Miles Kiger

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On April 30, 2020, the United States Court of Appeals for the Eighth Circuit (“Eighth Circuit”) denied Nebraska Public Power District’s (“NPPD”) petition for review of FERC’s approval of the Southwest Power Pool, Inc.’s (“SPP”) placement of Tri-State Generation & Transmission Association’s (“Tri-State”) transmission facilities in SPP Zone 17. NPPD challenged FERC’s approval on cost causation grounds, arguing that FERC’s ruling was arbitrary and capricious because it failed to find that the benefits accruing to NPPD are roughly commensurate with the costs. The Eighth Circuit denied NPPD’s petition, concluding that FERC provided plausible and articulable reasons for why the costs and benefits of placing Tri-State’s transmission facilities in Zone 17 were comparable, and that FERC’s cost-causation analysis was not arbitrary and capricious.

On April 30, 2020, FERC accepted the New York Independent System Operator, Inc.’s (“NYISO”) proposed revisions to its Open Access Transmission Tariff (“OATT”) and its Market Administration and Control Area Services Tariff intended to enhance the integration of its Generator Deactivation Process with its Reliability Planning Process. NYISO proposed to establish a Short-Term Reliability Process using quarterly Short-Term Assessment of Reliability (“STAR”) studies that simultaneously evaluate the reliability impact of both generator deactivations and other changes that may impact transmission facilities (“Proposal”). FERC found that the Proposal will enhance NYISO’s current Generator Deactivation Process into a more efficient and comprehensive Short-Term Reliability Process.

On April 17, 2020, FERC denied Potomac Economics, Ltd.’s (“Potomac Economics”) complaint against PJM Interconnection, L.L.C. (”PJM”), which alleged that PJM’s rule requiring external generation resources to obtain a pseudo-tie in order to participate in PJM’s capacity market was unjust and unreasonable (“Complaint”). FERC found that Potomac Economics failed to show that PJM’s pseudo-tie requirement had caused market inefficiencies or harmed reliability and that any arguments regarding potential future harms to the New York System Operator, Inc. (“NYISO”) by the pseudo-tie requirement were speculative. FERC also denied PJM’s motion to dismiss the Complaint, finding that market monitors may file complaints under Federal Power Act (“FPA”) section 206, provided that such market monitors satisfy the requirements of FERC’s relevant regulations.

On March 30, 2020, FERC issued an order establishing a paper hearing to evaluate Energy Harbor LLC’s (formerly known as FirstEnergy Solutions Corp.) proposed rejection in bankruptcy of a variety of FERC-jurisdictional contracts (“Jurisdictional Contracts”). FERC’s order follows a recent decision of the United States Court of Appeals for the Sixth Circuit ordering the bankruptcy court to take public interest factors into account when reviewing the proposed rejection of the Jurisdictional Contracts, and to invite FERC to provide its opinion on the issue (see December 19, 2019 edition of the WER).  FERC initiated the paper hearing to consider these public interest factors.

I. Summary of NOPR

On March 19, 2020, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) proposing to revise its electric transmission incentive policy under Federal Power Act (FPA) Section 219[1] “to stimulate the development of transmission infrastructure needed to support the nation’s evolving generation resource mix, technological innovation and shifts in load patterns.”[2] FERC’s NOPR includes a number of changes to its transmission incentives policy and seeks comment from industry participants.

FERC’s NOPR proposes to shift the focus in granting transmission incentives from an approach based on the risks and challenges faced by a project to an approach based on economic and reliability benefits to consumers.

The NOPR intends to replace the current policy of limiting incentives to the base rate of return on equity (ROE) zone of reasonableness with a 250-basis-point cap on total ROE incentives. The NOPR proposes that transmission providers should be allowed to seek removal of the ROE zone-of-reasonableness restrictions placed on previously-granted incentives and to replace them with the hard cap.

FERC proposes to increase the ROE incentive for joining and remaining a member of a Regional Transmission Organization (RTO), an Independent System Operator (ISO) or other Commission-approved transmission organization (collectively hereinafter, “RTO”) from 50 basis points to 100 basis points, and to make the incentive available regardless of whether such participation is voluntary.

