Category: FERC

FERC Directs Guidance on Return on Equity

FERC Directs Guidance on Return on Equity

On November 15, the Federal Energy Regulatory Commission (FERC) issued guidance on how pending cases are going to be affected by a recent order that proposed using a “new approach for calculating the allowed Return on Equity (ROE) to have it be included in the rates of transmission owners” in New England. These new orders were voted on at FERC’s meeting on October 16.

The first order established a paper hearing to two parties involved in ongoing proceedings regarding the Midcontinent Independent System Operator, Inc. (MISO) transmission-owning members to submit briefs concerning FERC’s new approach to determining the base ROE. The order proposes to change the approach for determining ROE by giving four financial models equal weight, as opposed to relying on the discounted cash flow methodology that FERC had been using.

With these new policies, FERC is abandoning its old two-step discounted cash flow methodology that was issued in Opinion No.531, saying they need to stop using that methodology exclusively, and will instead be using the new, broader model to give everything equal weight.

FERC says that by using a wider range of evidence to determine base ROE, their decisions will now be more closely aligned with how investors make their decisions on investments. This order is similar to the Coakley Briefing Order in that it will not make any changes to the new methodology, it instead will help ensure that everyone in these proceedings gets an opportunity to present their arguments and evidence on determining base ROE.

FERC has also essentially raised the burden of proof for a Section 206 proceeding.

During this discussion, FERC Chairman Neil Chatterjee said they plan to consider if additional changes are needed for its transmission incentives and calculation of base ROE. Chatterjee said it was “high time” to see if FERC’s ROE and incentive policies are producing “the level and type of transmission investment the nation needs.”

“FERC needs to stay laser-focused on adopting and enforcing policies that ensure reasonable transmission rates. This especially applies to making sure equity returns included in transmission rates are not excessive,” said Delia Patterson, senior vice president and general counsel at the American Public Power Association.

The second order gave some additional guidance on the effects of the Coakley Briefing Order in regard to any pending proceedings about base ROE that are already set for hearing and settlement procedures. FERC said in this order that in these types of proceedings it expects the parties involved to address the new methodology that is proposed in the Coakley Briefing Order. This includes presenting evidence based on the new methodology how to apply the new methodology to the facts in these proceedings.

According to FERC’s presentation, “The Coakley Briefing Order addressed issues that the D.C. Circuit remanded to the Commission in Emera Maine v. FERC, related to the New England Transmission Owners’ base ROE as provided for in the ISO New England tariff, which the Commission approved in Opinion No. 531.”

FERC’s new policies are based on the hope that by raising transmission owners’ ROEs, they will encourage some desperately needed investments to respond to changes in the transmission business. They need transmissions to be expanded so they can connect new renewable energy and may affect “how particular resources provide services to the grid and the relative competitiveness of various types of generators.”

Climate activists and transmission owners alike can attest to the importance of bringing more green energy onto the power grid, and the new ROE methodology might help make this happened. During the October meeting where this was voted on, Commissioner Cheryl LaFleur suggested that FERC intends to apply this new policy fairly broadly.

“FERC had coordinated its approaches to determining transmission and pipeline ROEs under the one-stepDCF methodology in the past, it is entirely plausible that FERC will synchronize its ROE methodology for pipelines with the Coakley 2018 proposal soon.”

FERC Staff Issues Assessment of Demand Response and Advanced Metering

FERC Staff Issues Assessment of Demand Response and Advanced Metering

On November 7, the Federal Energy Regulatory Commission (FERC) issued their 13th annual report on demand response and advanced metering, which is required by the Energy Policy Act of 2005.

They discussed the penetration rates for advanced meters, as well grid modernization. The report noted that data has recently indicated that advanced meters have become the main type of meters in the United States. The penetration rate for advanced meters has approached 50 percent. In the last year, several states have requested advanced meters to be deployed on a larger scale; a number of them were approved to carry on.

The summer of 2018’s high temperatures and high fire risks led to utilities and operators in multiple states asking their customers to participate in voluntary conservation, emergency demand response, and/or critical peak pricing.

FERC also provided information on survey data from the U.S. Energy Information Administration (EIA) on recent actions that were taken at the state, federal, and regional levels, as well as by industry. EIA’s data shows that the biggest increase in customer enrollment in retail demand programs was in the radio frequency region, which increased by 50 percent. EIA says this increase was mostly due to the higher reported enrollment programs that are run by DTE Electric Company, Delmarva Power, and Potomac Electric Power Company.

