In today’s issue:
- Attack in N.C. “highlights the vulnerability of power grids,” which are “sitting ducks for saboteurs.” Public officials and electric grid operators should remain vigilant to protect power infrastructure and generation sources from physical attacks.
- In the face of mounting threats, the next FERC chair will have to prioritize reliability, including fuel neutrality rather than a preference for one energy resource or another.
- A team of scientists has produced a nuclear fusion reaction with a net energy gain, but that doesn’t mean commercial fusion is around the corner – or that when it comes there won’t be risks.
- A letter from diverse organizations asks the Energy Secretary to “explore every opportunity to join states to develop and improve wholesale electricity markets as they reduce electricity costs for energy consumers.”
- As Congress approaches the end of its session, there is still a chance for permitting reform legislation, but it likely will need to wait until 2023.
- California’s Governor wants to hit energy companies with a “windfall profits” tax. The likely result is higher gas prices, less domestic production, and higher reliance on imports.
- U.K. strikes a deal to secure more liquefied natural gas from the U.S., but LNG and pipeline facilities are constrained.
- The Labor Department reverses its predecessor and facilitates ESG investing for 401K and private pension plans despite criticism.
Armed Attacks on Utility Substations in N.C. Point to Vulnerability of Electric Grid – Our ‘Achilles Heel
On Dec. 3, an armed attack was carried out against utility infrastructure in Moore County, NC. near Fayetteville. More than two weeks later, an investigation by local law enforcement and the FBI still has turned up few answers. No motive has been detected, but, according to CNN, “investigators are zeroing in on two possible threads centered on extremist behavior: writings by extremists on online forums encouraging attacks on critical infrastructure and a series of recent disruptions of LGBTQ+ events across the nation by domestic extremists.”
What is certain is that both government and private institutions need to do more to ensure the reliability of electricity at a time when it is under threat from many sources.
At 7 pm on Dec. 3, one or more persons opened fire on a Duke Energy substation in Carthage; then, around 9:17 pm, someone shot up a second substation called West End. The attacks left around 40,000 Duke Energy customers without power for four days. During that period, the county enacted a curfew. What is particularly disturbing is that the North Carolina incidents are not isolated. At least five substations in Oregon and Washington were attacked in November. According to a CNN report on Dec. 7:
In the past two years, anti-government groups began using online forums to urge followers to attack critical infrastructure, including the power grid. They have posted documents and even instructions outlining vulnerabilities and suggesting the use of high-powered rifles.
One 14-page guide obtained by CNN cited as an example the 2013 sniper attack on a high voltage substation at the edge of Silicon Valley that destroyed 17 transformers and cost Pacific Gas and Electric $15 million in repairs. In that case, the shooter fired more than 100 bullets in about 20 minutes, disappearing a minute before police arrived. The case remains unsolved.
When it comes to protecting America’s electric grid, security and reliability go hand-in-hand. Substations are especially vulnerable because they are often in remote areas, and Duke Energy and other power companies, working with regulators, are going to have to take additional steps to protect infrastructure from physical attacks and severe weather conditions.
In a report on Dec. 12, National Public Radio noted this attack “highlights the vulnerability of power grids.” The U.S. has 55,000 electrical substations, which mainly transform high voltage from power lines into lower voltages for homes and businesses. “Many of them are sitting ducks for saboteurs,” said the NPR report, which also quoted Mike Mabee, a self-described “grid-security gadfly” who pores over electric company data to highlight vulnerabilities, as saying, “The electric grid is the Achilles heel of the United States.” Bottom line: the reliability of America’s electric grid and infrastructure must be a paramount concern.
Reliability Expected to Be a High Priority for Next FERC Chair
The incidents in Moore County and elsewhere are especially timely with the White House expected to nominate someone to succeed Richard Glick, the current chairman of the Federal Energy Regulatory Commission, whose term expires at the end of the year. Last month, Sen. Joe Manchin (D-WV) declined to hold hearings for Glick’s confirmation to a new term.
Sen. Manchin and others in Congress believe that the next FERC chair needs to prioritize reliability, both in terms of sustainable power generation and of protecting critical infrastructure. For generation, reliability means upholding a policy of fuel neutrality rather than a preference for one energy resource over another.
In a Utility Dive opinion piece on Dec. 14, Todd Snitchler, CEO of the Electric Power Supply Association (EPSA), cited a warning by the North American Electric Reliability Corporation that the U.S. power system is facing “unprecedented” and “widespread” reliability risks this winter. Snitchler wrote:
To ensure Americans have access to reliable and affordable energy, President Biden and his administration must ensure that FERC nominees and commissioners are committed to FERC’s core mission of ensuring adequate energy infrastructure, reliable power, and well-functioning markets in a fuel-neutral manner.
