MARCH 2016
VOL. 16-3
PRATT’S ENERGY LAW REPORT
PRATT’S
ENERGY LAW
REPORT
EDITOR’S NOTE: DEVELOPMENTS
Steven A. Meyerowitz
PRESIDENT OBAMA SIGNS TWO NEW
CYBERSECURITY LAWS; FERC, CONGRESS
TAKE AIM AT CYBERSECURITY RISKS IN
THE ELECTRIC UTILITY SECTOR
Norma M. Krayem and Alvin Taylor
MARCH 2016
CONGRESS ACTS TO PROTECT
CRITICAL ELECTRIC INFRASTRUCTURE
INFORMATION
Carlos E. Gutierrez, Walker Stanovsky,
Emily P. Sangi, and Nicholas A. Giannasca
VOL.16-3
ANALYZING MINE SAFETY AND HEALTH
ADMINISTRATION’S PROPOSED
PROXIMITY DETECTION RULE FOR
SCOOPS AND COAL HAULAGE MACHINES
Michael P. Addair
MEXICO ENACTS ENERGY TRANSITION LAW
ON CLEAN ENERGY
Gerardo Prado Hernández and Luis Orlando
Pérez Gutiérrez
HYDRAULIC FRACTURING DEVELOPMENTS
Eric Rothenberg, John D. Renneisen, Jesse
Glickstein, and Brian Kenyon
IN THE COURTS
Steven A. Meyerowitz
LEGISLATIVE AND REGULATORY
DEVELOPMENTS
Steven A. Meyerowitz
INDUSTRY NEWS
Victoria Prussen Spears
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Pratt’s Energy Law Report
VOLUME 16
NUMBER 3
MARCH 2016
Editor’s Note: Developments
Steven A. Meyerowitz
83
President Obama Signs Two New Cybersecurity Laws; FERC, Congress Take
Aim at Cybersecurity Risks in the Electric Utility Sector
Norma M. Krayem and Alvin Taylor
85
Congress Acts to Protect Critical Electric Infrastructure Information
Carlos E. Gutierrez, Walker Stanovsky, Emily P. Sangi, and
Nicholas A. Giannasca
89
Analyzing Mine Safety and Health Administration’s Proposed Proximity
Detection Rule for Scoops and Coal Haulage Machines
Michael P. Addair
93
Mexico Enacts Energy Transition Law on Clean Energy
Gerardo Prado Hernández and Luis Orlando Pérez Gutiérrez
98
Hydraulic Fracturing Developments
Eric Rothenberg, John D. Renneisen, Jesse Glickstein, and Brian Kenyon
102
In the Courts
Steven A. Meyerowitz
110
Legislative and Regulatory Developments
Steven A. Meyerowitz
116
Industry News
Victoria Prussen Spears
119
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Editor-in-Chief, Editor & Board of
Editors
EDITOR-IN-CHIEF
STEVEN A. MEYEROWITZ
President, Meyerowitz Communications Inc.
EDITOR
VICTORIA PRUSSEN SPEARS
Senior Vice President, Meyerowitz Communications Inc.
BOARD OF EDITORS
SAMUEL B. BOXERMAN
Partner, Sidley Austin LLP
ANDREW CALDER
Partner, Kirkland & Ellis LLP
M. SETH GINTHER
Partner, Hirschler Fleischer, P.C.
R. TODD JOHNSON
Partner, Jones Day
BARCLAY NICHOLSON
Partner, Norton Rose Fulbright
BRADLEY A. WALKER
Counsel, Buchanan Ingersoll & Rooney PC
ELAINE M. WALSH
Partner, Baker Botts L.L.P.
SEAN T. WHEELER
Partner, Latham & Watkins LLP
WANDA B. WHIGHAM
Senior Counsel, Holland & Knight LLP
Hydraulic Fracturing Developments
ERIC ROTHENBERG
Partner, O’Melveny & Myers LLP
iii
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Pratt’s Energy Law Report is published 10 times a year by Matthew Bender & Company, Inc.
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CRITICAL ELECTRIC INFRASTRUCTURE INFORMATION
Congress Acts to Protect Critical Electric
Infrastructure Information
By Carlos E. Gutierrez, Walker Stanovsky, Emily P. Sangi, and
Nicholas A. Giannasca*
In this article, the authors discuss the Fixing America’s Surface Transportation Act and how it will affect utilities and others in the electric industry.
