Issue No. 11


The Electricity Reality Report provides readers like you with news and timely analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy.

In today’s issue:

  • FERC backs off its controversial climate-change directives after criticism from stakeholders.
  • A Senate hearing in March, led by Democrat Joe Manchin, provided the catalyst for FERC’s ‘course correction.’
  • The decision will allow previously proposed natural gas pipeline projects to move ahead.
  • Chairman Glick, whose term ends in June, may have been feeling a special kind of heat. Also a factor: the war in Ukraine.
  • The role of decarbonization goals and of natural gas as a bridge to renewables are discussed at the EPSA Conference.
  • TIME Magazine highlights the true drivers of action around climate change goals.
  • Former FERC Chairman Chatterjee wants FERC to show more muscle in pushing for a Western RTO.
  • An auditor is appointed in the long-running scandal involving an Ohio electric monopoly.
  • Legislators want to end surcharges to finance cost overruns for Georgia’s Plant Vogtle nuclear expansion.

FERC Issues an Unusual ‘Course Correction’Of Its New Climate-Change Policies on Gas Pipelines

It’s rare that regulatory agencies do an abrupt about-face after receiving criticism from stakeholders, but the Federal Energy Regulatory Commission (FERC) took just such a step on March 24. The action was highly significant because it halted policy changes that would have given FERC a more powerful role in regulating energy on the basis of its estimated effect on the climate. 

FERC’s decision won praise from Sen. Joe Manchin (D-WVa), the chairman of panel that oversees the Commission. “Today’s unanimous vote during FERC’s open meeting was a course correction from their previous partisanship, and I appreciate their willingness to address the significant concerns raised by raised by many members of the Senate Energy and Natural Resources Committee,” he said in a statement. 

Here’s the background. 

As we reported in our Newsletter No. 10, FERC on Feb. 18 issued two controversial policy statements. The gist, as Politico put it, was to institute “sweeping new policies for large natural gas pipeline projects, including a framework for assessing how pipelines and other facilities contribute to climate change.” 

One of the policy statements, termed “interim,” specified how “the Commission will assess the impacts of natural gas infrastructure projects on climate change in its reviews.” Also, according to a March 8 article in the National Law Review

Most notably, this marks the first time FERC has formally incorporated environmental justice considerations into one of its policies…. FERC has fundamentally reshaped the legal landscape for approval of natural gas pipelines. 

This “reshaping” was seen by many critics as an overreach by a Commission that has been elevating climate change considerations in its decision-making. According to a Law360 article, the policy statements elicited “an avalanche” of demands for reconsideration

A Critical Hearing Provides a Catalyst for Change

During the Senate Energy and Natural Resources Committee hearing on March 3, Manchin pointed out that these climate concerns may be appropriate for many government agencies, including the Environmental Protection Agency, the Army Corps of Engineers, the U.S. Fish & Wildlife Service, and more. But FERC’s mission, by contrast, is to: 

Assist consumers in obtaining economically efficient, safe, reliable, and secure energy services at a reasonable cost through appropriate regulatory and market means, and collaborative efforts. 

Reliability and affordability are supposed to be paramount for the Commission, but in the two new policy statements, climate change can supersede these other priorities.Manchin stated that FERC was making “a shortsighted attack on fossil fuel resources” by making it more difficult to gain pipeline approvals. He said that the new policy was especially ill timed with an “energy war” underway, a reference to the Russian invasion of Ukraine. Manchin said that the Commission was not recognizing the “heavy lifting” that fossil fuels “have done and continue to do – and the integral role they play in our economy.” 

In a dissent to the FERC actions in February, Commissioner James Danly said that the policy statements would “have profound implications for the ability of natural gas companies to secure capital, on the timelines for NGA [Natural Gas Act] section 7 applications to be processed and on the costs that a pipeline and its customers will bear as a result of the potentially unmeasurable mitigation that the majority expects each company to propose when filing its application and the possibility of further mitigation measures added unilaterally by the Commission.”  

Sen. John Barrasso (R-Wyo.), ranking member of the Energy and Natural Resources Committee, was even more blunt: “These policies are going to make it next to impossible to build any new natural gas infrastructure or upgrade our existing facilities in the United States.”

Previously Proposed Pipeline Projects Proceed

In addition, FERC drew sharp criticism from Senators and others for taking the unusual step of enacting its changes in advance of comments by those affected.

