New FERC: Many of the Same Old Problems
August 10, 2017
On September 21, 2017, a new Federal Energy Regulatory Commission (“FERC”) is expected to begin addressing some new, but many old energy regulatory issues. Since February 3, 2017, FERC has been unable to issue substantive decisions because it did not have a quorum of at least 3 Commissioners. During this time, many hundreds of important issues were “put on hold” until the U.S. Senate could confirm at least two more Commissioners to join Acting Chair Cheryl LaFleur, and thereby re-establish a quorum of Commissioners.
On August 8, 2017, Neil Chatterjee, a Republican nominee who recently served as energy policy advisor to U.S. Senate Majority Leader Mitch McConnell, was sworn into office as FERC’s newest Commissioner. According to an August 10, 2017 press release from the White House, President Trump has appointed Mr. Chatterjee to be the new FERC Chair. On August 10th, Robert Powelson (a Republican nominee who recently served as the Chairman of the Pennsylvania Public Utility Commission) was also sworn into office. On September 7, 2017, the Senate Energy and Natural Resources Committee is expected to approve a Republican nominee, Kevin McIntyre (currently a Partner at Jones Day), and also approve a Democrat nominee, Richard Glick (a counsel for the Senate Energy and Natural Resources Committee), to complete the 5-member Commission.
The new Commissioners will face an enormous and unprecedented backlog of orders to review and decide. On February 3, 2017, FERC had delegated authorities to the Director of the Office of Energy Market Regulation (“OEMR”) to, among other powers, accept and suspend rate filings, and make them effective subject to refund and further order of the Commission, or accept and suspend them, make them effective subject to refund, and set them for hearing and settlement judge procedures. As a result, the OEMR has “conditionally” approved many hundreds of FERC filings, that were made pursuant to Section 205 of the Federal Power Act (“FPA”) to change utility tariff terms and conditions, with the caveat that when the Commission again obtained a quorum, all such tariff approvals could be re-examined by the new Commission.
As a result, the new FERC will face a wide variety of “old” regulatory issues to review and decide as its term commences, along with many new ones. Although it is uncertain how the Commission will address this backlog of orders issued without a quorum, it is possible that FERC will employ a “triage” methodology to deal with the orders, by prioritizing them into three categories: (1) cases that were previously unable to be voted out without a quorum; (2) rule-making proceedings and pending initiatives for which input from incoming Commissioners will be important; and (3) filings that had been held in abatement pending a quorum. In addition, statutory dates likely will be attached to filings made without a quorum that did not have hard deadlines.
One of the many pending issues is the extent of the Commission’s jurisdiction over Energy Efficiency Resources (“EERs”) that participate in competitive wholesale energy markets. Advanced Energy Economy (“AEE”) filed a Petition for a declaratory order with FERC on June 5, 2017 in Docket No. EL17-75-000, to clarify whether States had the authority to regulate the way that EERs participated in wholesale energy markets. AEE requested, in part, that FERC clarify whether a Relevant Electric Retail Regulatory Authority could “opt out” of “Wholesale EERs,” (which is a category of EERs that are developed by acquiring legal title to load reductions through contracts with manufacturers, retailers, and distributors of energy efficient products; Wholesale EERs do not involve load reductions developed through retail or end-use energy efficiency programs). Dozens of parties have intervened, commented and filed protests in this proceeding; the matter is ripe for a decision.
One of the major challenges that FERC will face is how to maintain a reasonable balance between granting deference to State policy actions affecting the wholesale power markets, while maintaining the foundations of the existing wholesale energy markets. For example, New York and Illinois have approved programs to subsidize some, but not all, nuclear generation facilities in their states based, in part, upon the lack of greenhouse gas emissions from such units. FERC has been asked to decide whether such State subsidies will impermissibly interfere with the operation of wholesale competitive energy markets, or whether the State actions can be accommodated consistent with the FPA. The Commission will likely be influenced by the 2016 decision from the U.S. Supreme Court, Hughes v. Talen Energy Marketing LLC, 136 S.Ct. 1288, 1299 (2016). This decision rejected actions by the State of New Jersey to subsidize new generation capacity in order to reduce capacity prices for consumers. The Court also recognized, however, “the importance of protecting the States’ ability to contribute, within their regulatory domain, to the Federal Power Act’s goal of ensuring a sustainable supply and price-effective energy.” Hughes at 1300.
The new FERC will be facing an unprecedented backlog of pending orders, the prospect of many novel new regulatory issues, and the challenges of creating a cohesive agency with 5 Commissioners who have never before worked together. This process will be analogous to attempting to “take a sip of water from a fire hose”. The coming weeks and months will force the new Commissioners to examine and apply the precedent of 40 years of FERC decisions to the challenges of the future, with potentially major impacts on the Energy industry.
This Eckert Seamans Energy Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions, please contact Daniel Clearfield at (717) 237-7173 – dclearfield@eckertseanans.com.