Regulatory Updates

FERC Issues Notices of Inquiry on its Return on Equity Policy and Transmission Incentive Rates Policy

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Federal Energy Regulatory Commission (“FERC”) Chairman Neil Chatterjee has indicated that FERC’s Return on Equity (“ROE”) and transmission incentives rate policies are the key to shaping the future of the modern grid. Accordingly, on March 21, 2019, the FERC issued two Notices of Inquiry to examine:
  1. potential modifications to FERC’s approach to determining a just and reasonable ROE for public utilities, as well as interstate natural gas and oil pipelines (ROE Notice of Inquiry”)(FERC Docket No. PL19-3-000); and 
  2. the scope and implementation of FERC’s electric transmission rates incentive regulation and policy, which was issued in 2006 in Orders No. 679 and 679-A pursuant to the directives of Section 219 of the Federal Power Act as amended in the Energy Policy Act of 2005 (“Transmission Incentives Notice of Inquiry”)(FERC Docket No. PL19-4-000). 
ROE Notice of Inquiry. The ROE Notice of Inquiry seeks comments on eight broad areas associated with determining whether, and if so how, to revise its policies on determining the ROE used in setting rates charged by jurisdictional public utilities, and whether any changes should be applied to interstate natural gas and oil pipelines. In an October 16, 2018 order upon remand from the U.S. Court of Appeals for the District of Columbia Circuit’s decision in Emera Maine v. FERC, FERC proposed to move from its traditional approach of relying exclusively on the Discounted Cash Flow methodology in determining a public utility’s base ROE to instead giving equal weight to four different financial models and directed the participants to the applicable proceedings to submit briefs regarding the new proposed methodology. The ROE Notice of Inquiry acknowledges that the importance of its ROE policy for public utilities extends beyond the particular interests of the parties to the Emera Maine proceeding, and is thus intended to provide all stakeholders an opportunity to weigh in on FERC’s approach of determining the ROE for regulated entities.

Transmission Incentives Notice of Inquiry. FERC seeks comments on possible improvements to its transmission incentive rates policy, which was last revisited in a 2012 policy statement, consistent with Congress’ directives in section 219 of the Federal Power Act to use transmission incentives to help ensure reliability and reduce the cost of delivered power by reducing transmission congestion.  The Notice of Inquiry examines whether incentives should continue to be based on a project’s risks or challenges, or should be based more broadly on the reliability and economic benefits that a project can provide.  Topics to be explored include: (1) whether incentives should be based upon measurable criteria for economic efficiency and reliability benefits, (2) providing incentives for improvements to existing transmission facilities, (3) considering the costs and benefits of projects in awarding incentives, and (4) determining whether to review incentive applications on a case-specific or standardized basis. FERC Commissioner LaFleur highlighted at the March 21, 2019 Open Meeting that she is interested in comments on issues such as the interplay between FERC’s transmission planning policy as articulated in Order No. 1000 and FERC’s transmission incentive rate policy to promote FERC’s goals of incentivizing cost effective and efficient transmission development and competition in the transmission planning process.

Initial comments on each Notice of Inquiry are due 90 days after the date of publication in the Federal Register, and reply comments are due an additional 30 days later.

For additional information on FERC’s Notices of Inquiry, please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Additional Links:
FERC News Release on ROE Notice of Inquiry
FERC Staff Presentation on ROE Notice of Inquiry
FERC Staff Presentation on Transmission Incentives Notice of Inquiry
FERC News Release on Transmission Incentives Notice of Inquiry.