In his own dissent, Commissioner Mark Christie wrote, “Don’t be fooled by the ‘interim’ label. This new policy – confusing as it is – applies right now, not only to new applications, but to all pending applications, and it will inflict material harm on all pending applications right now. Changing the rules in the middle of the game violates any serious principle of due process, regulatory certainty, and just basic fairness.”

At least two dozen natural gas projects are in some stage of FERC review, according to the Commission. Two pipeline giants, Kinder Morgan and Boardwalk Pipelines, said that the February policy statements would chill investments, and they warned of a “fierce legal challenge” if the changes went ahead. 

Then on March 24, FERC unanimously agreed that, “upon further consideration,” it will issue a new, “Updated Draft Policy Statement” and “Draft Greenhouse Gas Policy.” And those policies won’t go into effect until the Commission issues final guidance – which won’t happen until FERC analyzes and responds to comments (deadline: April 25) and reply comments (May 25) – a process that will take months. 

Also, FERC made it clear that, as Utility Dive put it, “Unlike the withdrawn policies, any new review framework will not affect previously proposed projects. In addition, pending pipeline and LNG [liquefied natural gas terminal] applications will be considered under criteria established in 1999 and by court precedent, according to FERC Chairman Richard Glick.” 

Glick had contended that the February policy changes were necessary because of court orders involving FERC’s review of proposed gas projects. The Chairman interpreted those orders to mean that FERC needed to look at climate-change impacts more intently. 

For example, in the original policy statements, estimated GHG emissions that get counted in determining whether FERC will require an onerous environment impact statement are those that “have a reasonably close causal relationship” to the project. That includes emissions resulting from “construction and operation of the project as well as, in most cases, GHG emissions resulting from the downstream combustion of transported gas.” 

But the FERC Commissioners changed their minds. As Glick said during last month’s meeting

Over the last month, I’ve had discussions with numerous pipeline and LNG companies, and I know my colleagues have as well. What I generally heard is that the policy statements raise additional questions that could benefit from further clarification.

FERC Commissioner Allison Clements, who had voted in favor of the policy changes in February, said at the meeting, “I have concluded that we cannot move forward to effectively or efficiently consider and process individual project applications under the new policies without stronger agreement across the commission. Attempting to apply the policies without clearer points of agreement on approach would be unproductive.”

Chairman Glick’s Term About to End

The timing of Glick’s about-face also bears interest. Glick’s term as a Commissioner ends on June 30. Under FERC rules, he can serve until he is replaced but, if no action is taken, then he has to depart by the end of 2022. Politico’s Matthew Choi wrote, in a piece headlined “Glick’s Ticking Clock”: 

Manchin told reporters last week that Glick “went way out of his wheelhouse” with the policy statement and should “just do your damn job.” His office declined to say if he would vote for Glick if he were reappointed, and Manchin’s opposition was a major factor in Sarah Bloom Raskin’s withdrawal from the running for a top Federal Reserve gig. 

A separate Politico piece three days later carried the headline, “Biden’s most effective climate warrior faces potential doom in the Senate.” Catherine Morehouse wrote: 

Glick has launched perhaps the most far-reaching agenda of any leader ever at the commission…. His efforts to reshape the agency’s mission include conducting closer examinations of the climate impacts of new energy infrastructure, as well as the effects of existing natural gas pipelines and fossil fuel facilities on low-income areas and minority communities where they are often located. A further reason for what Manchin called a “course correction” may be the war in Ukraine – both its effects on domestic energy costs and its role as a catalyst in renewed efforts to move oil and especially natural gas to Europe as a substitute for supplies provided by Russia. 

In a Wall Street Journal article on March 21, three days before the about-face, William Scherman, who was FERC general counsel during the George H.W. Bush Administration, reminded readers that when Iraq invaded Kuwait, the Commission went on a “wartime footing,” taking dramatic steps to relieve potential disruptions to the energy supply. Scherman wrote, “Every president, every FERC and every Congress have always understood that the fundamental purpose of the Natural Gas Act of 1938 has been to encourage the development of plentiful supply of natural gas at reasonable prices — until Feb. 17, 2022, a week before Russia invaded Ukraine.” 

