- Extreme heat and a damaging hurricane provide reminders of the electric grid’s fragility at a time when overall demand is rising.
- FERC reconsiders its “blank authorization” policy for investment companies that own parts of utility companies.
- The EPA’s proposed rule for power plants continues to generate fierce opposition as concern over adequate electricity capacity grows.
- 10 Northeast states agree to collaborate on transmission infrastructure – an important step to improve reliability and lower costs for consumers.
- An expert puts the question of AI and electricity demand into historical perspective.
- The U.S. Supreme Court ends Chevron deference, with potentially large implications for the energy sector.
Extreme Heat and a Hurricane Made Early Appearances, Putting Strain on an Already-Stressed Electric Grid
On July 2, Hurricane Beryl “became the earliest Category 5 hurricane observed in the Atlantic on record and only the second Category 5 hurricane to occur in July after Hurricane Emily in 2005, according to the National Hurricane Center. Beryl beat Emily’s record by over two weeks,” reported the National Oceanic and Atmospheric Administration. Beryl left millions without power, a deadly situation at a time when dangerous heat levels affected areas of Texas.
CBS News reported on July 22:
As the temperature soared in the Houston-area home Janet Jarrett shared with her sister after losing electricity in Hurricane Beryl, she did everything she could to keep her 64-year-old sibling cool. But on their fourth day without power, she awoke to hear Pamela Jarrett, who used a wheelchair and relied on a feeding tube, gasping for breath. Paramedics were called but she was pronounced dead at the hospital, with the medical examiner saying her death was caused by the heat.
At least 23 people died in Texas because the hurricane (which had dropped to a Category 1 level on landfall in the U.S.) had caused outages of electricity needed to power air conditioning.
In addition to Beryl, dangerous heat waves swept the country in June and July, straining the nation’s grid at a time of concern over rising demand for electricity to run data centers and power electric vehicles, coupled with the threat of diminishing supply as fossil-fuel plants are decommissioned because of state and federal policy.
The exceptional weather in mid-June put 100 million Americans under heat advisories. According to the U.S. Energy Information Administration (EIA), “Demand across the Eastern Interconnection—which covers much of the mainland United States east of the Rocky Mountains except Texas—peaked at 502,670 megawatts (MW) in a single hour on June 21, compared with the hourly June peak of 467,609 MW in 2023.
Many cities in the Northeast and Mid-Atlantic regions set records or near-records for early summer. “Bangor, Maine, reached 96 degrees on June 20, a temperature not seen since 1931,” said the EIA. “In the Philadelphia, South Jersey, and Delaware area between June 19 and June 24, 20 heat records were broken. The Baltimore–Washington D.C. area also saw record-breaking temperatures on June 22 and 23.”
Added the EIA: “Weather is a large driver of electricity demand in the United States, especially in summer months when homes and businesses use electricity for air conditioning.”
PJM, the largest regional transmission organization (RTO), covering parts or all of 13 states from New Jersey to Illinois, “peaked at 147,976 MW on June 21, 19% more than the June hourly peak demand last year,” reported the EIA. “During the heat wave, peak electricity demand each day was between 1% and 24% more than the maximum of any June day in the previous five years. PJM forecasted peak summer demand in its 2024 PJM Summer Outlook to be 151,000 MW” – and August lies ahead.
Demand in New England’s ISO-NE electric grid territories peaked on June 20 at 23,266 MW, and New York’s NYISO peaked on June 21 at 28,245 MW. Both of these amounts, said the EIA, “neared last year’s peak summer demand for these territories and the peak summer demand forecasted in their 2024 summer assessments.”
The New York Times reported that the “silver lining, at least so far” is that increased solar capacity and battery of storage have helped the grid hold up better than expected.
At the same time, natural-gas-fired power generation in the U.S. has increased nearly 6% from Jan. 1 to June 17, compared with the same period a year ago, reported Reuters. Natural gas represented 43% of electricity generation nationwide in 2023 – or twice as much as all renewable sources combined. Gas “will likely be deployed in even greater quantities over the coming months as demand for cooling systems rises during the hottest time of year,” said Reuters.
While Texas is the number-one producer of wind power in the nation, Gov. Greg Abbott said in early July that the state needs more natural gas generation as shortfalls loom.
In testimony before the state Senate’s Business and Commerce Committee, Pablo Vegas, the CEO of the Electric Reliability Council of Texas (ERCOT) said that his state, whose economy is booming, may need 150,000 MW of electricity to power its grid by 2030. Peak power today in the state is 85,000 MW.
