News + Events
Washington Energy Report: (1) Senate Proposal to Grant Regulatory Authority to CFTC on Carbon Market Trading (2) NERC Proposes Fines for Reliability Standard Violations (3) DOE Takes another Step toward FutureGen Project and CCS (4) Merchant Generator Requests Maryland PSC to Order Contracts
Washington Energy Report
July 21, 2009
Senate Proposal to Grant Regulatory Authority to CFTC on Carbon Market Trading
On July 6, 2009, Senators Dianne Feinstein (D-CA) and Olympia Snowe (R-ME) introduced legislation that would grant the Commodity Futures Trading Commission (“CFTC”) full authority to regulate all carbon market trading.
The proposed bill, S. 1399, would remove language from the American Clean Energy and Security Act of 2009 (“H.R. 2454”), recently passed in the House of Representatives, that provides for dual oversight between FERC and the CFTC. Under H.R. 2454, FERC would be responsible for regulating cash-based allowances and the CFTC would regulate carbon futures and derivative trading. Under S.1399, the CFTC would be the sole regulator.
In addition to the regulatory oversight changes, some of the other major differences proposed in S. 1399 from H.R. 2454 include:
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Requiring the CFTC to establish a clearinghouse capable of clearing carbon allowance transactions;
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Requiring standardized bilateral swaps to be classified as regulated derivatives, and not exempt from regulation;
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Establishing professional standards for carbon traders, brokers, and dealers;
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Establishing a centralized, electronic database to track all trades and positions across multiple markets in real time; and
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Establishing a new department within the CFTC that focuses on carbon markets in comparison to other commodity markets.
Sen. Feinstein commented on the changes saying, “[O]ur legislation establishes a clear and cohesive system for regulating this unique commodity trading marketplace.” Sen. Snowe believes that granting oversight solely to the CFTC will “prevent the market failures that we have recently witnessed in our derivative markets.”
Senators Feinstein and Snowe hope to have the bill included in the Senate climate change bill that is currently being developed in the Environment and Public Works Committee. A copy of S. 1399 can be found at: http://thomas.loc.gov/cgi-bin/query/z?c111:S.1399:.
NERC Proposes Fines for Reliability Standard Violations
On July 10, 2009, the North American Electric Reliability Corporation (“NERC”) filed with the Federal Energy Regulatory Commission (“FERC” or “Commission”) four notices of penalties with a proposed total of $75,000 in fines for violations of mandatory reliability standards. A fifth notice of violation did not include a financial penalty. All of the companies are also implementing mitigation plans.
The Energy Policy Act of 2005 directed the Commission to designate an electric reliability organization (“ERO”) which, in turn, is responsible for establishing a system of mandatory reliability standards, subject to the Commission’s approval. NERC, as the ERO, is authorized to impose penalties for violations of Reliability Standards, subject to the Commission’s review (see April 18, 2008 edition of the WER).
NERC proposed a $50,000 penalty to Lincoln Electric System (Docket No. NP09-31) for violating a communication standard and a vegetation maintenance standard. NERC also proposed a $5,000 penalty for BTU QSE Services Inc. (Docket No. NP09-30) for violating a critical infrastructure protection standard. NERC proposed to assess a $10,000 penalty to Louisiana Generating, a subsidiary of NRG Energy Inc. (Docket No. NP09-28), for violating a voltage control standard. All three companies entered into separate settlements with their reliability entities to resolve the violations.
NERC proposed to assess a $10,000 penalty to Dairyland Power Cooperative (Docket No. NP09-29) for violating two standards for failure to produce documentation of system maintenance and testing procedures of its protection systems and under-frequency load-shedding equipment.
Finally, NERC also cited a fifth company, Eastman Cogeneration, LP (Docket No. NP09-32), for failing to have documented procedures for recognizing sabotage events and making operating personnel aware of them as required. However, NERC proposed no financial penalty partially because the facility is completely enclosed within the perimeter of an Eastman Chemical Company manufacturing facility, and the host chemical facility provides security for both the chemical and cogenerating facility.
The companies subject to the notices may file an application for review within 30 days.
