On June 9, 2020, FERC ordered amendments to its regulations to prohibit natural gas projects authorized under Sections 3 and 7 of the Natural Gas Act (“NGA”) from commencing construction activities until after (i) the deadline for filing a request for rehearing has lapsed without a request being filed, or (ii) FERC has acted upon the merits of any timely-filed request for rehearing (“Order No. 871”). The new regulation will become effective, without any opportunity to file comments, 30 days after the Final Rule is published in the Federal Register. Because FERC’s orders on rehearing sometimes take several months, and in some cases more than a year to be issued, both liquefied natural gas (“LNG”) and natural gas pipeline projects approved by FERC could be significantly delayed from commencing construction as a result of Order No. 871.
FERC to Convene Technical Conference on Impacts of COVID-19 on the Energy Industry
On May 20, 2020, FERC issued a notice that it will convene a Commissioner-led technical conference on Wednesday and Thursday, July 8–9, 2020 from approximately 9:00 a.m. to 5:00 p.m. Eastern time each day “to consider the ongoing, serious impacts that the emergency conditions caused by COVID-19 are having on various segments of the United States’ energy industry.” The notice stated that the technical conference will explore potential long-term impacts on FERC-regulated entities to ensure the continued efficient functioning of energy markets, electric transmission, transportation of natural gas and oil, and reliable operation of energy infrastructure, while also protecting consumers.
FERC Orders Changes to PJM Reserve Market Design and E&AS Offset Calculation
On May 21, 2020, FERC found PJM Interconnection, L.L.C.’s (“PJM”) existing reserve market design to be unjust and unreasonable and established a replacement market design that includes, among other elements, a downward-sloping Operating Reserve Demand Curve (“ORCD”) and a $2,000/MWh price ceiling. In addition, FERC found that the changes to PJM’s reserve market would render PJM’s existing methodology for calculating its energy and ancillary services offset (“E&AS Offset”) unjust and unreasonable, and directed PJM to implement a forward-looking E&AS Offset on compliance. In a separate dissenting statement, Commissioner Richard Glick stated that PJM’s proposal would result in over procurement of reserves and impose billions of dollars of additional costs on consumers. Pointing to FERC’s recent orders accepting PJM’s Variable Resource Requirement Curve (see April 23, 2020 edition of the WER) and Minimum Offer Price Rule (see April 22, 2020 edition of the WER), Commissioner Glick characterized the May 21 order as the latest installment in a series of decisions prioritizing high prices over efficient markets.
FERC Grants Tennessee Gas Market-Based Rate Authority for Proposed FS Flex Service
On April 30, 2020, FERC granted Tennessee Gas Pipeline Company, L.L.C.’s (“Tennessee Gas”) petition for declaratory order that requested authorization to charge market-based rates for its proposed firm flexible storage (“FS Flex”) service. In reaching its decision, FERC reviewed whether Tennessee Gas held significant market power in the relevant product and geographic markets where the FS Flex service was to be offered, with the geographic market including east Texas, Louisiana, Mississippi, and Alabama (“Gulf Coast Production Area”). FERC found that Tennessee Gas’s small market share and market concentration in the relevant markets adequately demonstrated that Tennessee Gas lacked market power and that there were no other factors indicating that Tennessee Gas would be able to exercise market power when providing the FS Flex service.
FERC Finds Renewable Project Company to be Affiliated with Goldman Sachs Investment Bank for Purposes of Market-Based Rate Analysis
On April 27, 2020, FERC granted renewable energy company Goldman Sachs Renewable Power Marketing, LLC (“GSRPM”) authority to make wholesale sales of energy, capacity, and ancillary services at market-based rates. However, FERC also found GSRPM to be affiliated with the investment bank Goldman Sachs Group, Inc. (“Goldman Sachs”). On the basis of that finding, FERC concluded that GSRPM would be subject to enhanced reporting requirements as a Category 2 Seller in the northwest region of the United States. The order reflects FERC’s increasing interest in the disclosure of corporate structure for purposes of affiliation determinations in market-based rate applications.
