Tag Archives: FERC

Helsinki and the NOI

23 Jul

Last week it seemed nearly all public attention was focused on the Helsinki Meeting, especially the press conference with Presidents Trump and Putin. Of course, the talking heads had a field day dissecting what we knew about the meeting, speculating on the private discussions, and examining what Trump said, then later explaining what he meant to say.

If, however, you are keenly attuned to US and global energy matters and set aside the political theatrics, media games, and fascination with American and Russian intrigue, you may have noticed something very interesting that happened at Helsinki that inadvertently links to a process taking place this week at the Federal Energy Regulatory Commission (“FERC”).

The very first question asked during the press conference was not about nuclear arms, Russian annexation of Crimea, the Ukraine, Syria, Iran, North Korea, or Russian intervention in US elections. It was about natural gas.

Specifically, a Russian journalist pointedly asked President Trump how he squares his position that the Nord Stream II pipeline makes Europe a hostage to Russian natural gas and alternatively, the US is a safer, more reliable supplier. Yet, at the same time, the US relies on Russian gas (delivered as LNG) to supply Boston. In essence, asking President Trump whether the US is truly capable of reliably suppling Europe with American gas.

So, what does that have to do with FERC?

FERC is the independent federal agency that, under the Natural Gas Act of 1938, has jurisdiction over siting, construction, and operation of any natural gas facility that transports gas in interstate commerce. This includes natural gas pipelines, storage facilities, and LNG terminals.

Before any new interstate natural gas facility can be built and operated, the company must receive a Certificate of Public Convenience and Necessity from FERC. It often takes more than two years before FERC can decide whether to issue a certificate.

The review process, dictated by the decades-old National Environmental Protection Act (“NEPA”), is a complex and detailed assessment involving multiple federal and state agencies. Under the NEPA process, FERC directs the overall review. Before deciding to grant an applicant with a certificate, FERC weighs the project’s benefits against possible adverse impacts.

While the White House Council on Environmental Quality has proposed making the NEPA process more efficient, well-funded opposition groups have raised questions in federal courts about, among other things, the level of FERC’s consideration of greenhouse gas emissions.

The bottom line is that having failed to stop America’s upstream oil and gas resource development with their “keep it in the ground” campaign, anti-fossil energy activists are pouring money and resources into federal court appeals of FERC’s certificate decisions.

The natural gas infrastructure itself has been proven to be safe, efficient, and of limited concern regarding GHG emissions. Ultimately, the appeals simply frustrate the process, extend permitting schedules, and foist millions of dollars of additional costs upon the project developers and American energy consumers.

The good news is that FERC has already recognized the challenge of reviewing and approving new natural gas infrastructure and set into motion a process to collect comments and suggestions on actions needed to avoid bottlenecks forming that would block US natural gas production from reaching American and global energy consumers.

Last year, shortly after the quorum of FERC commissioners was re-established, the Chairman stated his desire to revisit the way in which FERC assesses new gas facility certificate applications. On April 19, 2018, FERC issued a Notice of Inquiry (“NOI”) to initiate a review of its 1999 Policy Statement regarding the analytical and procedural processes currently undertaken to determine whether a proposed project should be certificated.

The NOI noted that significant changes have taken place in the natural gas industry over the 19 years since the 1999 Policy Statement was adopted. Most significantly, hydraulic fracturing has ushered in a “revolution in natural gas production” leading to major geographic shifts in the location of new natural gas supplies, changes to gas flows in the interstate pipeline system, and expanded use of natural gas for power generation and as a feedstock for the domestic petrochemical industry.

Comments regarding the NOI from the natural gas pipeline industry and other stakeholders are to be filed with FERC this Wednesday, July 25th.

Those supporting new gas infrastructure can be expected to voice opinions about such things as the efficiency and effectiveness of the NEPA review process, coordination of federal and state reviews, post certificate appeals, and policy consistency regarding GHG standards and demonstration of market need. Ultimately, process timing and certainty will be key.