He continued: 

On that date, on a 3-2 partisan vote, FERC determined to prevent the construction of most, if not all, new natural-gas pipelines. Addressing and mitigating climate change is now FERC’s new fundamental mission. To do so, FERC usurped congressional authority, effectively rewrote the section of the Natural Gas Act that governs the pipeline-permitting process, and contorted the narrow holdings in a few court cases interpreting the National Environmental Policy Act of 1970. 

Scherman concluded forcefully, Giving energy aid and comfort to Russia undermines our national security and destabilizes international efforts to isolate Russia. FERC must fully repeal or vacate these policy statements and start again.” Some elected officials are calling for such repeal. In a letter to Glick on March 28, ten days after the Commission’s “course correction,” the two Senators representing Florida, Sens. Rick Scott and Marco Rubio asked FERC to “rescind” the policy statements.

They explained why natural gas is needed even as renewable-energy use grows: 

It is undeniable that natural gas is critical to providing clean, reliable, and affordable electricity to the people of Florida…. Electricity providers in Florida are also seeking to expand their deployment of renewable energy technologies such as solar. The intermittent nature of these technologies requires that they be paired with reliable energy inputs, such as natural gas-based electricity generation. 

“In reality,” wrote Scott and Rubio, “demand for natural gas may continue to grow as electricity providers expand their deployment of renewable energy. [We] fear that the implementation of FERC’s policy statements, which are designed to impede the approval of natural gas infrastructure, will directly harm Florida ratepayers and will stifle our state’s economy. 

Sen. Barrasso, the ranking member of the Energy and Natural Resources Committee, also wants FERC to go further. In a statement on March 24, he said that the decision by FERC “to step back from its destructive natural gas policy statements is a first step. Today’s action is an acknowledgement of the damage these statements would have done if left in place. FERC must go back to the drawing board and start over on these harmful proposals.”

At the EPSA Competitive Power Summit, a Reality Check on Decarbonization

At the Competitive Power Summit, convened by the Electric Power Supply Association (EPSA) on March 29, energy officials and academic experts tackled the challenge of reaching the Biden Administration’s target of a 100% decarbonized electric grid by 2035.
“If you’re going to run a system where the bulk of the energy is going to come from the sun and the wind and is inherently unpredictable, you have to have some other energy source that is stable,” Gordon van Welie, the CEO of ISO-NE, the independent system operator for New England, reminded the high-level audience.

According to a report by RTO Insider, Stephen Gallagher, chief commercial officer for developer Brookfield Renewable U.S., cited the staggering cost of grid decarbonization. “If you lay out all the plans, both public and private sector, in terms of decarbonization by 2050, that’s $150 trillion of investment — that’s trillion,” he said.

Still, regions with ISOs and other organized wholesale electricity markets reduced their emissions between 2005 and 2021 by 35%, compared to a reduction of 27% in regions without such markets. Brian George, EPSA’s senior director of strategic policy and government affairs, citing figures from the Energy Choice Coalition, also noted that wholesale markets with more competitively owned generation, such as ISO-NE, registered a 61% drop in carbon emissions.

A study last year by Wayne Winegarden of the Pacific Research Institute, sponsor of this newsletter, found that from 2008 to 2018, also found that emissions fell far more in competitive states than in monopoly-utility states. “Competitive markets are also better positioned to implement efficient low-emission technologies due to the same positive incentives that lead to lower price increases and higher quality electricity generation,” Winegarden wrote.

Of course, the quickest way to bring clean energy to scale is through setting a carbon price, said Arne Olson, senior partner at Energy + Environmental Economics (E3). Right now, Olson said, such a price, or tax, is not feasible politically, but it is “still useful to hold up as a benchmark” for thinking about the next-best alternative, which Olson believes is a bilateral clean energy market.

BBB Might Be Back; But Competition is What’s DrivingClimate Change Goals

Federal efforts to address climate change could be back this spring as Senate Democrats look to reach a deal on a revised version of the administration’s “Build Back Better” spending plan. However, is our dramatic rise in the use of cleaner energy, leading to a significant fifteen-year decline in carbon emissions, a result of weighty legislative vehicles? In reality, it was more likely due to market competition.

Competition is a key driver of innovation that benefits the human condition, because in competitive markets, producers create better products more efficiently and at a more affordable cost to consumers. As a result of increased competition among electricity suppliers, our energy grid has gone under a significant transition over the last several decades.

