FEDERAL ENERGY

REGULATORY COMMISSION

OVERVIEW

Commissioner Philip Moeller August, 2014

Asia-Pacific Regulatory Forum

Outline

• Overview of FERC • Jurisdiction:

Federal, States and cooperative/municipals Wholesale, retail

• Federal Power Act RTOs Transmission Generation

• Natural Gas Act Shale Plays Gas Pipelines

• Interstate Commerce Act • Hydropower licensing authority • Enforcement through EPACT 2005 • Reliability through EPACT 2005

Overview of FERC

• Independent

The Federal Energy Regulatory Commission (FERC) is an Independent Agency in the Executive Branch

FERC decisions are reviewed by a court, not the President, DOE, OMB or CEQ

DEPARTMENT OF ENERGY FERC

Overview of FERC

• Bipartisan

Five Commissioners are appointed to staggered 5-year terms by the U.S. President, and confirmed by the Senate with no more than 3 from one party

The President designates one as the Chair, who serves as the administrative

head of the agency

Overview of FERC

• Quasi-judicial

As with most state commissions, FERC’s Chairman, Commissioners and staff cannot talk about certain matters unless first providing public notice Private discussions in contested, case-specific proceedings

are prohibited by FERC’s “ex parte” communications rules

Overview of FERC

• Zero-budget

FERC recovers the full cost of operations through annual charges and filing fees assessed on the industries it regulates, resulting in a net appropriation of $0

The FY2014 budget projects FERC will add $26 million to the

U.S. Treasury FY2014 Budget Request = $304.6 million

Overview of FERC

• Commission Responsibilities

Oversee the nation’s wholesale electric, natural gas, hydroelectric, and oil pipeline industries Ensure rates, terms and conditions of service are just and

reasonable and not unduly discriminatory or preferential Protect and improve the reliability of the bulk power system

Profile of Electric Industry

Transmission Networks Regulated by FERC

Local Distribution System Regulated by States

Final Customers (Retail Sales)

Regulated by States

Generation Wholesale Sales

Regulated by FERC

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Federal Power Act

The Commission’s legal authority comes from the Federal Power Act and major amendments made to it by the US Congress. On August 8, 2005, President George W. Bush signed into law the Energy Policy Act of 2005 The Commission's responsibilities include: • Approval of rates for wholesale sales of electricity and transmission in interstate

commerce for jurisdictional utilities, power marketers, power pools, power exchanges and independent system operators

• Oversight of the issuance of certain stock and debt securities, assumption of obligations and liabilities, and mergers

• Review of officer and director positions held between top officials at utility companies and certain firms with which they do business

• Review of rates set by the federal power marketing administrations • Review of exempt wholesale generator status • Certification of qualifying small power production and cogeneration facilities

Regional Transmission Organizations (RTOs)

Transmission Planning Regions *

• This map is for illustration purposes only. This map generally depicts the borders of regional transmission planning processes through which transmission providers have complied with Order No. 890. Those borders may not be depicted precisely for several reasons (e.g., not all transmission providers complying with Order No. 890 have a defined service territory).

Source: Derived from Energy Velocity

Transmission

The continental U.S. Power grid is owned by hundreds of entities, only a subset of which are subject to FERC’s ratemaking jurisdiction.

Electric Generation (2013)

Total Electricity Generation by Fuel Type, U.S., 2013 (Thousand Megawatt hours) Source: EIA Electric Power Monthly, February 2014

Natural Gas Act (NGA) Under the Natural Gas Act FERC –

Has comprehensive regulatory authority over companies that engage in either the sale of natural gas for resale or its interstate transportation

Regulates market entry by issuing certificates of public convenience and necessity & regulates market exit through its authority to abandon certificated service

Reviews applications for the construction and operation of interstate natural gas pipelines

Regulates the rates and other terms of jurisdictional gas sales and transportation Has exclusive authority under the NGA to authorize the siting of facilities for

imports or exports of LNG Conditioned on the applicant’s satisfaction of other statutory requirements The Department of Energy has authority over permits to import and export.

Section 1(b) of the NGA exempts production and gathering facilities from FERC jurisdiction The Wellhead Decontrol Act of 1989, completely removed federal controls on new natural gas,

except sales for resale of domestic gas by interstate pipelines, LDCs or their affiliates

New Shale Plays

Gas Pipelines

There are approximately 197,900 miles of interstate natural gas transmission pipeline.

