Month: December 2019

FERC Adopts New Base ROE Methodology, Addresses Complaints Against MISO

FERC Adopts New Base ROE Methodology, Addresses Complaints Against MISO

The Federal Energy Regulatory Commission (FERC) “adopted a new methodology for determining whether a jurisdictional public utility’s rate of return on equity (ROE) is just and reasonable under section 206 of the Federal Power Act.” FERC applied it to “complaints against the Midcontinent Independent System Operator (MISO) transmission owners” and determined their “current base ROE should be 9.88 percent.”

In 2017, “the U.S. Court of Appeals for the District of Columbia vacated and remanded FERC Opinion No. 531, which had adopted certain changes to the Commission’s use of the discounted cash flow (DCF) methodology for evaluating and setting the ROE for the New England transmission owners.” They concluded that FERC did not sufficiently demonstrate that the “existing ROE was unjust and unreasonable and that setting the replacement ROE at the midpoint of the upper half of the zone of reasonableness produced by a two-step DCF analysis, rather than the midpoint of the overall zone of reasonableness, was just and reasonable.”

FERC responded to the 2017 ruling, along with “complaint proceedings against the MISO transmission owners,” that it will be using the “DCF model and capital asset pricing model to determine if an existing base ROE is unjust and unreasonable, and, if so, what replacement ROE is appropriate.” FERC said they found that those models were the “two methods investors most commonly use to estimate the cost of equity.” FERC said it plans to “use ranges of presumptively just and reasonable ROEs in its analysis of whether existing ROEs have become unjust and unreasonable.”

As part of this, FERC implemented the “revised methodology in two complaints against the MISO transmission owners’ base ROE,” granting a “rehearing on the first complaint (EL14-12), finds the existing 12.38 percent ROE unjust and unreasonable, and directs the MISO transmission owners to adopt a 9.88 percent ROE, effective September 28, 2016, and to provide refunds.” FERC also dismissed the second complaint, saying it found the record for that proceeding did “not support a finding that the 9.88 percent ROE established in the first complaint proceeding has become unjust and unreasonable.”

FERC Commissioner Richard Glick issued a statement dissenting in part the new methodology and the complaints against MISO.

FERC Identifies Key Cybersecurity Program Priorities

FERC Identifies Key Cybersecurity Program Priorities

The Federal Energy Regulatory Commission (FERC) detailed its “efforts to address cybersecurity challenges facing the nation’s energy infrastructure.” This has been one of FERC’s ongoing priorities. Several organizational changes were detailed that are intended to help FERC better focus its resources on the “quickly evolving cyber challenges including creation of a new security-focused group within the Office of Energy Projects’ Division of Dam Safety and Inspections. The group will address cyber, as well as physical, security concerns at jurisdictional hydropower facilities.”

FERC Chairman Neil Chatterjee announced that FERC’s Office of Electric Reliability would realign “its functions to establish one division focused exclusively on cybersecurity.”

The new security group will be responsible for:

·         “Maintaining technical expertise, mentoring, and performing as team leaders for analyses and resolution of cyber and physical security issues for the Commission’s Dam Safety Program.

·         “Performing special security inspections, both physical and cyber, and participating as an evaluator during security exercises.

·         “Conducting surveys and risk analyses to assess security needs, identifying and assessing the degree of vulnerability, and ensuring that selected protection measures are implemented effectively.”

“At FERC, we are charged with overseeing the development and enforcement of cybersecurity standards for the nation’s high-voltage transmission system and jurisdictional hydroelectric facilities,” Chatterjee said. “These two developments will help FERC staff more efficiently focus its efforts on cybersecurity. This new security group in OEP and the realignment in OER will consolidate the cybersecurity staff into a division that focuses solely on cyber.”

The FERC staff “identified five areas where Commission staff will strategically and collectively focus efforts to address critical cybersecurity challenges. The five focus areas are:

  • “Supply Chain/Insider Threat/Third-Party Authorized Access;
  • “Industry access to timely information on threats and vulnerabilities;
  • “Cloud/Managed Security Service Providers;
  • “Adequacy of security controls; and
  • “Internal network monitoring and detection.”

