Energy News Watch

Ex/Im Rule Revisions Reflect IAEA Safeguards Samples

The nation’s regulations pertaining to the export and import of nuclear materials and equipment have been amended by the Nuclear Regulatory Commission in order to reflect the nuclear non-proliferation policy of the Executive Branch regarding U.S. Government obligations to the International Atomic Energy Agency (IAEA). Among the specific changes, NRC revised 10 CFR §110.11 to facilitate implementation of the Protocol Additional to the Agreement Between the United States and the IAEA for the Application of Safeguards in the United States of America (Additional Protocol) to expand the exemption from the requirements for a license to include exports of source and byproduct material in IAEA safeguards samples. The final rule also makes certain editorial revisions and corrects typographical errors.

The NRC staff determined that the changes are consistent with current U.S. policy and will pose no unreasonable risk to the public health and safety or to the common defense and security of the United States. Because the action involves a foreign affairs function of the United States, the notice-and-comment provisions typically applicable to rulemakings do not apply, the agency said, adding that the solicitation of public comments would delay the U.S. conformance with its international obligations and would be contrary to the public interest. The provisions take effect on June 8, 2012.

FERC Approves CIP Reliability Standards

In Order No. 761, the Federal Energy Regulatory Commission approved the North American Electric Reliability Corporation’s eight modified Critical Infrastructure Protection (CIP) Reliability Standards, which are effective June 25, 2012. The CIP Reliability Standards provide a cybersecurity framework for the identification and protection of “Critical Cyber Assets” associated with “Critical Assets” that support reliable operation of the Bulk-Power System. The North American Electric Reliability Corporation (NERC) Version 4 standards, CIP-002-4– CIP-009-4, replace the risk-based assessment methodology with “bright line” criteria for identifying Critical Assets. NERC, the Commission-certified Electric Reliability Organization (ERO), proposed and the Commission accepted as an effective date the first day of the eighth calendar quarter after regulatory approval for full compliance with the mandatory Version 4 CIP Reliability Standards.

Bright Line Criteria

New CIP-002-4 provides uniform bright line criteria as a checklist to be used in identifying Critical Assets, which are then subject to the remaining CIP Standards. Requirement R1’s Attachment 1—Critical Asset Criteria provides 17 criteria for identifying Critical Assets, and R2 requires a responsible entity to develop a list of associated Critical Cyber Assets that are essential to the operation of the Critical Assets. The list must be reviewed and updated at least annually.

The new criteria include generation and transmission facilities, blackstart resources, and control centers and backup control centers. Several of the criteria pertain to critical generation and transmission assets. Requirement R2 specifically applies a trigger for Critical Cyber Asset identification in that only “shared Cyber Assets that could, within 15 minutes, adversely impact the reliable operation of any combination of units that in aggregate equal or exceed. . . criterion 1.1” (1.1 “generating units (including nuclear)at a single plant location with an aggregate highest rated net Real Power capability. . . equal to or exceeding 1500 MW in a single Interconnection”) need be considered. Also to be designated Critical Assets are specific reactive power resources (criterion 1.2); generation facilities necessary to avoid BES Adverse Reliability Impacts in long-term planning (1.3); transmission facilities critical to the derivation of Interconnection Reliability Operating Limits (IROLs)(1.8); and Flexible AC Transmission Systems (FACTS) (1.9). Criterion 1.4 requires blackstart resources to be designated as Critical Assets, and criteria 1.14 – 1.17 mandate control centers and backup control centers be included.

The Commission provided flexibility with regard to identifying Critical Assets outside the bright line criteria. Consequently, registered entities can voluntarily apply any or all of the CIP Reliability Standards to additional assets they consider critical but are not within the bright line criteria while NERC continues to refine the standards.

Violations

The Commission approved NERC’s proposed Violation Risk Factors (VRFs) and Violation Severity Levels (VSLs) with modifications. Violation Severity Levels (SVLs) address situations where a responsible entity fails to identify or include a Critical Asset (R1) or a Critical Cyber Asset (R2) within the bright line criteria in CIP-002-4 of Requirement R1’s Attachment 1—Critical Asset Criteria. Additionally, the word complete was added in Requirements R1 and R2 (e.g., a violation would result in the absence of a “complete list” of identified Critical Assets (R1)).

