On March 21, 2019, FERC issued a Notice of Inquiry (“NOI”) seeking information regarding whether and how to revise its policy for determining the rate of return on equity (“ROE”) used in setting rates charged by jurisdictional public utilities.  The NOI also seeks comment on whether any changes to the Commission’s ROE policies for public utilities should be applied to interstate natural gas and oil pipelines.  Specifically, the NOI requests information in eight areas:  (1) the role of FERC’s base ROE in investment decision-making and what objectives should guide the Commission’s approach; (2) whether uniform application of FERC’s base ROE policy across the electric, interstate natural gas pipeline and oil pipeline industries is appropriate and advisable; (3) performance of the discounted cash flow (“DCF”) model; (4) proxy groups; (5) the choice of financial model(s) used; (6) the mismatch between market-based ROE determinations and book-value rate base; (7) how FERC determines whether an existing ROE is unjust and unreasonable under the first prong of Federal Power Act section 206; and (8) model mechanics and implementation.
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At a time of significant industry transformation driven by technological change and spurred on by environmental policy concerns, the Federal Energy Regulatory Commission (“FERC” or “Commission”) has now added a significant layer to the stack of policy debates – the future of transmission investment.  Many states have seized the initiative in terms of establishing preferable resource mixes for in-state customers, and are spearheading significant pushes for greater renewable and storage resource deployment.  FERC has now joined the fray by opening up the policy debate anew regarding how to spur (or whether to spur) additional transmission sector investment.  The FERC order described below focuses on regulatory and market rules impacting transmission investment (Docket No. PL19-3-000).  The agency also opened a companion docket requesting comments on the details of its policies regarding establishment of a public utility transmission owner’s stated return on equity (“ROE”) (Docket No. PL19-4-000).  The Washington Energy Report will provide detailed summaries of these orders via our blog.  FERC’s mention here of “an increased emphasis on the reliability of transmission infrastructure” (emphasis added) could signal an attempt to re-focus the U.S. Department of Energy’s resiliency concerns to an arena that gives FERC home-field advantage.  Lest the states forget, FERC controls the price of admission for a ticket to the interstate transmission network, and this open-ended fact-finding effort bears a high likelihood of impacting the price of such tickets (for a large portion of the continental United States).
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On March 11, 2019, a U.S. district court judge in California denied FERC’s motion to withdraw the reference of Pacific Gas and Electric’s (“PG&E”) adversary proceeding from the U.S. Bankruptcy Court in the ongoing jurisdictional dispute between FERC and the bankruptcy court.  In his ruling, Judge Haywood Gilliam Jr. of the U.S. District Court for the Northern District of California held that removal of the case from the bankruptcy courts was neither required nor permitted because the plain language of the Bankruptcy Code is sufficient to address the questions raised in the proceeding.
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On March 11, 2019, PJM Interconnection, L.L.C. (“PJM”) made a filing informing FERC that it has begun advising Capacity Market Sellers to use both its existing capacity market rules, as well as its proposed Capacity Reform rules while it awaits a final order from FERC on the proposed reforms.  PJM stated that this approach ensures that all Capacity Market Sellers will have satisfied both the existing and PJM’s proposed pre-auction requirements prior to the conduct of the August 2019 Base Residual Auction (for the 2022/2023 Delivery Year) in anticipation of a Commission order.  The Capacity Reform rules include revised Minimum Offer Price (“MOPR”) rules and the “Resource Carve-Out” alternative.
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On February 28, 2019, FERC denied the Coalition of Midwest Power Producers, Inc.’s (“Power Producers”) complaint alleging that Midcontinent Independent System Operator, Inc. (“MISO”) violated its tariff (“OATT”) by not requiring all capacity resources to be deliverable up to their installed capacity levels (“Complaint”).  FERC concluded that MISO reasonably implemented its OATT provisions regarding capacity resources.
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On February 25, 2019, FERC issued an order accepting proposed revisions to the ISO New England Inc. (“ISO-NE”) Transmission, Markets and Services Tariff (“Tariff”) that would enable electric storage resources (“ESRs”) to more fully participate in ISO-NE’s markets (“Storage Revisions”).  FERC found that the Storage Revisions reduce barriers to entry for ESRs by enabling them to provide services they are capable of providing, which would enhance competition, thus helping to ensure just and reasonable rates in the ISO-NE markets.  ISO-NE submitted these changes as essentially an interim step on its road to becoming fully compliant with Order No. 841’s generic requirements regarding Regional Transmission Operators (“RTOs”) and Independent Service Operators (“ISOs”) enabling storage participation in competitive markets.
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On February 21, 2019, FERC issued an order accepting tariff revisions proposed by the California Independent System Operator Corporation (“CAISO”) regarding manual load forecast adjustments (also known as “load conformance”) in the CAISO and the western Energy Imbalance Market (“EIM”).  CAISO’s December 12, 2018 filing proposed tariff additions to describe: (1) load-conforming practice used in the real-time market; (2) a similar load-conforming practice used in the residual unit commitment (“RUC”) process of the day-ahead market; and (3) a “load conformance limiter” tool to automatically limit system operator-initiated load conformance in the real-time market to ensure that adjustments to load do not exceed actual market ramping capability, thereby triggering shortage pricing when extra supply is not actually needed.  FERC approved CAISO’s tariff revisions, effective February 27, 2019, over objections from parties that the load conformance limiter mechanism suppresses market prices and prevents shortage pricing.
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On February 11, 2019, a group of seventeen Democrat United States Senators and Senator Bernie Sanders wrote a letter (the “2019 Letter”) to FERC Chairman Neil Chatterjee urging FERC to adopt a rule requiring Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) to open their markets to participation of aggregated distributed energy resources (“DERs”).
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On December 14, 2018, Vineyard Wind, LLC (“Vineyard Wind”) filed a Petition with FERC to waive the pro-rata proration requirements of the ISO New England, Inc. (“ISO-NE”) Transmission, Markets and Services Tariff (“Tariff”) so that Vineyard Wind could participate in the upcoming ISO-NE Forward Capacity Auction 13 (“Auction 13”) as a Renewable Technology Resource (“RTR”).  Because time was of the essence, Vineyard Wind asked FERC to render an expedited decision no later than January 29, 2019.  FERC took no action on the Petition, however, and as of this writing, has also not taken any action on Vineyard Wind’s subsequent Emergency Motion for relief, rendering it all but certain that Vineyard Wind will be unable to participate in Auction 13.
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On January 29, FERC issued an order accepting revisions to ISO New England Inc.’s (“ISO-NE”) Competitive Auctions with Sponsored Policy Resources (“CASPR”) program, the ISO-NE’s mechanism to integrate state-sponsored generation resources (“Sponsored Policy Resources”) that might otherwise suppress prices in its Forward Capacity Market.  The order addressed the contested test price mechanism in detail, ultimately accepting it as a just and reasonable modification to ISO-NE’s Forward Capacity Auction (“FCA”) design.  In so doing, FERC’s order permits ISO-NE to bar capacity resources from participating in the FCA secondary auction if those resources bid capacity into the FCA primary action at a price below the ISO-NE’s assessment of their going-forward costs.  FERC’s order drew a dissent from Commissioner Glick, who argued that the test price mechanism had not been shown to be just and reasonable.
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