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 kills a proposed Connecticut gas-fired plant opposed by environmental activists. Will blackouts be a consequence?
- When it comes to FERC’s mandate, writes an economist, ‘How times have changed.’
- In a letter, Members of Congress urge FERC Chairman to promote ‘energy justice.’
- Former Energy Dept. official urges FERC, now with a 3-2 Democratic majority, to avoid politicization.
- Bipartisan Infrastructure Law offers $6 billion in subsidies to nuclear plants, but do they need the money?
- Arizona debates the role of competitive power providers and whether to join an RTO for the West.
- PRI’s study of the benefits of competition vs. monopoly is getting broad attention.
A Conflict Between FERC’s Mandate and a Natural Gas Plant Termination
The Federal Energy Regulatory Commission, or FERC, has a clear mission, expressed in its 2018-22 strategic plan:
“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.” Fulfilling the mission, says the Strategic Plan “involves pursuing three primary goals”:
- Ensure Just and Reasonable Rates, Terms, and Conditions
- Promote Safe, Reliable, and Secure Infrastructure
- Mission Support through Organizational Excellence
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 terminate the Killingly Energy Center, a 650-megawatt natural gas-fired plant that was slated to be built in eastern Connecticut. The Killingly plant was being developed by NTE Energy, an independent power supplier based in St. Augustine, Fla.
ISO-New England (ISO-NE), the independent system operator that manages the power grid in six Northeast states, sent a letter to FERC in November asking to end a Capacity Supply Obligation that the ISO had issued in 2019. A heavily redacted public version of the letter gave minimal insight into the decision, but in an interview with E&E News, an ISO-NE spokesperson said, “The ISO’s decision to terminate the capacity supply obligation is based on our lack of confidence that the project would meet its deadline for commercial operations.”
Or was the reason something else? The project has been the subject of intense opposition from the Sierra Club and other environmental activist groups, which object to the levels of carbon dioxide emissions that had already been approved. But the ultimate decision is in the hands of FERC, which is charged with assuring reliability.
The E&E News article notes:
FERC’s order comes amid heightened reliability concerns in New England this winter. The natural gas pipeline system in the Northeast is limited, which could make it difficult to ensure the gas supply can continuously meet demand in the event of a prolonged cold snap, ISO-NE said last month. Supply chain disruptions due to the Covid-19 pandemic have also made the grid vulnerable (Energywire, Dec. 7, 2021).
A Jan. 6 article in Marcellus Drilling News, a publication that covers natural gas developments in the Northeast, was headlined, “CT Killingly Gas-Fired Plant Killed by FERC – Blackouts Anyone?” The article said that FERC had “rubber-stamped a request” by ISO-NE to cancel the Killingly contract.
After turning down the plant in 2017, 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 different, Connecticut and other New England states would risk rolling blackouts.
Only days before the FERC decision, a Killingly Energy Center (KEC) newsletter reminded readers that KEC “is the first combined-cycle power plant operator to commit to eliminating all carbon emissions by 2050” and stated:
As you may have read, ISO-NE filed with the Federal Energy Regulatory Commission seeking approval to cancel KEC’s contract. While we appreciate all of the work that ISO-NE does, in this case ISO-NE’s determination is based on an incorrect assumption…. The Killingly Energy Center is the much-needed bridge to the clean energy future, and we are working to show FERC that KEC will meet its schedule obligations.
FERC ignored this plea. There is no doubt that Killingly would have improved reliability in a part of the country that is now seriously at risk
‘Reliability Ought to Come First‘
A senior fellow at the American Enterprise Institute, Benjamin Zycher, PhD, explored the question of FERC’s fuel-neutral mandate in an op-ed recently. “Back in the old days,” he wrote, FERC took “its mandate seriously.” He describes the mandate this way: “A stance of neutrality and objectivity with respect to the complex choices over the competing forms of energy to be delivered to consumers.” Dr. Zycher, a former senior economist at the RAND Corporation and the Jet Propulsion Laboratory, wrote, “It is not FERC’s job to reform the policies adopted by Congress.”
He cites an example of how that principle was applied. The Trump Administration in 2018 had called for a bailout of coal and nuclear plants, but all five FERC commissioners rejected that plan. Dr. Zycher explained why:
The message from the FERC commissioners then was clear: It is not our job to manipulate prices so as to compensate for the perverse consequences of policies implemented by Congress and other executive agencies. Reforming those policies is their job; ours is to implement our legal mandate to maintain neutrality among competing forms of energy within the existing legal framework.