Those opposed to pipelines will likely target contractual standards for new projects, seek regional planning for natural gas, express concerns about overbuilding pipeline capacity, and support landowner rights and the elimination of eminent domain. The opposition has long argued that FERC favors the fossil fuel industry and “rubber stamps” pipeline company applications.

The NOI will be an important source of input to FERC as it reviews its certificate policy. How extensively its policies and procedures change remain to be seen. But the review is warranted.

More importantly, however, if we don’t soon get the much-needed new natural gas infrastructure permitted, built, and operating, we won’t be able to take advantage of our energy resources. Then the question posed by the Russian journalist in Helsinki may, in fact, prove prescient.

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Restore the Quorum

25 Jul

Frustration over the lack of any appreciable progress in Washington is at an all-time high. It’s especially egregious considering the same political party presently controls the executive branch and both houses of the legislature.

Conservative leaning policies were expected to be the order of the day. Many Americans, desperate for a government that worked, cast their votes in unconventional fashion hoping to shake the status quo. Instead, gridlock, confusion, and rancor still occupy every nook and cranny of government. Clearly, the November shake up wasn’t hard enough.

JPMorgan Chase CEO, Jamie Dimon, seldom seen as the "average Joe" on Main Street, reflected people’s frustration when he recently opined, “[He’s] tired of listening to the stupid s_ _ _ we have to deal with in this country.” He went on to say the situation has hurt the American economy which, because of “stupidity and political gridlock”, only grew at 1.5 to 2 percent since the Great Recession.

Blame for the quagmire extends in all directions. Republicans blame Democrats for obstructing the president’s agenda. The Democrats point fingers at the President for dilly dallying in nominating people to fill open positions. All the while, Washington’s crisis du jour diverts critical attention from serious day-to-day business. The results speak for themselves:

 SENATE CONFIRMATION OF APPOINTEES *
 Nominated  Confirmed  Failed

 Avg. Days to Confirm
Trump

197

 48 4

44
Obama

356

 149 5

37
W. Bush

296

 149 2

27
Clinton

256

 196 4

28
HW Bush

243

 144 1

30
Source: Center for Presidential Transition

* Excludes non-civilian & judiciary positions   

   As of mid-July, of first year

A prime example of the resulting gridlock is the unprecedented existence of the lack of a quorum of commissioners at the Federal Energy Regulatory Commission.

FERC, among other things, regulates the transmission and wholesale sales of electricity and natural gas in interstate commerce, and regulates the transportation of oil by pipeline in interstate commerce. FERC also reviews all proposals to site, construct and operate natural gas pipelines, storage and LNG terminals, and issues licenses to non-federal hydropower projects.

The agency is composed of up to five commissioners who are appointed by the President and confirmed by the Senate. The President appoints one of them to be the chairman and no more than three commissioners may be from the same party.

FERC employs extensive technical and environmental expertise and has developed a deep body of energy regulatory jurisprudence. As a result, it’s uniquely positioned to oversee the implementation of energy policy and review and permit new energy infrastructure

Three commissioners (a “quorum”) must be seated for FERC to meet and issue major decisions. While there is some limited ability for certain matters to be delegated for handling by FERC staff, the significant issues must wait until a quorum is re-established.

Despite the importance of FERC in implementing many of the energy, environment, commerce, and infrastructure related policies of the new administration, the agency has been hamstrung for the past six months.

The quorum was lost in February after then chairman, Norman Bay, a democrat appointed by President Obama, resigned. A few months later, another of the two remaining commissioners left FERC.  The last remaining commissioner, acting chairman, Cheryl LaFleur, has vowed to continue through her term and has been performing yeoman’s work keeping FERC functioning during these difficult circumstances.

The impacts from the lack of a quorum are real and acute. According to a recent report by Bloomberg, more than $50 billion in energy projects are awaiting FERC action. The Interstate Natural Gas Association of American stated that at least one dozen interstate natural gas pipeline projects amounting to $14 billion in total costs are bottlenecked. In addition, critical policy issues such as those related to electricity market restructuring reforms cannot be fully addressed.