The data shows that the enrollment in retail demand response programs went up by 8.2 percent between 2015 and 2016, and the enrollment in time-based rate programs went up by 4.8 percent.

FERC also responded to Advanced Energy Economy’s (AEE) petition for declaratory order pertaining to their “jurisdiction to regulate the participation of certain energy efficiency resources in the wholesale electricity markets.” FERC found that it indeed has jurisdiction in those markets, exclusively.

They approved the proposed modifications to PJM’s tariff to “improve the ability of certain resource types to participate in PJM’s capacity market.”

The assessment also included information on Order No. 841, the Electric Storage Resource Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators, which is intended to remove any barriers for “the participation of electric storage resources in the RTO and ISO markets,” by requiring RTO and ISO to revise their tariffs and establish a model for participation that recognizes the operational and physical characteristics for the storage of electric resources.

FERC discussed the different issues and developments in demand response, specifically state legislative and regulatory activities regarding those and time-based rates. Several states have approved time-based rate pilot programs, “some in combination with proposed electric vehicle charging infrastructure investments, due to an interest in incenting off-peak charging of electric vehicles.” Other states have begun to consider what their next steps will be in regard to time-based rate programs and demand response.

FERC discussed the different issues and developments in demand response, specifically state legislative and regulatory activities regarding those and time-based rates. Several states have approved time-based rate pilot programs, “some in combination with proposed electric vehicle charging infrastructure investments, due to an interest in incenting off-peak charging of electric vehicles.” Other states have begun to consider what their next steps will be in regard to time-based rate programs and demand response.

FERC Acts on Tax Reductions for Energy Customers

FERC Acts on Tax Reductions for Energy Customers

On November 15, the Federal Energy Regulatory Commission (FERC) took steps to help ensure that their ratepayers will receive beneficial tax deductions from the December 2017 Tax Cuts and Jobs Act. They issued a Note of Proposed Rulemaking, several orders, and a policymaking during this meeting, all related to the Tax Act. The Tax Act cut the corporate tax rate from 35 percent to 21 percent, which came into effect on January 1, 2018.

The Notice of Proposed Rulemaking, RM19-5-000, is proposing to require that each public utility transmission provider with a transmission owner tariff or a rate schedule to revise their rates to account for any changes that fall under the Tax Act. FERC says these proposed rules are intended to address the effects the Tax Act has had on the Accumulated Deferred Income Taxes (ADIT), which is reflected in their transmission rates.

According to the Washington Examiner, “FERC’s proposed tax rule would apply to the interstate transportation of energy only, where it has jurisdiction over the wholesale electricity and natural gas markets.”

The utilities FERC is calling public in this instance are electric utilities, but they are owned by investors, not municipal utilities. Under these reforms the public utilities will:

  1. “include mechanisms to deduct any excess ADIT from or add any deficient ADIT to their rate bases
  2. include mechanisms in those rates that would raise or lower their income tax allowances by any amortized excess or deficient ADIT
  3. incorporate a new permanent worksheet into their rates that will annually track information related to excess or deficient ADIT”

Every public utility with transmission stated rates will determine the amount of excess and deferred income tax that is due to the reduced federal corporate income tax rate, and they are to recover or return that amount from or to their customers.

FERC did not provide a specific mechanism to adjust the rate bases, nor did they give a specific method to return the excess ADIT.

FERC says “We estimate that the total number of public utility transmission providers with formula rates that would have to develop revisions to their formula rates, including the addition of a new permanent worksheet, and make compliance filings in response to this Proposed Rule is 106.”

During that meeting, they also addressed policy statement PL19-2-000, which provides guidance on accounting and ratemaking for ADIT, for all natural gas and oil pipelines and public utilities that fall under FERC’s jurisdiction.

“Among other things, the policy statement states that for a public utility or natural gas pipeline that continues to have an income tax allowance, any excess of deficient ADIT associated with an asset must continue to be amortized in rates even after the sale or retirement of that asset,” FERC said.

FERC will also be considering if it needs to make more changes to its calculation of base returns on equity and to transmission incentives.

“I think we all agree that our policies are overdue for a fresh look with input from all interested stakeholders, not just those that happen to be parties to a pending complaint proceeding,” Chairman Neil Chatterjee said. “Further, with 13 years having passed since Congress established Section 219 of the Federal Power Act, I think it’s high time we look at whether these two sets of policies are producing the level and type of transmission investment that the nation needs.”