If the Trump administration would like those policies amended, let it do the hard work of convincing Congress and of promulgating new regulations consistent with the law. Until then, however, it is the job of the organizations operating the grid — the independent-system operators and the regional transmission operators — to ensure reliability.
As FERC chairman Richard Glick noted at the time, the proposed Trump Administration rule “had little, if anything, to do with resilience, and was instead aimed at subsidizing certain uncompetitive electric generation technologies.”
But now, writes Dr. Zycher, “how the times have changed.” For example, FERC is reviewing interstate natural gas facilities and asks for comments on “new questions” – for example, “on how it identifies health or environmental effects of its pipeline certification programs, policies and activities on environmental justice communities.”
(On Nov. 22, FERC asked for responses to questions about “the appropriate level of mitigation associated with GHG [greenhouse gas] emissions for a particular project” and the factors that FERC should “consider in evaluation the sufficiency of a mitigation proposal.” One letter had succinct answers: FERC “should not mandate any mitigation of project-related GHG emissions” and the “social cost of carbon” is not a relevant factor “in public convenience and necessity determinations.” The letter argued that “GHG emissions of even the largest infrastructure projects have no discernible, traceable, or verifiable impacts on the human environment.”)
In a separate op-ed in RealClearMarkets, Dr. Zycher wrote that “in the context of electric markets and FERC: There is an obvious tension between reliability and efficiency on the one hand and an endless list of conflicting objectives on the other,” such as reducing greenhouse gas emissions, favoring some technologies over others, environmental justice, and the like.
“Whether or not these conflicting objectives are worthy goals is irrelevant.” The issue is that “they are not to be found among FERC’s actual mandate as defined in the law.”
As Kevin Sunday of the Pennsylvania Chamber of Business and Industry wrote in a Utility Dive opinion piece: “Reliability ought to come first above all considerations. Instead, the grid operator and its host of stakeholders – power producers, utilities, ratepayers, and public service commissions alike – have had their focus continually diverted.
‘Energy Justice’ and Rising Gas Prices
As if to address the points raised by Dr. Zycher and the Pennsylvania Chamber’s Kevin Sunday, 11 U.S. Senators and 30 House Members wrote a letter on Jan. 5 that reminded FERC Chairman Richard Glick that his commission has “a significant role to play in promoting energy justice and protecting United States residents from unfairly high energy costs… We urge the Commission to use its existing regulatory authority to ensure that households’ energy bills are not driven up by manipulation, obfuscation, or other malfeasance from regulated entities.”
An editorial in the Wall Street Journal on Jan. 9 took strong issue with the letter. Among other things, it urged the signers to read “the underlying document cited by their own letter. ‘We expect households that use natural gas as their primary space heating fuel,’ the Energy Information Administration [EIA] says, ‘will spend $746 this winter, 30% more than they spent last winter.’ Part of that is a forecast for colder weather, but there’s also basic economics. ‘The main reason wholesale prices of natural gas, crude oil, and petroleum products have risen,’ the EIA says, ‘is that fuel demand has increased from recent lows faster than production.’”
The editorial noted that “President Biden, encouraged by the signers of this letter, has made clear that U.S. fossil-fuel production must be phased out. The Atlantic Coast Pipeline and the PennEast Pipeline were both canceled even after beating opponents at the Supreme Court. Getting gas to Mr. Markey and Ms. Warren’s Massachusetts is so difficult that sometimes it comes into Boston Harbor on a tanker from Russia. And they wonder why heating prices are high.”
The letter from the 41 Members uses the term “energy justice” four times. While there is no single definition of “energy justice,” it has been in use in academia for the past decade, according to a United Nations blog. Its main principle is to “ensure universal access to safe, affordable and sustainable energy for all individuals.” The term “sustainable” refers to reduced greenhouse gas emissions.
What the Members of Congress want is for FERC to apply an energy justice litmus test to its decisions. Again, energy justice may be a fine goal, but it is not part of FERC’s mandate
Former EIA Administrator Cites a ‘Dangerous Trend’ of Favoritism
As Guy Caruso, former Administrator of the EIA, wrote recently in a Utility Dive opinion piece: “Unfortunately, FERC in recent months has departed from its role as a fuel-neutral regulator of power markets by demonstrating a troubling pattern of favoritism for renewables and discrimination against fossil fuels. This is a dangerous trend, considering President Biden’s ambitious decarbonization goals and the consequent modernization of the American electric grid that could require FERC’s help.”
