Chatterjee Lays Out Priority List, Addresses Grid NOPR, Pipeline Reviews

FERC Chairman Neil Chatterjee laid out several priorities for the Commission to pursue, with improvement in hydropower project siting and natural gas pipeline project reviews among those he listed in an October 17 speech at the Energy Bar Association (EBA) Mid-Year Energy Forum in Washington, D.C.

At a press briefing after the October 19 FERC meeting, Chatterjee addressed the power grid resilience notice of proposed rulemaking (NOPR) from the Department of Energy (DOE), emphasizing that he has not pre-judged an outcome or how FERC will address the proposal as comments are being filed with the Commission. “We need to wait for the process to play out” and analyze stakeholder comments on the proposal, he said.

The initial comment deadline is October 23, and among those being filed with FERC are a letter from a bipartisan group of eight former commissioners – five of whom chaired the Commission — listing concerns with the plan and a letter from 11 senators deeming it an “ill-conceived proposed rule.” The senators, 10 Democrats and an Independent, said the 45-day comment period is not reasonable and does not provide the public with a meaningful opportunity to comment on a matter of such importance and complexity.

During the press briefing, Chatterjee said he has not determined which path FERC will pursue with the NOPR, noting that he listed several options previously,[1] such as an Advanced NOPR, a Notice of Inquiry, a NOPR to supersede the DOE proposal, a denial of the proposal or action to address the comment schedule. It may take more than 60 days to reach a decision, but “I’m not ready to make that determination until I see what comes in, and then we’ll make a fact-based decision on how to proceed.”

The NOPR would provide cost-of-service rates for power plants in organized wholesale markets with a 90-day supply of fuel on site, although a change in wording has limited its proposed applicability to independent system operator (ISO) and regional transmission organization (RTO) regions with energy and capacity markets. Power industry participants view it as a plan to subsidize coal and nuclear generation, while those who stand to benefit from such a proposal support the effort, and Chatterjee said there will be comments filed at FERC strongly in favor of the DOE proposal.

During the meeting, FERC staff and representatives from ISOs and RTOs provided commissioners with winter preparation assessments, with a few concerns regarding the Aliso Canyon natural gas storage facility in California and pipeline deliverability in New England, but no major trouble spots in the natural gas or power sectors. The availability of oil-fired generation can be important in New York and New England, while ISOs in the Midwest are facing higher amounts of renewable resources and major swings in generation output as a result, they said.

All the representatives mentioned improved coordination between pipelines and grid operators, testing of facilities and being prepared for contingencies that can come with extended periods of low temperatures during winter, with regional variations to account for different operations challenges. “I’m cautiously optimistic” about avoiding major issues for the coming winter, said Peter Brandien, vice president of system operations at ISO New England.

None of the speakers mentioned a crisis in fuel supplies for power generation facilities, which formed the basis for Energy Secretary Rick Perry sending FERC the NOPR (RM18-1) to improve compensation for power plants with 90 days of fuel on site. The effort to address grid resilience is not only for the generation fuel mix of today, but what could happen in the future if more baseload coal and nuclear plants are retired, because “we don’t know what the future will hold,” Chatterjee said at the press briefing.

The eight former commissioners who filed a joint statement on the proposal include a mix of six Democrats and two Republicans. They said the NOPR as laid out by DOE “would be a significant step backward from the Commission’s long and bipartisan evolution to transparent, open, competitive wholesale markets.” The proposal would “disrupt decades of substantial investment made in the modern electric power system, raise costs for consumers, and do so in a manner directly counter to the Commission’s long experience,” they said.

The comments were submitted by Elizabeth Moler, James Hoecker, Don Santa, Linda Key Breathitt, Pat Wood, Nora Mead Brownell, Joseph Kelliher and Jon Wellinghoff.

Competition in the wholesale power markets operated by ISOs and RTOs has benefitted consumers, with power prices tracking fuel prices and high-cost generators exiting the market, with the DOE grid study showing that coal and nuclear plant retirements took place in plenty of states outside the organized markets, the former commissioners said.

