• Opening more than 75% of America’s potential offshore oil and gas resources;
• Requiring companies that drill for gas on public lands to disclose the chemicals used;
• Promoting clean-energy tax credits;
• Allowing the development of clean energy on public lands;
• Announcing the U.S. Navy will purchase enough clean energy capacity to power a quarter million homes (1 GW); and
• Proposing that Congress pass a bill to promote energy efficiency in manufacturing facilities.

President Obama also directed the Department of the Interior (“DOI”) to develop 3,500 MW of renewable projects on public lands this year.  DOI has stated that this increase in 2012-approved projects would mean that it would meet the Energy Policy Act of 2005’s mandate to site 10 GW of non-hydroelectric renewable energy projects by December 31, 2015.  DOI also recently announced plans for a natural gas lease sale in the Gulf of Mexico.  The sale is expected to take place on June 20, 2012 and will include approximately 7,250 unleased blocks that span nearly 38 million acres.  Federal estimates speculate the region contains 31 billion barrels of oil and 134 trillion cubic feet of natural gas.

Obama’s address renewed his request for Congress to pass a “clean energy standard” that would require electric utilities to obtain 80 percent of their power from natural gas, nuclear and renewable sources by 2035 and a permanent extension of a federal production tax credit for wind power.  The current wind energy tax credit is set to expire on December 31, 2012.  The American Renewable Energy Production Tax Credit Extension Act has been introduced and proposes to grant a four year extension to the wind energy tax credit.  Obama made reference to the Solyndra bankruptcy stating “some technologies don’t pan out; some companies fail.”  (See September 23, 2011 edition of the WER).

 In 2007, FERC granted SoCal Edison and PG&E transmission incentive rate treatment.  One of the incentives FERC granted the utilities was authority to recover sunk project development costs in case the companies were forced to terminate the projects.  

In October 2011, both companies applied for rate recovery of their abandoned projects stating that the projects were cancelled due to reasons beyond the control of both utilities.  SoCal Edison abandoned the Arizona portion of their Dever-Palo Verde II (“DPV2”) project after it was denied a Certificate of Environmental Compatibility from the Arizona Corporation Commission.  Also, reduced load forecasts made the project significantly less economic.   PG&E abandoned its efforts to build a multi-party line from British Columbia to the Pacific Northwest and Northern California after: 1) the other sponsors withdrew from the project, 2) PG&E was unable to secure a vital power purchase agreement with BC Hydro, and 3) California enacted a 33 percent renewable standard requiring 75 percent of renewable power to come from in-state resources.  These three factors were enumerated in PG&E’s original rate incentive application as reasons why the project might be terminated in the future.

The Commission agreed that PG&E and SoCal Edison abandoned their projects due to reasons out of their control, but set both matters for trial-type evidentiary hearings and encouraged settlement among the parties.  Although the Commission approved cost-recovery for the abandoned facilities, FERC declared both utilities still had to demonstrate that the amounts sought for recovery are just and reasonable. 

 It will be interesting to see whether these cases settle, and if so, what settlement amount is agreed upon.  At issue in these settlement proceedings will be whether the companies’ development costs were reasonably incurred.  Transmission developers should watch these cases as it will be interesting to see the level of scrutiny that FERC trial Staff and interveners give to the costs at issue.

A link to the PG&E order is available here, and the SoCal Edison order is available here.

The Technical Conference was chaired by Norman Bay, the Director for the Office of Enforcement, and Commissioners Moeller, Norris, and LaFleur were present for the first panel discussion; Commissioner LaFleur was the only Commissioner to attend the second panel.  The first panel discussion focused on compliance programs while the second panel discussed specific issues with penalty calculations. 

The first panel focused on compliance programs since the issuance of the penalty guidelines and whether the seven elements that have been identified as indicators of an effective program have helped to prioritize compliance programs.  The first panel consisted of: 

• Andrew Soto from the American Gas Association;
• Nancy Bagot from the Electric Power Supply Association;
• Shari Gribbin from Exelon Corporation;
• Susan Kelly from the American Public Power Association;
• Richard Meyer from the National Rural Electric Cooperative Association; and
• Joan Dreskin from the Interstate Natural Gas Association of America.

The first panel was in consensus on most issues, and the individuals provided the Commission with several areas where more clarity is needed.

The second panel consisted of:

• Former Chairman Joseph Kelliher for NextEra Energy, Inc.;
• Former Commissioner William Massey from Covington & Burling LLP; and
• Frank Lindh from the California Public Utilities Commission.

 The second panel was asked the following questions:

1. Whether duration and volume are already sufficiently accounted for in the loss calculation;
2. Whether the penalty guidelines should account for situations in which the entity that committed the violations passed the gain onto ratepayers; and
3. Whether penalties should be calculated based on each separate act, the conduct as a whole, or whether it should depend on the type of the violation and the particular facts/circumstances.

Chairman Kelliher and Lindh provided diametrically opposed answers to the questions presented.  Chairman Kelliher asked specifically that the Commission consider striking the loss and duration enhancement factor while Lindh advocated continued usage.   Commissioner Massey stated the Commission should use its discretion and only apply the loss factor when it is not sufficient in certain instances.  Massey and Kelliher supported the Commission considering whether shareholders received a benefit from misconduct, and Lindh argued against giving an automatic credit based on whether a rate payer benefited from the misconduct.   For the third question, Kelliher believes it is a mistake for North American Electric Reliability Corporation to create a ticket and review every violation, and Lindh endorsed this process.  Massey advocated looking at the particular facts surrounding multiple violations.