FERC also detailed outreach activities and initiatives they intend to prioritize next year. “In particular, staff will closely monitor supply chain security implementation and the industry’s adoption of new technologies and services to address cyber infrastructure implementation, maintenance and/or management. In addition, the Office of Energy Infrastructure Security continues to build on its existing outreach initiatives, including offering voluntary network architecture assessments and the Office of Electric Reliability will continue to conduct and participate in audits.”

FERC Issues 13th Annual Report on Enforcement

FERC Issues 13th Annual Report on Enforcement

The Federal Energy Regulatory Commission’s (FERC) Office of Enforcement (OE) issued its 13th annual Report on Enforcement. The intent of the report is to discuss the OE’s activities over the last fiscal year. “The report discusses the activities performed by OE’s Divisions of Investigations, Audits and Accounting, Analytics and Surveillance, and Market Oversight during the last fiscal year.”

The report goes over the ” audits, market reports, litigation filings, and settlements” from the year, which were approved by FERC. It also covers “non-public activities, including summaries of closed investigations and self-reports that were closed without further action by the Division of Investigations.” This is the first time the report has included “illustrative examples of the market monitor referrals received by OE that staff reviewed and closed without opening an investigation.”

They did not include the names of “the companies and individuals whose conduct was under review in these matters” to keep everything confidential.

The Division of Audits and Accounting

“Illustrative compliance alerts that cover nearly a dozen distinct areas where there have been consistent concerns or noncompliance of significant impact” were included by the Division of Audits and Accounting. That section of the report also “includes citations to docket numbers relevant to the recurring, problematic compliance issues discussed in the alerts,” this was a new inclusion to the report. “Additionally, a representative sample of audits completed in FY2019 summarizes staff’s recommendations for corrective action and provides context for audits that resulted in refunds and recoveries.”

“The Division of Audits and Accounting completed 11 audits of public utility and natural gas companies covering a wide array of topics.” They resulted in 286 recommendations for corrective action and 76 findings of noncompliance; $161.2 million was given in refunds and recoveries. They also ” acted through the Chief Accountant’s delegated authority on 120 accounting filings requesting approval of a proposed accounting treatment or financial reporting matter.” They also “advised and acted on 433 proceedings” at FERC, which covered various accounting matters. In many of the cases they worked on, they “served in an advisory role, identifying and analyzing the accounting implications of those requests.”

The Division of Analytics and Surveillance

“The Division of Analytics and Surveillance provides a comprehensive review of its surveillance program and describes how it analyzed transactional and market data in FY2019 to detect potential manipulation, anticompetitive behavior, and other anomalous activities in the energy markets.” There are also ” greater and new details about DAS’s processes and practices related to reviewing market monitor referrals and data management.”

The DAS “continued monitoring for market manipulation and other anomalous activities in the markets… Natural gas surveillance screens produced approximately 7,629 screen trips which were reviewed by DAS staff, resulting in 20 additional in-depth inquiries into specific trading behavior.” There were 83 electric surveillance screens run and reviewed by the DAS, in addition to “monthly, hourly and intra-hour sub-screens, and reports for over 37,000 hub and pricing nodes within the six ISO/RTOs.” The surveillance identified 23 instances that needed further analysis. They “made a total of six surveillance-related referrals to the Division of Investigations” over the last fiscal year. They also worked with the DOI on about 45 investigations “involving allegations of manipulation in the Commission-jurisdictional natural gas and electricity markets, or violations of tariff provisions.” As part of these efforts, the DAS “(1) provided analytical and data-based assessments of market activity related to ongoing investigations; (2) supported DOI in its fact-finding; and (3) calculated the amount of unjust profits and market harm resulting from alleged violations to assist with determining a civil penalty recommendation under the Commission’s Penalty Guidelines.”

The Division of Energy Market Oversight

There is a summary of the Division of Energy Market Oversight’s “recent Market Reports and Assessments and describes other measures to monitor and analyze the nation’s wholesale natural gas and electric power markets.” It also describes their ” role in the administration of certain Commission filing requirements and certain public outreach conducted by the division last fiscal year.” This section also ” identifies which Commission Program Office is now responsible for each of the functions previously performed by Market Oversight following the September 2019 realignment, which moved Market Oversight’s functions to other Commission offices and OE divisions to improve organizational efficiency and centralize management expertise.”

The four areas OE has made their priority for enforcement are: “(1) fraud and market manipulation; (2) serious violations of the Reliability Standards; (3) anticompetitive conduct; and (4) conduct that threatens transparency in regulated markets.” They note that this is the same as the previous year.

