FERC Determines Compliance With Capacity Release Order to Show Cause

In March of this year, the Commission initiated a show cause proceeding requiring all pipelines to either: (1) revise their tariffs in accordance with the Commission’s regulations under 18 C.F.R. 284.8(d), which requires pipelines to provide for the posting of capacity release offers; or (2) demonstrate that they are in full compliance with those regulations.

In response to its show cause order, the Commission received 157 compliance filings. On October 16, 2014, in its Order on Filings In Compliance With Order to Show Cause, 149 FERC ¶ 61,031,the Commission accepted the compliance filings with certain conditions. Of these responses, 64 pipelines properly revised their respective tariffs to provide for the posting of capacity release offers in accordance with section 284.8(d). An additional 23 pipelines successfully demonstrated that their tariffs were already in compliance with the regulations. However, the Commission found that the remaining 69 filings were not acceptable and required further compliance. The two major issues with these filings involved setting of minimum periods for posting and the reasonableness of posting fees.

Length of Posting:

The Commission found that potential replacement shippers should be permitted to have their offers posted for however long they desire, subject to the pipeline’s right to establish a posting cap. These caps, though, may not be less than 30 days. A 30-day cap, according to the Commission, addresses the interests of the potential replacement shippers, who desire longer posting periods in order to seek the best offers of released capacity, while imposing a minimal burden on the pipeline.

Out of the 157 compliance filings, 31 pipelines submitted compliance filings that were silent on how long a potential replacement shipper could post offers. An additional 32 pipelines included provisions limiting the length of a posting, but those filings imposed caps of less than 30 days. The Commission accepted these compliance filings, but required the pipelines to submit a revised filing extending the minimum length of the caps.

Fee for Posting:

In their compliance filings, three pipelines proposed a $50 fee for posting offers, while three other pipelines had existing tariff provisions that already imposed a $50 posting fee. Another pipeline had a provision that allowed for a fee, but did not set the amount of the fee. The Commission struck down these fees as inconsistent with Order No. 636, requiring the removal of existing fee provisions within 30 days of the order.

In Order No. 636-A, the Commission held that a pipeline should recover the fixed costs for its electronic bulletin board in its transportation rates as part of its cost of service and may not recover an administrative fee from its operation of a capacity release program. The pipeline could, however, charge a fee to frequent users of the electronic bulletin board, such as marketers, but these charges must be limited to the recovery of variable costs.

Further compliance filings consistent with the Commission’s October 16 Order are due within 30 days (November 17). If you have questions or would like more information on the issues discussed in this article, please feel free to contact us.

Pricing Electric System Reliability in MISO

  There have recently been two significant Orders from the Federal Energy Regulatory Commission ("FERC") concerning System Support Resources ("SSRs") for the Midcontinent Independent System Operator ("MISO").  SSRs are electric generating units scheduled for retirement, but where MISO requests for reliability purposes that the resources remain in service under a special agreement.  The first of the two Orders made major changes to the determination of payments to the SSR owner.  The second Order requires a major change in how costs of some SSRs are allocated to loads. 

  The Order changing SSR payment determination was in response to a Section 205 complaint filed by AmerenEnergy Generating Resources ("Ameren") in FERC Docket No. EL13-76.  Prior to that Order, MISO's tariff limited SSR payments to actual “going forward” variable and operating SSR out-of-pocket costs, with payment for capital additions required for SSR operation also included.  Ameren argued MISO's interpretation of SSR payment provisions was too narrow, and that an SSR owner should be entitled to the full SSR cost of service, including return on investment, depreciation and taxes.  Despite significant opposition to Ameren's position, on July 22, 2014 FERC issued an Order (148 FERC ¶ 61,057) agreeing with Ameren.  FERC directed MISO to modify its tariff to allow an SSR owner to make a Section 205 filing of a proposed SSR payment when MISO and the SSR owner failed to agree on the SSR payment.

  The FERC Order concerning SSR cost allocation came in response to an April, 2004 complaint by the Public Service Commission of Wisconsin (PSCW) filed under Docket No. EL14-34.  MISO previously filed a service schedule under Docket No. ER14-1243 allocating the cost of the Presque Isle SSR (located in Michigan's Upper Peninsula) on a pro rata basis to all Load Serving Entities ("LSEs") connected to the American Transmission Company (ATC).  That pro rata cost allocation was consistent with historical precedent and the allocation method FERC approved in a previous Presque Isle SSR filing. However, in an Order issued July 29, 2014 (148 FERC ¶ 61,071), FERC agreed with the PSCW that pro rata cost allocation over LSEs on the ATC system was inconsistent with cost causation principles.  FERC directed MISO to allocate the Presque Isle SSR costs only to LSEs shown to benefit from the SSR based on a MISO "load-shed study".  Also in departure from standard practice, FERC ordered to make refunds retroactive to the date the PSCW filed its complaint, consistent with the new allocation.