As we have been reporting for the past several months, electricity use in the U.S. is projected to rise sharply after 15 years of flat demand. But the proposed Section 111 rules (see more in third section below) from the Environmental Protection Agency (EPA), which regulate gas-fired power plants, threaten the grid’s stability and put reliability under risk.
The recent heat wave has exposed the vulnerability of our strained electric grid and the need to strike a balance between renewable and existing sources to secure affordable, dependable energy. For policymakers, the challenge is to align regulations with that goal, which is clearly stated as the mission of the Federal Energy Regulatory Commission (FERC): “to assist consumers in obtaining reliable, safe, secure, and economically efficient energy services at a reasonable cost through appropriate regulatory and market means and collaborative efforts.”
Discussion Continues Around FERC and Blanket Authorizations
According to FERC, “Section 203(a)(2) of the Federal Power Act requires holding companies, including investment companies [such as mutual funds and exchange-traded funds], that acquire securities of a public utility in an amount of $10 million or greater to first secure authorization from FERC.”
FERC has “allowed for some blanket authorizations” – though these are subject to limitations. For example, an investment company cannot own more than 20% of the voting securities of any one utility, and it can’t “exercise control over day-to-day management or operations” of a utility.
The idea behind these blanket authorizations, says an explainer on the FERC website, “was that they were appropriate to encourage greater investment in utilities by mutual funds, so long as FERC could perform ongoing oversight of the business relationship between holding companies, including investment companies, and public utilities.”
Late last year, however, FERC decided that, “due to significant industry changes since FERC began granting these blanket authorizations” (for example, a huge increase in index fund ownership, plus increased activity by private equity firms), it would issue a Notice of Inquiry (NOI) seeking public comment about whether to revise the policy. FERC also sought comment on exactly what constitutes control of a public utility and how that control relates to blanket authorizations.
FERC wants to ensure that, when it grants a blank authorization for an investment company, asset managers act as passive investors rather than exercising operational authority over a utility company. These FERC blanket authorizations are renewed every three years, and some special interest groups and policymakers have criticized the system.
One critic has been FERC Commissioner Mark Christie, who has emphasized that utilities under FERC’s jurisdiction aren’t like most other private companies in that they have a “public service obligation.” Republican state attorneys general (AGs) have also raised concerns with continuing blanket authorizations – particularly for asset managers – as part of the ongoing campaign to curtail any ESG-related influence in America’s financial markets.
Notably, however, major energy and utility trade associations’ comments to FERC have staunchly defended the commission’s blanket authorization policies – while also highlighting the negative effects of any changes to the policies. Their main argument was that requiring expensive and time-consuming authorizations are unnecessary and will deter investment when capital is critically needed by the industry.
A joint letter filed in April by the Electric Power Supply Association (EPSA), the Electric Edison Institute (EEI) and the American Council on Renewable Energy (ACORE) advocated that FERC retain its existing policies and warned of the negative impacts any changes may have. The letter stated:
None of the commenters urging radical changes to the blanket policies offers any example, much less concrete evidence, of cognizable harm or abuse under these policies. At the same time, the record contains substantial evidence showing how such policy changes could deter much-needed investment in the electric sector.
The comments underscore that this is the very opposite of what is required at a time when new investment is critically needed to meet demand and maintain reliability. Accordingly, the joint reply comments request that the Commission determine that no changes are needed to the existing policies at this time.
The joint letter also makes reference to a letter from the Investment Company Institute (ICI), which represents mutual funds and ETFs. The ICI writes that the “Securities and Exchange Commission [SEC] has rules and filing requirements that further ‘demonstrate that the investment company is a ‘passive investor’ and is not investing with an intent to obtain control or influence a US public utility company.’”
Contentious EPA Rule Regulating Power Plant Emissions Continues to Generate Opposition
The EPA’s Clean Power Plan 2.0 continues to generate opposition. The plan targets power plants that use fossil fuels, and implementation will almost certainly mean that many existing facilities driven by fossil fuels will have to close and new ones scrapped.
The plan follows an Obama-era version that was implemented in 2015 and ruled unconstitutional in West Virginia vs. EPA, the landmark U.S. Supreme Court decision. According to the New York Times, the High Court “restrained the way E.P.A. could regulate emissions from power plants, ruling the government could not force a wholesale transition away from coal-fired electricity.” But the White House has not given up.