The Division of Energy Market Oversight also continued monitoring “the jurisdictional markets to identify market trends, and also continued its efforts to enhance its analytical capabilities related to the ongoing eForms refresh project.” They issued their annual  “State of the Markets Report and seasonal Market and Reliability Assessments, which reviewed trends and events in natural gas and power markets, including trends in prices, supply, and demand.” It also reviewed the development of ” pipeline infrastructure and the rapid increase in the LNG export industry.”

The Division of Investigations

FERC approved two settlements with Enforcement, totaling over $14 million, “$7.4 million in civil penalties and disgorgement of another $7 million.” The DOI “opened 12 new investigations and brought 14 pending investigations to closure with no action.” These ” included matters in which staff found no violation, or staff found that there was not enough evidence to conclude that a violation had occurred.” There were some matters where they “found a violation but exercised its discretion to not pursue a sanction and closed the investigation.” They also “closed 130 self-reports without further action, closed 10 MMU referrals without opening full investigations, and resolved 148 calls made to the Commission’s Enforcement Hotline.” They are also still litigating three cases in federal court on behalf of FERC.

FERC Approves Four LNG Export Projects

FERC Approves Four LNG Export Projects

The Federal Energy Regulatory Commission (FERC) has approved four new liquefied natural gas (LNG) projects as well as the facilities needed to export natural gas. Three of the projects will be located “along the Brownsville Ship Channel in Brownsville, Texas” the fourth project will be expanding a facility near Corpus Christi, Texas, that is already operating. It has been noted that with the approval of these projects, FERC has approved a significant number of LNG export facilities this year.

FERC Chairman Neil Chatterjee said he is “very proud of the hard work that the Commission and its staff have undertaken to continue our processing of LNG applications. The Commission has now completed its work on applications for 11 LNG export projects in the past nine months, helping the United States expand the availability of natural gas for our global allies who need access to an efficient, affordable and environmentally friendly fuel for power generation.”

The three approved Brownsville Ship Channel projects that have been approved were proposed by “Texas LNG Brownsville, LLC; Rio Grande LNG, LLC and Rio Bravo Pipeline Company; and Annova LNG Common Infrastructure, LLC and three of its affiliates.”

“Texas LNG Brownsville would build and operate facilities to export approximately 4 million metric tons per year of natural gas as LNG. The Rio Grande LNG Terminal and associated Rio Bravo Pipeline Project would export 27 million metric tons per year. The Annova LNG Brownsville Project would export up to 6 million metric tons per year.”

The proposal by “Corpus Christi Stage III, LLC and Corpus Christi Liquefaction LLC” to build and operate a “Stage 3 LNG Project that would allow the company to liquefy for export an additional 11.45 million metric tons per year.”

The projects now have pending applications with the U.S. Department of Energy, where they are “seeking authorization to export gas to countries without Free Trade Agreements with the United States.”

FERC Commissioner Richard Glick issued a statement explaining that he dissents from the approval of these projects:

Glick says he chose to dissent “because it violates both the Natural Gas Act (NGA) and the National Environmental Policy Act (NEPA). The Commission once again refuses to consider the consequences its actions have for climate change. Although neither the NGA nor NEPA permit the Commission to assume away the impact that constructing and operating this liquefied natural gas (LNG) facility and associated natural gas pipeline will have on climate change, that is precisely what the Commission is doing here.”

Glick says that by authorizing these projects, FERC is treating “climate change differently than all other environmental impacts.” He explained that FERC “steadfastly refuses to assess whether the impact of the Project’s greenhouse gas (GHG) emissions on climate change is significant, even though it quantifies the GHG emissions caused by the Project. hat refusal to assess the significance of the Project’s contribution to the harm caused by climate change is what allows the Commission to misleadingly state that its approval of the Project will result in environmental impacts that are generally ‘less-than-significant’ and, as a result, conclude that the Project satisfies the NGA’s public interest standards.”

He said that by “Claiming that a project’s environmental impacts are generally less-than-significant while at the same time refusing to assess the significance of the project’s impact on the most important environmental issue of our time is not reasoned decision making.”

Glick pointed out that all three of these Brownsville LNG projects “will have a significant adverse impact on a number of endangered species, including the ocelot.”

For these reasons, he chose to dissent from the approval of these projects.