Managing a FERC audit

What happens when the Federal Energy Regulatory Commission audits a public utility?

The Federal Energy Regulatory Commission has jurisdiction over interstate transmission of electricity, natural gas, and oil, as well as hydropower projects, liquefied natural gas (LNG) terminals and interstate natural gas pipelines. Under Section 301 of the Federal Power Act (codified at 16 U.S.C. § 825), public utilities and licensees must keep records of their business activities.  By law, the FERC has the right to inspect these records on a confidential basis.

The Commission's Office of Enforcement manages many of the agency's investigations.  Its Division of Audits and Accounting periodically audits public utilities and licensees to evaluate their compliance with the statutes and regulations administered by the Commission.

For example, on November 17, 2014, the Commission issued a letter to public utility Calpine Corporation noting the Division of Audits and Accounting's commencement of an audit.  That letter describes the objectives of the audit as "to evaluate Calpine's compliance with: ( 1) market rules regarding uplift payments from organized markets in which Calpine participates; (2) terms and conditions of its market-based rate authorization tariffs; and (3) Electric Quarterly Report filing requirements under 18 C.F.R. § 35.10b (2014)."  The audit will cover the period from January 1, 2012 through the present.

The letter to Calpine notes several provisions of the Federal Power Act that govern recordkeeping and audits.

• Section 301(b) of the Act requires Calpine to furnish, within reasonable time frames, any information the Commission may require; requires Calpine to grant agents of the Commission free access to its property, accounts, records, and memoranda; and allows Commission staff to keep copies of any accounts, records, or memoranda that pertain to the audit.
• Section 301(c) allows Commission staff to examine the books, accounts, memoranda, and records of any person who controls, directly or indirectly, Calpine, and of any other company controlled by such person, insofar as they relate to transactions with or the business of Calpine.

The audit letter also points to additional recordkeeping and retention requirements found in sections 301, 304, and 311 of the Federal Power Act, 16 U.S.C. §§ 825, 825c, and 825j (2012), and 18 C.F.R. part 125 (2014).  For example, it states that Calpine must preserve and retain, and shall not discard or destroy, any and all existing and future records or communications, including but not limited to electronic documents, emails, instant messages, text messages, and voice recordings, relating to this audit.

What this means for Calpine -- beyond the obvious audit -- is unclear.  The letter notes that Commission staff will contact Calpine soon to explain the audit process and answer any questions.  While many audits find no problems, some audits do lead to further enforcement action, penalties, or refunds.  In the Commission's 2013 Report on Enforcement, it noted that in 2013, staff from the Division of Audits and Accounting conducted 29 financial, compliance, and performance audits of public utilities, natural gas pipelines, and gas storage companies.  These audits resulted in 360 recommendations for corrective action and directed refunds totaling over $15.4 million.

Other public audits recently initiated by the Commission include audits of MidAmerican Energy Holding Company, Dynegy, Inc., and Bangor Hydro Electric Company.

US first tidal project to come online

The nation's first commercial, grid-connected tidal energy project is scheduled to go live this month, as Ocean Renewable Power Company plans to start delivering power to the grid from its Cobscook Bay Tidal Energy Project.

A scene from the Maine coast: Crow Island off Great Cranberry Island, about 100 miles west of the Cobscook Bay Tidal Energy Project.

Earlier this year, the Federal Energy Regulatory Commission issued an pilot project license to Ocean Renewable Power Company Maine, LLC for its Cobscook project near Eastport, Maine.  The initial phase of ORPC's project involves a hydrokinetic turbine connected to a generator capable of producing up to 180 kilowatts of energy; after monitoring this turbine for a year, ORPC plans to expand the project to a capacity of 3 megawatts.

ORPC also won a 20-year power purchase agreement to sell the projects' output to Maine's three large electric utilities at a price escalating from 21.5 cents per kilowatt-hour.  That PPA was the result of a Maine law creating a competitive process for marine renewable energy developers to secure offtake agreements.

In a filing with the FERC earlier this week, ORPC announced that it anticipates delivering power from the Cobscook project to the mainland Bangor Hydro Electric Co. grid starting today.  According to the filing, this initial power delivery is part of the project's commissioning phase, with commencement of commercial operation expected by September 20.

Hydrokinetic projects -- generating electricity from tides, waves, and free-flowing rivers -- is a new sector of the U.S. energy portfolio.  Studies suggest that hydrokinetic resources have great potential, with tidal energy's electric production potential estimated to be 2.38 terawatt-hours per year, equal to an average power of 270 MW.  Wave energy appears to provide the larger resource, with an estimated electricity production potential of about approximately 260 TWh/yr (equal to an average power of 30,000 MW), with river in-stream electricity production potential estimated at approximately 110 TWh/yr.

July 28, 2010 - Alta Wind Energy Center breaks ground; PACE financing

Today's picture: Central Maine Power transmission lines off Route 201 in Topsham, Maine.

In California, the Alta Wind Energy Center — with plans for thousands of acres of turbines to generate electricity for 600,000 Southern California homes — officially broke ground yesterday.  Here's the official project website, which is running a bit slowly today (likely due to all the interest in the project).  Terra-Gen Power, LLC does have a slick website that is worth checking out.  Some highlights include:

• The Alta Wind Energy Center (AWEC), under developed by Terra-Gen Power, is composed of multiple projects.  The first AWEC development is the Alta-Oak Creek Mojave Project.
• The Alta-Oak Creek Mojave Project will be composed of up to 320 wind turbine generators and supporting infrastructure.
• The Project will be developed primarily on privately-owned land adjacent to existing wind energy developments in the Tehachapi area of California.
• The Project is projected to add 50 full-time jobs to the Kern County economy.

