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:
- Concerns rising about mission creep by FERC.
- Legislation would give FERC a big role in pipeline regulation.
- Climate objectives are part of FERC’s mandate, says FERC’s Allison Clements.
- Making the subject of transmission “cool again.”
- Court decision gives Killingly natural-gas plant in Connecticut a last-minute reprieve.
- Competitive energy markets forum next month will highlight views of government, industry, and academic experts.
- Regulators demand refunds for FirstEnergy customers after revelations about spending on lobbying.
- Costs and delays rise for Vogtle reactors in Georgia
- How prepared is Texas on the anniversary of the Big Freeze?
Concerns Raised About FERC Mission Creep
Concern is rising over mission creep at the Federal Energy Regulatory Commission (FERC). The Commission has a tough enough job as it is. As we noted in Newsletter No. 8, FERC’s clear mission, expressed in its 2018-22 strategic plan, 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.”
Our shared concerns about FERC’s actions and its mandate has not gone unnoticed. On Feb. 15, Republican Sen. John Barrasso of Wyoming, the ranking member of the Senate Energy and Natural Resources Committee, sent a letter to FERC warning about focus on climate change objectives rather than its clear mission. He specifically noted that FERC’s recent actions will negatively affect consumers by causing even higher energy prices. He wrote:
The significance of the Commission’s work for the American people has never been clearer. Recent events in the United Kingdom provide just one example of what is at stake when regulators of natural gas and electricity make decisions that cause energy to become more expensive and less reliable. The events in the U.K. are a warning for our country. They dramatically demonstrate that insufficient natural gas presents a dangerous snowballing effect…
You are the federal regulators we count on to keep energy insecurity from increasing in the United States. By one estimate, a 10% increase in home energy prices in the United States would force an additional 7 million people to spend an additional 10% of their income on home energy. This burden would drive almost a million Americans into poverty. Moreover, a failure in the reliability of natural gas or electric service can quickly become a matter of life and death.
In our last newsletter, we noted that “nowhere is FERC mandated to prioritize certain energy sources over others – especially if the use of the prioritized sources jeopardizes reasonable rates and reliability.” Yet on Jan. 3, FERC signed off on a plan to defeat a natural gas-fired plant in Connecticut, the subject of intense opposition from environmental activists who objected to levels of carbon dioxide emissions that had already been approved.
(There is more on the fate of this plant below.)
FERC as Pipeline Regulator: From a ‘Tiny Agency’ to a ‘Behemoth’?
The new concerns, however, could involve legislation — H.R. 6084, the Energy Product Reliability Act, introduced by Rep. Bobby Rush (D-IL 1) — that would direct FERC to develop reliability and cybersecurity standards for natural gas and other energy pipelines, thereby, effectively creating a new role and a new bureaucracy for the overburdened commission.
The House Energy & Commerce Subcommittee on Energy, which Rep. Bobby Rush chairs, held a hearing on the bill on Jan. 19 at which the FERC chairman, Richard Glick, told lawmakers that, in contrast to the Bulk-Power System (a large interconnected electrical system made up of generation and transmission facilities), “there is no comparable mandatory reliability regime for natural gas and other pipelines that transport energy products, including gasoline and propane.”
Glick continued: “The lack of mandatory reliability standards, especially for natural gas pipelines, poses a risk to the reliability of the Bulk-Power System due to the interdependency of our nation’s gas and electric infrastructure.”
In a 2021 joint report with the North American Electric Reliability Corp., FERC had recommended that Congress, state legislatures and state agencies adopt new requirements for the reliable operation of natural gas infrastructure, including the designation of a single federal agency over pipeline reliability – laying the groundwork for Rush’s legislation proposing FERC take a lead role in developing the standards.
Opponents of the proposal at the Jan. 19 hearing argued that the legislation was “duplicative, costly and creates conflicting authorities.”
