Regulatory Updates

FERC Announces New ROE Methodology and Sets MISO ROE to 9.88 Effective September 28, 2016

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On November 21, 2019, the Federal Energy Regulatory Commission (FERC) announced the adoption of a new methodology for determining whether a jurisdictional public utility’s rate of return on equity (ROE) is just and reasonable under the Federal Power Act.  Under the new methodology, the Commission will rely on the two-step discounted cash flow (DCF) model and capital asset pricing model (CAPM) to establish a composite zone of reasonableness based on an equal weighting average of the two models.  In adopting this new methodology, the Commission rejects the use of the Expected Earnings and Risk Premium models previously proposed for consideration for setting ROEs.  The Commission also announces a new quartile approach to establish a range of presumptively just and reasonable ROEs based on the subject utility’s risk profile that it will use to determine whether an existing ROE has become unjust and unreasonable under section 206 of the Federal Power Act.

In addition, the Commission applied the new methodology to the two Midcontinent Independent System Operator (MISO) ROE Complaint proceedings, setting the MISO-wide ROE to 9.88 percent.  This amounts to a significant reduction to the 12.38 percent MISO-wide ROE in place prior to the initial complaint.  It also represents a significant reduction to the 10.32 percent MISO-wide ROE that was set in the Initial Decision in the first complaint case.  However, the Initial Decision in the second complaint case found a 9.7 percent MISO-wide ROE to be appropriate.  Today, the Commission applied the new quartile approach to assert refunds were not necessary for the second complaint case, finding the retroactively effective 9.88 percent ROE fell within the range of presumptively just and reasonable ROEs and expressing concerns that doing otherwise would create a 30-month refund period when the Federal Power Act only allows a 15-month refund period. Commissioner Glick dissents on this point claiming out of concerns over pancaked complaints (i.e., two back-to-back complaints) the Commission is creating a legal fiction assuming the 9.88% was in effect and, therefore, there should be no concerns about creating a 30-month refund period.

As of this writing, the Orders have not yet been released.  Nevertheless, in all, they represent a positive outcome for DWGP clients, some of whom are among the Complainants in the first and second MISO ROE complaint cases.  The Commission’s prior proposal to weigh the results of an Expected Earnings and Risk Premium models equally with the DCF and CAPM models likely would have resulted in significantly higher ROEs. 

For additional information, please contact Kristen Connolly McCullough, Joshua Adrian, Matthew Rudolphi or Lee Ewing.

Teaming Up to Enhance Cyber Security in North America

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NERC’s Electricity Information Sharing and Analysis Center (“E-ISAC”) and the Oil and Natural Gas Information Sharing and Analysis Center (“ONG-ISAC”) announced their agreement to improve information sharing between the two entities and their members. They propose to enhance cyber security in North America by analyzing potential physical and cyber security threats in order to alert and advise members about mitigating threats. The partnership’s objectives include:
  • Improving security collaboration for identifying common threats and advising on incident responses.
  • Providing joint analysis of security concerns.
  • Improving information sharing and situational awareness.
For further information on E-ISAC and ONG-ISAC’s partnership to strengthen cyber security in North America, please contact: Kristen Connolly McCullough.

GAO Report on Cybersecurity Risks Facing the Electric Grid

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A recent report published in August 2019 by the Government Accountability Office (“GAO”) highlights concerns about cybersecurity risks facing the nation’s electric grid. The GAO’s report, Critical Infrastructure Protection: Actions Needed to Address Significant Cybersecurity Risks Facing the Electric Grid, finds that the US electric grid is becoming increasingly vulnerable to cyberattacks, with weaknesses in industrial control systems (“ICS”) that interconnect with grid operations, and with distributed energy resources that are both geographically dispersed and not covered by current cybersecurity standards due to size thresholds. The report notes that federal agencies, including the Department of Energy (“DOE”), have performed various assessments of the potential impacts of cyberattacks on the grid, but those assessments were limited, covering only a portion of the grid. The report also notes that the Federal Energy Regulatory Commission (“FERC”), the regulator that approves and mandates cybersecurity standards for entities operating within the interstate electric and gas transmission system, has not yet fully mandated current federal guidance on critical infrastructure cybersecurity and that current mandatory requirements do not cover certain distributed energy resources.

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FERC Initiates the First Comprehensive Review of the PURPA Rules

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On September 19, 2019, the Federal Energy Regulatory Commission (“FERC”) initiated what it describes as the “first comprehensive review” of its rules implementing the Public Utility Regulatory Policies Act of 1978 (“PURPA”) by issuing a Notice of Proposed Rulemaking. Comments are due December 3, 2019. The proposed rule is relevant to municipal utilities, electric cooperatives, other load serving entities as well as markets regulated by FERC.

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October 1, 2019 Newly Enforceable NERC Reliability Standards

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As of October 1, 2019, the following North American Electric Reliability Corporation (NERC) Reliability Standard became effective and enforceable in the United States: 
  • IRO-006-WECC-3 – Qualified Path Unscheduled Flow (USF) Relief
The NERC file containing each of these standards, along with the already enforceable Reliability Standards, is available here.
For more information on the NERC Reliability Standards and their potential applicability and impact, please contact Kristen Connolly McCullough.

