The Nickel Report

On November 15, 2018, the Federal Energy Regulatory Commission (Commission) held its monthly open meeting (November Meeting). This was the first meeting chaired by Chairman Chatterjee since replacing Commissioner McIntyre as chairman. Commissioner McIntyre was absent for his third consecutive open meeting due to continuing health issues and did not vote on the consent agenda.

Highlights of the meeting included:

• Review of Return on Equity (ROE) and Transmission Incentives: Chairman Chatterjee announced that the Commission intends to consider whether changes are required in both the calculation of base ROE and transmission incentives under Order No. 679. He indicated that the policies were overdue for a fresh look with input from all interested stakeholders, including whether the policies are producing the level and type of transmission investment the nation needs. He noted, with regard to pending ROE and incentive proceedings, that any changes would be prospective from the time of the determination. Commissioners LaFleur and Glick both indicated their support for the initiative. Commissioner LaFleur indicated that, in particular, she wanted to reexamine the incentives in light of the competitive transmission policies resulting from Order No. 1000, along with examining the RTO and Transco adders. Commissioner Glick indicated that the Commission should also consider whether there are other actions the Commission could take to incent transmission owners beyond Order No. 679. He suggested that these could include considering how transmission owners might make investments to improve the efficiency of existing transmission facilities and examining whether incentives are necessary to encourage the development of transmission facilities that are capable of tapping into a region’s resource potential.
• Additional ROE Matters
  • On October 16, 2018, the Commission issued an order proposing a new approach for determining whether utility ROEs were just and reasonable and for establishing a new ROE when an existing one is unjust and unreasonable (Coakley Order). The Commission also initiated a paper hearing on how the proposed ROE methodology should apply to proceedings before the Commission involving the New England Transmission Owners. (See FERC October 2018 Open Meeting Highlights)
  • At the November Meeting, the Commission issued an order establishing a similar paper hearing on whether and how the new ROE methodology set forth in the Coakley Order should apply to proceedings pending before the Commission involving the utility ROEs in the Midcontinent Independent Transmission System Operator, Inc. (MISO) region. This action was likely prompted by state regulators and stakeholders from the MISO region asking that they be permitted to intervene in the Coakley Order proceeding to raise policy issues (or in the alternative that the Commission initiate a generic rulemaking).
  • The Commission issued a separate order to provide guidance concerning the effect of the Coakley Order on pending proceedings involving base ROE issues that have been set for hearing and settlement judge procedures. Several of such proceedings had been held in abeyance by the Chief Administrative Law pending the Commission’s further guidance on ROE issues. The Commission’s guidance order clarifies that it expects participants in ongoing ROE cases to address the Coakley Order’s proposed new methodology, including presenting evidence on the merits of the Commission’s proposal and whether and how to apply it to the facts of the respective proceedings.
• Impacts of Tax Cuts and Jobs Act: The Commission took several actions at the November 2018 meeting to address tax-related matters resulting from the Tax Cuts and Jobs Act of 2017.
  • In his opening comments, Chairman Chatterjee noted that much of the meeting’s agenda concerned tax-related proceedings and large number of the proceedings center on passing along the benefits of the Tax Cuts and Jobs Act to ratepayers.
  • The Commission issued a Notice of Proposed Rulemaking (NOPR) concerning public utility transmission rate changes to address accumulated deferred income taxes (ADIT). In the NOPR, the Commission proposed to require all public utility transmission providers with transmission formula or stated rates to revise those rates to account for changes caused by the Tax Cuts and Jobs Act. Per the NOPR, all public utilities with transmission formula rates would be required to: (i) deduct excess ADIT from or add deficient ADIT to their rate bases, (ii) adjust their income tax allowances by amortized excess or deficient ADIT, and (iii) incorporate a new permanent worksheet into their transmission formula rates that will annually track ADIT information. In addition, the Commission is proposing to require all public utilities with transmission stated rates: (i) to determine the amount of excess and deferred income tax caused by the Tax Cuts and Jobs Act’s reduction to the federal corporate income tax rate and (ii) return or recover this amount to or from customers. Comments on the NOPR are due thirty days after it is published in the Federal Register.
