On March 27, 2019, the Federal Energy Regulatory Commission (“FERC”) issued a trio of declaratory orders responding to uncontested Petitions for Declaratory Order (“PDOs”) that sought regulatory certainty for three distinct crude oil pipeline projects with contract commitments. The decisions, which governed filings made by Enterprise Crude Pipeline LLC (“Enterprise”) (Docket No. OR18-27-000), EnLink Crude Pipeline, LLC (“EnLink”) (Docket No. OR18-38-000), and EnLink Delaware Crude Pipeline, LLC (“EnLink Delaware”) (Docket No. OR19-3-000), consisted of one denial (Enterprise) and two approvals with conditions (EnLink and EnLink Delaware). Together, these three decisions suggest a notable departure from FERC’s prior declaratory order precedent, which had tended to approve uncontested PDOs without conditions. When coupled with another three declaratory orders issued on March 11, 2019, FERC’s latest round of declaratory orders indicates a trend towards greater scrutiny of pipeline projects regulated under the Interstate Commerce Act (“ICA”).
On March 21, 2019, the Federal Energy Regulatory Commission (“FERC”) initiated an Inquiry Regarding the Commission’s Policy for Determining Return on Equity (“ROE”) that was published in the Federal Register on March 28, 2019. FERC is seeking comments on this Notice of Inquiry (“NOI”) in eight general areas, including the role its base ROE plays in investment decision-making, and whether FERC should reevaluate how it uses the discounted cash flow (“DCF”) methodology to set ROEs for jurisdictional rates. The DCF methodology has guided cost-of-service ratemaking at FERC since the 1980s. It is used to ascertain an investor’s required return for investing in a firm, and is applied using a proxy group of firms that face similar risks to the entity whose ROE is being determined, which defines a “zone of reasonableness” for the ROE. The use of a proxy group is intended to satisfy the “Hope” and “Bluefield” standards (named for a pair of 20th Century U.S. Supreme Court cases) that an ROE is commensurate with returns on investments in other enterprises having corresponding risks to assure confidence in the financial integrity of the enterprise to allow it to maintain its credit and attract capital. Comments on the NOI are due on June 26, 2019 and Reply Comments are due on July 26, 2019.
On March 21, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a notice of inquiry (“NOI”) in which the Commission addresses possible improvements to its electric transmission incentives policy. The NOI requests stakeholder comment on a wide range of issues related to the Commission’s current transmission incentives policies. FERC Chairman Neil Chatterjee said, “as I announced in November, I believe these policies are overdue for a fresh look with input from all stakeholders, not just those that happen to be parties to a pending complaint proceeding.” The NOI was published in the Federal Register on March 28, 2019. Comments on the NOI are due on June 25, 2019 and Reply Comments are due on July 25, 2019.
On February 21, 2019, the Federal Energy Regulatory Commission (FERC) issued Trailblazer Pipeline Company LLC (“Trailblazer”), FERC’s first order addressing how FERC applies its Revised Income Tax Allowance Policy Statement, as further revised on rehearing (collectively “Revised Policy Statement”), to a pipeline organized as a pass-through partnership that is not a master limited partnership (“MLP”) in a Natural Gas Act (“NGA”) section 4 rate case proceeding. FERC issued the Revised Policy Statement in response to the U.S. Court of Appeals for the D.C. Circuit’s (“D.C. Circuit”) decision in United Airlines, Inc. v. FERC (“United Airlines”), which found that FERC could not permit a specific MLP pipeline to recover an income tax allowance in its rates without further explaining why this did not result in the MLP’s investors “double recovering” their income tax costs, based on a concern that the investors’ pre-tax return on equity (“ROE”) also provided such compensation when calculated using the discounted cash flow (“DCF”) methodology. United Airlines did not consider other types of pass-through entities, such as non-publicly traded partnerships, or alternative methodologies to calculate ROE and the Revised Policy Statement did not address them directly. (more…)
In our first enforcement update for 2019, we cover a range of issues (including some news from the end of 2018):
- FERC opens investigations into rates charged by three interstate natural gas companies;
- Powhatan and Chen file opening appellate brief;
- Judge suspends CFTC case against Kraft because of the partial government shutdown;
- FERC increases maximum civil penalties for violations;
- FERC approves settlement between FERC Enforcement and Algonquin;
- Judge rules that FERC action against Silkman/CES is not time-barred by statute of limitations; and
- Judge finds CFTC fails to meet burden on manipulation claims against DRW and Wilson.