NERC’s 2019 Reliability Leadership Summit

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The Fifth Reliability Leadership Summit was put on by the North American Electric Reliability Corporation (NERC) and NERC's Reliability Issues Steering Committee (RISC), on March 14, 2019.   Every other year the Summit gathers leaders from the industry and government to identify and prioritize evolving and emerging risks as the Bulk-Power System undergoes transformational change. The key issues addressed at this year’s Summit included: the rapid shift in generation resources, assuring adequate fuel supplies, increased technology deployment, cyber vulnerabilities and supply chain management. The RISC relies on the discussions at the Reliability Leadership Summits in order to inform its critical planning decisions, develop approaches to managing emerging risks, and provide recommendations to the NERC Board of Trustees, which then informs the development of the Electric Reliability Organization (ERO) Enterprise three-year business plan and budget. The keynote speakers were Bruce Walker, assistant secretary at the Department of Energy’s Office of Electricity, and Mark P. Mills, a senior fellow at the Manhattan Institute.

The full NERC announcement is available here.

For additional information on the 2019 NERC Reliability Leadership Summit, please contact Kristen Connolly McCullough.

CPUC Issues Decision Delaying Implementation of a Central Procurement Structure for Resource Adequacy

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On February 21, 2019, the California Public Utilities Commission (“CPUC”) issued a decision (D.19-02-022) to postpone the implementation of a resource adequacy (“RA”) central procurement structure, while adopting multi-year local requirements to be procured by individual Load-Serving Entities (“LSE”). Public Utilities Code section 380 mandates that the CPUC, in consultation with the California Independent System Operator (“CAISO”), establish RA requirements for all LSEs, which includes investor-owed utilities (“IOU”), energy service providers, and community choice aggregators (“CCA”).

The CPUC’s Track 2 proceeding was designed to consider central buyer structures and other features in order to implement multi-year local RA requirements for 2020. The instant decision states that “[w]hile the Commission continues to find that a central procurement structure is the appropriate framework for implementing multi-year local requirements, a lack of consensus exists among parties as to the appropriate central buyer and central procurement mechanism.” Parties to the proceeding have diverging views on the central buyer structure—namely whether the IOUs, a special purpose entity (e.g., a new state agency or private entity), the CAISO, or a centralized capacity market should serve this function. Notably, one of California’s three large electric IOUs opposes the idea of distribution utilities serving as the central buyer, while the other two have indicated a willingness to do so only on an interim basis. Further, the CAISO has rejected the idea of voluntarily assuming the role of central buyer. Accordingly, the decision directs further workshops to identify a central buyer and to resolve various implementation details prior to the 2020 RA compliance year, including how much of the required local RA will be procured by the eventual central buyer and whether individual LSEs will continue to receive local RA requirements. The facilitation of these workshops over the next six months will rotate between a representative of a CCA, IOU, and electric service provider.

For now, the decision adopts a minimum three-year forward RA requirement, and modifies the Year 3 minimum requirement to 50% while maintaining the existing 100% procurement requirement for Years 1 and 2. The decision contemplates a future decision addressing the central buyer designation and implementing the central procurement structure in the fourth quarter of 2019.

Decision (D). 19-02-022 is available here. The CPUC’s Track 1 decision in the RA proceeding (D.18-06-030) is available here. The CPUC’s docket for Rulemaking (R.)17-09-020 is accessible here.

For further information on our CCA practice, please contact: Michael Postar; Lisa S. Gast; Peter J. Scanlon; Sean M. Neal; Bhaveeta K. Mody; or Lauren M. Perkins.

Electricity Information Sharing & Analysis Center Partners with Multi-State Information Sharing & Analysis Center