FERC Affirms Use of Combustion Turbine as Reference Resource for PJM VRR Demand Curve
On April 16, 2020, FERC denied rehearing of an April 2019 order approving changes to PJM Interconnection, L.L.C.’s (“PJM”) Variable Resource Requirement (“VRR”) demand curve in connection with PJM’s 2019 Base Residual Auction for the 2022/2023 Delivery Year (see April 24, 2019 edition of the WER for more background on the April 2019 order and the PJM’s VRR curve). Among other issues, FERC’s April 2020 order on rehearing rejected arguments that PJM erred in designating a combustion turbine (“CT”) power plant with a new H-class turbine configuration as the Reference Resource—a theoretical new generator that PJM uses as a benchmark to determine the cost of entering the market. In a lengthy dissent, Commissioner Richard Glick argued FERC’s decision is unsupported by substantial evidence and inconsistent with FERC precedent. According to Commissioner Glick, FERC’s approval of a CT Reference Resource and resulting Net Cost of New Entry (“CONE”) estimate will lead to host of issues, including distorting PJM’s entire capacity market design and harming consumers by increasing rates.
D.C. Circuit Reverses FERC’s Rejection of “Incremental Plus” Rates for Gas Pipeline Expansion Project
On April 10, 2020, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) granted Gulf South Pipeline Company, LP’s (“Gulf South”) petition for review in part, finding that FERC’s rejection of Gulf South’s proposed “incremental plus rates” for the Westlake Expansion Project, an expansion within the Lake Charles Zone, was arbitrary and capricious. In doing so, the D.C. Circuit found that FERC could easily distinguish between which customers are using the new facilities and which customers were using the gas pipeline’s existing facilities. The D.C. Circuit denied Gulf South’s petition for review on issues related to FERC’s denial of Gulf South’s proposed initial rate of return and depreciation rate for the Project, upholding FERC’s use of Gulf South’s last approved rate of return and depreciation rate.
FERC Relieves Regulatory Burdens and Creates New Task Forces Due to COVID-19 Pandemic
On April 2, 2020, FERC issued several orders aimed at helping regulated entities manage compliance deadlines and related issues in the wake of COVID-19 response. Chairman Neil Chatterjee also issued a press release confirming the pandemic qualifies as an emergency under the Commission’s rules and detailing additional steps in FERC’s plan to help regulated entities manage potential enforcement and compliance-related burdens during the pandemic, including two new task forces to expedite standards of conduct waiver requests and no-action letters.
Update on FERC’s Response to COVID-19
On March 27, 2020, FERC Chairman Neil Chatterjee and senior FERC staff members began periodic meetings with the National Association of Regulatory Utility Commissioners (“NARUC”), the National Association of State Energy Officials, and the National Governors Association to coordinate efforts to help ensure the reliability of the nation’s energy transmission and distribution systems during the coronavirus pandemic. FERC and NARUC are currently urging all state authorities to designate utility workers as essential to the nation’s critical infrastructure.
FERC Approves Jordan Cove LNG Export Project, Prompting Dissent From Commissioner Glick
On March 19, 2020, FERC authorized Jordan Cove Energy Project L.P.’s (“Jordan Cove”) Natural Gas Act (“NGA”) section 3 proposal to site, construct, and operate a liquefied natural gas (“LNG”) export terminal in Coos County, Oregon (“Terminal”) and Pacific Connector Gas Pipeline, LP’s (“Pacific Connector”) application under section 7(c) of the NGA and Parts 157 and 284 of FERC’s regulations that would allow it to construct and operate an interstate natural gas pipeline system connected to the Terminal (“Pacific Connector Pipeline”). The decision prompted a dissent from Commissioner Richard Glick, who argued that the majority’s decision did not adequately consider the impacts that the Terminal and Pacific Connector Pipeline will have on climate change and other environmental concerns.