The NOPR also offers a 50-basis-point ROE incentive for transmission projects that meet a pre-construction benefit-to-cost ratio in the top 25 percent of projects examined over a sample period, and an additional 50 basis points for projects that meet a post-construction benefit-to-cost ratio in the top 10 percent of projects studied over the same sample period.

FERC further proposes a 100-basis-point ROE incentive for transmission technologies that enhance reliability, efficiency and capacity, as well as improve the operation of new or existing transmission facilities. The NOPR also proposes an incentive of up to 50 basis points for projects that demonstrate reliability benefits by providing a quantitative analysis, where possible, or a qualitative analysis.

Finally, FERC plans to retain several existing non-ROE incentives, including those related to Construction Work In Progress (CWIP), hypothetical capital structure, accelerated depreciation for rate recovery, and regulatory asset treatment, that remain vital in removing regulatory barriers and other impediments to transmission investment.

Commissioner Richard Glick dissented in part from the NOPR.

The NOPR seeks comment on these proposed reforms 90 days from the date of its publication in the Federal Register.

On March 6, 2020, FERC rejected ISO New England Inc.’s (“ISO-NE”) and the New England Power Pool Participants Committee’s proposed revisions to the ISO-NE Tariff intended to eliminate ISO-NE’s ability to retain a resource for local transmission reliability needs if that resource has been previously retained for fuel security purposes (“Proposed Tariff Revisions”). FERC found that the Tariff Revisions were not just and reasonable because they would limit ISO-NE’s ability to address potential future transmission reliability issues without alternative transmission solutions yet being in place.

On February 28, 2020, FERC rejected Midcontinent Independent System Operator, Inc.’s (“MISO”) Tariff proposal to subject generation resources that are not designated as capacity resources (“Non-Capacity Resources”) to MISO’s physical withholding rules in MISO’s day-ahead market. FERC determined that MISO’s proposed revisions lacked sufficient clarity and would effectively subject Non-Capacity Resources to a must-offer rule obligation without a corresponding capacity payment.

On February 27, 2020, FERC accepted a compliance filing from PJM Interconnection, L.L.C. (“PJM”) that proposed identical revisions to Attachment K of the PJM Tariff and Schedule 1 of the PJM Operating Agreement, finding that the revisions met the requirements of Opinion No. 566, issued August 26, 2019. In accepting PJM’s compliance filing, FERC found that the PJM Tariff now includes greater transparency regarding the process used to evaluate requests to build network upgrades in order to obtain Incremental Auction Revenue Rights (“IARRs”).

On February 20, 2020, FERC issued Order No. 861-A, granting certain clarifications about, and denying rehearing of, FERC’s sweeping market-based rate reforms in Order No. 861 (see July 24, 2019 edition of the WER). In Order No. 861-A, FERC held that sellers of capacity located in the California Independent System Operator Corporation (“CAISO”) market must continue to submit indicative screens in order to obtain authorization to make capacity sales at market-based rates. FERC also affirmed that capacity sellers located in CAISO may not rely on a rebuttable presumption that the Capacity Procurement Mechanism (“CPM”) adequately mitigates these sellers’ horizontal market power. FERC issued Order No. 861-A in response to requests for rehearing and clarification from CAISO and Pacific Gas & Electric Company (“PG&E”).

On February 10, 2020, FERC filed its Rehearing En Banc Brief (“Brief”) regarding opposition to FERC’s authorization of the construction of Transcontinental Gas Pipe Line Company, LLC’s (“Transco”) proposed Atlantic Sunrise Project (“Project”)—an interstate pipeline designed to supply enough natural gas to meet the daily needs of more than 7 million American homes. The United States Court of Appeals for the District of Columbia (“D.C. Circuit”) issued an opinion on August 2, 2019, upholding FERC’s decision to conditionally approve the Project. However, on September 16, 2019, Hilltop Hollow Limited Partnership, Hilltop Hollow Limited Partnership, LLC, and Stephen D. Hoffman (“Petitioners”) petitioned the court for rehearing of the court’s opinion en banc. The Petitioner’s main challenge was FERC’s usage of tolling orders, which allows FERC to delay rehearing after granting a pipeline certificate, as impermissible under the Natural Gas Act (“NGA”) and the Due Process Clause of the Fifth Amendment. The court granted that petition and vacated the underlying judgment in a December 5, 2019 order (see December 11, 2019 WER).