On July 1, a group of 26 members of Congress, led by Rep. Lloyd Smucker (R-PA), who represents natural-gas-producing Lancaster County, sent a letter to EPA Administrator Michael Regan expressing concerns about the impact of the plan on the reliability of the electric grid in the area served by PJM Interconnection, which includes Pennsylvania and a dozen other states. The letter quoted a statement by the RTO in May:
The future demand for electricity cannot be met simply through renewables given their intermittent nature. Yet in the very years when we are projecting significant increases in the demand for electricity, the Final Rule may work to drive premature retirement of coal units that provide essential reliability services and dissuade new gas resources from coming online. The EPA has not sufficiently reconciled its compliance dates with the need for generation to meet dramatically increasing load demands on the system.
The legislators in their letter said they wanted to “ensure that residents and our constituents served by PJM do not lose access to reliable, affordable electricity.” They said that the final rule “may work to drive premature retirement of coal units that provide essential reliability services and dissuade new gas resources from coming online. The EPA has not sufficiently reconciled its compliance dates with the need for generation to meet dramatically increasing load demands on the system.”
The letter echoes sentiments by other lawmakers, including West Virginia’s two Senators, Independent Joe Manchin and Republican Shelly Moore Capito, who have both criticized the rule for ignoring warnings from electric grid operators “that these rules will further strain our already at-risk power grid.”
Biden Administration officials themselves have ironically raised concerns that Clean Power Plan 2.0 will jeopardize grid reliability. The Wall Street Journal’s editorial board in February cited comments requested by the House Oversight Committee from “experts and lawyers” at federal agencies.
The EPA plan requires green hydrogen and carbon capture as mitigation, but, as one commenter noted, “Hydrogen combustion has not been adequately demonstrated nation-wide for utility scale power generation.” Also, blending hydrogen into natural gas results in “significant increases in NOx emissions” that “would offset some of the benefits of reduced CO2 emissions.” (Another EPA rule is forcing power plants to reduce NOx.)
The same commenter quoted by the Journal stressed that “there are issues regarding the integrity of hydrogen supply and whether a consistent and reliable marketplace for hydrogen will emerge” and “a specific compliance date is not appropriate.” EPA’s proposed rule nonetheless sets hard-and-fast deadlines.
Another hurdle, the comment noted, “is overcoming the physics of hydrogen’s steep energy penalty.” It takes three to five megawatts of power to separate one megawatt of hydrogen-equivalent fuel for energy production. This energy could be “better used directly serving load and maintaining grid reliability.”
Carbon capture is also not ready for prime time. One commenter noted that the EPA has issued permits for only two wells to store CO2 underground. The permitting time for both was about three years, though “the entire permitting process can take up to six years including time for geologic investigation.”
These comments recall a statement by the NRECA, which represents America’s electric cooperatives. As we noted in Newsletter No. 34, the association complained that the EPA proposal “hinges on the widespread adoption of nascent technologies: clean hydrogen and carbon capture and storage,” adding:
Electric cooperatives are involved in the development five carbon capture projects and are national leaders in the development of the technology. And while both technologies are promising, they are not yet widespread or commercially available and have not been “adequately demonstrated” as required by the Clean Air Act. Requirements for some coal units to co-fire natural gas are similarly flawed.
On July 16, Rep. Cathy McMorris Rodgers (R-WA), chair of the House Energy and Commerce Committee, and Reps. Jeff Duncan and Buddy Carter, the relevant subcommittee chairs, sent a letter to FERC commissioners inquiring into the Clean Power Plan 2.0’s negative impacts.
The letter stated:
As a result of this rule, FERC could be forced to intervene using available measures to prevent additional closures of dispatchable generators to prevent reliability and resource adequacy crises. How and when those measures are utilized could make the difference between maintaining an affordable and reliable electric grid or a future of rolling blackouts and unaffordable electric rates.
The members of Congress are worried that, at a time of rising electricity demand, the future of the grid is at risk from the Clean Power Plan 2.0. These lawmakers themselves may need to step in to redress the imbalance. As the letter from the 26 members of the House stated, “The EPA’s overreach and unworkable mandates will create havoc in electricity markets, unreliability for distribution utilities, and economic hardship for businesses and families.”
A Groundbreaking Agreement on Transmission Infrastructure in the Northeast
Ten Northeast states on July 10 signed a memorandum of understanding (MOU), pledging to establish a framework for developing a “robust interregional transmission infrastructure.” The states are: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.
Why is this important? Because there’s a desperate need to transmission reform and cooperation across regions, rather than just within states or even within individual RTOs. While its terms are general, the MOU is a major step for ensuring that the grid in such a densely populated area of the country will become more reliable and secure, with lower energy prices for consumers.
