On October 1, 2013, after the U.S. Congress failed to reach agreement on a Continuing Resolution (CR) to extend appropriations for most U.S. discretionary programs beyond September 30, 2013, the U.S. Government was forced to partially shut down, resulting in the closing of many U.S. Government offices, parks, and programs, and the furlough of approximately 800,000 federal employees. Many government contractors have also been forced to furlough employees as a result.

In addition, the U.S. Treasury Department has indicated that it will reach the $16.7 trillion limit of its statutory authority to borrow money to fund U.S. Government obligations — the federal debt ceiling — by October 17, 2013.

While we expect Congress to reach at least a short-term agreement to extend the debt ceiling by October 17, opposing factions in Congress and the White House continue to be a long way from resolving the debt ceiling and CR impasse. And while Republican congressional leaders have indicated that they would like to see a debt ceiling increase combined with a CR, we believe it is possible we could see:

  1. short-term extensions of both, requiring Congress to address these issues yet again, perhaps in less than two months; or
  2. a debt ceiling increase without a CR, resulting in a continued government shutdown. Also very possible is a “sidecar” of provisions — more likely added to a CR and/or debt ceiling increase after short-term extensions — that could include a process and schedule for tax and entitlement reform, and relief from sequestration spending cuts, among other items.

In the meantime, more individuals and businesses operating in the U.S. are likely to experience the far-reaching effects. Although some U.S. Government programs, such as those funded by user fees and those with mandatory funding, continue, most have been negatively affected in some way by the shutdown. And many other government offices and programs have been shut down completely.

For the energy regulatory agencies, the effects of the shutdown have been mixed to date, but they will become more pronounced if the impasse lasts much longer.

Department of Energy (DOE)

The DOE receives what is known as “no-year” money. Such funds do not have to be expended in the year they are appropriated, but rather can be carried forward to be used as needed. Like other agencies, however, the DOE’s funding is appropriated by program, and the DOE may not move money from one program for which it has received an appropriation to another without congressional assent.

The DOE weathered the 21-day government shutdown in 1995-96 without any furloughs; and, thus far, it has avoided furloughing employees or closing any programs in this shutdown. It appears, however, that some support service and other contract services are being curtailed. The DOE has not issued a schedule indicating when funding will run out, but it seems clear that some programs have far more limited “carryover” funding from prior year appropriations than others.

The offices that are near the end of their funds (and their contractors) could face furloughs shortly. However, even the work of those who have sufficient funding to outlast a lengthy shutdown are finding their missions impaired. For example, in many of its programs, the DOE depends upon consultation and collaboration with agencies that were immediately affected by the shutdown. Such work is grinding to a halt.

Regardless of whether the DOE runs out of money, the DOE and its contractors will continue to perform those functions necessary to avoid imminent threats to the safety of human life or the protection of property. The nuclear weapons stockpile will not go unguarded, but companies awaiting word on a permit or the award of a grant for advanced energy technology development will be forced to wait if the shutdown continues much longer, and the vast array of energy supply data that the Energy Information Administration routinely provides for the benefit of markets and industry may be a casualty of the shutdown as well.

Federal Energy Regulatory Commission (FERC)

Like the DOE, as of October 9, 2013, FERC continues normal business operations because it can use carryover funds from previous years’ appropriations. Recent reports indicate, however, that a FERC shutdown could come as soon as next week.

FERC’s shutdown plan describes six activities it intends to continue in the absence of additional appropriations:

  1. action by the five commission members;
  2. inspection of hydroelectric and liquefied natural gas projects;
  3. monitoring of electric reliability and jurisdictional infrastructure;
  4. market monitoring;
  5. legal and enforcement matters; and
  6. maintenance of commission infrastructure. With the exception of these activities, FERC will cease operations until the appropriations hiatus is over if and when carryover funds are depleted. All but approximately 3.3% of employees will be furloughed should FERC need to implement its shutdown plan.

Nuclear Regulatory Commission (NRC)

The NRC has also been using “no-year” funds to continue normal operations since October 1. As of October 9, 2013, the NRC ran out of funds to continue normal operations. Accordingly, the NRC began operating at a reduced level. The NRC will operate in a “minimal maintenance and monitoring mode” going forward where it will furlough all but roughly 300 of its 3,900 employees that are necessary for essential health and safety operations. About half of the retained employees are resident inspectors assigned to a reactor or fuel facility.

The NRC will not furlough staff responsible for responding to emergencies, reviewing security threats, and processing emergency licensing actions. Certain public affairs staff necessary to inform the public about potential emergencies, legal advisors, and liaisons with states, Congress, and foreign governments will also continue working. The NRC will continue to perform the following functions during the shutdown:

  1. receipt and processing of pre-shipment notifications and receipt and assessment of licensee event notifications through the Headquarters Operations Center;
  2. review and analysis of potential security threats;
  3. response to emergencies and assembling of teams for incident response;
  4. oversight at nuclear power plants and fuel cycle facilities by resident inspectors;
  5. processing and approval of enforcement orders;
  6. receipt, assessment, and response to safety or security allegations, and initiation of investigations;
  7. processing of emergency licensing actions; and
  8. international liaison including with other U.S. Government agencies and/or foreign nations to address export and import, international safeguards, and other matters.

The NRC also clarified that it will continue processing fingerprint checks necessary for Access Authorization during the shutdown. Licensees are obligated to continue making all required NRC notifications during the shutdown through the NRC Headquarters Operations Center.

Commodity Futures Trading Commission (CTFC)

The CTFC is hard hit by the government shutdown. Without access to “no-year” money, the CFTC has been forced to furlough all but approximately 4% of staff. The shutdown comes at a particularly sensitive time at the CFTC. Newly implemented Dodd-Frank Act rules governing the swaps market were scheduled to commence in early October. The shutdown has forced the CFTC to toll compliance dates and leave the swaps market with minimal oversight.

Like the other agencies, the CFTC is required to continue operations that protect life and property during a lapse in appropriations. Thus, the remaining staff is tasked with conducting a minimum level of surveillance of futures markets, clearing houses, and intermediaries. Enforcement functions have largely ceased, as have rulemakings and entity registrations. In light of the shutdown’s severe impact on the CFTC, certain commissioners have promoted funding the agency with settlement money rather than appropriations. However, such proposals are rarely favored by either Congress or the regulated community because it sharply reduces oversight of agency performance. For the present, derivatives market participants — including energy commodity end users — remain uncertain about key aspects of new market regulations. As long as the government is shutdown, no regulatory guidance from the CFTC will be forthcoming.

For further information regarding developments in the U.S. debt ceiling and CR negotiations, or ramifications of the government shutdown with respect to the DOE, FERC, the NRC, the CFTC, or any other agency or branch of the U.S. Government, please feel free to contact us.