  The impact of the two orders is potentially significant.  The SSR pricing Order will provide a strong incentive for generator owners to enter into SSR agreements where offered, rather than retiring the generators.  This Order can be viewed as FERC again affirming that system reliability outweighs cost considerations.  The impact of the Presque Isle SSR cost allocation Order is harder to gauge. The Presque Isle SSR allocation raises issues of how far to go in "targeting" customers with costs, and how to address discriminatory aspects of Presque Isle SSR costs being narrowly allocated while similar "must run" costs in Wisconsin are being allocated across the entire ATC system.  These and related questions have been raised on rehearing.  So stay tuned for further developments. 

ILSA Exemption for Condominiums

By Bruce May

On September 26, 2014, the President signed a bill into law that exempts condominium developers from the burdensome registration and reporting requirements of the Interstate Land Sales Full Disclosure Act (“ILSA”). This new law becomes effective in March 2015.

Congress passed ILSA in 1968 as a response to fraud and abuses in the sale of land, which generally arose when parcels of vacant land were marketed to out-of-state buyers as promising development opportunities. It wasn’t until after the land was purchased that the buyer would visit the newly purchased property, only to discover that the promising investment was nothing more than worthless Florida swamp land with no access to roads or utilities.

Accordingly, Congress enacted ILSA to protect buyers from these unscrupulous sales techniques by requiring developers to comply with an extensive registration and reporting scheme when selling subdivision lots. ILSA also gave buyers the right to revoke purchase contracts within two years of execution if the developers failed to comply with those requirements.

When ILSA was enacted, its application to condominiums was not contemplated, but over time federal courts interpreted ILSA as applying to condominium units. Condominium developers struggled to comply with ILSA’s extensive requirements. This came to a head when the market crashed in 2008 and ILSA’s two-year revocation period became a popular front for condominium buyers to rescind their now above-market contracts merely by showing a developer’s failure to comply—even in a trivial manner—with ILSA.

This new exemption is an important victory for condominium developers, who can now sell condominium units without the time and expense of complying with ILSA and without the risk of buyers exploiting ILSA’s rescission loophole. However, developers should be aware that registration and reporting requirements for the sale of condominiums may still exist under state law.

B3 Strategies Expands with Addition of Erin Mahrt and Emily Rice

PHOENIX, Ariz. (October 2, 2014) – B3 Strategies is pleased to announce that Erin Mahrt, Government Relations Associate, and Emily Rice, Government Relations Assistant, have joined the public policy firm.

“I am very fortunate to have found two talented young people who are passionate about being involved in Arizona public policy,” said Russell Smoldon, CEO of B3 Strategies. “The knowledge and experience Erin and Emily bring are essential to supporting and growing the services B3 offers to clients. I’m very happy to have them on board.”

Mahrt earned a Bachelor of Arts in Psychology from Arizona State University. She recently earned her juris doctor from the Sandra Day O’Connor College of Law at Arizona State University. While in law school, Mahrt was involved in a number of organizations, including serving as a member of the Student Bar Association and as an associate editor on the Law Journal for Social Justice. She is passionate about public health and the law-making process, and hopes to further those interests while working for B3.

“I’m very excited to be a part of B3 and to have the opportunity to learn from and work with Russell Smoldon,” said Mahrt. “I look forward to assisting our clients with their public policy needs. In addition, I feel very fortunate to be associated with a law firm as prestigious as Jennings, Strouss & Salmon.”

Rice earned her Bachelor of Arts in English and History from Gonzaga University in Spokane, Washington. Prior to joining B3 Strategies, she worked as a Communications Manager for GameTruck Licensing, LLC in Tempe, AZ where she handled the company’s social media and internal communications, as well as assisting in the discovery process of new potential franchises.

“I am thrilled to be part of B3 Strategies,” said Rice. “Working with a team that is dedicated to helping clients achieve their goals and solve the problems they face is an amazing opportunity. I’m looking forward to contributing every way I can.”

About B3 Strategies
“Building Public Policy Brick-By-Brick”
Positioned as “The Public Policy Architects,” B3 Strategies, an affiliate of Jennings, Strouss & Salmon law firm, provides clients with the knowledge and tools needed to present, support and implement public policy to address issues affecting their businesses. B3 Strategies leverages relationships with an extensive network of government officials, legislators and the business community to develop and implement public policy strategies at the local state, and federal levels for a wide-range of industries, including those focused on energy, water, taxation, environmental, health care and economic development issues.

For additional information please visit www.B3strategies.com, and follow us on LinkedIn, Facebook and Twitter.

About Jennings, Strouss & Salmon
Jennings Strouss & Salmon is one of the Southwest's leading law firms, providing business, litigation and regulatory legal counsel for over 70 years through its offices in Phoenix and Peoria, and Yuma, Arizona; and Washington, D.C. For additional information please visit www.jsslaw.com and follow us on LinkedIn, Facebook and Twitter.

~JSS~