Help is on the way, but it’s as if its taking the New York subway to get here…fits and stops and no guarantee when it might arrive. President Trump has nominated three Republicans and is soon expected to nominate a Democrat appointee. Two of the Republicans have completed their confirmation hearings, but have yet to receive a Senate vote of approval.

Our dysfunctional government has reached a critical level. Gridlock and delays threaten the nation’s path to energy security, economic growth, job creation, infrastructure investment, and environmental progress. Six months was more than enough time for the president to nominate and the Senate to confirm the FERC commissioner appointments.

There is no reasonable excuse not to restore the quorum at FERC before the summer recess. All that is asked is for the Senate and the administration to do its job so that the American people can do their jobs.

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All Quiet on the Eleventh Floor

10 Feb

Last Friday, the Federal Energy Regulatory Commission (FERC), the independent regulatory agency within the Department of Energy, was left with only two sitting Commissioners leaving it in the unprecedented position of lacking a quorum.

The lack of a quorum among the five Commissioners, who offices occupy the eleventh floor of a nondescript Washington, DC office building at 888 North First Street adjacent to the Union Station railyard, does not prevent FERC from carrying out most of its day-to-day functions, but if it extends for very long, will affect the “America First Energy Plan.”

A relatively unknown agency whose actions touch the lives of nearly anyone using electricity or natural gas, FERC originated in 1920 as the Federal Power Commission to preside over hydropower development. Congress gradually expanded its jurisdiction to include regulation of both hydropower and interstate electricity, interstate natural gas pipelines and wholesale gas sales (the Natural Gas Act of 1938), and eventually (resulting from a 1954 Supreme Court decision) all wellhead sales of natural gas in interstate commerce.

During the decade of the OPEC oil embargos, Congress established the Department of Energy (DOE) in 1977, consolidated energy activities and transformed the FPC into the Federal Energy Regulatory Commission, an independent agency within the DOE. During the next ten years, FERC presided over the end of federal price regulation of natural gas while introducing competition to both gas and electric markets.

As an independent agency, neither the President, the Secretary of Energy, any officer or employee of DOE, or Congress review FERC decisions. Its decisions may be appealed to federal courts. Occasionally, DOE has intervened as a third party in FERC proceedings.

Not only is it intended that FERC be independent, but also bipartisan. The full Commission consists of 5 members appointed by the President and confirmed by the Senate. The President also appoints one of the Commissioners to be Chairman. However, no more than three Commissioners may belong to the same political party.

On January 26th, President Trump named Commissioner Cheryl LaFleur, a Democratic appointee, Acting Chairman. Then Chairman, Norman Bay, nominated by President Obama in 2014 and whose term expires in June 2018, made the unusual move to resign both his Chairmanship and appointment on the Commission, effective February 3rd. That left FERC with only one Commissioner and the Acting Chairman — a Commissioner short of the mandated 3-member quorum necessary “for the transaction of business.”

As a holding action until another Commissioner is appointed by President Trump and confirmed by the Senate, FERC delegated authority to agency staff to continue certain actions such as accepting and suspending rate and tariff filings, granting requests for an extension of time, accepting uncontested settlements, performing environmental and safety reviews, audits, and hydro inspections during this non-quorum period.

The delegation does not allow staff to issue new policies, propose rulemakings, and probably most importantly, issue certificates needed to site, construct and operate new energy infrastructure subject to FERC jurisdiction. In other words, new interstate natural gas pipeline projects waiting for approval from FERC cannot proceed until the quorum is re-established.

Clearly, this isn’t the reduction of government the new administration had in mind when it came to Washington to “drain the swap.” In fact, the longer this untenable situation exists, the more likely it is to impede progress in tapping the estimated $50 trillion in oil and natural gas reserves envisioned by the America First Energy Plan.

Fortunately, due to the nature and makeup of this independent agency, FERC itself has historically operated with civility and comity, even as it debated and implemented contentious matters of regulatory policy and rulemaking.

Although it has many critics and is sometimes overruled on appeal, as an independent agency, FERC strives to apply the law by the facts of the record placed before it. FERC’s quasi-judicial procedures combined with many years of guiding precedent lead some to believe it’s too bureaucratic, but on the other hand, it prevents decisions from being made strictly on political whim.

