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New Mexico Gas Company, Inc. Challenges Transwestern Pipeline Company

We represented New Mexico Gas Company in Transwestern Pipeline Company’s most recent general pipeline rate case at the Federal Energy Regulatory Commission (FERC). In addition to contesting the pipeline’s proposed rates and other changes to the pipeline’s non-rate terms and conditions, New Mexico Gas Company raised serious public safety concerns associated with the pipeline’s gas quality standards, particularly its proposal to allow gas with a high heating value (as measured in BTUs per cubic foot) on its system. The rate case was settled, with the gas quality standards and certain other issues set for separate stand-alone proceedings. The separate proceedings, including a technical conference held at the FERC, resulted in adoption in Transwestern’s tariff of the high heating value for gas that New Mexico Gas Company advocated.

Win at the US Supreme Court on Wholesale Compensation for Demand Response Customers

For fifteen years, the Federal Energy Regulatory Commission (FERC) has allowed wholesale energy market operators to compensate retail customers for reducing demand, which reduces wholesale load and the wholesale prices paid to generators. When FERC adopted a rule to increase wholesale compensation to these “demand response” customers, a national coalition of generation facility owners challenged the rule in court. The U.S. Court of Appeals for the District of Columbia Circuit ruled that FERC has no jurisdiction to approve compensation by retail customers for demand reductions. The U.S. Supreme Court overturned this ruling and let the FERC rule stand.

With a strong grasp of the energy market, we were actively involved in the appellate and related proceedings counseling, and aggressively representing PJM Interconnection, L.L.C, (PJM) in efforts to avoid, minimize, and/or mitigate the potentially significant and adverse impacts of the Court of Appeals ruling on their markets. Our appellate advocacy for PJM included preparation of a brief to the D.C. Circuit supporting FERC’s jurisdiction, requesting rehearing en banc from the D.C. Circuit to apprise it of the potentially extensive and adverse impacts on PJM’s wholesale markets, and preparation of a brief to the U.S. Supreme Court seeking reversal of the EPSA decision. Additionally, we requested and obtained a PJM tariff waiver from FERC to limit the market’s dependence on demand response; and developed, filed and litigated at FERC alternative “demand response” tariff rules that would avoid the jurisdictional defect identified by the court.

Landmark Opinions Issued in TAPS Rate Cases

Our long representation of Anadarko Petroleum Corporation and Tesoro Alaska Company in the Trans Alaska Pipeline System (TAPS) rate cases resulted in two landmark orders before the Federal Energy Regulatory Commission (FERC) ruling in favor of Anadarko’s and Tesoro’s position on all significant issues.

As background, the Trans Alaska Pipeline System is one of the most important crude oil pipelines in North America, extending 800 miles from Alaska’s North Slope to the port at Valdez, Alaska. TAPS is owned by affiliates of the largest oil producers in Alaska, including BP Pipelines (Alaska) Inc., ConocoPhillips Transportation Alaska Inc., and ExxonMobil Pipeline Co. (collectively the TAPS Carriers).

FERC Opinion No. 502

After service commenced on TAPS in 1977, proceedings ensued at FERC to establish transportation rates under the Interstate Commerce Act. In 1985, following protracted litigation, the TAPS Carriers and the State of Alaska reached a settlement that governed annual TAPS rate filings for nearly 20 years. In 2005, Wright & Talisman along with Alaska co-counsel, on behalf of Anadarko and Tesoro, mounted a challenge to the settlement rates as unreasonable and excessive.  

After settlement negotiations were unsuccessful, the parties engaged in extensive discovery and weeks of hearings before a Presiding Administrative Law Judge. The Judge ruled in favor of Anadarko’s and Tesoro’s positions on nearly every rate issue. The Judge ruled that the settlement methodology produced excessive rates that were not cost-justified and therefore were unjust and unreasonable. The Judge’s decision was affirmed in all material respects by FERC in Opinion No. 502, which was upheld by the D.C. Circuit. Opinion No. 502 ended two decades of TAPS ratemaking under settlement principles ruled to be unreasonable and ushered in a new era of cost-based ratemaking for TAPS.