“Subsidizing resources so they do not retire would fundamentally distort markets” by driving out unsubsidized resources and raise prices for customers, they said. “Investor confidence would evaporate and markets would tend to collapse. This loss of faith in markets would thereby undermine reliability.”

FERC has always been agnostic on generation fuels, they said, acknowledging that current market conditions are not pristine. While New York and Illinois have taken actions to subsidize nuclear generation and federal tax support for renewable resources has been approved by Congress, with less overt support for fossil fuel extraction, FERC should inform lawmakers how such programs impact market operations. “But one step the Commission has never taken is to create or authorize on its own the kind of subsidy proposed here.”

The commissioners encouraged FERC to take the opportunity created by Perry’s proposal “to identify attributes of the current competitive market system that need to be improved, to crisply define them and either modify the current published proposal or initiate regional proceedings to examine resilience issues and consider the need for market rule changes.

At the press briefing, Chatterjee said he was not aware of the former commissioners’ filing that was made the day of the meeting. “We value all the comments that come in” and he understands there are concerns with the proposal, he said.

Several concerns were listed by the lawmakers in their October 16 letter to FERC. Congress amended the Federal Power Act in 2005, directing the Commission to facilitate price transparency and integrity in wholesale power markets, with fair competition and consumer protection emphasized, they noted. “We do not believe that Secretary Perry’s proposed rule is consistent with these purposes. Guaranteeing cost recovery for some generators in competitive markets is likely to increase the cost of electricity to consumers,” they said.

The letter was signed by Sens. Maria Cantwell (D-Wash.), Al Franken (D-Minn.), Tammy Duckworth (D-Ill.), Martin Heinrich (D-N.M.), Mazie Hirono (D-Hawaii), Debbie Stabenow (D-Mich.), Edward Markey (D-Mass.), Jeffrey Merkley (D-Ore.) Sheldon Whitehouse (D-R.I.), Ron Wyden (D-Ore.) and Angus King (I-Maine).

As have others in comments on the proposal, the lawmakers noted that fuel supply problems are not a major source of power supply disruptions, accounting for a miniscule percentage of outages over the past five years, while coal-fired and nuclear power plants have been shut down during extreme weather events such as hurricanes, flooding, cold weather and an earthquake in 2011.

“We urge the Commission to reject this ill-conceived proposed rule and return, in a deliberative manner and with the benefit of a full Commission, to reviewing and building upon the record developed in existing proceedings related to organized markets in a way that truly benefits consumers,” they said.

In his comments at the EBA conference, Chatterjee stated his belief that the proposal fits squarely within the Commission’s examination of wholesale power market issues, price formation in organized markets and how state preferences are impacting those markets. He commended Perry for prompting a conversation on the issues involving resiliency and the retirement of coal and nuclear generation resources and sought to address concerns about how FERC will handle the NOPR.

“Let me be clear, I remain committed to upholding FERC’s independence,” he said. The three current commissioners at FERC may approach issues with perspectives from different backgrounds, but they guard that independence with zeal, he said.

Chatterjee mentioned other priorities, including financial incentives for power transmission investments to support robust transmission infrastructure, cybersecurity protections and improving the time it takes to review hydropower and natural gas pipeline projects.

He said he strongly disagrees with the notion that FERC needs to re-examine how it reviews the need for pipeline projects as expressed in the recent dissent by FERC Commissioner Cheryl LaFleur in the Commission’s approval of the Atlantic Coast Pipeline and Mountain Valley Pipeline projects. In her dissent, LaFleur said FERC should re-examine how it determines the need for new pipeline facilities and look beyond the existence of precedent agreements with shippers.

Chatterjee said he respects LaFleur’s position but he strongly disagrees that FERC should look beyond the contracts signed by market participants as an indicator of need for new facilities.

