...the Commission concludes that, as courts have recognized, retail customers may file complaints and protest transmission rates and wholesale sales rates before the Commission.  Moreover, allowing retail customers to challenge such rates does not violate principles of federalism or interfere with states’ rights.

(1)  Shouldn’t section 306 of the Federal Power Act (FPA) be interpreted
in pari materia with section 201 of the FPA?  FPA section 201 gives the Commission jurisdiction over wholesale interstate rates and interstate transmission; therefore, retail ratepayers would not have the right to file complaints against wholesale rates.

(2) Wouldn’t an expansive interpretation of section 306 of the FPA (allowing retail ratepayers or end users to file complaints against interstate wholesale rates) violate the delicate balance of federalism; in other words, by giving complaint authority to retail rate customers, is the Commission interfering with states’ rights by asserting jurisdiction over retail rates?

answer the questions as follows: 
(1) “retail ratepayers are not permitted to bring an FPA section 205 complaint against wholesale sellers of electricity[;]” and (2) a different interpretation (i.e., allowing such retail ratepayer complaints) “would interfere with state jurisdiction over retail rates.”

Complaints may be filed under sections 206 and/or 306 of the FPA, 16 U.S.C. §§ 824e, 825e (2012).  While section 205(e) of the FPA refers to “complaints,” 16 U.S.C. § 824d(e) (2012), the Commission commonly refers to these filings as protests.  See 18 C.F.R. § 385.211 (2015).   

The plain language of the FPA and the Commission’s implementing regulations allow broad participation in proceedings before the Commission.  Specifically,
section 306 of the FPA explicitly authorizes “[a]ny person” to file a complaint with
the Commission. The Commission’s regulations are to a similar effect.  For example, Rule 206(a) of the Commission’s Rules of Practice and Procedures provides that “[a]ny person may file a complaint seeking Commission action against any other person alleged to be in contravention or violation of any statute, rule, order, or other law administered by the Commission or for any other alleged wrong over which the Commission may have jurisdiction.

Ms. Peine, an intervenor in this proceeding, is contesting the SWEPCO/AEP transmission formula rate inputs, and thus rates for transmission of electric energy in interstate commerce, which is within the Commission’s exclusive jurisdiction under Part II of the FPA.  These transmission inputs, i.e., costs, flow through to Ms. Peine’s retail electric bill.  Stated another way, Ms. Peine is an “end-use customer that will pay  . . . some portion of that [transmission] rate when flowed through [her] retail bill.” Thus, by challenging the transmission formula rate inputs, Ms. Peine has alleged injury in fact that can only be addressed by the Commission.  Under these facts, Ms. Peine is permitted to file a protest or a complaint and to participate in this proceeding by intervening.

This outcome is consistent with federalism.  Section 201 of the FPA recognizes the authority of the states over retail sales and facilities used in “local distribution.”  Ms. Peine’s formal challenges, however, go to the transmission formula rate inputs identified in the SWEPCO/AEP 2013 and 2014 Annual Updates.  Ms. Peine’s claims, therefore, go to the transmission of electric energy in interstate commerce and not to local distribution

Moreover, this issue is not a matter of first impression, as both the courts and the Commission have concluded previously that protecting consumers is one of the Commission’s primary responsibilities.

...the relevant definition of “interested parties” under the SWEPCO/AEP Protocols is not the version that was filed in 2007, but rather the version that was in effect when Ms. Peine filed her formal challenges under the Protocols, and that version did not include the examples that the Settlement Judge construed as limiting the definition of interested parties to exclude Ms. Peine.  Moreover, we disagree with the Settlement Judge’s interpretation of the parenthetical phrase in the earlier version of the SWEPCO/AEP Protocols.  The parenthetical phrase “(e.g., Transmission customers and affected state and federal regulatory authorities)” provided examples of categories of interested parties, and should not be read as exhaustive.  This parenthetical language would not preclude an end-use customer, like Ms. Peine, who will pay a portion of the transmission rate in her retail bill, from challenging the inputs to the SWEPCO/AEP transmission formula rate.

Lastly, as to the administrative efficiency concerns raised by the Settlement Judge and AEP, we note that the Commission’s Rules of Practice and Procedure provide appropriate measures to streamline Commission proceedings.

I urge you to make the concepts described in this book a regular point of reference for the manner in which you carry out your work and the treatment of others.

In March 2009, PJM followed the narrower approach, proposing to pay MLSA to all trades with paid transmission (physical or virtual). In response to that filing, no party suggested that UTC trading would be susceptible to the kind of perverse incentives that the Commission understood could apply to most virtual trades.