President Obama recently signed into law the “FAST Act”—short for Fixing
America’s Surface Transportation Act. Though primarily a highway bill, the
FAST Act also includes energy security amendments to the Federal Power Act
(“FPA”), several of which affect utilities and others in the electric industry.
Many of these changes potentially affect owners, operators, and users of electric
infrastructure not ordinarily subject to control by the Federal Energy Regulatory Commission (“FERC”). Thus, the new law potentially affects virtually all
regulators, owners, operators, and users of electric generation and transmission
infrastructure, even relatively small, intrastate utilities.
THE FAST ACT
The FAST Act creates a new Section 215A in the FPA, much of which
revolves around the newly-defined terms “critical electric infrastructure” and
“critical electric infrastructure information.”
Critical electric infrastructure (“CEI”) is broadly defined to include both
physical and virtual “systems and assets” of the bulk-power system, whose
destruction or incapacity would have a negative impact on national or
economic security, public health, or safety.
Critical electric infrastructure information (“CEII”) could mean potentially
any information related to CEI or proposed CEI, and generated by or
submitted to FERC or any other federal agency, other than classified national
security information. The breadth of coverage will depend on a future
rulemaking.
The FAST Act restricts disclosure of CEII, but also promotes information
*
Carlos E. Gutierrez (cgutierrez@dwt.com) is counsel at Davis Wright Tremaine LLP,
advising clients in federal and state regulatory energy matters. Walker Stanovsky
(walkerstanovsky@dwt.com) is an associate at the firm concentrating his practice on climate
change and environmental law. Emily P. Sangi (emilysangi@dwt.com) is an associate at the firm
focusing her practice on energy and environmental matters. Nicholas A. Giannasca
(nicholasgiannasca@dwt.com), a partner at the firm, represents utilities, utility regulators, power
marketers, energy service companies, investment banks, private equity firms, hedge funds, and
commercial/industrial customers.
89
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PRATT ’S ENERGY LAW REPORT
sharing among government and industry participants. As suggested in the
definition of CEII, the full impact of these provisions will depend on rules
FERC must promulgate within the next year, which will determine both
procedures and substantive criteria for designating CEII and preventing its
unauthorized disclosure. The Act itself does specify, however, that no federal,
state, local, or tribal entity may disclose CEII on the basis of any public
disclosure law at any level, including the federal Freedom of Information Act
(“FOIA”).
Industry Impacts
Depending on implementation, these provisions could prevent disclosure of
a wide swath of industry information submitted to the federal government,
including FERC filings. By definition, CEII might include any “information
related to critical electric infrastructure, or proposed critical electrical infrastructure, generated by or provided to [FERC] or other Federal agency, other
than classified national security information” and designated according to the
rules to be established. Significantly, the new federal protection preempts state
and local laws, preventing CEII disclosure even by a state or local agency
pursuant to a state or local public disclosure law. However, to be designated as
CEII, the information must have been generated by or submitted to a federal
agency.
In addition, new regulations required by the FAST Act will promote
voluntary sharing of CEII among federal, state, local, and tribal authorities;
NERC; regional entities; and owners, operators, and users of the bulk-power
system in the United States, as well as government and electric infrastructure
operators in Mexico and Canada. These provisions will thus apply to industry
participants. However, the Act makes clear that the agency rules must not
require disclosure of CEII by anyone who has it, nor does the Act create a cause
of action to force such sharing.
EXPANSION OF FERC EMERGENCY AUTHORITY
The new Section 215A gives the Department of Energy (“DOE”) increased
authority in case of a “grid security emergency,” including malicious physical or
electronic acts, magnetic disturbances due to the sun, direct physical attacks,
and related threats and reliability disruptions. When the President identifies
such an emergency, DOE can order emergency measures the Secretary of
Energy (“Secretary”) deems necessary to protect or restore CEI reliability. The
new law requires very little process prior to issuance of these emergency orders.
Though the DOE must adopt procedures for such cases, the Secretary may
issue emergency orders “with or without notice, hearing, or report.” The
President must notify Congress of the emergency determination, and the DOE
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CRITICAL ELECTRIC INFRASTRUCTURE INFORMATION
must consult with affected governments and CEI owners and operators.