Interstate Commerce Act

The Interstate Commerce Act (ICA) gives the Commission the authority to regulate the transportation rates and practices of oil pipelines The Commission's responsibilities include – • Regulation of rates and practices of oil pipeline companies engaged in

interstate transportation • Establishment of equal service conditions to provide shippers with equal

access to pipeline transportation and • Establishment of reasonable rates for transporting petroleum and

petroleum products by pipeline

FERC Hydroelectric Authority

FERC hydro regulation (FPA Part I) – Applies to hydroelectric facilities on navigable

waters – Includes tidal or “hydrokinetic” facilities

• FERC licenses the construction of new projects • FERC re-licenses existing projects • FERC oversees ongoing project operations

– Dam safety inspections – Environmental monitoring

U.S. Hydropower Federal and FERC-Regulated

U.S. Hydropower Capacity ~ 101,000 MW

Providing ~ 10% of U.S. Generating Capacity

U.S. Hydropower Capacity under FERC Regulation ~ 54,000 MW

Summary - Key Areas of FERC Regulatory Responsibility TYPE OF REGULATION

INVESTOR-OWNED ELECTRIC POWER

INTERSTATE NATURAL GAS PIPELINES

INTERSTATE OIL PIPELINES

NONFEDERAL HYDROPOWER PROJECTS

Regulation of Markets and Rates, Terms, and Conditions of Energy Services

-Transmission Yes Yes Yes N/A

- Sales for Resale Yes Yes, but limited No N/A

- Corporate Yes No No N/A

Authorization and Monitoring of Energy Facilities

- Siting No, except for NIETC Yes, the Commission issues certificates for construction of pipelines and related facilities

No Yes, the Commission issues licenses, exemptions, and license amendments

- Environmental No, except for programmatic EISs for some major actions.

Yes, NEPA review and interagency consultation for pipelines to be certificated

No Yes, NEPA review and interagency consultation for the above authorizations

- Safety No No, except as part of initial certification–incorporation of DOT standards

No Yes, dam and public safety

- Reliability Yes, for the bulk power system

No No No

Related Responsibilities of Other Key Agencies

States Retail sales, local distribution, siting for transmission lines and generation facilities.

Retail sales, local distribution, intrastate transportation, natural gas production and gathering

Siting Projects that do not affect navigable waters, interstate commerce, or Federal lands or dams

Other Federal Agencies DOE: Power Marketing Administrations EPA: air quality NRC: nuclear power licenses USDA: electric cooperatives DOI/USDA: siting on federal lands

DOT: safety DOI: siting in offshore waters, federal lands, national parks; endangered species USFS: siting in national forests COE: water body crossings Advisory Council on Historic Preservation: cultural resources EPA: PCBs National Marine Fisheries Service: offshore fisheries

DOT: safety DOI: federal lands, national parks, fish and wildlife, endangered species USFS: national forests Advisory Council on Historic Preservation: cultural resources National Marine Fisheries Service: Fisheries resources

Enforcement - EPAct 2005

• New Manipulation Authority o In EPAct 2005, Congress granted FERC significant new authority

to prohibit manipulation o Not only by direct participants in the physical natural gas and

wholesale electric markets o But also where “any entity” commits manipulation, directly or

indirectly, “in connection with” jurisdictional transactions

• New Penalty Authority o Congress also substantially increased the remedies available to

FERC to punish and deter violations, including market manipulation Civil penalties of up to $1,000,000 per violation/per day Criminal penalties up to $1,000,000 and 5 years in prison

Enforcement

• Monetary remedies under EPAct 2005 (all violations) 1. Civil penalties = > $148 million

2. Disgorgement = > $119 million Largest disgorgement amount (ETP) = $25 million

• 9 Commission-approved settlement agreements

o One company, Constellation, agreed to pay $135 million in civil penalties and disgorge $110 million in unjust profits

o 3 of the 9 settlements involved violations of the Commission’s Anti-Manipulation Rule and 3 involved violations of Natural Gas Open Access rules

o The remaining three settlements involved violations concerning Market-Based Rate Authority, Open-Access Transmission Tariffs, and the Reliability Standards

Reliability - EPAct 2005

• EPAct 2005, Section 1211

The North American Reliability Corporation (NERC), a not-for-profit entity is responsible for –

1) proposing, for FERC review and approval, reliability standards and cybersecurity protections

2) providing monitoring status of the bulk power system The NERC standards approved

by FERC apply to users, owners, and operators of the bulk-power system

Reliability Standards

• Critical Infrastructure Protection (CIP) FERC has approved 9 standards but has directed NERC to make

significant improvements to increase the level of cybersecurity, and provide directions and guidance to industry

Examples

CIP-002-3: Critical Cyber Asset Identification – Requires the identification and documentation of the Critical Cyber Assets associated with the Critical Assets that support the reliable operation of the Bulk Electric System CIP-009-3: Recovery Plans for Critical Cyber Assets – Ensures that

recovery plans are put in place for Critical Cyber Assets and that these plans follow established continuity and disaster recovery techniques and practices

Reliability Standards

• Need for Reform Over the past three years, FERC has testified before Congress 7 separate

times on the area of cybersecurity and the need for additional FERC authority

FERC’s reliability authorities are not adequate to address complex and fast-moving national security threats to the power grid. (e.g. EMPs, Stuxnet, Aurora)

The standards development process is an open and deliberative process that does not result in quick resolutions

FERC cannot develop the CIP standards. Only NERC, through its stakeholder-controlled process, can propose and modify standards. This process does not provide quick response to FERC directives on standards improvements

FEDERAL ENERGY

REGULATORY COMMISSION

OVERVIEW

Commissioner Philip Moeller August, 2014

Asia-Pacific Regulatory Forum