1. presented to the Energy Practice Group
FERC Overview
presented to the Energy Practice Group
April 18, 2016
Andrew O. Schulte

2. FERC Organizational Chart

3. Current Commissioners
Cheryl LaFleur (Acting Chair)
Democrat
Former Acting Chair of FERC
Former VP and Acting CEO of National Grid
Colette Honorable
Former Chair of Arkansas PUC and President of NARUC

4. Potential Nominees Three Open Seats Potential Nominees
FERC currently lacks a quorum
Additional authority delegated to Staff, but no contested cases can be decided
Potential Nominees
Kevin McIntyre, energy attorney at Jones Day
Neil Chatterjee, advisor to Mitch McConnell
Robert Powelson, Pennsylvania PUC Commissioner and President of NARUC

5. Overview of Jurisdiction Electric
Regulates the transmission and wholesale sales of electricity in interstate commerce;
Reviews certain mergers and acquisitions and corporate transactions by electricity companies;
Reviews the siting application for electric transmission projects under limited circumstances;
Protects the reliability of the high voltage interstate transmission system through mandatory reliability standards;
Licenses and inspects private, municipal, and state hydroelectric projects;

6. Overview of Jurisdiction Oil and Natural Gas
Regulates the transmission and sale of natural gas for resale in interstate commerce;
Regulates the transportation of oil by pipeline in interstate commerce;
Approves the siting and abandonment of interstate natural gas pipelines and storage facilities;
Ensures the safe operation and reliability of proposed and operating LNG terminals;

7. Overview of Jurisdiction Enforcement
Monitors and investigates energy markets;
Enforces FERC regulatory requirements through imposition of civil penalties and other means;
Administers accounting and financial reporting regulations and conduct of regulated companies.

8. FPA Section 205
FERC ratemaking authority under FPA section 205 applies in contiguous U.S. except ERCOT
Rates must be just, reasonable, and not unduly discriminatory
Wholesale seller of electric energy is a “public utility”
Rates may be cost-based or market-based

9. Cost-Based Rates More common for transmission than for generation
Major cost components:
Operation and Maintenance Expense
Administrative and General Expense
Depreciation Expense
Taxes
Return on Capital
Most transmission owners use formula rates
Fixed formula calculates a new revenue requirement each year
Reduces regulatory lag and the frequency of contested proceedings
Costumers pay actual cost (trued-up each year)
Must include protocols that provide for information sharing and challenge procedures

10. Market-Based Rates Negotiated rates, terms and conditions
Market power assessment market by market
Horizontal market power
Uncommitted generation capacity
Vertical market power
Transmission
Inputs to electric power production
Ongoing compliance obligations
Electric Quarterly Reports
Updated market power analysis every 3 years
Notices of change in status
Prior authorization for the sale of jurisdictional assets (§ 203)

11. Public Utility Holding Company Act of 2005 (PUHCA)
Access to “holding company” books, records; accounting, record-keeping requirements
“Holding company” holds 10% or greater ownership of an “electric utility company”
PUHCA applies in ERCOT and foreign countries
Projects may file for self-certification as an EWG to avoid PUHCA requirements
Exclusively engaged in owning/operating and selling electric energy at wholesale

12. Public Utility Regulatory Policy Act of 1978 (PURPA)
Renewable projects up to 80 MW and cogeneration facilities of any size are eligible to be Qualifying Facilities (QFs) and may be able to sell to a utility at avoided cost or at a negotiated rate
The utility may terminate its obligation to purchase if the QF has access to competitive markets (with a rebuttal presumption of access for renewable projects over 20 MW)
Renewable projects up to 30 MW and cogeneration facilities are exempt from PUHCA and state rate regulation
Renewable projects up to 20 MW and cogeneration facilities are exempt from FERC rate regulation
FERC aggregates all affiliated renewable projects within one mile to calculate size