Caruso also notes that President Biden nominated Willie Phillips, the chair of the D.C. Public Service Commission, as a FERC Commissioner, providing Democrats with a 3-2 majority. Phillips was sworn in on Dec. 5, creating a commission, Caruso notes, which could be voting on party lines on a variety of issues. “If the U.S. is to survive the transition to decarbonization with a power grid that can still provide customers reliable and affordable power, it’s critical that FERC not only remain insulated from politicization but also stop putting its thumb on the scales in favor of renewables.”
Writing weeks before the Killingly decision, Caruso points out that in March FERC issued approval for the certification of a pipeline replacement by Northern Natural but “included in the assessment how emissions related to the project might impact the climate. Commissioner James Danly argued it’s a ‘drastic departure’ from how FERC assesses pipeline certification and could even exceed the commission’s authority under the Natural Gas Act.”
Caruso, who is a senior advisor in the Energy Security and Climate Change Program of the Center for Strategic and International Studies, concludes his piece by writing that “competition is the best way to build up and expand renewables. It’s time FERC abides by its mandate to be fuel-neutral and allow renewables to compete naturally.”
Questions Raised About Nuclear Subsidies in Infrastructure Bill
As the Bipartisan Infrastructure Law (BIL) undergoes implementation, we’re learning about the subsidies it contains – including $6 billion to keep existing nuclear plants running and $2.5 billion for R&D for new nuclear technologies. In a Wall Street Journal opinion piece on Jan. 7 headlined, “Is Nuclear Power Part of the Climate Solution?” the writer, Gernot Wagner, a climate economist at NYU, answered his own rhetorical question with a “yes.” He concluded, “For reasons of both energy security and climate change, governments in the West, China and beyond should continue to invest in nuclear research and development.”
That may make sense, but does the federal government have to provide massive subsidies to nuclear plant operators that are already profitable? Dr. Ellen Wald, a non-resident senior fellow the Atlantic Council’s Global Energy Center, doesn’t think so. She wrote in The Hill on Dec. 22:
A closer look at the state of nuclear energy in this country reveals that most nuclear power plants, specifically in the Mid-Atlantic and Midwest regions, don’t need federal money to keep from shutting down. In fact, the latest PJM independent market monitor data reveals that most nuclear plants are profitable operations; they will operate a budget surplus in 2021 and 2022 without the need for subsidies.
An independent report issued for PJM, the regional transmission organization that includes all or part of 13 states and the District of Columbia, shows that nuclear plants in that region are profitable. “In fact,” writes Wald, “they are generally expecting 2022 budget surpluses (otherwise known as profits) well into the $300 million range before any subsidies arrive.” That’s $300 million each.
Wald laments that Capitol Hill staffers haven’t done their homework. “Just this past summer, a major utility company was fined $230 million for bribing officials in Ohio for bailouts of two nuclear facilities. A year earlier, another company was fined $200 million for an Illinois bribery scheme. Legislators should be cautious about doling out taxpayer money to nuclear operations that can, and do, make a profit on their own.”
Meanwhile, Tom Shepstone, who writes the Natural Gas Now blog, has put together this infographic showing the surpluses of nuclear plants in the PJM region
“The non-competitive nuclear industry,” writes Shepstone, enjoys “direct and indirect subsidies that are not only unethical and anti-capitalist but unneeded.” Now, the BIL is offering the industry even more. Using the PJM Independent Market Monitor data, Shepstone points out that, even without subsidies, surpluses (i.e., profits) at the Beaver Valley Power Station, a nuclear plant in Pennsylvania, are expected to be $331 million for 2022; at Salem Nuclear Power Plant in New Jersey, $367 million; at Byron Generating Station, an Illinois nuclear plant, $341 million. Not a single one of the 16 plants listed had a shortfall last year.
In Arizona, a Debate Over the Role of Energy Competition and Consumer Choice
The Arizona Corporation Commission (ACC) and the state’s lawmakers are engaged in a much-needed debate on grid reliability. The ACC last month aimed to strengthen the state’s competitive edge by writing rules that will require utilities to use requests for proposals, or RFPs, from all sources. “The goal,” said Chairwoman Lea Marquez Peterson is “to allow utilities to focus on providing safe and reliable service, while supporting least-cost planning principles…and injecting competition into the overall procurement process.”
That process will allow “independent power producers (such as wind, solar, and natural gas) to compete on equal footing for utilities’ business, helping to keep costs affordable for Arizona consumers,” Peterson said. “I believe Arizona’s utilities and consumers will get the best and most competitive deal possible for their money, while maintaining Arizona’s reputation as being one of the most reliable states in the nation.”