Touching on possible ways to improve the pipeline and hydropower project review process, Chatterjee noted that many delays are not the result of FERC activities, stemming from incomplete applications, involvement of other agencies and the sheer number of comments FERC receives. While much of the work is out of FERC’s control “there may be room for improvement” or the ability to make the review process more efficient at the Commission, he said.

The amount of time taken to review projects is getting longer, with pipeline reviews taking up to 18 months, and delays in project reviews discouraging infrastructure investment, Chatterjee said.

FERC has issued more than 200 orders since it regained a quorum after being without the minimum number of commissioners for much of the first part of 2017. “We are well on our way to getting through the backlog” of orders and pending issues stemming from the extended period without a quorum, he said.

The DOE proposed rule on power grid resilience and the Environmental Protection Agency’s (EPA) planned repeal of the Clean Power Plan may stimulate coal production, but if the U.S. continues to support increased production of natural gas, there is little that coal producers can do in the face of low-cost natural gas to compete with gas supplies, according to Marc Chupka, principal at Brattle Group.

Natural gas supplies “will end up crushing coal,” Chupka said at the EBA session, where an EPA official and representatives from the Regional Greenhouse Gas Initiative, Natural Resources Defense Council, American Coalition for Clean Coal Energy, and others spoke.

EPA Administrator Scott Pruitt has said the agency would repeal the Clean Power Plan (CPP) after determining that the regulation exceeds EPA’s authority under the Clean Air Act. The repeal is included in a notice of proposed rulemaking that seeks comments from the public, and EPA looks forward to reviewing comments, David Fotouhi, deputy general counsel at EPA, told the EBA audience.

Pruitt believes in the principle of cooperative federalism, working closely with states, Native American tribes, and local authorities and staying within the rule of law on EPA’s authority, Fotouhi said. The agency intends to issue an advanced notice of proposed rulemaking on the next step to consider replacing the CPP, he said.

Besides the planned CPP repeal, Fotouhi said EPA is following through on President Donald Trump’s executive order on energy independence and economic growth by reconsidering EPA efforts under the Obama administration on effluent guidelines for steam generation facilities under the Clean Water Act and treatment of coal combustion residuals from coal-fired power plants.

The planned repeal of the CPP came after Trump issued an executive order directing EPA to review the rule and determine if it should suspend, revise, or rescind the CPP. Using EPA authority under Section 111(d) of the Clean Air Act, the CPP was designed to reduce GHG emissions from fossil fuel power plants, providing states with deadlines for action and some flexibility in how they could achieve emission-reduction goals. Several states and energy groups challenged the ruling in court.

 

The Trump administration will have a difficult time implementing its vision on environmental regulations, as the courts will remain vigilant in upholding EPA’s obligations under various statutes, said Ben Longstreth, senior attorney at NRDC. The energy sector also will see that the administration’s views are not suitable for long-term investments, such as the NOPR on grid resilience, which Longstreth termed a bailout for coal and nuclear power plants in organized markets.

The Trump administration can try to boost coal production and use of coal-fired generation, and some of the steps laid out thus far could increase coal production by about 50 million short tons annually by 2020 and 150 million short tons annually by 2030 compared with coal use projections under the Obama administration, Chupka said.

But because any policies favoring coal or nuclear plants will not take place in isolation, and power supplies in organized markets are dispatched based on economics, gas-fired generation will continue to be an increasing source of supplies, he said. The net effect of policies that favor all fossil fuels would likely result in reduced coal production and fewer coal mining jobs in 2020 and 2030, he said. “Policies that reduce production costs for all fossil fuels will not necessarily increase the consumption of all fuels,” Chupka said.

By Tom Tiernan TTiernan@fosterreport.com

[1]   For past stories, see Perry Defends ‘Getting Conversation Started’ on NOPR; Chatterjee Lists Options, FR No. 3169, pp. 1-4 and DOE NOPR on Grid Resiliency Lights Firestorm; Eyes Turn to FERC for Response, FR No. 3168, pp. 1-8.

 

This article appears as published in The Foster Report No. 3170, issued October 20, 2017

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