  • The Commission also issued a policy statement concerning the treatment of ADIT for both accounting and ratemaking purposes as to Commission-jurisdictional public utilities, natural gas pipelines and oil pipelines in light of the Tax Cuts and Jobs Act. The Commission further addressed the accounting and ratemaking treatment of ADIT following the sale or retirement of an asset.
  • Finally, the Commission issued multiple orders addressing utility and pipeline rate issues resulting from the Tax Cuts and Jobs Act.
  • In connection with the Commission’s acceptance of a settlement concerning the Kern River Gas Transmission Company’s rate reduction resulting from the corporate tax change rate, Commissioner Glick indicated his concern with one of the settlement’s terms that would account for the tax rate at 2016 levels if the Commission initiated a proceeding under the Natural Gas Act to increase or change rates. Commissioner Glick called on Congress to add a refund provision to the Natural Gas Act to mirror the refund provision in the Federal Power Act to ensure that consumers are protected.
• Office of Enforcement Report: The Commission’s Office of Enforcement released its 2018 Report on Enforcement. As described by Commission Staff, the report provides information on its activities over the last fiscal year; discusses activities of all four of the Office of Enforcement’s divisions (i.e., investigations, audits and accounting, energy market oversight, and analytics and surveillance); summarizes audits, market reports, litigation filings, and settlements that were approved by the Commission; and discusses non-public activities, including summaries of investigations and self-reports that were closed without further action by the division of investigations. The report can be found here. Commissioner LaFleur described the report as required reading for anyone who does business before the Commission or Commission markets.
• Other:
  • Chairman Chatterjee highlighted the Commission’s order amending its regulations relating to mergers or consolidations by a public utility under Section 203(a)(1)(B) of the Federal Power Act in response to recent legislation. Chairman Chatterjee noted that the change would relieve the regulatory burden on small transactions and that its impact is significant. As revised, Section 203(a)(1)(B) clearly establishes that there are no exceptions to the $10 million minimum threshold for transactions that will be subject to the Commission’s review and authorization under Section 203. The Commission is also requiring, however, that public utilities must also provide notice to the Commission of mergers and consolidations by a public utility if the facilities to be acquired have a value in excess of $1 million and do not require Commission authorization under Section 203(a)(1)(B).
  • Commissioner LaFleur drew attention to the final rule approving the next phase of reliability standards on geomagnetic disturbances (GMD). The rule approved the Reliability Standard, but directed NERC to develop and submit modifications to the standard: (i) to require the development and implementation of corrective action plans to mitigate assessed supplemental GMD event vulnerabilities; and (ii) to authorize extensions of time to implement corrective action plans on a case-by-case basis. Commissioner LaFleur also noted that the Commission declined to direct the development of a standard on electromagnetic pulse, as beyond the scope of the standard on GMD, but that she was closely following the subject.
  • Commissioner LaFleur discussed her concurrence on a Texas Eastern project’s certificate of public convenience and necessity proceeding. She described her balancing of project need and environmental impact. In particular, she calculated an upper bound estimate of downstream greenhouse gas emissions from combustion of the gas enabled by the project and concluded, on balance, that the project is in the public interest. She indicated that she was making case by case determinations on such projects, despite her disagreement with how the Commission is handling downstream greenhouse gases. Commissioner Glick indicated he was partially dissenting in the proceeding because he believes that the Commission is statutorily obligated to assess proposed projects impacts on climate change before granting a certificate of public convenience and necessity. Both Commissioners LaFleur and Glick indicated that they looked forward to considering these environmental issues as part of the Notice of Inquiry on the certificate policy statement.
  • Finally, Chairman Chatterjee also noted that Congress recently passed the America’s Water Infrastructure Act of 2018, which included a number of hydropower provisions, and that the Commission had issued its notice establishing a schedule to implement the provisions of the act.