Demand is rising in this post-COVID period, and a transition to clean-energy sources has led to what Snitchler called “underinvestment in dispatchable resources, like natural gas.” By contrast, he wrote, “Energy sources like wind and solar are non-dispatchable, meaning they generate power when conditions allow, not when specifically required.” He added:
A lack of widespread battery deployment and limits on the amount of power that can be stored perpetuates this challenge, meaning dispatchable sources of power are necessary components of the power grid that work with renewables to make sure power demand is always fully supplied.
Nuclear Fusion Breakthrough Is Impressive, But Practical Uses Are Decades Away
Action on the renewables front looks encouraging. On Dec. 5, a team of scientists at Lawrence Livermore National Laboratory’s National Ignition Facility successfully produced a nuclear fusion reaction resulting in a net energy gain. In other words, the reaction generated more energy from fusion than the laser energy used to drive it. The breakthrough was hailed by US officials as a “landmark achievement” and a “milestone for the future of clean energy.”
While nuclear fusion – which occurs when two or more atoms are fused into a larger one, generating massive amounts of energy as heat – is promising, its practical, commercial applications are decades away.
Nuclear fusion could become a source, as CNN reported, “that provides limitless, carbon-free energy – without the nuclear waste created by current nuclear reactors. Fusion projects mainly use the elements deuterium and tritium – both of which are isotopes of hydrogen. The deuterium from a glass of water, with a little tritium added, could power a house for a year. Tritium is rarer and more challenging to obtain, although it can be synthetically made.”
In a letter to The Guardian (U.K.), Dr. Chris Cragg, who authored a report on nuclear fusion for the European Parliament in the 1980s, wrote that he hated to “rain on [fusion’s] splendid parade,” but he is “prepared to bet that a true fusion power station is unlikely to be running before my grandchildren turn 70. After all, it has taken 60-odd years and huge amounts of money to get this far.”
Similarly, Dr. Mark Diesendorf of the University of New South Wales wrote to The Guardian that “the claim by the researchers that nuclear fusion is safe and clean is incorrect.” According to open research literature, fusion “can produce neutrons that can be used to produce the nuclear explosives plutonium-239, uranium-235 and uranium-233.” In addition, tritium is “used to boost the explosive power of a fission explosion, making fission bombs smaller and hence more suitable for use in missile warheads.”
Philip Warburg of Boston University’s Institute for Sustainable Energy pointed out earlier this year in Yale Climate Connections that “sustaining a stable fusion reaction is just one step on the path to fusion-based electricity. To produce electric power, some of the plasma’s extraordinary heat must be drawn off safely to create the steam that will turn electric turbines…. Plant operators will also have to find safe ways to manage radioactive tritium…. Though much less enduring than uranium, radioactive tritium may pose a greater hazard to workers.”
Diverse Groups Ask Energy Secretary to Help States Improve Their Electricity Markets
In an open letter to Energy Secretary Jennifer Granholm last month, representatives of more than 30 diverse organizations called for the U.S. Department of Energy (DOE) to help states improve electricity markets. The letter noted that “regions across the country are embarking upon efforts to expand or improve organized wholesale electricity markets, to facilitate grid reliability, encourage energy efficiency, increase savings for energy consumers, and accelerate decarbonization.”
The signers asked DOE to “explore every opportunity to join states to develop and improve wholesale electricity markets as they reduce electricity costs for energy consumers.”
Specifically, the letter cited activities in Nevada, Oregon, and Colorado to bring about a new regional transmission organization (RTO) in the West, as well as a study committee in South Carolina’s legislature to examine “a range of potential electricity market reforms” in the Southeast. The signers urged DOE to use the funding in the recently passed Inflation Reduction Act, or IRA, “to help interested states advance organized wholesale electricity market formation and improvement, that can facilitate new offshore wind development.”
The letter also stated that in the Infrastructure Investment and Jobs Act, signed into law on Nov. 15, 2021, “Congress directed increased funding for the U.S. State Energy Program (SEP), which provides essential funding and technical assistance to states, territories, and the District of Columbia to enhance energy security, advance state-led energy initiatives, and maximize the benefits of decreasing energy waste.
“As part of this increase,” said the letter, “states must also consider transmission and distribution system planning efforts as part of their SEP activities, which can support states looking to explore, develop, and improve organized wholesale electricity markets.”
Groups that signed the letter included the Natural Resources Defense Council, Ceres, the Sierra Club, R Street Institute, ConservAmerica, the National Association of State Energy Officials and the National Retail Federation, among others spanning industry and academic communities.