Guidance for Full Compliance

According to NERC, the Version 4 CIP Reliability Standards are an “interim step” in addressing the Commission’s requirements in Order No. 706 [122 FERC ¶61,040 (Intelliconnect$)]. Although FERC declined to issue further directives at this time, it provided guidance for future versions of the CIP Standards. Because cyber connectivity of the Bulk-Power System assets increases the risk of a multiple asset cyber attack, the blanket exemption for non-routable connected cyber systems should be eliminated, the Commission advised. Additionally, the Commission’s “mutual distrust” posture noted in Order No. 706 describing how outside world systems are treated by those inside the control system might be supported by electronic security perimeters (zoned security). The Commission also encouraged NERC to incorporate applicable features of the NIST (National Institute of Standards and Technology) Framework into Version 5 CIP Reliability Standards and to consider oversight of Critical Asset identification by an entity with a regional approach, such as an ERO.

Concurrent with acceptance of the Version 4 CIP Reliability Standards, the Commission approved retirement of the Version 3 CIP Reliability Standards. The Commission set March 31, 2013, as the deadline for NERC’s Version 5 CIP Reliability Standards to fully comply with the Commission’s cybersecurity mandate.

Version 4 Critical Infrastructure Protection Reliability Standards [139 FERC ¶61,058 (Intelliconnect$)]

BOEM Lease Sales After 2010 Gulf Oil Spill Did Not Violate ESA, NEPA

A decision by the U.S. Bureau of Ocean Energy Management (BOEM) to proceed with a sale of oil and natural gas leases from the central Gulf of New Mexico after the 2010 Deepwater Horizon oil spill did not violate the Endangered Species Act (ESA) or the National Environmental Policy Act (NEPA), the U.S. District Court for the Southern District of Alabama held. In 2007, the Minerals Management Service, which was BOEM’s predecessor agency until October 2011, issued a proposed five-year plan for oil and gas leasing on the Outer Continental Shelf for 2007—2012. In 2009, MMS announced that the first phase of Lease Sale 213, covering nearly 7,000 blocks in the central Gulf of Mexico, would take place on March 17, 2010. Phase 2 of the lease sales began after 85 phase 1 bids were accepted on March 31, 2010.

However, on April 20, 2010, the Deepwater Horizon drilling unit began spilling millions of barrels of oil into the Gulf of Mexico until the well was capped nearly three months later. During this time, the agency continued to accept phase 2 bids, although the Department of the Interior temporarily suspended all offshore drilling operations in deepwater wells in the Gulf. Subsequently, MMS reinitiated consultation with the U.S. Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS) regarding the effects of the five-year plan on threatened and endangered species in light of the spill, and later announced that it would prepare a Supplemental Environmental Impact Statement (SEIS) to consider new information from the oil spill.

Defenders of Wildlife (DOW), a nonprofit organization focusing on wildlife conservation issues, brought suit against MMS/BOEM and the Interior Department, alleging that the agency had violated the ESA and NEPA by not suspending the bid process until it consulted with FWS and NMFS and prepared an SEIS in light of the oil spill. DOW also asked that all bids approved after April 20, 2010 be vacated and BOEM be prohibited from accepting further bids or approving additional leases until it engaged in consultations and prepared the SEIS. A number of oil and gas entities intervened in the suit.

The ESA requires a federal agency to consult with FWS or NMFS if it is considering an action may affect a threatened or endangered species or its critical habitat. Further consultation may be required at a later date if new information shows an effect on the species or the habitat in a manner or to an extent not previously considered. Both FWS and NMFS issued “no jeopardy” determinations in 2007 based on assumptions and models about possible oil spills that were reasonably called into question by the Deepwater Horizon oil spill, the court said. The ESA prohibits an agency from making any irreversible or irretrievable commitment of resources with respect to the action after initiation of consultation, but this does not bar an agency from taking any action before consultation is completed. The court found that the Outer Continental Shelf Lands Act (OCSLA) requires a four-stage process for offshore well development: formulation of a five-year leasing plan, lease sales, exploration, and development and production, and each stage involves separate regulatory review and separate requirements for consultation. Approval of bids and the issuance of leases are limited actions that do not authorize full exploration, development, or production until additional approvals are obtained; therefore, decisions at the lease sale stage generally do not cause jeopardy to species or critical habitat, according to the court. Although DOW argued that BOEM would never be required to consult regarding the ESA if was not required at the lease sale stage to do so, the court explained that BOEM will be required to comply with the ESA at each stage of the process. To the extent that DOW was arguing that BOEM had not complied with the ESA for later OCSLA stages, those arguments were beyond the scope of this particular case.

Under NEPA, an agency must prepare an SEIS when a major federal action remains to occur and new information shows that this action will affect the human environment in a significant manner or to a significant extent not already considered. The acceptance of bids had previously been determined to constitute a major federal action; however, there was no evidence that suggested to the court that BOEM’s approval of bids and acceptance of leases would by itself affect the human environment further than was addressed within the original EIS. Again noting OCSLA’s four stage process, the court determined that, because the plaintiff’s complaints were limited to the post-spill approval of bids, the only remaining action in the leasing sales stage was the approval of the bids. This approval was not affected by any new information from the 2010 oil spill, the court concluded. (Defenders of Wildlife v. Bureau of Ocean Energy Management, CCH Utilities Law Reports ¶9639)

Energy News for Thursday May 24

According to the Energy Information Administration, OPEC spare oil production capacity is now at its lowest level since 2008.

