Highlights from the July FERC Open Meeting

Jul 21, 2015 by Juliana Brint, NRDC Legal Intern

Cost Recovery Mechanisms for Modernization of Natural Gas Facilities, PL15-1-001

FERC denied a request to clarify its April 16, 2015 policy statement, which created a process to allow interstate natural gas pipelines to recover the costs of modernizing their facilities. The policy statement was intended to give pipeline companies a mechanism to recover costs associated with improvements needed to comply with proposed government safety and environmental protection efforts. Some environmental organizations (including the Sustainable FERC Project, the Environmental Defense Fund, and the Conservation Law Foundation) supported the policy statement as a way to reduce risks to safety and adverse environmental impacts caused by preventable methane leakage.

A group of industrial gas users and a forest products trade association requested clarification of the policy statement, urging FERC to increase the burdens and limits on natural gas pipelines seeking cost recovery for modernizations. They sought clarification on six points, including a request to require “formal procedures” for the collaborative process that pipelines must undertake before filing proposals with the Commission. FERC rejected the request for clarification, finding that the proposed clarifications were “antithetical” to the approach it adopted in the policy statement, which will involve case-by-case evaluations of proposed modernization surcharges.

Revisions to Auxiliary Installations, Replacement Facilities, and Siting and Maintenance Regulations, RM12-11-003

FERC issued a final rule on the treatment of auxiliary installations. Auxiliary installations are facilities that are added to increase the efficiency of pipeline operations. This rule is part of a series of orders clarifying that auxiliary installations are only allowed to use “rights-of-way, facility sites, and work spaces authorized for the construction and operation of interstate transmission facilities.”

This specific rule grants pipelines authority to abandon or replace auxiliary installations in certain situations. The rule will provide “pre-granted authorization to retire auxiliary facilities … if there will be no need to go outside an authorized right-of-way, facility site, or work space.” FERC also established “blanked certificate authority” that allows auxiliary installations that do not fall into the first category to be abandoned subject to certain conditions. During Thursday’s meeting, commissioners Philip Moeller and Tony Clark said that they hoped the rule would protect the environment without unduly burdening pipelines.

Navopache Electric Cooperative, Inc., EL15-59-000

FERC will hold hearings and settlement proceedings in a dispute between Navopache Electric Cooperative, Inc., and Public Service Company of New Mexico (PMN) over a power sales agreement. Navopache believes the long-term contract gives it leeway to use alternate suppliers to satisfy a significant part of its electricity load. Navopache wishes to exercise that option since a competitive power solicitation process revealed that it could save money by using a different supplier. After PMN “indicated that it would engage in litigation” to prevent the cooperative from switching to a new supplier, Navopache in April 2015 filed a petition for a declaratory order from FERC. Navopache asked FERC to confirm that it has the right to purchase power from other suppliers. PMN protested the petition, arguing that FERC should deny the petition or at least provide for a trial-type hearing.

In its order, FERC found that Navopache’s complaint raised “issues of material fact” that should be addressed through hearing and settlement judge procedures. This case may provide insight into FERC’s appetite for allowing parties to long-term power supply agreements to seek alternative suppliers, and therefore, potential implications exist for clean energy power purchase agreements. However, FERC’s order largely presents the dispute as a matter of contract interpretation and intent and so its implications remain to be seen.

GenOn Energy Management, LLC v. ISO New England, EL15-57-000

FERC dismissed a complaint by GenOn Energy Management against ISO New England regarding the ISO’s handling of its capacity market. The decision has significant implications regarding the responsibilities of generators who participate in ISO New England’s capacity market.

GenOn argued that ISO New England had violated its tariff by submitting a demand bid on GenOn’s behalf in a capacity auction for the 2015-2016 capacity commitment period. The disputed bid was based on a July 2013 partial shut down of a unit at Canal Generating Plant, which is owned by GenOn’s parent company, NRG. However, according to GenOn, the unit has been operating at full capacity since May 2014 and the company had previously filed two restoration plans about the unit. GenOn argued that the ISO acted improperly by submitting bids on GenOn’s behalf even though it knew that the unit had been restored and that GenOn therefore did not need to purchase additional capacity through the auction.

ISO New England responded to GenOn’s complaint by arguing that it followed its tariff. The ISO pointed out that GenOn failed to submit a restoration plan for the unit in response to the ISO’s posting of capacity values for the auction at issue. PSEG Companies filed comments in support of GenOn, arguing that GenOn’s allegations “call into question the ability of ISO-NE to act as the responsible counterparty in administering these wholesale competitive markets.”

FERC found that ISO New England had interpreted its tariff reasonably. The Commission found that the ISO’s tariff required GenOn to submit a restoration plan within a designated 10-day window, which it had failed to do. FERC also refused to grant GenOn a waiver of the relevant tariff provision, stating that such a waiver “could adversely affect parties that engaged in transactions based on the finality of the [auction].”

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