October 12, 2007 1. FERC Orders Appointment of Facilitator in PJM - - PDF document

October 12, 2007

1. FERC Orders Appointment of Facilitator in PJM Settlement Case On October 5, 2007, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) ordered FERC Chief of Staff John S. Moot to serve as facilitator in the settlement proceedings involving the market monitoring unit (“MMU”) of PJM Interconnection, L.L.C. (“PJM”). The appointment marks the next step following FERC’s investigation into remarks made by Joseph Bowring, PJM’s independent market monitor, who suggested that PJM executives were interfering with the MMU’s independence (see April 13, 2007 edition of the WER). Following Mr. Bowring’s remarks, the Organization of PJM States,

• Inc. (“OPSI”), along with energy regulators from eight states and the District of

Columbia, filed a complaint with FERC, requesting a cease and desist order to prevent PJM from interfering with the MMU (see April 27, 2007 edition of the WER). On May 18, 2007, FERC initiated an investigation into PJM’s alleged interference with its MMU (see May 25, 2007 edition of the WER). Last month the Commission found that the market monitor’s ability to perform his tariff-defined functions could be compromised by both the unusual degree of supervision by PJM management and the significant tension between PJM management and the market monitor. Rather than order specific tariff amendments, however, FERC encouraged the parties to work together on appropriate solutions. To that end, the Commission instituted settlement procedures and ordered the parties to select a facilitator within 14 days (see September 21, 2007 edition of the WER). In compliance with that order, last week the parties jointly filed a letter notifying the Commission of their consensus decision to select Mr. Moot to serve as facilitator for their settlement proceedings. In its October 5, 2007 order, the Commission responded by directing Mr. Moot to serve as facilitator and stated that he will become a non-decisional Commission employee with regard to this case. Mr. Moot is also to select, in consultation with the Director of the Commission’s

This Week in the WER FERC Orders Appointment of Facilitator in PJM Settlement Case .................................................................. 1 FERC Holds Technical Conference on Pilot Licensing for Hydrokinetic Projects.......................................................... 2 FERC Announces Staff Changes ......................................... 3 DOE Announced Funding Awards for Three Large-Scale Carbon Sequestration Projects............................................. 3

2 Dispute Resolution Service, a mediation specialist to assist him. FERC also directed Mr. Moot to provide the Commission with a 45-day interim report and a 90-day final report

• n the progress of the negotiations.

A copy of the Commission’s order is available at: http://www.ferc.gov/ EventCalendar/Files/20071005135601-EL07-56-001.pdf. 2. FERC Holds Technical Conference on Pilot Licensing for Hydrokinetic Projects On October 2, 2007, FERC held a technical conference in Portland, Oregon to explore issues related to a pilot licensing process being developed for hydrokinetic

• projects. The process would provide for Commission oversight and input from affected

states and other federal agencies, and may lead to a short-term license that allows developers to generate electricity while conducting the requisite testing for full licensing. FERC first addressed the effectiveness of the current permit process for the new technologies at a technical conference last December (see December 15, 2006 edition of the WER). Subsequently, on February 15, 2007, the Commission issued a Notice of Inquiry seeking public comment on how to process preliminary permit applications for the new technologies, as well as comments on how it should enforce preliminary permits

• nce they are issued (see February 16, 2007 edition of the WER). Since that date, the

Commission has been employing a “strict scrutiny” approach to preliminary permit applications in an effort to limit “site-banking,” the acquisition of large areas by a few companies. The Commission announced its proposed pilot license process for hydrokinetic projects on July 19, 2007 (see July 20, 2007 edition of WER). The Commission Staff proposal seeks to complete pilot project licensing in as little as six months and to allow developers to generate electricity while testing. To be eligible, pilot projects must be: (1) designed either to test new hydro technologies or to determine appropriate sites for ocean, wave and tidal energy projects; (2) five megawatts or smaller; (3) removable or able to shut down on short notice; and (4) located in waters that have no sensitive designations. The technical conference, led by Commissioner Philip D. Moeller, provided a forum for participants to voice concerns over the proposed licensing process. Steve Kopf

• f Ocean Power Technologies explained that a quid pro quo is missing from the process.