No party filed any comments rebutting this contention as to the narrow distribution method, and the Commission accepted it in September 2009. Black Oak Energy, LLC, et al. v. PJM Interconnection, L.L.C., 128 FERC ¶ 61,262 (2009).

In addition to airing her jurisdictional and standing concerns, the judge said permitting retail ratepayers to file such complaints "is at odds with promoting efficiency" because FERC could be faced with handling "potentially millions of individual complainants."

The groups, however, insisted that Cintron's position is "contrary to the plain language of the FPA," which states that "any person" has standing to file a complaint with FERC, as well as long-standing commission precedent holding that retail ratepayers have standing to challenge wholesale rates.

Citing a proceeding involving the abandoned Potomac Appalachian Transmission Highline project in which FERC found that "[a] complaint regarding a transmission rate can … be filed by any person, including an end-use customer that will pay some portion of that rate when flowed through its retail bill," the groups called Cintron's attempts to distinguish that situation from AEP's "unavailing." The judge relied on differences in the two companies' formula rate protocols to make her case, but the groups argued that "standing is a statutory right under the FPA, and whatever is said in the AEP protocol cannot overturn the statute."

As for Cintron's concerns about the regulatory burden that would be placed on FERC if retail ratepayers are allowed to challenge wholesale rates, the groups insisted that "administrative convenience is not a basis to eviscerate a statutory right." They said that "[i]n any event, this is a chimera — in the nearly 20 years since the commission issued Order 888, there has been a stream but not a deluge of … rate challenges."

Finally, among other things, the groups said the "novel viewpoint" expressed by Cintron "would reopen the … regulatory gap between federal and state jurisdiction that the FPA was designed to close."

"For consumers impacted by commission-jurisdictional transmission rates, there is no other effective remedy," the groups said.

Should retail electricity customers be barred from bringing cases before the Federal Energy Regulatory Commission, a decades-long practice? A FERC administrative law judge, Carmen Citron, last month recommended to the commission that it abandon its long-standing practice and deny retail customers standing before the agency.

Cintron’s mid-October recommendation came in a case involving an Arkansas lawyer, school teacher and activist (ER07-1069-006), Martha Peine of Eureka Springs, Ark. She challenged expenses AEP subsidiary Southwestern Electric Power Co. charged to consumers in lobbying for a new interstate power line. She argued at FERC that SWEPCO had stuck customers with some $92,000 in expenses that were improper. Her filing was under Section 205 of the Federal Power Act (FPA).

challenged Cintron’s reasoning as flipping “the fundamental purpose of the FPA on its head.”

Elcon asserted, “The purpose of the FPA is not to protect utilities from the burden of responding to consumers; rather, as the Supreme Court and other courts have recognized, it is ‘to protect power consumers against excessive prices.’”

Whether retail customers can continue their historic right to access to FERC also has political implications for the commission. In recent months, anti-natural gas activists have staged demonstrations at commission meetings, including interrupting proceedings (resulting in guard-escorted exits from FERC’s D.C. headquarters). The protesters have argued, often at high volume, that FERC cares only for the interests of big energy companies, and not those of people affected by the agency’s actions.

The commission has repeatedly said, as it opens its monthly public meetings, that it will consider arguments and protests to its activities from anybody, through normal FERC proceedings, including filings. Should the commission adopt Cintron’s recommendations, those statements will ring administratively and politically hollow.

On a last quarterly call, we had just announced Project Compass, a proposed 725 mile transmission line through the shale gas regions of Pennsylvania and into New York and New Jersey and Maryland.

We’ve been meeting with officials at the state PUCs and governor's offices in the states where customers will benefit, Pennsylvania, New Jersey, New York and Maryland. Those meetings have gone well overall and we plan to have continuing dialogues on the project benefits. We're also meeting with other key agencies and other transmission operators in the region. We will continue to update you as we reach project milestones.

“This transmission line provides a significant opportunity to improve reliability and grid security and also provides benefits to customers,” Paul Wirth, spokesman for PPL Electric, said this morning. “When you add another path for power to flow, then that increases reliability because you are not relying as much on a single substation or power line.”

Another goal is to provide an estimated savings of at least $200 million per year for New York consumers by reducing transmission congestion.

Who will pay for the first segment of Project Compass?

According to the FERC guidelines for cost allocation, those who benefit from a new power line should pay its costs. The first segment would be paid for by electric customers in New York who will get the benefit of lower power prices. The costs would be paid over a period of many years on customers’ electric bills.