As the letter notes, “Regions across the country are embarking upon efforts to expand or improve organized wholesale electricity markets, to facilitate grid reliability, encourage energy efficiency, increase savings for energy consumers, and accelerate decarbonization.”
Over the past few years, entities the Pacific Research Institute and the Energy Choice Coalition have quantified how competition in electricity markets boosts reliability, affordability, and a clean environment.
The case for competition may seem obvious, but it has come under threat from monopoly utilities. The group they fund, Power for Tomorrow, continues to raise the specter of higher prices in opinion pieces in Virginia and elsewhere. In fact, when electricity markets are competitive, rather than controlled by monopolies, they lower costs and raise reliability standards.
Will Permitting Reform Legislation Be A Priority in 2023?
Congress took one more attempt to pass permitting reform in the lame duck session of Congress this month. Despite bipartisan support in favor of passage of Senator Manchin’s update to the National Environmental Policy Act, there was not enough support to clear the 60-vote threshold needed for a bill to pass the Senate
As we reported previously, Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) promised Sen. Joe Manchin a vote on his permitting legislation after he announced his support for the IRA. But on Sept. 28, Manchin agreed to withdraw the measure, which was meant to be part of government-funding legislation, after opposition from the left wing of the Democratic party.
Sen. Schumer told reporters on Dec. 13 that Sen. Manchin would get his floor vote by adding the measure to the National Defense Authorization Act. That bill, however, passed the Senate two days later without permitting reform attached. While Sen. Manchin hoped permitting would be attached $1.7 trillion bill that funds the government for this fiscal year, that legislative vehicle also came and went without any reform language included.
As we noted last month, even though permitting reform failed this year, it could pass in early 2023 with the new Congress, where Republicans control the House and Democrats the Senate.
Republicans have previously noted the need to reform the process in which energy infrastructure projects have to go through in order to be built. Republicans have championed the START Act in the Senate and the BUILDER Act in the House as what they may prioritize in the 118th Congress.
Sen. Manchin released the full text of what is called the “Building American Energy Security Act” on Dec. 7. Among other provisions, the bill sets a two-year target for reviews of major energy and natural resource projects under the NEPA. The target is one year for projects that require a less thorough NEPA assessment.
The legislation also gives “project applicants the right to petition a court for an order directing any agency that has missed a final deadline (either NEPA or final permit issuance) to make a decision by a date certain, not to exceed 90 days from the court order.” And the court has to “consider the petition on an expedited basis.”
The updated version of the bill also removes language pertaining to federal preemption of laying transmission lines. According to a summary from Manchin’s office, the measure provides one year “for states to issue, deny, or not act on a [transmission] permit before FERC can step in to issue a construction permit if FERC finds the project is in the national interest.” The measure also clarifies that “if a state issues a permit in that year, the state won’t be overruled if FERC uses its backstop authority for the project because other states have not issued permits.”
Will Taxing ‘Windfall Profits’ Make Gas Cheaper for Californians? Or More Expensive?
California Gov. Gavin Newsom, a possible future Democratic presidential candidate, called a special legislative session, which began on Dec. 5, to consider new “windfall profits” taxes on energy companies. Newsom alleged, “California’s price gouging penalty is simple – either Big Oil reins in the profits and prices, or they’ll pay a penalty. Big Oil has been lying and gouging Californians to line their own pockets long enough. I look forward to the work ahead with our partners in the Legislature to get this done.”
According to many analysts, however, more taxes do not help reduce gas prices, and if anything, could raise them. At any rate, the source of high prices for Californians lies in poor government policy, not in greed.
In a recent Forbes column, Dr. Wayne Winegarden, senior fellow in business and economics at the Pacific Research Institute, which publishes this newsletter, noted that gasoline prices in California have been consistently higher than national averages. Between 2000 and 2015, the state’s prices averaged 15% more than those in the U.S. as a whole, but over the past seven years, the California premium jumped to an average of 33%. “California now has the highest gasoline excise tax in the nation today according to the Tax Foundation,” he wrote, adding:
Put more succinctly, California’s gas prices are stratospherically high thanks to the policy environment that California has implemented, which includes costly regulations, effective prohibition on infrastructure investments, and high excise taxes.
The governor, writes Winegarden, “is ignoring the role that the state’s policies have played in driving up gasoline prices for the residents of California. Instead, he is doubling down on the same policies that have caused gasoline prices to be so unaffordable in the first place. His response is the quintessential definition of insanity.” Higher taxes will simply make gasoline more costly for consumers.
Wingarden also points out that, while ExxonMobil made $23 billion in profits in 2021, the company had $22.4 billion in losses in 2020, at the height of the pandemic. “If $23 billion in profits warrant a windfall profits tax, shouldn’t the near reciprocal losses in the previous year warrant a windfall loss subsidy?”