For example, Rep. Fred Upton of Michigan, the ranking Republican on the subcommittee, stated, The bill today that we’re going to be talking about is a sweeping power grab preempting states and local jurisdictions from regulating all types of energy infrastructure. This bill would dramatically expand FERC, transforming a relatively tiny agency into a behemoth.
The bill would also “impose new federal taxes, fees, and regulations on all energy in the country,” he said.
Several trade groups, including the American Gas Association and the Natural Gas Supply Association, issued a joint statement that said that, while “our organizations share the Committee’s commitment to ensuring the safe and reliable delivery of energy,” the creation of a “new, additional pipeline reliability regulator will not effectively promote pipeline reliability” and instead cause overlap and confusion among “existing federal and state agency regulatory programs.” The groups had previously expressed objection to the bill in a Dec. 7 letter to the chairs and ranking members of the full committee and subcommittee. In that letter, the organizations argued that there is no urgent need for more bureaucracy in the gas pipeline space. “In-depth analysis of pipeline performance confirms the reliability of our pipeline network,” said the letter. “
For example, in 2016, fewer than 100,000 natural gas customers nationally experienced disruptions, while 8.1 million Americans experienced power outages.”
The letter continued: Similarly, a 2017 INGAA survey of 51 interstate natural gas pipelines confirmed that over the ten-year period from 2006–2016, pipelines delivered 99.79% of contractual commitments to firm customers at the primary delivery points specified in their contract. During extreme weather events, pipelines have a verified record of enabling energy reliability—including reliable electricity generation—rather than hindering it.
The letter cited the FERC-NERC investigation into Winter Storm Uri last year. It concluded that pipelines “performed as expected…were not significantly affected by the cold weather and freezing conditions…[and] were only minimally affected by power outages because most have gas-fired compressors, redundant compression, and backup power.”
Whether or not Rep. Rush’s bill is an effective solution is up for debate, but one issue is clear – consensus is growing that reliability should be a priority for FERC’s agenda.
Our Job? Prioritizing Climate Objectives,Says FERC’s Allison Clements
Commissioner Allison Clements, a Democratic appointee, said at her first FERC meeting in December 2020 that the “grave threat of climate change [will] underlie my approach as commissioner.”
During an event on Jan. 25 sponsored by Resources for the Future (RFF), she placed climate challenges within the context of FERC’s mandate: “There are lots of energy transition, climate-related, clean-energy-related things that filter into the actions the Commission takes, but our job is to facilitate low-cost, affordable delivery of electricity.”
In a discussion with RFF President Richard G. Newell, Clements said, “We have a transmission grid that was in large part designed, not built but designed, over 100 years ago, but the basics of it haven’t changed.” She continued that, in reforming transmission, FERC has to consider that…
we have a set of low-class resources in the form of wind and solar that are far from where people live, and if we make smart investments in transmission infrastructure, we can deliver those resources so that the total cost – transmission plus generation – of electricity delivered to customers is lower overall. That is the goal.
We’re glad to see Commissioner Clements noting the importance of providing low cost electricity. At the same time, her preference for advancing climate-related causes should never jeopardize affordable electricity.
Control Over Transmission = Control Over the Industry
Two days later, Clements appeared at a roundtable at the R Street Institute, where, according to Utility Dive, she highlighted that the surge in interest in transmission issues that has made “transmission ‘cool again.’ There is a national recognition, a regional recognition, a local recognition that we’re at a moment where we need significant investment in the transmission system.”
Transmission, which appears to be the Commission’s top priority for 2022, is not just a matter for FERC, she said, but for industry and other government agencies and stakeholders.
Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative, noted that transmission operators are determining in the short term who produces power and how much they produce, and in the long term “they guide decisions about where to build new transmission, which opens opportunities for new sources of power…. So really, control over transmission is in a lot of ways control over the industry.”