“FERC is the federal agency that regulates and oversees interstate transmission of electricity, natural gas and oil and is composed of five commissioners nominated by the president and confirmed by the U.S. Senate,” according to the Nevada Independent.

FERC will be receiving comments on these proposals 30 days after this proposed rule is published in the Federal Register. FERC will also be putting the full text of the proposal on their website, and it will be available in FERC’s Public Reference Room from 8:30 a.m. to 5:00 p.m. Eastern time at 888 First Street, N.E., Room 2A, Washington D.C. 20426.

FERC Acts on Cybersecurity Risks

FERC Acts on Cybersecurity Risks

On October 18, The Federal Energy Regulatory Commission (FERC) approved new mandatory reliability standards that are intended to address risks to cybersecurity. These new standards will augment the current Critical Infrastructure Protection (CIP) standards in order to mitigate the current risks to cybersecurity that are in the supply chain for grid-related systems.

The standards require transmission grid operators and electric utilities to create and implement plans that have security controls for supply chain management for industrial control systems, software, hardware, and services.

“Reliability of the bulk power system requires our attention to security issues as well as ensuring that the system serves consumers during peak-demand times,” FERC Chairman Joseph T. Kelliher said. “These proposed standards are intended to provide the adequate safeguards and training to help us do that.”

These standards have been in the works since September 2017, when they were first proposed by the North American Electric Reliability Corporation (NERC) as a response to a FERC directive that identified some possible threats to the utility center. NERC has a period of 18 months to implement the new standards; according to FERC the longer timeline to implement everything was justified because of the technical upgrades needed.

FERC also told NERC to implement the new standards into Electronic Access Control and Monitoring Systems (EACMS) associated medium and high Bulk Electric System Cyber Systems that fall under the supply chain risk management standards; they have 24 months to implement these changes. According to FERC, the EACMS can include authentication servers, intrusion detection systems, firewalls, and alerting systems. Once an EACMS has been compromised, the Bulk Electric System can be controlled.

The standard does not “require that every contract with a vendor include provisions for each of the listed items,” NERC said. The utilities would instead need to “ensure that these security items are an integrated part of procurement activities, such as a request for proposal or in the contract negotiation process.”

As part of a bigger security risk study, NERC will be giving FERC any cybersecurity risks they uncover in Physical Access Control Systems and Protected Cyber Assets, instead of developing new standards for those. These include things like electronic locks, motion sensors, networked printers, local area network switches, badge readers, and file transfer services.

In January 2018, FERC outlined the new standards in a Notice of Proposed Rulemaking, and this final ruling on the changes follows that notice closely. In FERC’s outline, they had initially given a 12-month timeline for implementation, even though NERC had requested 18 months, but they decided to allow for 18 months in the final rule.

FERC specified in Order No. 829, that the standards should focus on four security objectives: (1) software integrity and authenticity; (2) vendor remote access protections; (3) information system planning; (4) vendor risk management and procurement controls.

In March 2018, the American Public Power Association and other groups urged FERC to approve the proposal. At the same time, they requested that FERC wait to include EACMS in the new policies, which were given a longer timeline for implementation.

“The proposed standards fulfill Order No. 829’s directive and would mitigate supply chain cybersecurity risks to the BES while appropriately focusing on the systems and assets that are most critical to reliable operation of the BES,” the Association told FERC.

“While the standard is not a panacea, it is an important step forward to tackle a tough problem,” Commissioner Neil Chatterjee said. “It will be particularly important to revisit the standard after several years of experience to see what is working and what aspects could be improved. But again, today’s order is a good step in the right direction.”

The final rule will take effect 60 days after it is published in the Federal Register.

TariffShark Updated with New Filing Types

For our enterprise TariffShark customers, software updates are available NOW for all TariffShark Hammerhead releases (4.1 and higher) and all TariffShark Tiger releases on TariffShark.com. This is a database-only update.

For our hosted customers, we will update your hosted servers in the next few days during the nightly server maintenance window. No action is required on your part.

Background and Details

On March 15, 2018, FERC took action to address changes in the income tax rates for the electric transmission and natural gas and oil pipeline companies that it regulates, stemming from the Tax Cuts and Jobs Act of 2017. The Commission’s news release provides an excellent summary of its actions with links to relevant notices, orders, and other resources.