A Dec. 8 column in the Los Angeles Times carried the headline, “Penalizing High Gas Costs Could Be 2023’s Biggest Legislative Fight. Hopefully, Lawmakers Learned From The Past.” In the piece, George Skelton of the Times pointed to the history of attempts to constrain gas prices by politicians. The result was that energy companies cut back on investment in production, leading to limited supplies and a higher reliance on foreign imports. Skelton wrote that Newsom and California lawmakers “could end the reliability of gas supplies by discouraging production.” Skelton added:
Without the prospect of a reasonable profit, why bother? Some of us remember severe fuel shortages and cars lined up for blocks back in the 1970s, waiting to get gas. “I was 16 and had just gotten my license,” recalls Severin Borenstein, faculty director of the UC Berkeley Energy Institute. “I’m concerned — worried we could wind up going down that road.”
A report by the Congressional Research Service earlier this year concluded that windfall profits taxes “tend to reduce domestic production.” In the long run, reduced production means higher prices, not lower.
A New Deal With U.S. on Natural Gas Reflects Today’s Geopolitical Reality for the U.K.
The U.S. and the U.K. agreed Dec. 7 on an energy partnership to sustain a “higher level of liquefied natural gas (LNG) exports to Britain” while, at the same time “collaborating on ways to increase energy efficiency.” The invasion of Ukraine has spurred the U.K. and Europe to reduce reliance on Russian energy supplies and turn to more reliable sources, including the U.S., which is now by far the largest natural gas producer in the world.
The partnership, said British Prime Minister Rishi Sunak, “will bring down prices for British consumers and help end Europe’s dependence on Russian energy.”
But while the U.S. is the largest LNG exporter, its capacity is limited. This country has only seven LNG plants, which turn the gas into a liquified form that is able to be carried by ships, and pipelines to carry gas to ports are also constrained. Three large-scale projects for LNG terminals, requiring more than $30 billion of financing, are now under construction in Texas and Louisiana.
“The question,” reported S&P Global Market Intelligence, “is who will be next among the backers of a dozen or so other projects trying to build sufficient commercial support to secure financing.”
The December deal will mean that the U.S. will “aim to export 9-10 billion cubic metres of LNG over the next year” to Britain, according to Reuters. In 2021, the U.S. exported just 4 bcm to Britain.
New Labor Department Rule on ESG Investing Raises Red Flags
The Labor Department, which oversees private pension fund investing under the Employee Retirement Income Security Act of 1974 (ERISA), issued a new regulation last month on “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.”
The rule, as Pensions and Investments reported, will “explicitly permit retirement plan fiduciaries to consider climate change and other environmental, social and governance factors when selecting investments and exercising shareholder rights” through the proxy-voting process. The rule reverses one issued during the Trump Administration that said that “retirement plan fiduciaries cannot invest in ‘non-pecuniary’ vehicles that sacrifice investment returns or take on additional risk.” The Trump Administration also “outlined a process a fiduciary must undertake when making decisions on casting a proxy vote.”
ESG investing regulations have been highly controversial. Nearly everyone agrees that if retail investors want to make ESG investing for their own accounts, that’s their prerogative. The question is whether, in a pension fund, fiduciaries should be making investments with ESG or any other consideration that may diminish financial returns to achieve another social or ideological purpose.
The Labor Department states that it has “a longstanding position that ERISA fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.” But the new rule, whose purpose is to “clarify the application of ERISA’s fiduciary duties of prudence and loyalty,” will allow funds and plans to use ESG considerations. Some ESG investment managers exclude companies involved in fossil fuel production or nuclear power generation from their portfolios.
On Dec. 1, Sen. Tom Cotton (R-AR) introduced a joint resolution in the Senate stating that Congress “disapproves” of the DOL rule and that “such rule shall have no force or effect.” Cotton said in a statement: “Retirement plans should prioritize investments with the highest return, not ESG scams.”
The text of the DOL rule cites the work of Dr. Winegarden of the Pacific Research Institute:
In contrast, other studies have found that ESG investing has resulted in lower returns than conventional investing. For example, Winegarden (2019) shows that over ten years, a portfolio of ESG funds has a net return that is 43.9 percent lower than if it had been invested in an S&P 500 index fund.
Still, DOL’s guidance disregarded Winegarden’s conclusion and makes it easier for fiduciaries to make DOL investments. The department’s Employee Benefits Security Administration “believes a final rule is necessary to reverse the 2020 rule’s chilling effect on the integration of ESG factors into the investment selection and asset management process,” said Lisa M. Gomez, assistant secretary for employee benefits security, in a call with reporters.
The new rule takes effect on Jan. 30.