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On February 27, 2019, the Electricity Information Sharing and Analysis Center (E-ISAC), a unit of the North American Electric Reliability Corporation (NERC), announced a partnership with the Multi-State Information Sharing & Analysis Center (MS-ISAC) to improve security collaboration and information sharing between the two organizations with the goal of securing the nation’s critical electric infrastructure. NERC is authorized by the Federal Energy Regulatory Commission to be the nation’s Electric Reliability Organization and is in charge of setting standards for electric transmission reliability and resilience against cyber and physical threats.   NERC compliance is mandatory for entities that serve a qualifying function in the bulk power system. MS-ISAC is a voluntary organization of state, local, tribal and territorial governments that shares information among its members on cyber security threat prevention and response. The U.S. Department of Homeland Security provides programmatic funding and has designated MS-ISAC as the cybersecurity ISAC for state, local, tribal and territorial (SLTT) entities. The recently announced partnership with MS-ISAC envisions deepening cooperation between SLTT governmental entities and owners and operators of critical electric infrastructure by, among other things, sharing common threat information and incident responses, jointly analyzing threats, and increasing shared procedures for sharing information and situational awareness.   This partnership will allow industry and government coordination to efficiently recover critical infrastructure in the event of a grid security emergency. The partnership announcement can be accessed here.

For more information on this initiative and other electric reliability matters, please contact Kristen Connolly McCullough, Lisa S. Gast or Sean M. Neal.

Additional Consolidation and Dissolution of the NERC Regional Entities

On February 27, 2019, the North American Electric Reliability Corporation (NERC), along with the Florida Reliability Coordinating Council, Inc. (FRCC) and the SERC Reliability Corporation (SERC), jointly filed a petition at the Federal Energy Regulatory Commission (FERC) to dissolve and transfer FRCC’s regional entity delegated authority to SERC. NERC, which is charged by FERC to be the nation’s Electric Reliability Organization, seeks FERC approval to, among other things, transfer all NERC registered entities currently in the FRCC Regional Entity footprint to SERC. SERC is one of the original eight Regional Entities under NERC jurisdiction, and is geographically contiguous with the FRCC footprint.

The FRCC Regional Entity dissolution is the second such Regional Entity to dismantle itself and transfer its registered entities to neighboring Regional Entities. In May 2018, FERC approved the dissolution of the Southwest Power Pool (SPP) Regional Entity in which registered entities within the SPP Regional Entity footprint were transferred to the Midwest Reliability Organization (MRO) and to SERC. FERC’s approval of that dissolution was premised on the effective and efficient administration of bulk-power system reliability as required under the Federal Power Act.

The joint petition now before FERC to dissolve the FRCC Regional Entity is preceded by a NERC determination in 2017 that Regional Entities should be separate corporate bodies from their NERC-registered entities. A prior FERC audit also urged the FRCC Regional Entity to be more independent of its registered entities’ member services activities.[1] Similar to the SPP Regional Entity dissolution, NERC has entered into a Termination Agreement with FRCC Regional Entity for the dissolution that outlines the new SERC footprint as well as special assessments for the administration of the termination and the migration of regional entities from FRCC to SERC. FERC has not yet docketed the joint petition (available here).

For more information on this and other electric reliability matters, please contact Kristen Connolly McCullough, Lisa S. Gast or Sean Neal.
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[1] See Order Approving Audit Report, Determining Issue of Separation of Functions, and Directing Compliance and Other Corrective Actions, Docket No. PA09-7-000, 131 FERC ¶ 61,262 at P. 3(June 23, 2010).

Senate Committee Hearing on Cybersecurity Outlook for the Energy Sector: FERC Commissioner and NERC CEO Address Supply Chain Risk Management and Other Areas of Focus

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On February 14, 2019, the Senate Committee on Energy and Natural Resources held a hearing to consider the status and outlook for cybersecurity efforts in the energy industry, hosted by Senators Lisa Murkowski and Joe Manchin. Among other witnesses, Federal Energy Regulatory Commission (“FERC”) Chairman Neil Chatterjee and North American Electric Reliability Corporation (“NERC”) President and CEO James Robb provided testimony that addressed cyber risks confronting the energy sector.

