Regulatory Updates

FERC/DOE’s Security Investments for Energy Infrastructure Technical Conference

shutterstock 270554060
On March 28, 2019, the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE) held a joint technical conference to discuss and gain a stronger understanding of the types of cyber and physical security threats to electric transmission and natural gas pipeline infrastructure, and explore how federal and state commission authorities can provide incentives and cost recovery mechanisms for security investments in energy infrastructure. Specifically, the technical conference discussed: (1) the need for security investments that go beyond existing reliability standards; (2) how the costs of such investments can be recoverable; and (3) whether additional incentives for making such investments are needed, and if so, how such incentives should be designed.

Panel I discussed the types of cyber and physical security that are most concerning for the energy industry, best practices for prioritizing and mitigating such risks, and techniques for industry and government engagement. Panelists described and evaluated vulnerabilities threating private sector energy infrastructure as well as potential approaches to combat cyber and physical security threats. Panelists also discussed whether FERC should play a more active role in encouraging energy infrastructure owners and operators to develop more advanced security measures to strengthen existing critical infrastructure, supply chain, and cybersecurity initiatives.

Panel II discussed whether and how federal and state authorities should provide incentives and cost recovery for security investments in energy infrastructure. Panelists discussed whether current cost recovery policies at both the federal and state level are enough to encourage investment in cyber and physical security energy infrastructure and what other methods are available for FERC to incentivize utilities to exceed the minimum requirements of the reliability standards for the benefit of consumers.

FERC has invited interested parties to submit comments in response to topics discussed in the FERC/DOE’s Security Investments for Energy Infrastructure Technical Conference under FERC Docket No. AD19-12-000.

The FERC/DOE’s Security Investments for Energy Infrastructure Technical Conference Agenda is available here.

For more information on the FERC/DOE Security Investments for Energy Infrastructure Technical Conference, please contact Kristen Connolly McCullough or Clarence Hawkes III.

New NERC Reliability Standards Subject to Enforcement

NERCLogo
As of April 1, 2019, the following North American Electric Reliability Corporation (NERC) Reliability Standards became effective and enforceable in the United States:    
  • BAL-002-3 (Disturbance Control Standard – Contingency Reserve for Recovery from a Balancing Contingency Event)
  • EOP-004-4 (Event Reporting)
  • EOP-005-3 (System Restoration from Blackstart Resources)
  • EOP-006-3 (System Restoration Coordination)
  • EOP-008-2 (Loss of Control Center Functionality)
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  Lisa GastSean Neal  or Kristen Connolly McCullough.

Executive Order on Coordinating National Resilience to Electromagnetic Pulses

shutterstock 372548782

By Executive Order released on Tuesday, March 26, 2019 (March 26, 2019 E.O.), the President of the United States established the first comprehensive “whole-of-government” policy to enhance resilience and protect against electromagnetic pulses (EMPs). EMPs are defined in the March 26, 2019 E.O. as temporary electromagnetic signals that can disrupt, degrade, and damage technology and critical infrastructure systems across large areas. The March 26, 2019 E.O. outlines the responsibilities and expectations for the Assistant to the President for National Security Affairs, the Secretary of State, Secretary of Defense, Secretary of the Interior, Secretary of Commerce, Secretary of Energy, Secretary of Homeland Security, Director of National Intelligence, and the heads of all Sector-Specific Agencies (SSAs).

The March 26, 2019 E.O. directs action in five areas to reduce the risk that EMPs pose to U.S. critical technology and infrastructure systems: (1) identify national critical functions and associated priority critical infrastructure at greatest risk from EMPs; (2) conduct research and development in order to improve understanding of EMP effects; (3) evaluate approaches to mitigate the effects of EMPs; (4) strengthen critical infrastructure to withstand the effects of EMPs; and (5) improve national response to EMP events.

To implement these actions, Section 3(b) of the March 26, 2019 E.O. directs the Federal Government to promote collaboration and facilitate information sharing, including the sharing of threat and vulnerability assessments, among executive departments and agencies, the owners and operators of critical infrastructure, and other relevant stakeholders.  The Federal Government will also provide incentives to private-sector partners to encourage innovation that strengthens critical infrastructure against the effects of EMPs through the development and implementation of best practices, regulations, and appropriate guidance.

The Secretary of Homeland Security is directed (within 90 days of the March 26, 2019 E.O.), in coordination with the heads of SSAs to identify and list the national critical functions and associated priority critical infrastructure systems, networks, and assets that, if disrupted, could reasonably result in catastrophic national or regional effects on public health or safety, economic security, or national security. This list will be updated and will trigger other actions specified within the March 26, 2019 E.O. However, as defined by the March 26, 2019 E.O., it seems clear that the bulk power system and the maintenance of the electric grid fall within the definition of “critical infrastructure” and “National Critical Functions.”

A full copy of the March 26, 2019 E.O. can be found here.

For additional information on the March 26, 2019 E.O., 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..

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

shutterstock 215430193
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 both the Transmission Incentives and ROE Notices of Inquiry are due on June 26, 2019, with reply comments due on July 26, 2019.

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

shutterstock 255427768
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

CPUC Logo
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

shutterstock 80701129

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.
NERC map

[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).