1 – Make-up of FERC Commissioners – FERC’s leadership already was uncertain heading into 2019 before the tragic passing of Commissioner and former Chairman Kevin McIntyre on January 3, 2019. Prior to his passing, the Commission achieved a full complement of five commissioners in December 2018, following the confirmation of Bernard McNamee who filled a spot made vacant by the August 2018 resignation of former Commissioner Robert Powelson. Commissioner McNamee is facing calls to recuse himself from certain FERC electric generation proceedings given positions he took on grid resiliency in his prior position at the Department of Energy, and he is certain to be scrutinized by environmental groups for positions he is anticipated to take on pipeline matters as a FERC commissioner. (more…)
On November 15, 2018, the Federal Energy Regulatory Commission (FERC) issued a rulemaking to revise its regulations relating to mergers or consolidations by a public utility. See Implementation of Amended Section 203(a)(1)(B) of the Federal Power Act, 165 FERC ¶ 61,091 (2018). These regulations would implement a law signed on September 28, 2018 establishing a $10 million threshold on transactions that will be subject to FERC’s review and authorization under section 203(a)(1)(B) of the Federal Power Act (FPA). Previously, there was no dollar value threshold for FERC review of public utility “merge or consolidate” transactions under FPA section 203(a)(1)(B). See 16 U.S.C. § 824b(a)(1)(B). (more…)
This week’s enforcement update covers:
- FERC issues 2018 Report on Enforcement showing continued focus on fraud and market manipulation;
- CFTC Enforcement Director discusses Enforcement trends and CFTC releases Annual Report on enforcement;
- CFTC orders Commerzbank AG to pay $12 million for swap dealing violations and misleading statements to the CFTC;
- Former commodities trading executive arrested for scheme to defraud employer by hiding trading losses; and
- CFTC and Kraft file oppositions to motions for summary judgment.
This week’s enforcement update covers:
- CFTC announces Insider Trading & Information Protection Task Force;
- FERC approves settlement with Wheelabrator Technologies Inc. related to capacity payments;
- Second Circuit upholds New York zero emission credits for nuclear facilities;
- Petrobras pays over $1.7 billion to settle corruption charges with U.S. and Brazilian authorities;
- Judge denies Powhatan and Chen motion to dismiss on statute of limitations grounds;
- CFTC finds Mizuho Bank, Ltd. engaged in spoofing of Treasury futures and Eurodollar futures;
- CFTC finds that proprietary trading firm Geneva Trading USA, LLC engaged in spoofing;
- FERC Enforcement requests that Commission vacate Order to Show Cause to Footprint; and
- CFTC orders futures trader and trading firm to pay $2.3 million in penalties for spoofing and manipulative scheme.
This week’s enforcement update covers:
- Commodity Trading Adviser (CTA) violation settled with CFTC;
- CFTC and Kraft file motions for summary judgment;
- CFTC files 12 enforcement actions addressing registration, position limits, recordkeeping, supervision and reporting;
- Seventh Circuit upholds Illinois zero emissions credits for nuclear facilities;
- Judge denies class action lawsuit alleging antitrust violations in New England gas market;
- CFTC Staff issues report on impact of U.S. tight oil on NYMEX WTI futures contract;
- CFTC orders BNP Paribas to pay $90 million penalty for attempted manipulation and false reporting of U.S. Dollar ISDAFIX benchmark swap rates; and
- FERC issues notice of intent to revoke MBR authority to five entities for failure to file EQRs.