At the Jan. 27 discussion, Devin Hartman, R Street’s director of energy and environmental policy, agreed: “Transmission policies are really at the intersection of economic development, energy innovation and the clean energy transition, and right now there’s pervasive inadequacies in existing transmission policy.”
He continued, “That’s causing a variety of issues, everything from billions in avoidable cost increases to leaving reliability risks exposed, stifling innovation and suppressing clean energy access.
It Turns Out Killingly Is Not Killed After All
Earlier in this newsletter, we mentioned FERC’s intervention in the Killingly controversy in Connecticut. It appeared that the natural gas plant was dead, but, as the Connecticut Examiner put it:
A surprise 11th-hour ruling opened the door for the Killingly Energy Center to regain a key source of funding that it lost late last year – creating uncertainty in an annual auction meant to ensure New England has enough power plants to meet electricity demand.
The D.C. Circuit Court of Appeals on Feb. 5 ordered a delay in FERC’s decision to “allow grid operator ISO-New England to end a contract funding the Killingly Energy Center – Florida-based NTE Energy’s proposed 650 megawatt, gas-fired plant that became a lightning rod of criticism from environmental advocates opposed to building new fossil fuel-based power plants,” said the article.
Instead, the court ordered the ISO to abide by the contract while regulators decide whether to hold a hearing. FERC’s opposition was unanimous, and the Connecticut Examiner quoted an industry official saying it was unlikely NTE will win in the end. But opponents were stunned by the court decision, and resolution remains uncertain.
“Though neither Connecticut nor ISO-NE want it, NTE is hell-bent on forcing their unwanted, unneeded dirty power plant on us,” said Samantha Dynowski, the director of Sierra Club Connecticut. “It is more evident than ever that the Governor, the Department of Energy and Environmental Protection and our state legislators must move quickly to put policies in place that protect us.”
The decision threw “a bit of a monkey wrench” into the annual auction to determine New England power sources, which had been scheduled three days after the ruling, reported NPR News station WSHU.
In a statement on Feb. 6, ISO-New England said that it had decided to make two calculations at its conclusion — one with Killingly and one without.
“On Nov. 4, the ISO asked permission from Federal Energy Regulatory Commission to remove Killingly — a proposed 650-megawatt facility that had been approved as part of the mix through several previous auctions — from the February auction because the plant owners NTE had missed required deadlines that would ensure its development,” WSHU reported. FERC stepped into the fray and said yes.As we wrote in Newsletter No. 8, the broader issue is whether FERC overstepped its mandate in seeking to end Killingly for climate-change reasons that appear unrelated to its affordability and reliability goals.
The plant was originally turned down in 2017, but the Connecticut Siting Council approved the project two years later, recognizing that 6,000 megawatts of older, less efficient plants in the region were retiring and that, without new plants to make up the difference, Connecticut and other New England states would risk rolling blackouts.
The Killingly plant’s owners have argued that the project is a “much-needed bridge to the clean energy future.
Full-Day Summit to Bring Together Experts as Interest in Competitive Energy Market Solutions Grows
Interest is mounting on the role that competitive energy markets are playing to resolve such grid issues as reliability, affordability, and the transition to renewable energy.
The Electric Power Supply Association (EPSA) is hosting a full-day summit at the National Press Club on March 29 at which an impressive group of experts will discuss these pressing matters. Jenifer Granholm, U.S. Secretary of Energy has been invited as one of the keynote speakers, and Pat Wood III, former FERC chair and now CEO of the Hunt Energy Network, has been confirmed.
Panelists include Gordon van Welie, CEO of ISO-New England; Manu Asthana, CEO of PJM Interconnection; Jim Robb, CEO of the North American Electric Reliability Corporation; Marty Durbin, president of the Global Energy Institute of the U.S. Chamber of Commerce; David Springe, president of the National Association of State Utility Consumer Advocates; and Dr. Emma Nicholson, senior economic advisor to FERC.