FERC Opinion No. 544

The TAPS Carriers’ “Strategic Reconfiguration Project” is the most significant project conducted on TAPS since the original construction of the pipeline. The project involved replacing existing gas-fired turbines with electric turbines, automating pump stations, and replacing control systems. While initially authorized at a cost of approximately $220 million, actual costs have escalated to nearly $1 billion.

On behalf of Anadarko and Tesoro, and with Alaska co-counsel, Wright & Talisman challenged the Strategic Reconfiguration Project on prudence and other grounds at FERC and the Regulatory Commission of Alaska. We also challenged the TAPS Carriers’ inclusion in rates of certain out-of-period ad valorem tax costs and raised other general ratemaking issues. FERC and the Regulatory Commission of Alaska held concurrent hearings over many months in Washington, D.C. and Anchorage, Alaska. The FERC Administrative Law Judge issued a 541-page Initial Decision, which applies to the FERC-jurisdictional rates. The decision found for Anadarko and Tesoro on all major issues and adopted the prudence remedy proposed by Anadarko and Tesoro, which caps cost recovery for the project at approximately $230 million and disallows hundreds of millions in project costs above that level. FERC upheld the Judge’s decision in all significant respects, except that it allowed a narrow exception for an unfinished pump station, subject to principles of res judicata. Opinion No. 544 stands as one of the largest disallowances of costs from rates in the history of FERC.

On February 29, 2016, the Regulatory Commission of Alaska adopted FERC’s findings concerning the Strategic Reconfiguration Project and similarly disallowed collection of the disputed ad valorem tax costs. The Regulatory Commission of Alaska’s decision applies to the in-state TAPS rates.

additional cases

  • A Win for Trans Bay Cable in Rate Case
  • MISO ’ s Modification of the Cost Allocation for Baseline Reliability Projects
  • MISO Customer Groups Aim to Substantially Reduce Return on Equity
  • Successful Settlement Negotiated for Ameren in Goodwill Proceedings
  • Managing RTOs Compliance with Order No. 1000
  • Overcoming Strong Opposition to Win Approval of Pipeline Expansion for Millennium Pipeline Company
  • FERC Approves PJM’s Extensive “Capacity Performance” Capacity Market Reforms
  • MISO’s Multi-Value Projects (MVP) Cost Allocation Enables Reliable and Economic Delivery of Energy

We represented Trans Bay Cable in its most recent Federal Energy Regulatory Commission (FERC) rate case to recover its transmission revenue requirement. Trans Bay Cable is the owner and operator of a high-voltage, direct-current electric transmission line that connects the City of San Francisco to the East Bay. In an effort to secure a favorable outcome for Trans Bay, we worked tirelessly with company witnesses and expert witnesses on written testimony, advised on litigation strategy and associated risks, represented the company in a complaint (consolidated with the FERC rate case) designed to lower Trans Bay’s revenue requirement below what it had been recovering, and represented Trans Bay in informal discovery and settlement negotiations concerning both the rate case and the complaint. The cases were settled with FERC Trial Staff and intervenors with Trans Bay receiving more than 94% of the filed new revenue requirement, despite the consolidated complaint.

With its landmark Order No. 1000 regional and interregional transmission planning and cost allocation rulemaking, the Federal Energy Regulatory Commission (FERC) launched a new era of competition in the development and construction of regional transmission facilities. In spite of FERC’s aggressive efforts to promote competition in regional grid development for the benefit of consumers, Order No. 1000 recognized that certain obligations imposed on existing public utilities required approaches that would allow those utilities the right to build certain facilities necessary to ensure the utility’s continued compliance with mandatory federal reliability standards and continued fulfillment of obligations to serve retail customers.