Bloomberg reported that Japanese companies have engaged in a worldwide buying spree of natural gas assets.

Business Week reported that the top oil regulator in North Dakota said that he believes that the state could double its daily oil production by 2015 to reach the levels that Texas currently produces.

MarketWatch said that the CEO of Valero energy predicted that U.S. refiners soon will begin selling gasoline to West African markets.

The Associated Press reported that President Obama has named a prominent critic of the Yucca Mountain nuclear waste repository to be the new chairman of the Nuclear Regulatory Commission.

Nuclear Plant Access Authorization Fee Increase Implemented

Nuclear plant access authorization fees charged to licensees for work performed under the Material Access Authorization Program and the Information Access Authority Program will go up starting next month under a Nuclear Regulatory Commission direct final rule that increases the percentage used to calculate the agency’s processing fee for access authorization applications. The formula for calculating the fees remains the same, and is the sum of the Office of Personnel Management (OPM) investigation billing rate(s) for background investigations on the date that the application is submitted, plus the NRC processing fee, which is determined as a percentage of the OPM rate. Previously set at 31.7 percent, the new rate will be 55.8 percent. The increase is based upon a 2010 agency audit of actual in-house costs incurred in processing licensee applications for access authorization, the Commission said.

Certain individuals employed by NRC licensees or their contractors are assigned duties which require access to special nuclear material (plutonium, uranium-233, and uranium enriched in the isotopes uranium-233 or uranium-235) or to restricted data or national security information. Individuals who require such access must obtain an authorization from the NRC, which initiates a background investigation of the individual seeking the authorization in order to determine whether permitting the individual to have access to special nuclear material, restricted data, or national security information would create a security risk. OPM conducts the background investigations for NRC and sets the rates charged for those investigations. The combined cost of the OPM-conducted background investigation and NRC’s application processing charge are recovered from the licensee through an access authorization fee assessed by the Commission.

Licensees can continue to calculate the NRC access authorization fee for any given application by referencing to the current OPM investigation rate schedule for background investigation services, with the reimbursable rates for personnel background investigations published by OPM in a Federal Investigations Notice (FIN). The current OPM investigation rates were published in FIN 11-05 on August 29, 2011, and became effective on October 1, 2011, according to NRC.

FIN 11-05 is available on the OPM’s Federal Investigative Services website. Licensees also may obtain the current OPM investigation rate schedule by contacting NRC’s Personnel Security Branch (PSB), Division of Facilities and Security (DFS), Office of Administration (ADM) at Licensee_Access_Authorization_Fee@nrc.gov. The final rule will take effect on June 22, 2012, unless significant adverse comments are received by June 4, 2012.

Criminal History Check to Precede Unescorted Nuclear Plant Access

Non-power reactor (NPR) licensees will have to obtain fingerprint-based criminal history records checks of individuals before granting anyone unescorted access to their facilities, under a regulatory initiative finalized earlier this month by the Nuclear Regulatory Commission. The action complies with the requirements of Section 652 of the Energy Policy Act of 2005, which amended the Atomic Energy Act of 1954 to require fingerprinting and a Federal Bureau of Investigation identification and criminal history records checks of individuals “permitted unescorted access to a utilization facility."

The rule amendments establish generically applicable fingerprinting requirements for NPR licensees that are similar to those previously imposed by the Commission’s orders pertaining to the granting of unescorted access. Under the AEA, “utilization facility
is defined as “any equipment or device, except an atomic weapon, determined by rule of the Commission to be capable of making use of special nuclear material in such quantity as to be of significance to the common defense and security, or in such manner as to affect the health and safety of the public, or peculiarly adapted for making use of atomic energy in such quantity as to be of significance to the common defense and security, or in such manner as to affect the health and safety of the public; or any important component part especially designed for such equipment or device as determined by the Commission." Similarly, NRC regulations define “utilization facility
as any nuclear reactor other than one designed or used primarily for the formation of plutonium or uranium-233.

In developing the new requirements, NRC recognized that, when constructing requirements for NPR licensees, it should be cognizant of the AEA’s direction that the agency impose only such minimum amount of regulation of the licensee as will enable the Commission to fulfill its obligations under the Act to promote common defense and security, protect the health and safety of the public, and permit the conduct of widespread and diverse research and development. (77 FR 27561, May 11, 2012).