Also among the panelists are executives of major companies in the field of power generation, including renewables and natural gas: Thad Hill, CEO of Calpine; Curt Morgan, CEO of Vistra; Sherman Knight, president of Competitive Power Ventures; Nathan Hanson, senior vice president for energy and commercial management at LS Power; Jill Davies, senior vice president of Shell Energy Americas; Kevin Smith, president of Tenaska Power Services; and Stephen Gallagher, chief commercial officer of Brookfield Renewable U.S.
In addition: Dr. Joseph Bowring, president, Monitoring Analytics & PJM Independent Market Monitor; Anne Olson, senior partner, Energy + Environmental Economics (E3); Naaz Khumawala, research analyst at Millennium; Prof. William Hogan, director of the Harvard Electricity Policy Group; Travis Kavulla, vice president, regulatory affairs, at NRG Energy; J. Arnold Quinn, vice president, FERC-Jurisdictional Markets, at Vistra; John Moore, senior attorney and director of the Sustainable FERC Project at the Natural Resources Defense Council; and Dr. Paul Sotkiewicz, president of E-Cubed Policy Associates.
To register for what EPSA calls “a day of expert conversations on the role of competitive electricity markets and power suppliers in advancing America’s energy future,” click here.
Trouble Continues for Monopoly Utility FirstEnergy and Its Customers
Federal regulators have told FirstEnergy Corp. to give refunds to customers after an audit found that the electricity provider did not “properly track some of the $71 million it spent on lobbying for a nuclear plant bailout at the center of a state government bribery scheme,” according to a Feb. 4 Associated Press report.
The audit, said the AP, “found that the improper accounting caused FirstEnergy to overcharge customers and that the utility may have done so to conceal or mislead how much it was spending on lobbying and why.”
First Energy “made payments of about $70.9 million to various 501(c)(4) groups and a group identified as Hardworking Ohioans Inc. for ‘lobbying or other nonoperating purposes,’” according to S&P Global Market Intelligence. FirstEnergy submitted a letter to FERC in response to the audit and said it “largely accepts” the findings and recommendations.
In connection with what the Cincinnati Enquirer called the “biggest government scandal in Ohio state history,” FirstEnergy agreed to pay $230 million last year under a deferred prosecution agreement with federal prosecutors.
A July 22 Department of Justice press release stated: “FirstEnergy Corp., an Akron, Ohio-based public utility holding company, admits it conspired with public officials and other individuals and entities to pay millions of dollars to public officials in exchange for specific official action for FirstEnergy Corp.’s benefit.”
According to the AP, “FirstEnergy has faced multiple investigations over its role in a $60 million bribery scheme to win a legislative bailout in 2019 for two nuclear plants operated at the time by a wholly-owned subsidiary.”
Georgia Nuclear Plant Delays Pile Up
Delays continue to plague the two additional reactors planned for Plant Vogtle, the Georgia project of Southern Company.
“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, climbing above $30 billion,” said a January report by the Institute for Energy Economics and Financial Analysis (IEEFA). “The owners now estimate commercial operation will not begin until 2022 and 2023—more than six years behind schedule.”
The first two reactors, which came online in 1987 and 1989, ballooned in cost from a projected $660 million to $8.8 billion. A U.S. Department of Energy study of 75 reactors whose construction began between 1966 and 1977 found that the average cost of construction was 207% higher than the estimated cost.
The Vogtle expansion was supposed to lead a resurgence of larger reactors in the 2000s, but it remains the only major nuclear power construction project in the U.S.
An E&E News article on Feb. 4 noted that U.S. Energy Information Administration data shows “nuclear fuel costs ranging from roughly one-third to as low as one-quarter of those of natural gas between 2010 and 2020. Overall, the costs of nuclear generation, including operations, have fallen 35 percent since 2012, according to the Nuclear Energy Institute.” On the other hand, “the capital costs are significantly higher.”
