On Thursday, FERC issued an order rejecting a contested settlement to give Kern River Gas Transmission Company (“Kern River”) a 12.5 percent return on equity (“ROE”) because it was excessive and would result in unjust and unreasonable rates. Instead, FERC determined that Kern River’s ROE should be 11.55 percent.

EPA issued a final rule this week intended to further clarify its policy on the scope of New Source Review (“NSR”), the program that requires a pre-construction permit for new plants or “major modifications” of existing plants. The EPA policy, known as “aggregation,” refers to the grouping of two projects into one for purposes of determining whether the combined effect of the two activities will result in a significant emissions increase that triggers the permitting requirements of NSR.

On December 23, 2008, the U.S. Court of Appeals for the District of Columbia Circuit (“DC Circuit”) upheld FERC’s interpretation of the term “markets” as it applies to qualifying facility (“QF”) purchase exemptions found in the Public Utility Regulatory Policies Act (“PURPA”). The Petitioners, the American Forest and Paper Association (“AFPA”), argued that the term means only competitive markets.

On Thursday, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order offering guidance (“Guidance Order”) on conducting compliance audits to the North American Electric Reliability Corporation (“NERC”) and the eight regional entities (“Regional Entities”) with responsibility for enforcing reliability standards. The Guidance Order was released on the same day the Commission approved an audit report of SPP’s reliability functions.

Confirmation hearings were held this week for President-elect Obama’s designations for EPA Administrator (Lisa Jackson) and head of the Energy Department (Steven Chu). The confirmation hearings now underway for these two designees provide an inside look at the policy choices that may soon become law once the Obama Administration takes over on Tuesday.

New Mexico Attorney General Gary King is hoping that a new Environmental Protection Agency (“EPA”) under Barack Obama’s administration will provide a fair hearing in his appeal of an air permit. On July 31, 2008, the EPA granted an air permit to the proposed 1,500 megawatt coal-burning plant, but King hopes that a new administration might force the EPA to reconsider.

A group of 29 environmental organizations submitted a plan, entitled “Transition to Green,” to Barack Obama’s transition team in late November. The 391-page report highlights current environmental issues and recommends critical actions that will protect the environment while creating jobs and stimulating the economy.

Yesterday, Congressman Ed Markey (D-Mass.) announced that he will take over as chair of the House Energy and Commerce Subcommittee on Energy and the Environment in the 111th Congress. Markey, who currently heads the House Subcommittee on Telecommunications and the Internet, will switch seats with Rep.

The Southwest Power Pool Inc. (“SPP”) and the Electric Reliability Council of Texas Inc. (“ERCOT”) have each filed reports with the Public Utility Commission of Texas (“PUCT”) detailing the estimated costs and production cost savings of transferring Entergy Texas Inc. (“Entergy TX”) into each reliability region.

Only 13 days after EPA issued interpretive guidance stating carbon dioxide (CO2) is not currently a regulated pollutant, and on the same day that the guidance was published in the federal register, environmental groups asked EPA to change its mind. As reported previously, the EPA guidance was released in response to the In re: Deseret decision by the Environmental Appeals Board (“EAB”), which held that EPA had not previously determined whether air permits issued under the Clean Air Act’s New Source Review (“NSR”) program must contain conditions limiting CO2 emissions.