Industry Impacts
An emergency order under the new FPA Section 215A could affect “any
owner, user, or operator” of CEI in the U.S., even entities not ordinarily subject
to FERC jurisdiction (for example, municipally owned utilities, rural electric
cooperatives, and federal power marketing agencies like the Tennessee Valley
Authority and Bonneville Power Administration). The DOE’s new authority
also explicitly extends to the North American Electric Reliability Corporation
(“NERC”) and Regional Entities. If CEI owners, operators, or users prudently
incur costs in complying with an emergency order, but cannot recover those
costs through their existing rate structures, the new law directs FERC to
establish mechanisms for recovery of those costs.
PLANNING FOR STRATEGIC RESERVE OF SPARE LARGE POWER
TRANSFORMERS AND EMERGENCY MOBILE SUBSTATIONS
The new law requires DOE’s Office of Electricity Delivery and Energy
Reliability, in consultation with FERC, NERC, and the Electricity Subsector
Coordinating Council, to submit a plan to Congress evaluating the feasibility
of establishing a Strategic Transformer Reserve for storage in strategic locations
of spare large power transformers and emergency mobile substations. The plan
would determine adequate amounts and locations to temporarily replace
critically damaged large power transformers and substations. The reserve would
aim to diminish the vulnerability of the U.S. electric grid to physical or
cyberattack, electromagnetic pulse, solar disturbance of the earth’s magnetic
field, severe weather, and earthquake.
Industry Impacts
DOE’s plan must include the funding options available to establish and
maintain the Strategic Transformer Reserve, including imposing fees on owners
and operators of bulk-power system facilities and CEI. Additionally, the plan
must assess the possibility of imposing fees on the large power transformer
owner/operators and substations that constitute CEI to pay for Strategic
Transformer Reserve operating costs.
ELIMINATION OF CONFLICTS BETWEEN FERC EMERGENCY
RELIABILITY ORDERS AND UTILITY COMPLIANCE WITH
ENVIRONMENTAL LAWS AND REGULATIONS
The law also amends Section 202(c) of the FPA (FERC’s existing emergency
authority) to clarify that FERC emergency orders override federal, state, and
local environmental laws. Congress intended to resolve a perceived conflict
facing power plant operators, who feared violating either an emergency order
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PRATT ’S ENERGY LAW REPORT
from FERC or environmental regulations if an emergency arose.
An emergency order must still minimize environmental impacts and must be
consistent with all applicable environmental laws “to the maximum extent
practicable.” FERC must also consult with federal environmental regulators
before an order can remain in effect longer than 90 days. Further, FERC must
incorporate any condition submitted by the environmental agency or else
explain its determination that the condition would impede an adequate
emergency response. This exemption extends not only to orders under FERC’s
existing Section 202(c) emergency authority, but also to the new emergency
powers under Section 215A.
Industry Impacts
Utilities and other operators of electric generation and transmission facilities
may now comply with FERC emergency orders with enhanced assurance that
they will not incur environmental liability, whether civil (including citizen
suits) or criminal. Such acts or omissions, even when taken to “voluntarily
comply” with an emergency order, may not be considered violations of any
federal, state, or local environmental law. This protection continues even if
courts later alter or strike down the underlying FERC order. The existing
language of Section 202(c) does not appear to limit FERC’s emergency
authority to utilities otherwise under its jurisdiction, so it appears that the new
exemption could benefit virtually any operator of electric infrastructure, should
an emergency arise.
CONCLUSION
The FAST Act offers the electric power sector several benefits, most notably
exemption from environmental regulations to the extent they conflict with
FERC emergency orders, improved cost recovery for compliance with such
orders, and also some degree of added protection of sensitive information from
public disclosure. On the other hand, system participants will now be subject
to broader federal control, especially in emergency situations. The Strategic
Transformer Reserve planning also foreshadows potentially significant costs that
Congress could impose on owners, operators, and users of generation and grid
assets in the future. And significantly, most of the new agency powers and
responsibilities just enacted apply not only to utilities and grid operators
accustomed to dealing with FERC, but also to entities not ordinarily subject to
FERC jurisdiction.
92