Energy News for Wednesday May 23

The Wall Street Journal reported that a political ally of Vladimir Putin has been appointed CEO of Russian state oil company OAO Rosneft. He said that he would concentrate on increasing production.

Reuters reported that Europe has a glut of sweet light-sulfur crude oil as European oil demand falls and the U.S. cuts oil imports due to increased domestic production.

Business Week said that European bans on hydraulic fracturing for natural gas have increased opportunties for U.S. gas exporters.

Hearst reported that the U.S. Interior Department will propose a rule by September to strengthen the rules governing blowout preventers to reduce the chance of a repeat of the 2010 Gulf of Mexico oil spill.

The U.S. Nuclear Regulatory Commission announced (pdf) that it has renewed the license for the Columbia Generating Station in Washington for an additional 20 years, until 2043.

Regulation of Hydraulic Fracturing on Federal, Indian Lands Proposed by BLM

Operators of oil and gas leases using hydraulic fracturing (“fracking”) on federal and Indian lands would be required to engage in mechanical integrity tests prior to beginning fracking, submit waste fluid treatment plans, and disclose well stimulation fluids used during the fracking, under a proposed rule issued by the Bureau of Land Management (BLM) to regulate fracking on federal and Indian lands. The rule is intended to increase transparency regarding the fluids used in the process, as well as providing assurances that well-bore integrity is maintained throughout the fracking process and that the fluids that flow back to the surface from these operations are properly stored and disposed of or treated. BLM noted that its fracking rules were last revised in 1988 and need to be updated for current technologies and management practices.

A new section 3162.3-3 for well stimulation activities would be added to BLM’s existing regulations on fracking at Sec. 3162-3-2, and existing Sec. 3162.3-3 would be retained and renumbered. Six proposed new definitions for technical terms have been proposed, including annulus, bradenhead, proppant, stimulation fluid, usable water, and well stimulation.  The definition of fresh water would be deleted because it also causes confusion and because BLM stated that it intends to be more protective of all water. The terms nonroutine fracturing jobs, routine fracturing jobs, and acidizing jobs would be removed because the routine/nonroutine distinction currently made in the regulations has been confusing to regulators and the regulated community, BLM said. As a result of this change, operators would be required to obtain BLM prior approval for all fracking events, not just “nonroutine” well stimulation operations, and submit a Subsequent Report Sundry within 30 days of the event.

BLM proposes to promote public disclosure while protecting trade secrets and confidential business information by allowing operators to identify specific information that they believe is protected from disclosure and providing substantiation for those claims. BLM may choose to release that information if it determines that federal law does not protect it. Further protection would be provided by use of a list of chemicals by registry number that is intended to prevent reverse engineering of additives.

Because a number of states have already begun to issue their own rules regulating hydraulic fracturing, BLM intends to implement on federal and Indian lands whichever rules are most protective of federal lands, resources, and the environment. BLM oversees about 700 million acres of federal mineral estate and 56 million acres of Indian mineral estate. BLM estimated that the average annual cost per well of complying with these regulations would be about $11,833, with the average annual benefit per well in reducing risks associated with wellbore integrity and unlined pits ranging from about $3,754 to $13,688. BLM estimates that the average cost of the new rule would represent about 0.3 percent of the total cost of drilling a well.

Comments are due by July 10, 2012. (CCH Energy Management ¶9260).

Energy News for Monday May 21

Gregory Jaczko, Chairman of the U.S. Nuclear Regulatory Commission, announced that he will resign from the Commission, effective upon the confirmation of his successor by the Senate.

The Federal Energy Regulatory Commission has announced its annual update to the oil pricing index factor, which sets a rate ceiling for a methodology used by oil pipelines to change their rates. The rates for the year beginning July 1, 2012 will be 8.6 percent higher than the prior year.

The U.S. Energy Information Administration looked at electricity storage technologies.

Reuters reported that Russia daily oil production data differs noticeably from data issued by the Joint Organisations Data Initiative (JODI), a group set by OPEC, the International Energy Agency, and other oil producers and consumers.

CBS Baltimore reported that Dominon Energy has filed for a declaratory judgment in a Maryland court over a claim by the Sierra Club that it has the right to block the construction of a liquefied natural gas export terminal.

Energy News for Thursday May 17

The Federal Energy Regulatory Commission has issued a policy statement detailing how it will advise the Environmental Protection Agency on requests for extra time for electric generators to comply with EPA's new mercury rule.

The Energy Information Administration said that world nuclear generating capacity now exceeds 346 GW, with China and the rest of Asia experiencing the fastest growth in recent years.

The Montreal Gazette reported that Canada will issue draft regulations by next year to cut down on oil and pollution.

Bloomberg reported that the United States has now imposed tariffs on Chinese solar equipment manufacturers.