FERC, CFTC, and State Energy Law Developments

When a business entity that is regulated by the Federal Energy Regulatory Commission (FERC) is closely related to another business entity, FERC takes the position that under some circumstances it may treat the two different legal entities as if they were one single entity.  FERC ruled recently that it “may disregard the corporate form in the interest of public convenience, fairness, or equity” and “[t]his principle of allowing agencies to disregard corporate form is flexible and practical in nature.”  As a result, a new power marketer could be barred by a Regional Transmission Organization (RTO) from participating in the market unless it paid off the debts to the RTO owed by another power marketer with the same business objectives and the same contacts and administrators as the bankrupt entity. This decision could make it difficult for public utilities to avoid the debts of their bankrupt affiliates, which could be attributed to the entire enterprise regardless of the final plan of bankruptcy, including the liquidation of the bankrupt entity.

When a debtor in bankruptcy is liquidated, or successfully emerges from bankruptcy, certain unsatisfied, unsecured pre-bankruptcy debts of that bankrupt debtor are discharged. The discharge functions as a defense by the debtor against the claims of the debtor’s creditors. Similarly, when a debtor in bankruptcy is affiliated (such as by common upstream ownership) with a non-bankrupt entity, the non-bankrupt affiliate is typically not presumed to be responsible for that bankrupt debtor’s unsatisfied obligations, unless some statutory, contractual or security arrangement makes the non-bankrupt affiliate liable for those obligations or one entity is viewed to be the “alter ego” of the other under applicable state law.

The US Environmental Protection Agency (EPA) issued three rules on June 19 that may give utilities new reasons to consider investing in certain plant modifications and reassessing the projected lifespans of their facilities. The rules also affect each state’s resource planning process and may contribute to changes in a state’s projected energy resource mixes. In response to the rules, utilities should be prepared for possible changes to state policies defining what constitutes “clean” energy and supporting reliability. The rules are intended to go into effect 30 days from their issuance. However, the implementation timeline for the rules is not certain because several states and organizations have stated they intend to challenge the rules in the federal courts.

A recent grid reliability report issued by staff members of the Offices of Electric Reliability and Enforcement within FERC evaluating the upcoming operating season underscored the changing generation resource mix in the United States and its implications for grid operations.

The May 16 Order on Rehearing affirms FERC’s jurisdictional authority, and refuses calls for state opt-outs.

The Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 841 early last year, a final rule amending FERC’s regulations to facilitate participation of electric storage resources in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). Several entities have since challenged key aspects of the final rule, urging the Commission on rehearing to reverse course or modify its approach on a number of issues. On May 16, the Commission issued Order No. 841-A, denying those requests for rehearing, thereby upholding the initial rulemaking while providing some additional clarification.

Electric power generation and sale customarily fall within the scope of FERC jurisdiction under the Federal Power Act, as amended, as do generator investment and ownership. Qualifying small power production facilities (Small Power QFs) of no larger than 20 MW (net AC) are usually exempt from FERC regulation of mergers, acquisitions, divestitures, power sale rates, and related regulation under the Public Utility Holding Company Act. Small Power QFs are also normally exempt from state utility commission regulation of corporate, financial, and power sales rate matters. These Small Power QF regulatory exemptions are widely viewed as helpful and appropriate by industry stakeholders ranging from generation investors to traditional franchised utilities, and residential and commercial generation users.

The Federal Energy Regulatory Commission (FERC or Commission) appears to be inching closer toward a resolution on grid operators’ proposals to facilitate electric storage participation in organized capacity, energy, and ancillary service markets. On April 1, FERC’s Office of Energy Market Regulation (Staff) directed each of the Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) that submitted compliance filings in response to FERC’s Order No. 841 to submit additional information on the mechanics of their proposed energy storage market rules. Those latest actions by Staff break FERC’s recent silence on the grid operators’ proposals, which were submitted to the Commission over four months ago and which must be implemented as early as December 2019.

Although tailored to each ISO’s and RTO’s proposal, Staff’s requests were largely centered on the same general areas and directed the ISOs and RTOs to further explain how the mechanics of their proposed storage participation models meet compliance with Order No. 841. For example, among other things, Staff sought more information on how the ISOs and RTOs will:

As we reported in December 2018, to jumpstart the energy storage market as envisioned by Governor Andrew M. Cuomo, the New York Public Service Commission (NYPSC) issued an order establishing an aggressive 3 GW energy storage goal by 2030, with an interim target of 1.5 GW by 2025, and directing investor-owned electric utilities (IOUs) to engage in competitive procurements for energy storage. The IOUs will issue draft requests for proposals (RFPs) this summer following a stakeholder process that kicks off on March 29.

A recent advisory published by the Commodity Futures Trading Commission’s Division of Enforcement and comments of the division director have highlighted the CFTC’s attention toward investigating potential violations of the Commodity Exchange Act (CEA) that involve foreign corrupt practices. On March 6, CFTC Director of Enforcement James M. McDonald addressed this very issue in remarks before the ABA National Institute on White Collar Crime. At the same time, the division issued an Enforcement Advisory providing guidance on how the CFTC will treat instances of self-reporting and cooperation concerning CEA violations that also involve foreign corrupt practices.

Read the full LawFlash.

In response to state legislation enacted last year, the New Jersey Board of Public Utilities (BPU) is seeking comments concerning the state of and prognosis for energy storage development within the State of New Jersey. New Jersey enacted the Clean Energy Act on May 23, 2018. Among other things, the act requires the BPU, in consultation with the regional grid operator, PJM Interconnection, LLC, and other stakeholders, to conduct an energy storage analysis and submit a written report on energy storage to the governor and legislature by May 23, 2019.