' damages award
of $82,789,289, resulting from a judgment against the Department of Energy
(DOE) for its partial breach of contract to accept spent nuclear fuel
(SNF) from the utilities in a timely manner, had to be recalculated because
the trial court based the award on a model expressly rejected by the U.S.
Court of Appeals for the Federal Circuit. While the utilities incurred
substantial mitigation costs in storing SNF that otherwise would have
been stored by DOE under the contract, the trial court improperly based
the calculation of the award on the utilities' argument that DOE would
have accepted 3000 metric tons of uranium from them if it had not breached
the contract. This volume was based on a model developed by the utilities
hypothesizing that DOE would begin accepting the SNF on schedule in 1998.
In reality, however, the award needs to be recalculated on a more realistic
basis--the June 1987 acceptance capacity schedule (ACS) process, which
provides the best available pre-breach indicator of both parties' estimates
of the time-frame in which the SNF would be accepted. (Carolina Power
& Light Co., et al. v. U.S. (FedCir) CCH Nuclear Regulation
Reporter, ¶20,690)
Claims of Radiation Injury Failed Due
to Lack of Causation
Claims of radiation injuries
to residents of a Colorado town which had been the site of a uranium and
vanadium milling facility failed for lack of evidence of factual causation
and their medical monitoring claims failed for lack of evidence of bodily
injury as required by the Price-Anderson Act, which governs claims arising
from nuclear incidents. Affirming a district court decision, the 10th
Circuit Court of Appeals found that cancer and thyroid disease, the illnesses
reported by the residents, can have multiple causes. The residents did
not show that the milling operation was a substantial factor that contributed
to their illnesses, as required by tort law. Finally, under the Price-Anderson
Act, the asymptomatic DNA damage and cell death suffered by some of the
residents as a result of exposure to radiation did not constitute, per
se, bodily injury. (Gary June, et al. v. Union Carbide Co., et al.
(10thCir) CCH Nuclear Regulation Reporter ¶20,691)
Mineral Management Service
Protection of Reprocessed Geophysical
Information Extended
Minerals Management Service
(MMS) finalized a rule extending the proprietary term of certain reprocessed
geophysical information submitted to MMS under permits. The rule gives
up to 5 years of additional protection to reprocessed vintage geophysical
information that MMS retains and, without extensions, is subject to release
by MMS 25 years after a permit is issued. MMS believed the extension will
provide incentives to permittees and third parties to reprocess, market,
or in other ways use geophysical information that might not otherwise
be reprocessed without the term extension. The extension does not apply
to geological data or information. The rule became effective on September
14, 2009. (CCH Energy Management, Issue No. 1303, ¶9453).