Against substantial opposition, we advised and successfully prosecuted before FERC a modification of the cost allocation for reliability projects (Baseline Reliability Projects) in the Midcontinent Independent System Operator, Inc. (MISO). The modified cost allocation recognizes the changes to transmission planning and cost allocation that MISO has adopted since the Baseline Reliability Project category was established. Essentially, these projects will not be subject to the requirements of Order No. 1000, which was filed at the same time as this case was being prosecuted, and the clients will be able to address reliability needs of their respective transmission systems more promptly. With a strong understanding of the complexities of the federal energy landscape, Wright & Talisman continues to prosecute the matters on appeal before the U.S. Court of Appeals for the Seventh Circuit.

Representing the MISO Transmission Owners, we are currently defending against two complaints brought by various groups seeking to substantially reduce the return on equity for transmission investment. Customer groups, state regulatory commissions, state consumer advocates, retail customer groups and even the Federal Energy Regulatory Commission’s (FERC) internal trial staff have lined up against the MISO Transmission Owners seeking massive reductions to their authorized equity returns and threatening ongoing efforts to develop and enhance the MISO transmission system.

Defending the MISO Transmission Owners in hearings in two ongoing complaint proceedings, the hearing on the first complaint occurred in August 2015 with an Initial Decision from the Administrative Law Judge issued in December 2015, which FERC affirmed in September 2016. The Initial Decision called for a substantially smaller reduction in our clients’ return on equity than was advocated by the complainants, all intervenors and the FERC trial staff. An Administrative Law Judge convened a hearing on a second complaint in February 2016. We continue to aggressively represent our client’s interests in these and anticipated future complaint proceedings. The goal is to maintain an adequate base return on equity that would enable our clients to attract the investment capital necessary to continue expanding and improving the MISO regional transmission grid, a critically important component of the national transmission system that spans the midsection of the United States from Canada to the Gulf of Mexico and stands at the forefront of a region of vast renewable energy development potential.

Ameren, a holding company for several power and energy companies, engaged Wright & Talisman to represent them at the Federal Energy Regulatory Commission (FERC) and D.C. Circuit Court of Appeals in multiple proceedings regarding the accounting and ratemaking treatment of goodwill associated with prior Ameren merger transactions. A comprehensive settlement concerning all proceedings was successfully negotiated and agreed to by all parties, and is approved by FERC. In short, the settlement greatly reduces Ameren’s refund exposure and provides ongoing benefits to both Ameren and its customers through agreements on appropriate accounting treatment of acquisition premiums.

Our nation-leading role in representing Regional Transmission Organizations (RTOs) and electric transmission facility owners gives us a broad and unique perspective on one of the most critical electric regulation issues of today—RTO rules for determining which new high-voltage transmission lines should be built, who should build them, and who should pay for them. The Federal Energy Regulatory Commission’s (FERC) landmark Order No. 1000 made significant changes in this area of regional and interregional transmission planning and cost allocation. Representing two of the nation’s six FERC-regulated RTOs (PJM Interconnection, L.L.C. (PJM) and Southwest Power Pool, Inc. (SPP)), and most of the transmission owners in a third RTO (MISO Transmission Owners), we’ve handled separate proceedings on compliance with, and implementation of, these new rules.

Knowing the industry as well as the law enabled us to successfully prosecute before FERC all three clients’ initial and several subsequent compliance filings, and we continue to advise and facilitate filings regarding additional compliance and implementation issues and obligations. In fact, our representation has been instrumental in two of our clients obtaining significant exceptions to certain requirements of Order No. 1000 that will enable them to more quickly address immediate reliability needs of their respective transmission systems. We also successfully obtained a rehearing by FERC on whether regional transmission planning processes can take into account state and local laws when deciding whether a project is subject to Order No. 1000 requirements, which will facilitate compliance with such laws. Our continued representation includes ongoing counseling regarding Order No. 1000 and process changes, as well as prosecution of federal judicial appeals of various FERC determinations in certain regions.