In accordance with FERC’s recent actions, the following new Filing Types have been added to TariffShark:

TOFC (Code) Filing Title (Description) Filing Category Applies To
1430 FERC Form No. 501-G Report Compliance NGA Gas Pipelines
1440 Limited Sec 4 Tax Reduction Normal NGA Gas Pipelines
1450 Limited Tax Reduction Compliance Federal Power Act Electric (Traditional Cost of Service and Market Based Rates) Public Utilities

Today we are announcing the availability of TariffShark software releases that accommodate these Filing Type additions. Updated software, upgrade guides, and installation instructions are available NOW on the TariffShark website.

If you are currently running a recent TariffShark release, only your TariffShark database is affected by this update. Consult the TariffShark Releases page to assess the impact to your installation. If only your TariffShark database requires update, simply download and run the appropriate database installer to bring your TariffShark installation up to the latest release.

Please contact TariffShark Support at 847-252-1611 or at support@tariffshark.com if you have any questions or concerns.

eTariff RTF Document Compliance

TariffShark supports FERC’s recent notice regarding restricting the use of word processing software to include headers, footers, or footnotes when submitting eTariffs as RTF files. As a powerful and flexible tool, TariffShark offers filers various degrees of control over their tariff content and it allows them to stray from FERC’s guidance. This article discusses both TariffShark’s compliance with FERC’s notice and cautionary aspects depending on various filing situations.

Background and Details

On September 6, 2017, FERC issued a notice under Docket No. RM01-5-000 (Accession No. 20170906-3057) that tariff text posted in Rich Text Format (RTF) should not have footnotes, headers, or footers created programmatically using word processing software. This is because the Commission’s electronic tariff system (eTariff) does not reproduce this type of content in RTF on its website. If headers, footers, or footnotes are needed, filers should enter them separately in the body of the document on each page without using automated program features such as Insert Footnote or Insert Header or Insert Footer tools in word processors like Microsoft Word.

Let’s look at FERC’s guidance and discuss how to best use TariffShark in a compliant fashion.

Refer to Figure 1 below for a representation of a TRV as it would look if being edited in “TariffShark Microsoft Word” with a TariffShark Header and Footer; a Microsoft Word-style header and footer; and a Microsoft Word footnote. Then compare Figure 1 to each of the following scenarios and their Figures to see the RTF that TariffShark would generate.

FERC Guidance: Do NOT use Microsoft Word headers and footers when submitting RTF Files

TariffShark is mostly compliant with these restrictions; however, it does have limitations depending on how its users choose to file their tariffs and the options that they select.

Tariff Record Versions (TRVs) in Section-based or Sheet-based Record Formats…

With Document Layouts that include TariffShark Header and Footer Templates

If eTariffs are submitted via TariffShark in either Section-based or Sheet-based Record Formats, filers can choose to take advantage of Document Layouts that include TariffShark-generated headers and/or footers. This feature will inject TariffShark metadata on each page as TariffShark-generated headers and/or footers but will NOT include them in the resulting RTF (just as FERC requires).

In this scenario, TariffShark does NOT include the Microsoft Word-style header and footer in either the PDF (Figure 2) or the RTF (Figure 4).

With Document Layouts that omit TariffShark Header and Footer Templates

If a filer chooses to use Document Layouts without TariffShark-generated headers or footers, then they need to be careful of how they work in Microsoft Word. A filer has full control of all aspects of such TRVs’ tariff content, so they must not insert headers or footers in Microsoft Word.

Refer to Figure 3., and note that this RTF includes a Microsoft Word-style header and footer.

Without Document Layouts

Once again, if a filer chooses to NOT use Document Layouts, then they need to be careful of how they work in Microsoft Word. A filer has full control of all aspects of such TRVs’ tariff content, so they must not insert headers or footers in Microsoft Word.

Here TariffShark includes the Microsoft Word-style header and footer (Figure 3).

TRVs in Whole Document Record Format…

If eTariffs are prepared in TariffShark using Whole Document Record Format, users do not have the option to include Document Layouts thus TariffShark-generated headers and footers are also not available. As in the examples above, a filer has full control over all aspects of the tariff content. When filing in RTF format, they must take care to not insert headers or footers.

And TariffShark’s RTF rendering of the TRV again looks like Figure 3., with a Microsoft Word-style header and footer included.

FERC Guidance: Do NOT use Microsoft Word footnotes when submitting RTF files.

The Record Format selected for your Tariff (Section-based, Sheet-based, or Whole Document Record Formats) does NOT matter since TariffShark will include any footnotes inserted with the Microsoft Word footnote tool. Therefore, it is up to the filer to be careful not to violate this FERC notice by avoiding programmed footnotes when submitting eTariffs as RTF files.

