In an opinion 1 issued January 8, 2018, the United States Court of Appeals for the 9th Circuit found that the Federal Energy Regulatory Commission (FERC) had acted arbitrarily and capriciously when it determined that Pacific Gas & Electric Company (PG&E) was eligible for an incentive adder to its transmission return on equity (ROE) for remaining a member of the California Independent System Operator (CAISO). The court reasoned that FERC had misinterpreted its own landmark orders—Orders No. 679 and 679-A2 —which provide that FERC will award incentive adders on a “case-by-case basis”3 on the presumption that membership in an independent system operator or regional transmission organization (each a “transmission organization”), such as CAISO, is voluntary.4 The California Public Utilities Commission (CPUC) challenged FERC’s decision to grant PG&E an incentive ROE adder on the grounds that PG&E’s membership in CAISO was not, in fact, voluntary, and that PG&E required authorization from CPUC to withdraw from CAISO.
On January 8, 2018, the Federal Energy Regulatory Commission (FERC) issued a Final Rule amending its regulations governing the maximum civil monetary penalties assessable for violations of statutes, rules and orders within its jurisdiction. The Final Rule is a result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which requires each federal agency to issue an annual inflation adjustment by January 15 for each civil monetary penalty provided by law within the agency’s jurisdiction. The adjustments in the Final Rule represent an increase of approximately 2 percent for each covered maximum penalty. FERC’s adjusted maximum penalty amounts, which will apply at the time of assessment of a civil penalty regardless of the date on which the violation occurred, are set forth here and are effective January 12, 2018.
One of the big Federal Energy Regulatory Commission (FERC) Enforcement litigation developments of the past two years has been the federal judiciary’s rejection of the agency’s “de novo review” position in electricity market manipulation cases. Briefly stated, FERC has argued that the Federal Power Act (FPA) should be interpreted to allow federal courts to adjudicate an enforcement action by reviewing FERC’s Order Assessing Penalties and underlying record, allowing supplementation of that record through additional discovery only as the court found necessary or useful. Courts, however, have held that there is no such FPA-mandated review action of that nature, but rather only a civil action that proceeds under the Federal Rules of Civil Procedure—including, most importantly, the civil discovery rules.1
In a decision issued last week, the U.S. District Court for the Northern District of California granted summary judgment in favor of Winding Creek Solar LLC (“Winding Creek”). Winding Creek had alleged that certain California Public Utilities Commission (CPUC) renewable energy programs conflict with the Public Utility Regulatory Policies Act of 1978 (PURPA).1 Unless the decision is overturned on appeal, the CPUC likely will have to revise one or more of its PURPA programs or develop a new program from scratch that is consistent with federal law.
On November 29, 2017, Rep. Tim Walberg (R-MI) introduced H.R. 4476, the PURPA Modernization Act of 2017 (the “Act”), which, if enacted, would significantly change the Public Utility Regulatory Policies Act of 1978 (PURPA). Rep. Walberg asserts that the Act would bring PURPA into the 21st century, foster competition, and “stop the gaming of a federal law at the expense of electricity customers to provide more affordable and reliable energy.”1 However, the proposed legislation also could substantially chill development of renewable energy projects in many markets.
The Federal Energy Regulatory Commission’s (FERC) Office of Enforcement (Enforcement) recently released its annual Report on Enforcement for the 2017 fiscal year. The Report takes a similar approach to prior annual reports in how it describes Enforcement’s work and priorities, provides statistics on Enforcement activities, and includes examples of non-public Enforcement matters that were closed without action. The Report reflects a busy year in Enforcement, with staff having opened 27 new investigations, worked on over 50, and litigated several market manipulation cases in federal district courts. This year’s Report also provides increased transparency into Enforcement’s market surveillance and analytics program, through which Enforcement conducts market screens and surveillance inquiries into possible market manipulation in electricity and natural gas markets. Many FERC Commissioners have urged market participants to study the annual report for guidance on how the Commission approaches compliance and enforcement.
For a more detailed summary of the Report and key highlights, please see our client alert, available here.
On November 13, 2017, the U.S. Court of Appeals for the 1st Circuit held in Allco Renewable Energy Ltd. v. Mass. Elec. Co.1 that a Qualifying Facility (QF) does not have a private right of action against a utility company under the Public Utility Regulatory Policies Act of 1978 (PURPA). Although the court’s finding is no surprise, it helps clarify PURPA’s complex enforcement mechanism.
On October 4, 2017, in a decision with significant implications for the energy project finance community, the Federal Energy Regulatory Commission (FERC or the “Commission”) granted a petition for declaratory order filed by the Ad Hoc Renewable Energy Financing Group (“Petitioners”)1 and held that certain non-managing (i.e., passive) “tax equity” interests in public utilities are not “voting securities” for purposes of Section 203 of the Federal Power Act (FPA).2 For that reason, FERC held that (1) the “issuance or transfer of such interests does not constitute a transfer of control with respect to the public utility and does not require” prior FERC authorization under Section 203(a)(1); and (2) “the acquisition of such interests by a holding company qualifies” under Section 203(a)(2) for the blanket authorization in Section 33.1(c)(2)(i) of FERC’s regulations.3 The decision expressly extends to Section 203 FERC’s precedent from the Section 205 context regarding whether certain tax equity interests are voting securities, a welcome outcome for sponsors of, and passive investors in, renewable energy projects.