Combined with extreme weather (see above), increased demand in major cities in the Northeast and New England has put significant pressure on the electric grid. For example, the June heat wave forced New England’s power grid operator, ISO New England, to declare a level 1 emergency alert. The Northeast Regional Climate Center reported that this June ranked among the 10 hottest Junes on record for 11 of the 12 states: Connecticut, Massachusetts, and Rhode Island, second hottest; New Jersey, third hottest; Maine, fourth hottest; Delaware and Maryland, fifth hottest.”
Government and corporate leaders applauded the memorandum and highlighted the need for critical interregional upgrades. The state news platform Governing reported:
Jeff Marks, executive director of ClimateWork Maine, a business group focused on climate change, said the framework agreed to by the states “could make it easier to build transmission lines and move electricity between states to deal with growing power demands.” Cooperation among the states also may help modernize the electricity grid and ease clean energy planning for renewable energy such as solar, offshore wind and hydropower, he said in a statement.
Jason Marshall, deputy secretary for Federal and Regional Energy Affairs in Massachusetts said, “Today’s announcement charts a path forward in the critical work that this group of ten states, with support from the U.S. Department of Energy, can accomplish to build a more reliable electric grid and drive down consumer costs by expanding access across markets.”
He added, “Our collective planning now will ensure that we maximize investments in infrastructure that are foundational to meeting power system demands in the decades to come.”
“Now more than ever, our electric grid serves as the foundation from which we will continue to build our clean energy future,” said Christine Guhl-Sadovy, president of the New Jersey Board of Public Utilities. “As we continue to grow our burgeoning offshore wind industry – while capitalizing on its significant environmental and economic benefits – we will also continue to collaborate with our regional partners to build a transmission network that is increasingly more reliable and resilient.”
While Guhl-Sadovy referred to offshore wind, a potential Northeast energy source, the officials will not be neglecting the most-used and dispatchable source, natural gas, which can be deployed to scale in emergencies.
The Northeast officials will also be examining the expansion of grid-enhancing technologies (GETs), such as dynamic ratings and power-flow control devices. Using advanced conductors, GETs can handle more power flow than traditional cables, a Utility Dive article pointed out. As we noted in Newsletter No. 37, U.S. Energy Secretary Jennifer Granholm calls GETs the lowest-hanging fruit for adding capacity to the grid at the least cost. “So there’s no reason not to love grid-enhancing technologies,” she said May 28 at a White House summit on grid modernization.
Such efficiency is critical to maintaining a secure, reliable, affordable American energy network, and this MOU is a serious step in that direction.
Artificial Intelligence and the Grid: It’s Complicated
In recent months, the attention of energy experts has focused on rising demand for electricity caused by new requirements for artificial intelligence processing at data centers.
A Bloomberg opinion piece by Liam Denning, formerly the author of the Wall Street Journal’s Heard on the Street column and the Financial Times’s Lex column, adds some critical perspective, debunking myths. The energy reality, as usual, is not so simple.
Denning sets the stage: “Forecasts for data centers’ electricity consumption have spiraled, with some now projecting 1,000 terawatt-hours by 2030, equivalent to a quarter of the grid’s entire load today.”
But, he notes, “The growth of the internet also sparked warnings about surging power demand. Although the world did go online en masse, the usual incentive mechanisms worked and hardware makers and service providers engineered efficiencies.
Enormous efficiencies.” Denning writes:
In a seminal study published in 2020, independent researcher Jonathan Koomey and his co-authors calculated that while the workload of data centers jumped by 550% between 2010 and 2018, their energy consumption increased by a mere 6%. The incentive to be more efficient remains: In unveiling its new Blackwell chips in March, Nvidia said they would cut energy consumption while training a large model by almost 75%.
The Boston Consulting Group has estimated that data centers, including those focused on AI, accounted for 2.5% of US power demand in 2022 — distributed unevenly across the country, with Virginia and a few other states dominating.
“Data center demand is not a tide that lifts all boats,” says Hugh Wynne, a utilities analyst at Sector & Sovereign Research LLC, as quoted by Denning, who adds: “Just as the world would appear able to handle data center growth from such a small base, Wynne finds that regional US grids have enough spare generating capacity to absorb anticipated data center construction.”
This doesn’t mean that grid demands aren’t deeply concerning. Denning points out that, “with incentives in place for electric vehicles, heat pumps and wholesale industrial reshoring, data centers aren’t the only new source of consumption.” In addition, data centers’ “demand for always-on power provides a rationale for keeping older generating plants running and, if bullish growth estimates pan out, constructing new ones.” So natural gas remains key.
Regulators need to be wary of approving rate hikes based on perceived AI demand. As Denning writes, “Utilities’ profits are essentially a function of how much stuff they build…. While it would be irresponsible to dismiss projections of faster demand growth out of hand, glossing over the potential conflicts of interest is naive.”
