Highlights from the January FERC Open Meeting

January 27th, 2016 by Miles Farmer, Legal Fellow, Energy & Transportation Program

While it’s fair to say that the Supreme Court’s landmark decision affirming FERC’s authority to compensate demand response resources in wholesale energy markets overshadowed the news from FERC’s January Open Meeting, the Commission did issue several important orders last week, and Commissioner Clark announced that he will not seek another term.

FERC Proposes to Revise Offer Caps in Regional Wholesale Electricity Markets (RM16-5). FERC issued a notice of proposed rulemaking (NOPR) to remove the current $1,000/MWh cap on offers to supply electricity into the regional wholesale markets for supply sources whose costs are above that level. FERC’s action was prompted by extreme weather during the winter of 2013-14 (the “polar vortex”), which caused natural gas prices to rise to the point where units that were required to continue operating for reliability purposes had to operate at a loss. Removing or raising the offer cap for resources whose costs exceed the current cap will compensate them fairly for their contributions to grid reliability during extreme weather. To the extent removing the cap increases energy market prices it could spur more demand response. However, these changes need to be assessed in combination with other market changes to determine whether the total consumer costs exceed their reliability value. Under FERC’s NOPR, the $1,000/MWh cap would continue to apply to resources that cannot demonstrate costs above that level. FERC is requesting comment on several aspects of the proposal, including whether to adopt a new, higher cap above $1,000 for resources whose costs exceed that threshold, or whether to instead lift the cap entirely. Comments are due 60 days from the date on which the NOPR is published in the Federal Register.

FERC improves critical infrastructure security standards (RM15-14). In this final rule, FERC ordered the North American Electric Reliability Corporation (NERC) to develop better protections against cybersecurity threats from laptops, thumb drives, and other “transient electronic devices.” FERC also ordered NERC to improve controls to protect communications between control centers, and to study whether current standards adequately protect against cybersecurity vulnerabilities from remote access to grid systems. FERC declined to require stronger protections for communications between other elements of the grid, such as between substations, saying that it would take future action if circumstances warranted. These and other cybersecurity topics will become increasingly important as the grid evolves to a more decentralized architecture with higher levels of demand-side and distributed energy resources, many of which will rely on the internet for communications to utilities, control centers, and consumers.

FERC Initiates Investigations into Four Interstate Pipeline Companies’ Rates (RP16-299; RP16-300; RP16-301; RP16-302). After reviewing the revenue and cost information provided by four companies in their annual reports to FERC, the Commission has become concerned that these companies may be collecting money from energy customers at rates greater than necessary to recover their costs and a reasonable return on equity. FERC directed each pipeline to file a cost and revenue study, set each case for an evidentiary hearing before an administrative law judge. This is a welcome action by FERC that promises to help ensure that customers are not being overcharged. The big question it raises for the future is whether this is an isolated event, or if it instead represents the beginning of a broader FERC inquiry into overcharging by natural gas pipeline companies.

Energy Customers and Landowners Should Call FERC’s New ‘Landowner Helpline’ to Address Problems Related to Natural Gas Pipelines and Other Infrastructure Projects (RM15-26). FERC issued a final rule designating its recently-established Landowner Helpline as the official contact point for handling dispute-related calls, emails, and letters pertaining the construction and operation of FERC-jurisdictional infrastructure projects such as natural gas pipelines and large-scale transmission lines. Previously, such matters were handled by FERC’s Dispute Resolution Service.

FERC Commissioner Clark Announces That He Will Step Down. Commissioner Tony Clark announced that he will not seek a second term at FERC when his current term expires on June 30, 2016. Clark is currently the only Republican serving on the five-member Commission, which has a rule that only three members of any one party may serve at a time. There is already one vacancy on the Commission, which was created when another Republican, Commissioner Moeller, left FERC in October 2015. In announcing his decision, Commissioner Clark emphasized that in his view FERC cannot function properly with only three Commissioners, and explained that if necessary, he will stay on the Commission after his term expires. (Under Section 1 of the Federal Power Act, if no other commissioner succeeds him at the end of his term, Clark can remain in office until late 2016, when the current session of Congress is likely to end.) Given that no nominee has yet been named to fill Commissioner Moeller’s position, this seems likely. We appreciate and thank Commissioner Clark for his service, and we urge the president to appoint a replacement who possesses a keen understanding of the energy sector, and a strong commitment to eliminating the regulatory barriers faced by clean energy and energy efficiency resources.

FERC grants complaints on MISO’s capacity market prices in Southern Illinois. (EL15-70, EL15-71, EL15-72, EL15-82). Late last month, FERC acted on complaints by Public Citizen, the Illinois Attorney General, and others, finding that MISO’s capacity auction rules for its April 2015 auction led to unjust and unreasonable prices in MISO Zone 4 (southern Illinois). FERC agreed with the complainants and others (including the Sierra Club), that: (i) the MISO Initial Reference Level for Zone 4 should not be set at PJM prices; instead it should be set at $0 plus the going forward costs of existing units; and (ii) MISO should account for counterflow from energy exports. These two changes should be enough, according to several experts, to lower capacity prices in Zone 4 from $150/MW-day to levels similar in the rest of MISO ($20/MW-day and less). FERC, however, declined to order the sweeping capacity market changes that Dynegy and the Independent Market Monitor had asked for (including requiring a sloped demand curve).

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