22 May 2020

Federal Energy Regulatory Commission Proposes Limiting Policy on Tariff Waivers

On May 21, 2020, FERC issued a policy statement to clarify its position regarding requests for waiver of tariff provisions.  If finalized, the Policy Statement would revise how FERC treats requests for waiver of tariff provisions.

The proposed policy relates to FERC’s statutory authority to review and approve public utility rates, as set forth in Federal Power Act (FPA) sections 205 and 206, and the parallel provisions in Natural Gas Act (NGA) sections 4 and 5.  FERC is concerned that its usual practice of waiving tariff provisions after the fact amounts to retroactive ratemaking in violation of the filed rate doctrine.

The Proposed Policy Statement says that while the FPA and NGA allow FERC discretion to waive tariff provisions before the fact, the filed rate doctrine (and related rule against retroactive ratemaking) do not allow FERC to do so after the fact.

Therefore, the Commission proposes that it will no longer grant retroactive waivers of tariff provisions except in limited circumstances.  FERC established an expedited schedule for comments on the proposed policy statement.  Comments will be due on June 4, 2020, and reply comments will be due on June 11, 2020.

FERC’s guidance in the policy statement is three-fold.  First, FERC proposes that the term “waiver” should be confined to two situations: (a) requests for prospective relief where there has been no previous deviation from the filed tariff, or (b) petitions for remedial relief when a tariff authorizes regulated entities to seek a remedial waiver for past non-compliance with the filed tariff.

The Commission will continue to apply the existing four-pronged test in considering requests for prospective waiver and petitions for remedial relief, in circumstances involving both wholesale power and natural gas pipeline rates and services.  The test looks at whether (1) the underlying error was made in good faith; (2) the waiver is of limited scope; (3) the waiver addresses a concrete problem; and (4) the waiver does not have undesirable consequences, such as harming third parties.

However, the Commission notes that it will require a stronger showing under this test when a petitioner is seeking remedial relief for its own failure to comply with a tariff, and that such petitioners will generally be denied when a protestor credibly contends that the petition for remedial relief will result in undesirable consequences.  Some commentators read this to mean inadvertent error or administrative oversight will not be considered to be “good faith” anymore.

Second, FERC proposes that regulated entities re-characterize their filings when they are outside the two aforementioned situations.  When an entity has (or may have) acted in a manner inconsistent with the tariff, filings should be characterized as petitions for declaratory orders or as complaints against a third party (and not a waiver).  Such petitions or complaints should also expressly request Commission action pursuant to FPA Section 309 or NGA Section 16.  Commissioner Glick highlighted that there is a notable filing fee associated with these filings, which could have chilling effect.

Third, FERC offers proposals for how tariffs may be modified to avoid conflict with the filed rate doctrine and the rule against retroactive ratemaking.  Tariffs may be modified to state that the Commission can waive a failure to comply with a certain deadline and that relevant entities can cure their errors within a reasonable period after default.

During FERC’s May 21, 2020 meeting, FERC commissioners emphasized the need for industry participation in the proceeding.  Commissioner McNamee observed that the FPA does not neatly fit today’s complex RTO/ISO tariffs, and worried that this rigid legal policy may deny FERC a tool to address practical realities.

FERC set a shortened two-week period for comments, which are due June 4, 2020, with a week for reply comments, which are due June 11, 2020.

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