DOE Takes another Step toward FutureGen Project and CCS
On Tuesday, the U.S. Department of Energy (“DOE”) issued a Record of Decision under the National Environmental Policy Act to proceed with financial assistance for its carbon capture and sequestration (“CCS”) FutureGen project with FutureGen Industrial Alliance, Inc. (“FutureGen”). DOE considered several factors in making its decision, including potential environmental consequences associated with the project at four alternative sites and relevant program goals and objectives.
FutureGen has recently been given a second chance. The project was initially announced by then President George W. Bush in 2003. In January of 2008, the Bush administration pulled support for the project as cost estimates increased (see February 1, 2008 edition of the WER). However, under the Obama administration, DOE is now once again showing support for the project.
DOE also released a cooperative agreement between DOE and FutureGen, which will allow FutureGen to begin site-specific activities for the project. These activities, which FutureGen will complete within the next eight to ten months, include completing a preliminary design, refining its cost estimate, developing a funding plan, expanding the sponsorship group, and possibly conducting additional subsurface characterization. Once these activities are completed, DOE and FutureGen will have to decide if they want to continue the project through construction and operation.
The cooperative agreement also establishes the financial assistance of DOE and the financial responsibilities of FutureGen. While estimates in 2007 projected total costs to be $1.7 billion, DOE and FutureGen now believe that those costs could be as much as $700 million higher. While DOE will contribute approximately $1.073 billion to the project, FutureGen will contribute $400 to $600 million. As such, FutureGen will explore other options of raising money, including revenue from sales of electricity.
The FutureGen project itself consists of a coal-fueled electric power plant that will produce a nominal 275 MW output and a fully integrated CCS system. While the CCS system may be operated at 60% capture in the early years of the plant’s operation, it will be designed to operate at 90% capture by the third year of operations. This capture will inject roughly one million tons of CO2 annually into saline reservoirs thousands of feet beneath the earth’s surface.
FutureGen is a non-profit industrial consortium, comprised of entities from the coal-fueled electric power industry and the coal production industry. While the Record of Decision concluded that DOE would provide financial assistance at any of the four alternative sites, FutureGen announced its preference for the Mattoon, Illinois site in December 2007. As such, DOE expects FutureGen to formally select the Mattoon site soon.
A copy of DOE’s Record of Decision can be found at: http://www.fossil.energy.gov/programs/powersystems/futuregen/futuregen_rod_071409.pdf.
Merchant Generator Requests Maryland PSC to Order Contracts
On July 6, 2009, CPV Maryland, LLC (“CPV”) filed a motion with the Maryland Public Service Commission (“Maryland PSC”) to order one or more utilities to negotiate long-term contracts for all the capacity and energy from CPV’s St. Charles Project. CPV has requested that the Maryland PSC issue an order within 60 days. The motion is likely to be challenged by several parties in Maryland’s competitive wholesale and retail market.
The Maryland PSC has previously approved the construction of CPV’s St. Charles Project – a $500 million, 640-megawatt (“MW”) natural gas-fired generation facility. However, CPV claims that the wholesale power market in the PJM Interconnection will not support the project. CPV stated that it cannot proceed unless it has at least one long-term contract to support financing of the project. CPV asserts that the financial markets are not strong enough to finance new generation projects without the revenue streams from such contracts to lower risk for lenders. CPV’s motion noted that the Maryland PSC had approved more than 3,000 MW of new generation in recent years, but that only 200 MW had actually reached commercial operation.
Additionally, CPV claims that the PJM capacity payment does not encourage new construction because it offers a single payment for both existing generation and new generation. Instead, the company suggests a bifurcated system where PJM offers one payment for older generation and a separate payment to encourage new generation in the market.
CPV has requested that the Maryland PSC order one or more investor-owned utilities in the state to purchase power from its proposed power plant under a 20-year contract. CPV requests that such a contract be signed within 30 days of the Maryland PSC’s order. Otherwise, the Maryland PSC would negotiate the contract on the utility’s behalf.
Responses to CPV’s motion are due by August 11, 2009. CPV’s motion is available at: http://webapp.psc.state.md.us/Intranet/Casenum/NewIndex3_VOpenFile.cfm?ServerFilePath=C:\Casenum\9100-9199\9117\\207.pdf.