13. FPA Section 203 (1 of 2)
Prior authorization is required for transactions that involve a “public utility”
Change in control of FERC-jurisdictional assets – tariffs; contracts; interconnection equipment; transmission facilities
Blanket authorization for internal corporate reorganizations
Prior authorization is also required for acquisitions by a “holding company”
FERC reviews effect on competition, rates, and regulation, and cross-subsidization by utility ratepayers

14. FPA Section 203 (2 of 2)
Presumption that a transfer of direct or indirect voting interest of 10% or more constitutes a change in control
May defeat presumption by making a passivity showing (e.g. tax equity investors with limited consent rights)
A transfer of less than 10% voting interest may still constitute a change in control if it involves management rights (e.g. board seats)
Asset or security transactions above $10 million also require prior authorization
Blanket authorization for several types of holding company acquisitions (e.g. a holding company that owns only EWGs, QFs and FUCOs may acquire additional EWGs, QFs and FUCOs)

15. FPA Section 204
Public utility must obtain prior FERC authorization to:
Issue any new securities
Assume any debt obligation or liability
Blanket authorization available for market-based rate sellers

16. Generator Interconnection Facilities
Generator interconnection facilities are FERC jurisdictional
Blanket waivers from FERC’s open access requirements and standards of conduct for transmission providers (Order No. 807)
Generator must own, operate or control facilities
Shared generator lead lines
Pro rata ownership and capacity rights to avoid FERC regulation as transmission provider

17. Jurisdictional Disputes (1 of 4)
Distributed Generation
If distributed generation deliveries into the grid are less than consumption by the end-user during the applicable billing period, they are subject to state regulation.
If deliveries are greater than consumption during the applicable billing period, they are subject to federal regulation.
May get an exemption by becoming a QF under PURPA.
Unanswered Questions:
What is the appropriate billing period for determining whether there is a surplus?
Can surpluses be carried over from one billing period to the next?
If there is a surplus in one billing period, is the generator subject to FERC regulation in all subsequent billing periods?

18. Jurisdictional Disputes (2 of 4)
Generation Capacity
Capacity markets in NYISO, ISO-NE and PJM
Hughes v. Talen Energy Marketing, LLC
The Supreme Court found that a Maryland incentive program was preempted by the FPA
The program guaranteed a stream of revenue to the generator by obligating Maryland utilities to pay the difference between the generator’s revenue requirement and its actual earnings through PJM
PPL EnergyPlus, LLC v. Solomon
Third Circuit found that a New Jersey program was preempted by the FPA
The Program furnished new generators with fifteen-year contracts to supply a predetermined amount of capacity at a predetermined rate set by the state
Other programs may be allowed
“Our holding is limited: We reject Maryland’s program only because it disregards an interstate wholesale rate required by FERC. We therefore need not and do not address the permissibility of various other measures States might employ to encourage development of new or clean generation, including tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector.” – Hughes v. Talen Energy Marketing, LLC

19. Jurisdictional Disputes (3 of 4)
Demand Response
Order 745 required organized markets to compensate demand response providers at the same rates as if they met demand with generated electricity
The D.C. Circuit struck down Order 745 on two grounds:
Demand response is state-jurisdictional
Price provided for demand response was arbitrary and capricious
In a 6-2 decision, the Supreme Court reversed the D.C. Circuit, finding that “When FERC regulates what takes place on the wholesale market, as part of carrying out its charge to improve how that market runs, then no matter the effect on retail rates, [the FPA] imposes no bar.” – FERC v. Electric Power Supply Assoc.

20. Jurisdictional Disputes (4 of 4)
Transmission Line Siting
Section 216 of FPA: Backstop Authority
Authorizes DOE to declare “national interest electric transmission corridors” and FERC to site transmission projects within the corridors if a state refuses to do so
Weakened by court decisions and FERC Order No. 689
FERC’s authority to site transmission has never been used
Section 1222 of EPAct 2005: DOE Partnerships
Permits DOE to partner with other entities to develop transmission
In March 2016, DOE and Clean Line announced a partnership to build the Plains & Eastern project through OK, AR and TN.
The Arkansas congressional delegation has been fighting the DOE-Clean Line partnership