FERC Dismisses Alternative Transmission's Petition for Declaratory Order

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On August 22, 2019, the Federal Energy Regulatory Commission dismissed Alternative Transmission Inc.’s (“ATI”) petition for declaratory order, Alternative Transmission, Inc., 168 FERC ¶ 61,106 (2019), requesting the Commission find that: (1) non-wire facilities and services described in ATI’s Petition provide “transmission of electric energy in interstate commerce” subject to the Commission’s jurisdiction under the Federal Power Act, 16 U.S.C. §§ 824-825 (2012), and (2) ATI, as the owner and operator of the facilities, will be a “public utility” under section 201(e) of the Federal Power Act, 16 U.S.C. § 824(e) (2012) (Docket No. EL19-69-000).

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PG&E Bankruptcy Timeline

Below, please find DWGP's timeline tracking Docket Numbers 19-30088 and 19-30089 at the United States Bankruptcy Court of Northern District of California:  
  • 11/27/19:Judge Dennis Montali issued a Memorandum Decision that rejected PG&E’s challenge to the California doctrine of inverse condemnation, finding the doctrine applicable to PG&E in the Chapter 11 proceeding and thereby denying the utility’s attempt to limit its liability to wildfire damages.  
  • 10/28/19: PG&E’s Bankruptcy Judge Montali orders sua sponte appointment of plan mediator, Randy Newsome.
  • 7/18/19:filing in U.S. Bankruptcy Court revealed an ad hoc group of PG&E’s major bondholders are attempting a possible hostile takeover by proposing to buy 85 percent of the utility’s stock as part of a broader reorganization proposal;  PG&E’s existing shareholders are expected to fight the plan
  • 6/26/19: Petition for Review of PG&E in the United States Court of Appeals for the Ninth Circuit​, 19-71615, FERC Docket Nos. EL19-35-000​ and EL19-36-000 
  • 6/07/19: Memorandum Decision granting PG&E’s request for a declaratory judgment pursuant to 28 U.S.C. § 2201 confirming the bankruptcy court’s exclusive jurisdiction over the court’s right to reject any Purchase Power Agreement under Section 365, and further declaring that FERC does not have “concurrent jurisdiction” to grant or deny Debtors’ rejection of any of their PPAs.
  • 5/28/19: Bankruptcy Court Order denying request of The Utility Reform Network (TURN) for appointment as an official committee in the bankruptcy proceeding
  • 5/24/19: Bankruptcy Court Order extending PG&E exclusive periods to file a chapter 11 plan to September 29, 2019
  • 5/01/19: FERC denied PG&E’s requests for rehearing of FERC’s Order finding that FERC has concurrent jurisdiction with the U.S. Bankruptcy Courts over wholesale power purchase agreements where PG&E seeks to reject such contracts in bankruptcy, Docket Nos. EL19-35 and EL19-36
  • 3/11/19: District Court enters Order Denying Motion to Withdraw the Reference
  • 2/21/19: PG&E filed Notice of Bankruptcy Filing and Imposition of Automatic Stay in FERC Docket No. EL19-38 asserting that any action taken without relief from the automatic stay is void.
  • 2/15/19: Notice Regarding Appointment of the Official Committee of Tort Claimants Filed by U.S. Trustee Office of the U.S. Trustee / SF
  • 2/12/19: Notice of Appointment of Creditors' Committee Appointment of the Official Committee of Unsecured Creditors
  • 1/29/19: PG&E adversary proceeding in bankruptcy court seeking a declaratory judgment that the bankruptcy court, and not FERC, has exclusive jurisdiction over PG&E’s ability to reject any of its PPAs; also seeks injunctive relief prohibiting any further action FERC might take. 
  • 1/29/19: Bankruptcy Courge Bridge Orders  - one of two; two of two 
  • 1/29/19: PG&E 8-K filing with Securities and Exchange Commission
  • 1/29/19: PG&E files voluntary petitions under Chapter 11 of the Bankruptcy Code, Northern District of California, Case No. 19-30088    
  • 1/28/19: FERC issues Order on Petition for Declaratory Order and Complaint, Docket No. EL19-36-000
  • 1/25/19: FERC issues Order on Petition for Declaratory Order and Complaint, Docket No. EL19-35-000
  • 1/22/19: Exelon files for Declaratory Order, FERC Docket No. EL19-36-000
  • 1/18/19: NextEra files for Declaratory Order, FERC Docket No. EL19-35-000
  • 1/14/19: PG&E provides 15 day notice to the California Public Utilities Commission - Cal. Pub. Util. Code § 854.2(d)
  • 1/13/19: PG&E 8-K filing with Securities and Exchange Commission

FERC Issues Order on Reform of Generator Interconnection Procedures and Agreements (Order No. 845-B)

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On August 16, 2019, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 845-B,[1] granting in part and denying in part a request for clarification, and denying a request for rehearing of Order No. 845-A. In Order No. 845-A,[2] FERC granted in part and denied in part twelve requests for rehearing and/or clarification of Order No. 845,[3] which amended the pro forma Large Generator Interconnection Procedures (“LGIP”) and Large Generator Interconnection Agreement (“LGIA”) to enhance certainty, transparency, and efficiency in the generator interconnection process. The LGIP and LGIA are required to be encompassed in public utility Transmission Providers’ Open Access Transmission Tariffs (“OATTs”) and govern interconnection service for generating facilities with a capacity greater than 20 MW.

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