Utilities are already pushing for bigger budgets, says the Bloomberg piece: “Earlier this year, regulators in Georgia approved a plan by a unit of Southern Co. proposing 1.4 gigawatts of new generating capacity — burning natural gas or, yikes, oil — to meet higher projected demand, primarily from industrial and commercial sectors, including data centers. Even Microsoft Corp., which is all in on AI, questioned the projections, pointing out that they included as yet unconfirmed data center projects while also undervaluing renewable energy options.” (See a recent episode of the Energy Transition Show podcast.)
Denning concludes: “The key actors here are state regulators. Data center developers will naturally seek to get grid hookups as quickly and cheaply as possible, just as utilities are incentivized to provide them.” But regulators have other mandates, including guaranteeing reliability, facilitating economic development, and “keeping bills manageable and equitable in an era of rising electrification and, in many states, advancing green objectives.”
An End to Chevron Deference Has Big Implications for Energy
In a decision that will reverberate throughout the energy sector, the U.S. Supreme Court, in Loper Bright Enterprises v. Raimondo, invalidated the 1984 High Court ruling in Chevron USA v. National Resources Defense Council. In their 6-3 decision on June 28, the Justices on concluded:
The Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of a law simply because a statute is ambiguous. Chevron is overruled.
For 40 years, the federal judiciary has deferred to the judgment of agencies, using a two-step process. As the law firm Arnold & Porter explained, a court first determined whether a statute was ambiguous or “whether Congress has directly spoken to the precise question at issue.” If ambiguity prevails, then a court “assessed whether the agency’s interpretation of the statute was reasonable. Courts were directed to defer to the agency’s interpretation of the statute if it represented a ‘permissible construction of the statute.’”
Later, the court narrowed the scope of “Chevron deference to encompass only agency interpretations reached through formal proceedings with the force of law (e.g., notice-and-comment rulemaking or adjudications).” Chevron became the third-most-cited civil case ever, cited more than 19,000 times.
According to Moody’s, ending the Chevron doctrine may lead to court challenges of critical regulations, potentially triggering “lengthy and cumbersome” legal proceedings to change previous decisions by agencies.
“In the short run, we expect a significant increase in regulatory litigation, including challenges to existing regulations, ongoing rulemakings and existing precedents,” said Gordon Todd, who co-chairs the regulatory litigation practice group at the firm Sidley Austin, quoted in E&E News.
In giving examples of the role of Chevron in energy regulation, a Power Magazine piece on July 2 stated:
The Chevron doctrine played a role in American Electric Power Co. v. Connecticut, 564 U.S. 410 (2011), a landmark case centered on the EPA’s authority to regulate greenhouse gas emissions (GHGs) from power plants under the Clean Air Act. In that case, the Supreme Court, applying the doctrine, sided with the EPA. The doctrine has also played a role in the agency’s interpretation of the “significant contribution” in the Cross-State Air Pollution Rule (CSAPR), and it has allowed the EPA some flexibility in interpreting terms like “best available technology” when setting standards.
Republican attorneys general will likely refer to the Supreme Court decision in Loper Bright in an attempt to overturn FERC’s recent Order 1920 on transmission. As E&E News put it:
Issued in May, Order 1920 gave states a larger role in transmission planning and overhauled the way managers of U.S. power grids will plan and pay for electricity expansions. The U.S. Court of Appeals for the District of Columbia Circuit cited Chevron in upholding FERC’s authority over transmission planning in a 2014 ruling, noted Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School. The court’s overturning of the doctrine thus could give ammunition to potential legal challengers of the agency.
Meanwhile, Utility Dive reported, “The ruling makes it more likely courts will reverse the Environmental Protection Agency’s rule to cut carbon dioxide emissions from power plants and its auto emissions rules, which were expected to drive growth in electric and hybrid vehicles, according to the credit ratings agency.” (See above section on Clean Power Plan 2.0.)
The overall effects of the reversal of Chevron deference remain to be seen. One result may be that Congress writes laws more explicitly, limiting the discretion of agencies. Some lawyers, such as Devin Watkins, an attorney at the conservative Competitive Enterprise Institute, believe the decision is positive. “I think it’s still better for the country in the long run because whatever decision gets made, we’ll have a lot more stability in the law, and that kind of stability is better for the nation,” Watkins said.
But stability is currently in short supply because of the ruling. “The lack of clarity on future EPA mandates increases uncertainty and makes it more difficult for power companies to determine their most appropriate and cost-effective generation mix,” Moody’s said.