We have purposely included a Microsoft Word footnote in all the scenarios discussed since no matter the TariffShark Record Format or Document Layout option, Microsoft Word footnotes will be rendered in the RTF (Figures 3 and 4).

Generalizations Regarding FERC’s eTariff system and compatibility with RTF files

In general, Microsoft Word is a very powerful word processor and can save all kinds of content in an RTF file. However, FERC has found that some types of content are not compatible with their systems and software.

  • Tariff filers have found that an RTF with an embedded image tends to be a VERY large file, often times too large to submit. In 2011, FERC staff guided that Microsoft Word 2007 saves such files as much smaller RTFs. If you’re running modern Microsoft Word software, RTFs submitted with embedded images should not be subject to this file size problem. Such RTFs even display fine in the eTariff Viewer.
  • FERC’s internal software for viewing and reviewing eTariff filings doesn’t contain the latest capabilities for viewing content. In 2011, FERC staff reported that it remains a bit of a struggle. When content doesn’t look “right”, FERC analysts have been instructed to look at the content in the eTariff Viewer and in eLibrary.
  • Advanced Word Features to Avoid
    • Avoid automatic content (paragraph numbering and footnotes are two examples).
    • Never use text boxes.
    • Avoid complex tables (fancy styling, cell merging and splitting, font orientation). Keep tables simple.
    • Keep Word styles simple. Use WordPad to view your RTF content to help identify potential issues.
    • Do not use drawing/diagramming objects. Instead, insert drawings as images.
    • Do not embed Excel worksheets (insert them as images).

Please contact TariffShark Support at 847-252-1611 or at support@tariffshark.com if you have any questions or concerns regarding this notice and ensuring that your FERC eTariff submissions through TariffShark comply with it.

Figures

Marked Word Doc
Figure 1 Editing TRV content in TariffShark Microsoft Word with a TariffShark Header and Footer and a Microsoft Word-style header and footer and a Microsoft Word footnote.

Clean PDF
Figure 2 TariffShark’s PDF rendering of Figure 1 for a Section-based TRV with Document Layout that includes TariffShark Header Template and Footer Template.

Clean RTF 2
Figure 3 TariffShark’s RTF rendering of Figure 1 for TRV with Document Layout that omits TariffShark Header Template and Footer Template. The same result is achieved for a TRV without a Document Layout and for a TRV in Whole Document Record Format.

Clean RTF
Figure 4 TariffShark’s RTF rendering of Figure 1 for TRV with Document Layout that includes TariffShark Header Template and Footer Template.

TariffShark Updated with New "Settlement" Filing Types

For our enterprise TariffShark customers, software updates are available NOW for all TariffShark Hammerhead releases (4.0.1 and higher) on TariffShark.com.

Hosted customers, we will update your hosted servers prior to the January 3, 2017 effective date of the FERC Notice. No action is required on your part.

Background and Details

On December 1, 2016, FERC issued a notice that requires all settlements in Parts 35, 154, 284 and 341 proceedings set for trial-type evidentiary hearing and/or settlement judge procedures before a Presiding Judge or Settlement Judge must be filed in eTariff, effective January 3, 2017.

The following new Filing Types have been added to TariffShark:

TOFC (Code) Filing Title (Description) Filing Category Description of Change
1380 ALJ Settlement Compliance Settlement in a Part 35
FPA Traditional Cost of Service and
Market Based Rate Program proceeding
1390 ALJ Settlement Compliance Settlement in a Part 35
FPA Market Based Rate Program proceeding
1400 ALJ Settlement Compliance Settlement in a Part 154
NGA Gas Pipelines Program proceeding
1410 ALJ Settlement Compliance Settlement in a Part 284
NGPA 311 Gas Pipelines Program proceeding
1420 ALJ Settlement Compliance Settlement in a Part 341
Oil Pipelines Program proceeding

Today we are announcing the availability of TariffShark software releases that accommodate these Filing Type additions. Updated software, upgrade guides, and installation instructions are available NOW on the TariffShark website.

If you are already running a recent TariffShark release, it’s likely that only your TariffShark database is affected by this update. Consult the TariffShark Releases page to assess the impact to your installation. If only your TariffShark database requires update, simply download and run the appropriate database installer to bring your TariffShark installation up to the latest release.

Please contact TariffShark Support at 847-252-1611 or at support@tariffshark.com if you have any questions or concerns.