USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner, Dennis W. Elsenbeck and Zachary R. Hirschfeld, Phillips Lytle LLP
• direct the US Army Corps of Engineers to depriori- tise the processing of certain Clean Water Act per- mit applications for low-capacity density projects; and • revise the interpretation of an Outer Continental Shelf Lands Act provision to require the DOI to prevent any offshore activity that causes more than de minimis interference with other outer continental shelf uses. Since these directives were issued, several legal chal- lenges have been made. Most recently, the US District Court for the District of Massachusetts issued a pre- liminary injunction blocking the above directives. Liti- gation on the merits of these directives will continue. Relatedly, the Trump administration has endeavoured to reverse the decline of coal-fired power plants. The administration has invoked the Defense Production Act to allocate USD500 million to support coal plants and related infrastructure, and separately through a DOE initiative, has invested a further USD350 million. In addition, US Department of Energy Secretary Wright has issued emergency orders to keep coal-fired power plants running past their scheduled retirement dates. Many of these actions are under legal challenge from states’ attorneys-general and interest groups. 1.8 Unique Aspects of the Power Industry Investors and market participants should consider the powerful role played by state utility commissions in the architecture, pricing and development of the US power industry – particularly as technology applica- tions trend towards smaller-scale distributed energy resources (DERs), intermittent generation and loca- tional value-based pricing mechanisms.
EPAct, among other statutes. According to Section 201 of the FPA, the wholesale market encompasses all sales of electrical energy made to any person for resale (16 USC Section 824). The FPA requires that all rates for wholesale sales of electrical energy in interstate commerce be just and reasonable and not unduly discriminatory or preferential. FERC oversees three methods for setting wholesale rates. • First, Section 205 of the FPA, codified at 16 USC Section 824 (d), requires public utilities to file their rates with FERC. • Second, Section 206 of the FPA, codified at 16 USC Section 824 (e), empowers FERC, upon complaint or its own investigation, to fix a new rate based on the cost of service when it determines that the existing rate is not just and reasonable, or is unduly discriminatory or preferential. • A third method of rate-setting in wholesale markets is by an avoided cost under PURPA. Under PUR- PA, certain co-generation and small power pro- duction facilities that meet specific operating and ownership standards may become QFs, and their power output must be purchased by an electric- ity utility. An avoided cost is the cost of the power purchased from the qualifying facility that is lower than the cost of the energy that the buying utility would generate itself or purchase from another source. QFs are determined by FERC and are com- monly limited to facilities whose primary energy source is wind, hydro, solar, biomass, thermal or waste resources. Wholesale rates can also be set by the marketplace through bilateral contracts or power purchase agree- ments. Before an entity can make sales at such mar- ket-based rates (MBR), they must obtain MBR author- ity from FERC. FERC will review wholesale contracts to ensure that there is adequate competition in the wholesale market, guaranteeing that contracts were freely negotiated. FERC also engages in oversight over wholesale markets by regulating the terms and conditions of wholesale market sales.
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market The Role of FERC
The wholesale electricity market in the United States is generally regulated by FERC, an independent reg- ulatory agency within the US Department of Energy (DOE), which implements the FPA, the Natural Gas Act (NGA), the Natural Gas Policy Act (NGPA) and the
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