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Energy News – D.C. Circuit Vacates and Remands NERC and FERC Orders Imposing Monetary Penalty on the Southwestern Power Administration
On August 22, 2014, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”), in a unanimous decision, vacated and remanded to the Federal Energy Regulatory Commission (“FERC”) a FERC order approving the North American Electric Reliability Corporation’s (“NERC”) imposition of a monetary penalty against the Southwestern Power Administration (“Southwestern”) for its violation of certain mandatory Reliability Standards.
Southwestern, a subdivision of the Department of Energy (“DOE”), is one of four federal Power Marketing Administrations, marketing low-cost hydroelectric power produced from various Army Corps of Engineers projects in the southwestern United States. On July 28, 2011, NERC imposed a $19,500 penalty on Southwestern for its violation of Reliability Standards related to cyber security and critical infrastructure. FERC upheld the penalty. Southwestern did not challenge NERC and FERC’s authority to find a Reliability Standard violation. Southwestern, DOE, and the Department of the Interior appealed NERC and FERC’s decision to impose a penalty for that violation to the D.C. Circuit.
Disagreeing with NERC and FERC, the D.C. Circuit found that neither NERC nor FERC have authority under section 215(e) of the Federal Power Act (“FPA”) to impose monetary penalties on federal entities. The D.C. Circuit stated that the proceeding involved whether the FPA unambiguously and unequivocally waives the United States’ right of sovereign immunity to be free from the imposition of monetary penalties. When examined in this context, the D.C. Circuit held that section 215(e) does not include an express waiver of sovereign immunity; therefore, the court ruled neither NERC nor FERC have authority to enforce monetary penalties against federal agencies for the violation of Reliability Standards. It found that section 215(b) of the FPA grants NERC and FERC general authority to approve and enforce compliance with Reliability Standards. However, the D.C. Circuit stated that such enforcement mechanisms on federal agencies are limited to “non-monetary means . . . such as compliance orders or directives, enforcement audits, and the like.”
By finding that NERC and FERC lack authority to impose monetary penalties on federal entities, purchasers of power sold by federal Power Marketing Administrations, including rural electric cooperatives and municipal utilities, will not have to bear the burden of these penalties in the form of increased prices. Additionally, the reliability of the bulk power system will continue to be maintained as NERC and FERC still retain non-monetary enforcement mechanisms to ensure federal agencies comply with Reliability Standards.
To view this decision, please click here.
Jeffrey C. Genzer and Kristen Connolly McCullough submitted briefs on behalf of the Mid-West Electric Consumers Association and the Southwestern Power Resources Association, arguing that NERC and FERC lacked authority to impose monetary penalties on federal entities.
Joshua E. Adrian and Jason T. Gray become Shareholders; Tyler E. Mansholt and Kathryn R. Thomas* join as Associates
DWGP has named Joshua E. Adrian and Jason T. Gray Shareholders of the Firm. Joshua and Jason bring considerable experience representing clients in electric, hydroelectric, and natural gas matters. Joshua’s electric and hydroelectric representation and Jason’s prior experience with the Kansas Corporation Commission and varied energy experience in electric and natural gas proceedings have contributed to the success of the Firm’s clients.
Two new additions to DWGP, Tyler E. Mansholt and Kathryn R. Thomas, bolster an already formidable energy team. Tyler’s experience with the Office of General Counsel, Office of Energy Projects, Federal Energy Regulatory Commission, brings hands-on project experience to the Firm. Katie’s focus on Smart Grid, the integration of renewable energy resources and environmental law continues the Firm’s support of the evolving needs of our clients.
The Firm’s announcement can be accessed here.
*Admitted only in Colorado; Supervision by Principals of the Firm, Members of the DC Bar.
DWGP Client Granted License for Advanced Pumped Storage Hydro Project
DWGP client Eagle Crest Energy (ECE) received a new 50-year license from the Federal Energy Regulatory Commission (FERC) for the ECE’s Eagle Mountain Pumped Storage Hydroelectric Project (Project), FERC Project No. 12569, on June 19, 2014. The 1,300 MW Project is a prime example of pumped storage projects that both Congress and FERC have recognized hold great promise. In addition to serving as a source of clean, renewable energy themselves, pumped storage projects provide energy storage solutions that make intermittent resources like solar and wind more reliable generation sources. DWGP attorneys Don Clarke and Josh Adrian provided assistance and guidance in agency and stakeholder consultations, NEPA compliance, and FERC liaison throughout the various licensing stages.