In the event of an adverse environmental impact, the project could be ordered to shut

• down. Should it not create an adverse impact, there is uncertainty in whether the project

would be allowed to expand. He urged the Commission to reduce this uncertainty by instead making the pilot projects part of a multi-phase full licensing process.

3 Participants also highlighted the difficulty in securing non-debt financing of hydrokinetic projects and suggested that the five-year license term may not be long enough for entities to earn a return on their investment. In its place, one participant suggested that the adverse environmental impact provision alone would be a sufficient mitigating factor to allow for the economic needs of investors to balance with the environmental management. Despite the concerns of the participants, Commissioner Wellinghoff remained optimistic that the challenges discussed could be solved “if people want to solve the problems and challenges together.” Follow-up comments on the conference and proposed licensing process should be submitted to FERC by November 2nd. 3. FERC Announces Staff Changes On Monday, FERC Chairman Joseph T. Kelliher announced the appointment of John S. Moot as the Commission’s new Chief of Staff, a position that has been empty since Daniel L. Larcamp left the Commission to join Troutman Sanders in February of this year.

• Mr. Moot has been serving as the Commission’s General Counsel since August
• 2005. Before joining the Commission, Mr. Moot was a partner at a D.C. law firm and

worked extensively in the energy sector, representing publicly owned utilities, rural electric cooperatives, investor owned utilities and other entities in the energy industry. The Commission also announced the appointment of Cynthia Marlette as the Commission’s General Counsel to replace Mr. Moot. Ms. Marlette is a veteran FERC attorney and has been with the Commission since 1979. She previously served as the Commission’s General Counsel from 2001-2005. In 2005, Chairman Kelliher appointed her to oversee FERC’s implementation of its new obligations under the Energy Policy Act of 2005. 4. DOE Announced Funding Awards for Three Large-Scale Carbon Sequestration Projects On Tuesday, the U.S. Department of Energy (“DOE” or the “Department”) announced that it would award $197 million over ten years to three large-scale carbon sequestration projects in the United States and Canada. The three projects are the first large-scale carbon sequestration projects in the U.S. and the largest single set in the world to date.

4 The three projects, located in the Midwest, the Southeast and the Southwest include participation from 27 states and three Canadian provinces. The projects will conduct large volume tests for the storage of one million or more tons of carbon dioxide (“CO2”) in deep saline reservoirs in geologic formations. The process of carbon sequestration captures CO2 emissions from the burning of fossil fuels and injects it in geologic formations deep within the earth, helping to reduce the concentration of CO2 in the earth’s atmosphere. The announcement of the awards for these three projects represents the beginning

• f the third phase of the DOE’s regional partnership program (see November 10, 2006

edition of WER), a cooperative effort among public, private and academic institutions to locate, study and develop carbon sequestration projects in the United States. During this third phase, the projects will complete the modeling, monitoring and infrastructure improvements needed before CO2 can be injected. These activities will help establish a baseline for future monitoring before CO2 injections begin. After the baseline has been established, each project will inject a large volume of CO2 and then monitor the effectiveness of the storage reservoir. These three projects will double the number of large-scale carbon storage demonstrations in operation worldwide. According to the DOE, these projects have the potential to store more than one hundred years of CO2 emission from all major sources in North America. DOE Deputy Secretary Clay Sell acknowledged the importance of these carbon sequestration projects in the current administration’s energy plans, stating “[s]uccessful demonstration of large volume carbon capture and storage technology plays a key role in achieving President Bush’s goals for a cleaner energy future.” More information about these carbon sequestration projects is available at: http://www.fossil.energy.gov/programs/sequestration/index.html. Kevin C. Fitzgerald Amie V. Colby