Meanwhile, Arizona legislators are proposing a bill that would impair competition for electric power in the wake of a proposal by Green Mountain Energy, a New Jersey-based company that is challenging the monopolies Tucson Electric Power and Arizona Public Service by offering consumers a choice of 100% renewable energy. “Approval of this application is in the public interest because it will result in more options for customers and expand the availability of renewable energy in Arizona,” Green Mountain wrote in its application in August.
“In Arizona,” Blouin wrote, “customers do not select their electricity provider. Rather, the state is divided into separate regions, where major utilities such as Arizona Public Service, Salt River Project or Tucson Electric Power have monopoly control over the territory they serve. There is minimal coordination between utilities and no centralized wholesale market that could drive down the cost of electricity.”
An RTO would change all that by injecting competition and choice into the equation. “There is clear momentum for an RTO to serve western states,” wrote Blouin. “Colorado and Nevada passed legislation that anticipates joining a RTO by 2030, while Oregon legislators passed a bill exploring benefits of an RTO.” (This newsletter has reported frequently on the progress of a proposed RTO for the West.) Blouin concluded:
Officials need options and flexibility to deliver power to consumers at affordable prices while strengthening the energy infrastructure. Fortunately, we have learned from existing RTOs on how to address matters such as geography and governance, costs and benefits of renewables, and reliability as we consider this regional solution
PRI Study on Wholesale Power Competition Getting Broad Attention
The Sept. 28 Pacific Research Institute (PRI) study that we highlighted in Issue No. 5 of this newsletter, was cited by Steve Forbes, the chairman of Forbes Media and former presidential candidate, in a Dec. 29 Fox Business piece on the good news that there are “proven solutions that will support access to low-cost energy and a market-based transition to clean energy.”
“The competition enshrined in the wholesale model,” wrote Forbes, “has proven effective in driving down costs for customers. A recent paper from the Pacific Research Institute, a California-based think tank, found that families and businesses lose out financially when states cling to the outdated monopoly model.” (PRI publishes this newsletter.)
Comparatively, the Institute found that electricity prices in competitive markets are trending downward and were at or near 6-year lows as of 2020 in regions like New York, New England, and the mid-Atlantic. This contrast – whereby competitive markets have benefited by more affordable electricity versus monopoly states – is mostly because monopoly utilities set rates to maximize returns for shareholders, instead of setting rates to attract customers.
Competitive markets are also a positive force for the deployment of more renewable power, a move that we will need to foster naturally if the U.S. is to meet the climate goals being pursued by leaders of both parties.
To get where we need to go, Forbes wrote, “we’ll need to initiate conversations at both federal and state levels about policy options that encourage and institutionalize competition in our electricity markets, moving us away from vertically integrated, monopoly utility markets that are outdated and inefficient.”
The theme that “competitive markets can help deliver climate solutions in 2022” was also emphasized by Pinar Cebi Wilber, chief economist for the American Council for Capital Formation and an Adjunct Professor at Georgetown University, in a Jan. 5 piece in The Hill.
Dr. Cebi Wilber also cited the PRI study, writing that its author, Wayne Winegarden, PhD, found that “states with competitive retail electricity markets have seen smaller price growth compared to monopoly states.” In addition, Dr. Cebi Wilber notes, as Dr. Winegarden did, “how quickly market competition leads to diverse energy resources, namely wind and solar, to penetrate the generation market.”
Dr. Cebi Wilber writes:
Competitive markets have deployed the lion’s share of renewable energy resources, about 80 percent of the U.S. total, even though they account for only about 67 percent of total overall capacity. More are on the way. For example, Equinor ASA was awarded a bid to build up to 1,260 megawatts (MW) for its Boardwalk Offshore Wind and 1,230 MW in the Beacon Offshore Wind Project in New York State.
Meanwhile, Hecate Energy is constructing a 500 MW solar farm in western New York, a $500 million-plus private infrastructure investment that will create over 500 construction jobs and enough electricity to power over 120,000 households. Even energy-rich Pennsylvania is seeing renewable demand grow, with Adams Solar LLC constructing a 70MW solar farm that will supply electricity for Philadelphia buildings.
She concludes: “Like any market, electricity markets are continuously evolving and changing…. Federal and state regulators have a responsibility to efficiently oversee these markets.” The question, as we have seen in the first half of this newsletter is whether those regulators will stick to their traditional mandate, prioritizing reliability and rational pricing.