The Project will be located at the site of an inactive mine in Riverside County, California near the town of Desert Center. Two mining pits will serve as the upper and lower reservoirs for the innovative pumped hydro project. Because the Project will be located at a high elevation in an arid desert region, the disturbance to the environment, recreation opportunities, and aesthetics will be minimal. Nevertheless, the license contains conditions to ensure groundwater quality and protect geological resources as well as desert wildlife within the vicinity of the Project. Although the license contains recommended water quality conditions, FERC rejected the state water quality certification on jurisdictional grounds. DWGP attorneys are actively involved in strategic planning for license compliance, project construction, and related regulatory approvals.
Energy News - D.C. Circuit Vacates FERC Order No. 745 – Demand Response Compensation in Organized Wholesale Energy Markets Rule
On May 23, 2014, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”), in a 2-1 decision, vacated in its entirety and remanded the Federal Energy Regulatory Commission’s (“FERC”) Order No. 745, “Demand Response Compensation in Organized Wholesale Energy Markets.” Order No. 745 sought to incentivize retail customers to reduce electricity consumption, when economically efficient, by requiring independent system operators and regional transmission organizations to compensate, in certain circumstances, demand response providers at market prices, i.e., the locational marginal price.
The D.C. Circuit found that FERC acted: (1) beyond its jurisdictional authority and infringed on the exclusive jurisdiction of the states to regulate the retail electricity market unambiguously set forth in Section 201 of the Federal Power Act; and, (2) arbitrarily and capriciously by implementing Order No. 745 without fully addressing arguments that such compensation would result in unjust and unreasonable rates.
The DC Circuit stated that FERC jurisdiction is limited to regulating the wholesale energy market, while the retail energy market is within the exclusive jurisdiction of the states, under Section 201(b)(1) of the Federal Power Act. However, FERC relied on Sections 205 and 206 of the Federal Power Act, which give FERC broad authority to certify that “all rules and regulations affecting . . . rates in connection with the wholesale sale of electric energy are “just and reasonable.” FERC stated in Order 745 that by reducing retail consumption incentivized by locational marginal price payments, demand response “directly affects wholesale rates.” The majority rejected FERC’s position and found: “Demand response – simply put – is part of the retail market. It involves retail customers, their decision whether to purchase at retail, and the levels of retail electricity consumption.” FERC cannot regulate areas left to the states, and although demand response is “not necessarily a retail sale, [it] is indeed part of the retail market, which . . . is exclusively within the state’s jurisdiction.”
The dissent argued that the Federal Power Act is ambiguous regarding whether demand response is a retail sale; and that a narrow application of Order No. 745 allows it to fall squarely within the Commission’s jurisdiction “affecting wholesale rates.”
To view this decision in its entirety, please click here.
For additional information, please contact Matthew Rudolphi.
Environmental News - EPA Issues Proposed Rule on Carbon Emissions from Existing Power Plants
On June 2, 2014, the United States Environmental Protection Agency (EPA) issued a proposed rule pursuant to Section 111(d) of the Clean Air Act regarding emission guidelines for states to follow in developing plans to address greenhouse gas emissions from existing fossil fuel-fired electric generating units. EPA estimates that nationwide, by 2030, this rule would achieve carbon emission reductions of approximately 30 percent, as measured from 2005 levels. The crux of EPA’s proposal is state-specific targets for carbon reduction. EPA has structured each state’s goal in two parts: a state must meet an interim goal on average over the ten-year period from 2020-2029 and a final goal by 2030 and thereafter.
The emission guidelines for states are based on EPA’s determinations of the “best system of emission reduction.” EPA proposes that a mix of four “building blocks” comprise the best system of emission reduction: making fossil fuel power plants more efficient (e.g., by increasing heat rates); making more use of lower-emitting carbon sources (e.g., natural gas combined cycle units); using more zero and low-emitting carbon sources (e.g., nuclear and renewables); and using electricity more efficiently (e.g., demand-side energy efficiency).
Each state would be required to determine, and include in its state plan, emission performance levels for its affected plants. States are also offered the option to choose between a regional (i.e., multiple states) or a single state compliance approach. All states must submit initial or complete plans by June 30, 2016, with the potential for a one-year extension for individual state plans and a two-year extension for multi-state plans. Comments on the Proposed Rule are due 120 days from the date of publication in the Federal Register. The Proposed Rule can be accessed here.