Today, about 20 percent of electricity generation comes from renewable energy sources, such as solar, hydropower, and wind. Renewable energy can play an important role for strengthening American energy security, reducing greenhouse gas emissions, and providing power at affordable prices. Yet, the United States is not fully utilizing the availability of one significant renewable power source: offshore wind.

Currently, there are only two small scale offshore wind farms in operation, accounting for only 42 Megawatts (MW) of electricity capacity. In order to achieve President Biden’s goal of reaching 30 Gigawatts of offshore wind capacity by 2030, businesses and government need to do more in the years ahead to expand this electricity supply.

Interestingly, Ørsted, an offshore wind company, is one of the major companies working to bridge the gap between today’s supply and what’s needed in the future. In recognition for their work, last month Ørsted was included in TIME Magazine’s list of the 100 most influential companies of 2022. While Ørsted is already a major energy supplier of offshore wind in Europe, they are making progress in expanding those same capabilities here in the U.S. Harnessing the benefits of offshore wind here along the coast of the United States could provide reliable electricity generation needed to power our economy well into the future.

TIME observes that the U.S. is falling behind on being a world leader for wind power, but it certainly has the potential to catch up. TIME notes in its article that Ørsted is affecting the change, writing, “in part by developing what is so far only the second major U.S. offshore wind project, South Fork Wind, off the coast of Long Island, New York, with construction starting in February. The company is also planning a slew of other projects up and down the East Coast, and it’s bringing dozens of U.S. workers to train in Europe to help build them.”

Competition is the centerpiece of market-oriented solutions, and more offshore wind farms becoming operational in the years ahead could expand our already diverse supply of energy sources to the benefit of our economy and ratepayers

Natural Gas Is a Bridge, But Please Understand It’s a ‘Long Bridge’

Another important issue at the EPSA conference, held at the National Press Club, was the role of natural gas. Jim Robb, the CEO of NERC, the North American Electric Reliability Corporation, asked, “In a world where policymakers don’t want gas — gas has become the new coal in many areas — what do we think is going to provide that balancing capability?”
He continued:

It could be hydrogen, but that’s a long, long way away. It could be batteries, but we don’t have a battery technology that can perform cost-effectively at the scale we would need it to with the durations that we would need. It could be small nuclear reactors [with] flexible characteristics. But that’s a long, long way off.

Robb sees natural gas a bridge to a low-carbon future, but, he said, “terrifies me in this transition [is] a lot of people think that the bridge is about this long,” he added, with RTO Insider noting that he spread his hands only a few inches apart. “And I think most people in this [conference] room would say this bridge extends from that wall to that wall. Your point of view on the length of that bridge dictates an awful lot as to what you do in terms of investing in infrastructure.”

“I think it is a long bridge,” concurred Manu Asthana, the CEO of PJM, a RTO (regional transmission organization) that covers all or part of 13 states plus the District of Columbia. “In fact, PJM is on the record as saying that we think we need access to our thermal generation until and unless there’s replacements of assets in place.”

Asthana was also among the RTO and ISO officials commenting on the difficulty of bringing all stakeholders into the decision-making process. “The stakeholder process is hard,” he said, “because you have a lot of really smart stakeholders who have their own economic interests, and their own agenda. They’re at the table, pushing.” He added:

But I also think the stakeholder process is necessary, [so] please continue participating, keeping in mind…there’s a compromise that we’re going to have to come to [so] that hopefully everyone will get what they need. Not everyone will get all of what they want, to quote the Rolling Stones.

“I just can’t see the RTO not being an important part of the transition,” said John Moore, director of the Natural Resources Defense Council’s Sustainable FERC Project, citing grid operators’ role in ensuring “transparency, accessibility [and] resource neutrality.”

Chatterjee’s Insight Into Establishing an RTO for the Western States

At an R Street Institute webinar on April 12, former FERC Chairman Neil Chatterjee shed some light on the drive to establish an RTO for Western states. As we have reported, the West is the part of the country with the least penetration by RTOs and ISOs, but there is enthusiasm in states such as Arizona, Colorado and Nevada to join or start one.

Chairman Glick has supported the notion of a Western RTO, but Chatterjee said that FERC “could be more muscular” in its advocacy. FERC’s position has been that the states should lead the movement to form competitive markets. It’s taking a “bottoms-up position” even though it has the authority to require participation in RTOs.

