Midweek Energy Updates: January 10, 2018

The full version of these articles will appear in The Foster Report No. 3180, published on January 12, 2018.


Industry Sectors Praise FERC for Ending DOE Plan on Grid Resilience NOPR

January 9, 2018

FERC declined to adopt the plan forwarded by Energy Secretary Rick Perry to support coal and nuclear generation units, instead opting to seek more information from grid operators on whether further action on market design, price formation, or other areas is needed to address grid resilience.

The move earned praise from many energy industry trade groups who opposed the notice of proposed rulemaking (NOPR) from the Department of Energy (DOE), with officials commenting that the winners will be consumers and businesses in organized wholesale power markets who will not be paying to subsidize generators slated for retirement because of market prices.

The January 8 order (RM18-1, AD18-7) terminated the NOPR launched by Perry, with a nod expressing appreciation for him reinforcing that the resilience of the bulk power system is an important issue that warrants further attention. As many parties asserted in an avalanche of comments opposing the NOPR’s plan to provide out-of-market compensation for coal and nuclear units with on-site fuel supplies, the legal threshold of the Federal Power Act (FPA) proved to be too high for the Commission to embrace the proposal.

With three commissioners writing separate concurring statements, FERC directed each regional transmission organization (RTO) and independent system operator (ISO) to submit information within 60 days on numerous resilience issues. The order poses more than 20 questions for ISOs and RTOs to address about resource adequacy programs and challenges to improving resilience, such as extreme weather or other high-impact, low-frequency events.

The resilience issues to examined in the new proceeding “will remain a priority of the Commission and we expect to review the additional material and promptly decide whether additional Commission action on this issue is warranted,” FERC said in the order.

In a January 8 statement, Perry said he appreciates FERC’s consideration of the NOPR and the attempt to address what he termed “marketplace distortions that are putting the long-term resiliency of our electric grid at risk.”


Customers Seek Pipeline Rate Changes to Reflect New Tax Law

January 10, 2018

With oil and natural gas pipelines enjoying lower corporate tax rates under the new tax law, FERC should compel the companies to lower their rates for pipeline customers, a pair of entities told the Commission recently.

The head of the American Public Gas Association (APGA) sent a letter to FERC Chairman Kevin McIntyre urging FERC to ensure that all natural gas pipeline rates be adjusted to reflect the lower corporate tax rates in the Tax Cuts and Jobs Act of 2017.

Oil pipelines should be required to make the same changes to their rates under the Interstate Commerce Act (ICA), said Gordon Gooch, an attorney who is active in oil pipeline rate proceedings. Gooch, as a pipeline customer, made his January 3 filing in the ongoing case (PL17-1) involving FERC’s policy for oil pipelines recovering income tax costs.

Both pleadings asked for immediate action from the Commission. That is especially relevant for gas pipelines because FERC lacks refund authority under Section 5 of the Natural Gas Act (NGA), so only prospective relief is available to pipeline customers, said Bert Kalisch, president and CEO of APGA. “Prompt Commission action is necessary to ensure that pipeline customers do not continue to pay inflated rates based on the superseded tax rate any longer than necessary,” Kalisch wrote in the January 2 letter to McIntyre.

In a statement, he called upon the new FERC commissioners to support a legislative change in Congress, which APGA has sought for decades, to provide FERC with refund authority under the NGA, similar to what it has under the Federal Power Act. “This situation places a spotlight on FERC’s lack of authority to protect consumers, which have to pay unjust and unreasonable rates while FERC processes revisions for the lower tax rate,” Kalisch said in the statement.

Kalisch and Gooch both noted that the new corporate tax rate that went into effect January 1 is 21%, compared with the previous figure of 35%. The calculation of income tax allowances under the ICA using the previous tax code is now unlawful, Gooch said. He wrote, “the formula for calculating the income tax allowance must be calculated at the new income tax rates. Now.”


EIA Issues January STEO, Including First Forecasts for 2019

January 10, 2018

New infrastructure projects in Maryland, Georgia, and Texas that are coming online in 2018 will contribute to a sharp increase in LNG exports from 1.9 Bcf/d in 2017 to 3 Bcf/d in 2018, the U.S. Energy Information Administration forecast in its January Short-Term Energy Outlook that was released January 9.

EIA said that, based on U.S. production of crude oil, particularly in the Permian Basin, and new oil sands projects in Canada, it is forecasting that non-OPEC production will grow by nearly 2 million b/d in 2018 and 1.3 million b/d in 2019.

EIA estimates U.S. crude oil production averaged 9.3 million b/d in 2017, and 9.9 million b/d in December. EIA forecasts total U.S. crude oil production to average 10.3 million b/d for 2018, which would be the highest annual average production in U.S. history, surpassing the previous record of 9.6 million b/d set in 1970.

Production will increase to an average of 10.8 million b/d, EIA forecasts for 2018, with projections of surpassing 11 million b/d in 2019. “EIA forecasts U.S. crude oil production to grow by 980,000 barrels per day in 2018, and we expect most of that growth to come from tight rock formations in Texas and North Dakota,” said EIA Acting Administrator John Conti in a statement following release of the STEO (Dr. Linda Capuano began serving as EIA’s ninth Administrator on January 9).

EIA expects West Texas Intermediate (WTI) crude oil prices to average $4/b lower than Brent prices in 2018 and 2019.

DOT received a draft version of the report, concurred with the recommendations and listed steps PHMSA is taking or plans to take regarding oversight of safety at gas storage facilities. In addition, DOT Assistant Secretary Keith Nelson said DOT would provide a detailed response to both recommendations within 60 days of the final report, which was issued on December 22.



These articles will appear as published in The Foster Report No. 3180, being issued on January 12, 2018

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