 Interest in smart grid deployment is growing.  Federal policy supports smart grid development, and many states are following suit with more specific provisions.  For example, this spring, the Maine Legislature enacted LD 1535 (now P.L. 2009 Ch. 539).  This bill, sponsored by Representative Jon Hinck of Portland, gives Maine a specific smart-grid policy for the first time.  Both CMP and Bangor Hydro, Maine's largest investor-owned utilities are already rolling out smart meters; the legislative policy declaration builds upon this head start.

In enacting the smart grid bill, the Maine Legislature found that:

• The cost of electricity to consumers in this State is high in comparison to costs in similar markets and impedes economic development;
• The State has recognized the consequences of climate change and has committed to policies to reduce emissions of greenhouse gases;
• The State's electric grid and long-term infrastructure investment are vital to continued security and economic development, and smart grid functions will deliver electricity from suppliers to consumers using modern technology to increase reliability and reduce costs in a way that saves energy and to enable greater consumer choice;
• The State currently lacks a comprehensive smart grid policy but faces critical decisions regarding the implementation of smart grid functions and associated infrastructure, technology and applications, and the commission and the Legislature will play central roles in making those decisions; and
• It is vital that a smart grid policy be developed in order to ensure that all ratepayers and the State as a whole are afforded the benefits of smart grid functions and associated infrastructure, technology and applications.

Based on these findings, the Legislature enacted a policy of promoting the development, implementation, availability and use of smart grid functions and associated infrastructure, technology and applications in the State.

With this policy in place, the ball is now in the court of smart grid infrastructure developers.  We now have a law that will support roll-out of smart grid projects in Maine.  Who will be the first to propose one?

A bit of personal news, related to energy: an article I co-authored with a colleague and a client has been published in Paper360 Magazine. Click through to read about how a pulp and paper mill navigates the waters of compliance with the Regional Greenhouse Gas Initiative (RGGI) and other climate change regulation.



How about PACE financing? PACE-promoting provisions got stripped out of the current Senate energy bill. These tweaks are viewed as necessary to let PACE programs flourish, as government-backed lenders Fannie Mae and Freddie Mac have suggested that they won't play with PACE.

Bangor Hydro is proceeding with an $8 million investment in smart grid infrastructure, despite not winning federal stimulus funding to support the project. Bangor Hydro plans to build on the company’s existing "advanced metering infrastructure". The utility projects this may add 50 cents to the typical residential bill.

Meanwhile, CMP's $190 million plan to install a new automated meter system at homes and businesses -- which did win $96 million in stimulus funding -- is drawing opposition from members of the International Brotherhood of Electrical Workers Local 1837. The union laborers are concerned that the automated meters will lead to 141 layoffs, including 85 meter readers. The Maine Public Utilities Commission is holding a public hearing today in Hallowell on the plan. CMP anticipates installing the meters in 2010 and 2011.

In Canadian news, through government utility Nalcor, Newfoundland and Labrador are commencing legal action against Hydro-Quebec over the Upper Churchill power sales agreements. Under the existing long-term contract, HQ pays one quarter of one-cent per kWh, and one-fifth of one cent for the 25 years starting in 2016 -- less than 5 per cent of the power's commercial value. According to Newfoundland and Labrador Premier Danny Williams, in 2008, Hydro-Québec reaped profits of about $1.7 billion from the Upper Churchill hydro dams, while owner Newfoundland and Labrador was paid $63 million. Nalcor will also ask Quebec's Régie de l'Énergie to require HQ to provide access to its transmission system for export of power from the proposed Lower Churchill expansion project.

Also in Canadian news, there's been an odd wrinkle in the HQ acquisition of NB Power. A leaked document suggests that New Brunswick's power transmission and distribution systems are no longer for sale; NB Power would continue to operate as a New Brunswick-owned and operated Crown corporation. The revised deal is reportedly now worth $3.2 billion and would still include hydroelectric facilities and the Point Lepreau nuclear power plant near Saint John, N.B. Under the revision, the 5 year rate freeze for residentials would remain in place, but industrials face a smaller rate reduction. The revised deal was reached by the provincial Liberal government after significant criticism that it, like the Upper Churchill contract, gave too much power to Quebec.

12/18/09: ME CA transmission lines approved, bumpy roads, no more Candu reactors

Maine:

The PUC (press release) has approved Bangor Hydro's 42-mile 115 kV electric transmission line between Ellsworth and Harrington, noting that the line will improve the reliability and increase grid capacity in Hancock and Washington Counties. BHE projects construction to run from 2011-2012. An order will follow soon.

California:

The Cal. PUC has approved construction of the last component of So. Cal. Edison's $1.8 billion Tehachapi project transmission lines required to interconnect new wind capacity with the grid. Construction will start in 2010, with the line expected to be energized in 2014.

USA:

The AP reports that counties and towns are letting paved roads revert to gravel to save money -- a good example of reevaluating just how good an infrastructure we're willing to buy.

Canada:
Ottawa announced that it will privatize the nuclear power unit of Atomic Energy of Canada -- the maker of the Candu reactors. Ontario was the primary market for Candus, but this summer the province declined to order more Candus due to cost -- even though Ontario is phasing out coal-fired electric power. Areva, Hitachi, and Westinghouse/Toshiba are potential buyers, all of whom are more likely interested in AEC's market, not the Candu design.