Meanwhile, as the IEEFA report states, 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 company’s customers have been paying for the plants for a decade without seeing any results. The IEEFA notes that Georgia’s residential customers have to pay 47% of the costs, commercial customers pay 40%, and industrial customers only 11%. By the time, the plants go into service, the average household will have paid an extra $880 on its electric bills.
One Year After the Big Freeze: ‘Reasons for Concern’ in Texas
A Texas Monthly article on Feb. 1 commemorated the one-year anniversary of the state’s “Big Freeze,” which caused “the failure of the electric grid, widespread blackouts, and as many as seven hundred deaths.”
How about this year? “Probably not nearly as bad,” said the article, “but there are reasons for concern.”
The article began with the bad news, which is that the Electric Reliability Council of Texas (ERCOT) is currently projecting record-setting demand. The most recent forecast is for “demand to exceed 71.2 gigawatts…. Last year, demand set a wintertime peak of 69.2 gigawatts on Sunday evening, February 14—about six hours before the blackouts.”
The good news is that “there will probably be enough power generation to get us through this patch of winter.” Texas Monthly quoted ERCOT chief Brad Jones as saying, “We are ready for this storm.” If ERCOT uses every power generator, it should have 81.1 gigawatts. “It can also pay a few industrial users to shut off, as needed, and has considerable gas in storage, according to Texas railroad commissioner Jim Wright.”
But what happens, Texas Monthly asks, “if power plants go off-line because of frozen wind turbine blades that aren’t equipped with warming coils; frozen piles of coal; iced-over air ducts; or a dearth of gas because of pipeline systems that haven’t been winterized?”
If so, “the grid could eat through its reserve quickly and force ERCOT to institute blackouts again.” It all depends on the flow of natural gas within the state’s self-contained market. Gas accounts for 45.5% of the state’s electricity generation, but on Jan. 2, “a relatively mild cold snap in West Texas caused problems with gas infrastructure in the Permian Basin. Gas production fell by 25 percent.”
The FERC-NERC report on the Big Freeze, issued in November, focused on the need for “cold weather-critical components and systems.” It stated:
Notably, a combination of freezing issues (44.2 percent) and fuel issues (31.4 percent) caused 75.6 percent of the unplanned generating unit outages, derates and failures to start. Of particular note, protecting just four types of power plant components from icing and freezing could have reduced outages by 67 percent in the ERCOT region, 47 percent in the Southwest Power Pool (SPP) and 55 percent in the Midcontinent Independent System Operator South (MISO) regions.
Natural gas-fired units represented 58 percent of all generating units experiencing unplanned outages, derates or failures to start. The remaining portion was comprised of wind (27 percent), coal (6 percent), solar (2 percent) and other generation types (7 percent), with four nuclear units making up less than 1 percent.
Monopoly utilities and their supporters have deceptively tried to use the Texas experience as evidence of the failure of “deregulation,” a code word for competitive energy markets, but the facts appear to tell the opposite story. While the record cold temperatures affected states beyond Texas, ERCOT had special problems because of its isolation from electricity sources outside the state.
An article in Scientific American last year said the Texas power system “operates somewhat like a rogue nation within the U.S.” That article included an interview with Jim Rossi, a Vanderbilt University legal scholar who studies the structure of energy markets. Said Rossi:
There is some truth to the idea that if Texas had a [smooth] connection to the wholesale electricity market, and thus could buy and sell power to utilities outside of Texas, that the impact of extreme weather events would not be as significant. You can look at El Paso and Beaumont, cities [near Texas’s borders] that are not part of ERCOT and instead have connected their power grid with those in other states. The storm’s impact on those cities’ electrical power was relatively minimal. That said, Texas would be connecting to the Southwest Power Pool, which includes some states that also were affected by this storm and experienced rolling brownouts, such as Kansas, Nebraska and the Dakotas.
Those effects, however, paled in comparison with the devastation in Texas a year ago.