Shah Pourreza - Guggenheim Securities LLC
I appreciate the new disclosures around the Compass Project. So how should we think about the remaining miles? Are you looking to potentially segment the rest? And then, is there an opportunity to potentially JV with some of the neighboring utilities to smooth out the process?

William H. Spence - Chairman, President & Chief Executive Officer
Sure. I think in both cases the answer would be yes. So there's an ability to continue to segment the line as well as partnering with adjacent or utilities that the project goes through their service territory. So I think in both cases we would look to do that.

Daniel Eggers - Credit Suisse Securities (USA) LLC (Broker)
Okay. Very good. I got that. And then just on Compass real quick. I know it's ways off, but does this get caught up in this Order 1000 workout because it's an economic line instead of a reliability line? Do you get more competition, and people prospectively bid away the cost of capital? Or how do you think you're going to be able to reserve some sort of competitive advantage in this line?

William H. Spence - Chairman, President & Chief Executive Officer
I'll let Greg take that question.

Gregory N. Dudkin - President, PPL Electric Utilities, PPL Corp.
Yes. So the way this is set up currently under New York law, this would not be considered a FERC 1000 Project, so we are going and making interconnection requests and will be filing our Article VII now. So if the approval path goes down that path there may be an opportunity for competition, but the probability is little bit lower. If the PSC opens up economic window next year then there could be competition, so we'll see how it plays out.

William H. Spence - Chairman, President & Chief Executive Officer
I think relative to the competitive nature of this, obviously just having completed a very major line essentially in the same region, I think our capability to be very competitive should we get to that point should be strong.

However, what I would say is the compass project, which is not included in our CapEx program, would be a program or a project if you will that would take advantage of some of the opportunities in the Marcellus shale to basically instead of bringing the gas pipelines across, we'd be bringing electric lines across to the potentially new power stations that could be built. So that would be our opportunity, if you will, that's shale gas-related.

What approvals will be required for the first segment?

The first segment will require approval from various regulatory and regional planning entities including the public utility commissions of Pennsylvania and New York, New York Independent System Operator, PJM Interconnection, and FERC. Siting and construction of the line will require permits from appropriate environmental and resource agencies.

Where does the name “Compass” come from?

This project charts a new course in the way we think about and plan the electrical grid of the future.

The U.S. Department of Energy's Office of Inspector General has given a big thumbs-up to the way FERC's Office of Enforcement is conducting its investigations.

"Based on our review, nothing came to our attention to indicate that [Office of Enforcement] had not performed enforcement activities in accordance with relevant policies and procedures," the inspector general said in a special report.

However, one of FERC's biggest critics in that regard assailed the inspector general for focusing on whether FERC complies with its own policies without discussing whether those policies are flawed or violate due process in the first place.

"That takes damning with faint praise to new heights," William Scherman, a former FERC general counsel and partner with the firm Gibson Dunn, said in an interview. The lawyer also said the inspector general appears to be inviting Congress to address the problem, "and hopefully they will" in the energy bills moving thru the Legislature.

7 closed investigations, 20 closed hotline cases, and 10 closed cases regarding potential violations, which had been self-reported by regulated entities.

Also, we specifically evaluated an allegation that the settlement of an enforcement action involving Constellation Energy Commodities Group, Inc., (Constellation) was inappropriately linked to a then-pending request for a merger between Constellation and the Exelon Corporation (Exelon). Specifically, the Senators expressed their concern that Constellation's agreement to settle the enforcement action was provided in exchange for FERC's approval of the merger (referred to as quid pro quo).

We found that that the Constellation-Exelon merger was specifically mentioned in the terms of the FERC/Constellation settlement agreement. Further, we determined that even before the merger was approved, Exelon executives were directly involved in the settlement negotiations. Finally, we note that the approval of the merger by FERC and the consummation of the enforcement settlement agreement took place on the same day. The lingering question was whether these actions represented an inappropriate quid pro quo. While these actions may have raised understandable concerns, the evidence did not support such a conclusion. In fact, we found that Exelon had specifically asked for language in the settlement agreement that linked the effective date of the settlement with the effective date of FERC's approval of its merger with Constellation.

In addition to the issues we specifically evaluated, there were several that we were unable to review. Those concerns related to what was essentially the basic fairness of FERC's enforcement authority/processes. We concluded that these matters were public policy questions which, as important as they may be, are best addressed by policy makers and as such, were outside the purview of the OIG.