NERC CEO Robb and FERC Chairman Chatterjee each discussed the development of NERC mandatory Critical Infrastructure Protection (“CIP”) Reliability Standards. Recently, through Order No. 850, FERC adopted three CIP Standards (CIP-013-1, CIP-010-3, and CIP-005-6) submitted by NERC to address supply chain risk management. Among other anticipated cyber security threat trends, Robb stated that “[r]ecent incidents have demonstrated that nation-state adversaries are targeting the electric sector and other industries by compromising the networks of third parties with which the intended targets have established business relationships. This tactic is a type of supply chain attack, and increases the success rate of tactics used to initially compromise the intended target.” Senator Manchin also briefly highlighted supply chain security, stating: “We have to make sure the companies that build components for our grid are secure. We have to protect against vendors’ remote access of the grid being exploited, and we have to make sure that attackers don’t insert malware into a vendor software update.” The new CIP Standards related to supply chain risk management go into effect in July 2020.

Chairman Chatterjee further raised a need to focus on natural gas pipeline cybersecurity (overseen by Transportation Security Administration “TSA”) in light of the Nation’s reliance on natural gas power generation. While addressing cybersecurity at the NARUC Winter Policy Meeting on February 13, 2019, the Chairman also emphasized natural gas pipeline security for which there are “no comparable set of mandatory standards” as those that apply to electric grid operators. Chairman Chatterjee pointed out that “despite having the authority to enforce mandatory cybersecurity standards, the TSA relies on voluntary standards.” Chatterjee provided that the TSA Administrator has pledged to take further action to improve the TSA’s oversight of pipeline security.

FERC and the Department of Energy will co-host a technical conference on March 28, 2019, to discuss energy infrastructure security practices. During his recent remarks at the NARUC Winter Policy Meeting, Chairman Chatterjee provided that this conference will discuss: (1) current and emerging cyber and physical security threats and how they are addressed by the private sector; and (2) how federal and state authorities can facilitate investments to improve infrastructure security.

The archived video of the Senate Committee hearing and witness testimony is available here.

Chairman Chatterjee’s remarks to the NARUC Winter Policy Meeting are available here.

Order No. 850 regarding supply chain risk management is available here.

For more information on NERC Reliability Standards and the cyber security outlook for the energy sector, please contact: Lisa S. Gast; Sean M. Neal; Kristen Connolly McCullough; Lauren Perkins.

PG&E Bankruptcy Timeline

  • 3/11/2019. 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.
  • 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: CAISO News Release “No impacts to California ISO markets from PG&E bankruptcy filing”
  • 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

CPUC Releases Final Choice Action Plan and Gap Analysis

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The California Public Utilities Commission (“CPUC”) released the December 2018 Final Choice Action Plan and Gap Analysis prepared by the California Customer Choice Project staff.  The paper is the culmination of the Choice Project’s stakeholder process addressing increased customer choice electric service options—including Community Choice Aggregators (“CCAs”), Direct Access electricity service providers (“ESPs”), and behind-the-meter technologies—and the resulting impact on California’s ability to achieve its policy objectives of affordability, decarbonization, and reliability.  The Gap Analysis: (1) identifies issues categorized as either consumer protection, duty to serve, or reliability and energy procurement; (2) describes how the CPUC or other state/federal entities are currently addressing those issues; and (3) identifies existing gaps to resolving those issues. The Choice Action Plan recommends responsive actions (regulatory, legislative, or additional analysis) the CPUC and other government entities should take to further address the areas identified in the Gap Analysis.  Issues analyzed in the study include access to customer usage data, designating a load-serving entity (“LSE”) as a provider of last resort, LSEs’ pricing and program disclosure for customers’ comparison purposes, whether reliability is sufficiently addressed through the CPUC’s resource adequacy requirements for LSEs, and the role of California’s investor-owned utilities in a disaggregated market.

More information on CPUC’s California Customer Choice Project stakeholder process can be found at: http://www.cpuc.ca.gov/CustomerChoice/.

For further information on our CCA practice, please contact Michael PostarLisa S. GastPeter J. ScanlonSean M. NealBhaveeta K. Mody, or Andrew B. Art