Acting Chairman LaFleur is a steady hand and has been in this position before. She said that she intends to, “keep the Commission moving forward during this transition.” Applicants as well as intervenors can be assured the agency will continue to hear their arguments during this unsettled interim period.

While it typically takes weeks or a few months to replace vacant positions on the Commission, given the current level of rancor exhibited by opponents to President Trump’s agenda, a prolonged non-quorum period is highly likely.

Rumors abound that the Trump administration is looking to another Texan with energy bona fides to be nominated Chairman. The rumored nominee, Barry Smitherman, is a former investment banker, member on the Texas PUC, and former Chairman of the Texas Railroad Commission that regulates the Texas oil & gas industry. What could possibly hold up Senate approval of such a qualified candidate?

One final note. After the next Chairman is seated, President Trump has two more positons to fill on the eleventh floor at FERC; both Republican nominees. Elections have consequences and while FERC is an independent regulatory body, its focus will soon clearly skew Republican.

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Plentiful, Affordable, Reliable, but especially Reliable

29 Sep

Reliability is one of those things we don’t notice until it’s not there.

There was an interesting article published last week in The New York Times by James Glanz entitled, “The Cloud Factories: Power, Pollution and the Internet.” While the story line revolves around the vast amount of energy that modern data centers consume and the pollution associated with it, the story also highlights an issue most folks outside the industry do not  usually think about.

We turn on a light, switch on the stove burner, or jump on the internet and expect it to work. Service is there, 24/7, without fail — usually.

Our energy delivery systems, especially the electric grid, are designed and operated to be highly reliable. The electric grid is designed and operated to ensure system integrity. Ancillary services spread throughout the generation, transmission, and distribution systems keep it up and running nearly without fail. But, when it does fail, it’s a newsworthy event.

One of the tools used to provide this flawless delivery is reserve capability. The power grid is built with excess capacity over and above what the operators expect the maximum demand to be. (called “peak demand”) This backup capacity is used when a primary power source fails, or if demand exceeds the planners estimates of peak demand. It’s an effective “belt and suspenders” approach.

In the U.S., the electric transmission grid and wholesale sale of electricity in interstate commerce (sales that cross state borders) is regulated the Federal Energy Regulatory Commission (“FERC”). FERC, in turn, certified the North American Electric Reliability Corporation (“NERC”) to ensure the electric network’s reliability by developing and enforcing reliability standards and assessing the grid’s adequacy.

NERC divides the U.S power grid into 14 regions and makes reliability assessments three times each year. With the exception of Texas, every region has a positive reserve margin. That is, there is excess capacity in 13 of the 14 regions. Due to its operating and commercial structure, the Electric Reliability Council of Texas, (“ERCOT”) faces some unique challenges. As a result, ERCOT has experienced rolling brownouts and blackouts over parts of Texas during recent peak summer and winter periods.

The point of all this, however, is that the data centers examined in the NY Times article are not as unique as the author seemingly implies. Maintaining a high degree of reliability demands that redundant systems that sit idle a good deal of time be in place. Whether its Google, your bank, a hospital, or the power grid, standby capacity is essential if the system is going to operate without a hitch.

As our legislators and regulators develop new energy policies and make choices about how best to generate, transmit, and deliver plentiful and affordable electricity, reliability issues will be front and center. Studies by both industry and academic institutions have shown that if intermittent renewables (particularly wind and solar) become a significant portion of our electricity generation, it will increase the need for backup generation (especially natural gas) to provide the reserve margin.

Of course, reserve capacity that sits idle most of the time is expensive. The trade off between spending more money on reserve capacity and risking reliability is a judgement call. How much is enough? Just as important is the question of how to create incentives for investors to build such expensive, seldom used, but essential facilities. Certainly, there may be room for efficiency offsets, but as the NY Times article points out, infrastructure is needed to support these operations.

Whether it’s using the cloud for computing or smart grid technology to deliver our electricity, large scale infrastructure remains a necessity.  Just as with reliability, most of us will never notice it except when it’s not there.

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