Over strenuous opposition from landowner groups, Wright & Talisman assisted Millennium Pipeline Company (Millennium) in obtaining certificate authority from the Federal Energy Regulatory Commission (FERC) to construct a compression expansion of its natural gas pipeline system. Our team also successfully defended the certificate order on appeal in the D.C. Circuit and represented the pipeline in a related District Court appeal under the Freedom of Information Act.

The case drew industry-wide attention because of the strong opposition from a resident group, which staged protests at FERC open meetings, protested at other federal and state agencies, and requested extraordinary relief in the courts. Additionally, opponents proposed an alternate site for the project, prompting FERC staff to issue a supplemental notice to take comments on the alternative. After extensive study of the competing proposals, FERC staff’s environmental assessment found Millennium’s proposal more acceptable with certain mitigation conditions. However, the FERC Commissioners split on the certificate order, with three Commissioners approving the certificate and two dissenting. This unusual split decision further intensified industry attention and dramatically raised the stakes in the ensuing appeal at the D.C. Circuit. In addition to petitioning the court for review, the project opponents raised extraordinary requests for stay under the All Writs Act and later under the Natural Gas Act. Wright & Talisman prepared answers and briefs to oppose the petitions for review and all other requests for relief.

Ultimately, the court dismissed the opponents’ petitions and other requests. The case is noteworthy not only for the level of opposition mounted by opponents, but also because the court’s decision contains the most thorough discussion to date affirming FERC’s current policy and procedures for review of certificate applications for new natural gas infrastructure. 

PJM Interconnection, L.L.C.’s (PJM) forward capacity auctions secure three-year commitments from generators to meet the region’s peak electricity needs, but PJM found the market rules were not incenting committed generators to deliver the desired performance during capacity emergencies—evidenced by record generator outages during peak demand of 2014’s “Polar Vortex.” Grounded in the details and inner workings of the Federal Energy Regulatory Commission (FERC), we worked closely with PJM to develop, file at FERC and successfully prosecute the most extensive reforms to PJM’s capacity market rules since the 2006 settlement that established that market. Such reforms included redefining the capacity product, eliminating excuses and significantly increasing penalties for generator non-performance, and a corresponding increase in generators’ maximum offer price. Naturally, the rule changes received opposition from dozens of parties, including generators objecting to the higher penalties and limited performance excuses, and load interests objecting to the higher maximum offer prices and possibly increased consumer costs. FERC approved the rule changes largely as proposed by PJM. Intimately involved with all aspects of this contentious and high-profile case, Wright & Talisman has been drafting detailed complex tariff provisions to extensive advocacy before FERC to defend the rule changes as necessary to maintenance of long-term reliability.

As the Federal Energy Regulatory Commission (FERC) has long recognized, cost allocation for new transmission facilities is one of the most vexing issues plaguing the development and modernization of the national electric transmission grid. As environmental mandates and market forces compel greater integration of renewable energy resources and retirement of aging fossil fuel-fired generation facilities, transmission providers and regional transmission organizations have struggled with developing and paying for modern transmission systems. These systems need to be sufficiently robust to ensure reliability and alleviate congestion while interconnecting new location-constrained, intermittent renewable resources and delivering power to remote load centers. Challenges have been particularly acute in the Midcontinent Independent System Operator, Inc. (MISO) region, given its location in the central portion of the United States spanning from Canada to the Gulf of Mexico, in the heart of a region that has been dubbed “the Saudi Arabia of Wind.”

Advising the MISO Transmission Owners and successfully prosecuting before FERC, the U.S. Court of Appeals for the Seventh Circuit and the U.S. Supreme Court, we successfully established a new transmission cost allocation category for Multi-Value Projects (MVPs) in MISO that enable the reliable and economic delivery of energy in support of documented energy policy mandates. This case affirms MISO’s FERC-approved cost allocation for $5 billion in projects, which allows for construction to proceed without uncertainty of who will pay the costs, resolving one of the most difficult issues facing MISO as the regional transmission organization. Also, after successfully obtaining a remand from the Seventh Circuit regarding the issue of cost allocation to adjoining regions, we won the remanded cost allocation issue at FERC.

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