Chatterjee, who was a Republican appointee, believes that this is “not a red state or blue state thing,” adding that he sees “a conservative case to be made for market participation” and is “optimistic that more conservatives and conservative states are going to embrace the benefits of market competition.”

Landon Stevens, director of policy and advocacy at the Conservative Energy Network, agreed. “When you implement competitive structures, you see benefits: economic, environmental,” and more. He noted that you don’t need to “mandate state-by-state environmental targets. I think that if the market structures are correct, they will respond and do it their own way.”

RTOs and ISOs help implement market competition, and Chatterjee pointed out that one problem with getting robust FERC advocacy is the composition of the Senate Energy and Natural Resources Committee, through which FERC nominees must pass to be confirmed.

Most members of the committee, he noted, are from states that are not part of the RTOs or ISOs that cover most of the East and Midwest (a major exception being Chairman Manchin himself; West Virginia is part of PJM). But, in general, the committee’s composition may be a key reason that, while FERC leaders want a Western RTO, they are taking a bottoms-up approach.

More Efforts to Get to the Truth in the FirstEnergy Scandal

In a long-running controversy involving monopoly utility FirstEnergy , the Public Utilities Commission of Ohio on March 8 agreed to hire an auditor “to examine whether any customer money collected by FirstEnergy Corp. was wrongly used to pay for lobbying or political work to pass the corrupt House Bill 6,” according to a report by the Cleveland Plain Dealer. “Federal officials say [the bill] was passed with the help of $60 million in FirstEnergy bribe money.”

In December, the U.S. Attorney’s Office for the Southern District of Ohio issued a press release stating that “FirstEnergy Corp. has been charged federally with conspiring to commit honest services wire fraud and has agreed to pay a $230 million monetary penalty.”

federal audit that was released in February found that the lobbying expenses led the monopoly electric utility to improperly raise prices on customers and attempt to “conceal the nature and purpose” of these payments, according to the Plain Dealer. FirstEnergy said that it did not find such spending. With its action on March 8, the PUCO will now hire a third-party auditing firm to determine whether taxpayer money was indeed used for lobbying. That firm will have until Dec. 16 to issue a report.

Legislators Want to Stop Charging Georgia Consumers for Long-Running Financing Costs for Nuclear Plant

In a long-running issue of a different sort involving another monopoly utility, a state Senator and a state Representative from Georgia introduced bills last month, both called the “Ratepayer Surcharge Relief Act,” that seek to end the Plant Vogtle monthly surcharge for Georgia Power customers.

“This surcharge is especially unfair to our senior citizens,” said Sen. Nan Orrock, a Democrat from Atlanta. “They have been paying for power for 12 years that they may never use. I voted against the surcharge legislation in 2009 because it is an unfair burden on Georgians. I’ve seen reports that the typical household has already paid around $850…. Repeal of this surcharge is long overdue.”

Because of overruns, the Vogtle nuclear project is now estimated to cost $30 billion. Georgia Power, a subsidiary of utility giant Southern Co., stated in February that the first of the two reactors has been delayed another six months and will not start operating until March 2023. “Georgia Power’s 2.6 million customers are already paying financing cost for Vogtle on monthly bills,” according to the Associated Press

Georgia’s 2009 Nuclear Construction Cost Recovery Act allowed Georgia Power to bill customers to recover that cost. Rep. Evans and Sen. Orrock believe the surcharges have gone on too long. 

As we reported in Newsletter No. 9, the Vogtle expansion was supposed to lead a resurgence of larger reactors in the 2000s, but it remains the only nuclear power construction project in the United States. 

“Originally estimated by the owners to cost slightly more than $14 billion and to be in service in April 2016 and April 2017, the total cost has more than doubled,” said a January report by the Institute for Energy Economics and Financial Analysis (IEEFA). The expansion is more than six years behind schedule.

The IEEFA report states that Georgia consumers have paid more than $3.5 billion from 2011 through 2020 to finance the costs of the Vogtle expansion, and state’s Public Service Commission expects the figure to grow to $4 billion.

The IEEFA notes that Georgia’s residential customers have to pay 47% of the costs, commercial customers pay 40%, and industrial customers only 11%

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