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Must FERC weigh GHG emissions in pipeline reviews?

In the 2004 case of U.S. Department of Transportation v. Public Citizen,[1] the Supreme Court established an important limiting principle under the National Environmental Policy Act (NEPA) on the extent to which a federal agency must consider indirect environmental effects in completing NEPA-required reviews of planned agency action. It held that unless an agency has statutory authority categorically to prevent a particular environmental effect, its order cannot be viewed as a legally relevant cause of that effect, thus relieving it of any obligation to gather or consider information on the effect.[2]

As in Public Citizen, this principle often comes into play where the actions of two or more governmental agencies have a role in potentially “causing” a particular environmental effect. If the agency with NEPA responsibilities lacks statutory authority categorically to prevent the indirect effect, it has no obligation to evaluate it under NEPA.[3]

Public Citizen receives substantial play in the orders of the Federal Energy Regulatory Commission (FERC) authorizing pipeline and gas infrastructure under Sections 3 and 7 of the Natural Gas Act (NGA).[4] As the shale gas boom and accompanying buildout of increased gas-fired power generation and LNG export capability have spurred unprecedented demand for new pipelines and gas infrastructure in recent years, they also have sparked unprecedented opposition to gas infrastructure projects by well-organized and well-funded environmental groups like the Sierra Club promoting a climate change/renewable energy agenda.

Such opposition leans heavily on challenges to the sufficiency of the Commission’s reviews under NEPA, giving special emphasis to the claim that, in evaluating new pipeline projects to serve power generation load, FERC must consider the effects on climate change of greenhouse gas emissions (GHG) from the end use of the gas in the power plants served by the pipeline.

Relying on Public Citizen, FERC for the most part[5] has not attempted to quantify such indirect environmental effects, maintaining that its authorization of a pipeline is not the legally relevant cause of the GHG emissions resulting from downstream consumption of natural gas in power plants.

The D.C. Circuit Panel Decision in Sabal Trail

But in the recent case of Sierra Club v. FERC,[6] the majority of a panel of the D.C. Circuit disagreed. In reviewing FERC’s authorization of the Sabal Trail Pipeline designed to serve new gas-fired power plants in Florida, the panel held that the GHG emissions from the power plants are an indirect effect of FERC’s order approving the pipeline and that “because FERC could deny a pipeline certificate on the ground that the pipeline would be too harmful to the environment, the agency is a ‘legally relevant cause’ of the direct and indirect environmental effects of pipelines it approves. Public Citizen thus did not excuse FERC from considering these indirect effects.” [7]

The panel vacated and remanded FERC’s order authorizing construction and operation of the pipeline, pending FERC’s completion and review of the additional environmental studies on the power plant GHG emissions.[8]

In a strong dissent, Judge Janice Rogers Brown disputed the majority’s application of Public Citizen. Relying chiefly on a trilogy of recent D.C. Circuit decisions that had rejected the need for FERC to undertake NEPA consideration of downstream GHG emissions in its authorization of LNG export terminals,[9] Judge Brown pointed out that in those cases: “we held the occurrence of a downstream environmental effect, contingent upon the issuance of a license from another agency with the sole authority to authorize the source of those downstream effects, cannot be attributed to the Commission; its actions ‘cannot be considered a legally relevant cause of the effect for NEPA purposes.'”[10]

While the downstream effects in the LNG terminal cases were contingent on DOE’s authorizing exports of natural gas, the downstream effects in Sabal Trail were contingent upon authorization of the construction and operation of the power plants by the Florida Power Plant Siting Board, a duly authorized agency of the state of Florida with exclusive authority over the licensing of new power plants in Florida. Without the licensing of the power plants, there would be no power plant operations and no resulting GHG emissions.

Significance of Sabal Trail

Sabal Trail is significant on multiple levels. On a practical level, the vacatur and remand to FERC opens a Pandora’s box of NEPA review for the Commission. Although FERC’s environmental staff has performed upper-bound estimates of GHG emissions from downstream gas use associated with new gas pipeline projects since mid-2016, there are no readily available standards to guide such determinations, and its assessments to date have not been tested on judicial review.

The additional required analysis has the potential not only to further delay an already burdened FERC approval process, but also to inject added complexity in sorting out (i) the proper estimates of GHG emissions to use in determining the impact of using gas in the power plants; (ii) the significance of such GHG emissions, especially since there are no readily available metrics to gauge “significance;” and (iii) whether the Commission  should employ the “Social Cost of Carbon” tool developed by the Obama-era Council on Environmental Quality,[11] now withdrawn by executive order[12] in favor of reliance on the metrics set forth in OMB Circular A-4,[13] to evaluate the impact of the GHG emissions and the benefits and detriments generally of a proposed pipeline project.

These challenges portend greater uncertainty and possibly increased likelihood of error in the commission’s evaluations, potentially heightening investor risk in pipeline projects and dampening deployment of capital in the pipeline sector.

Efforts to reach consensus on the proper response to Sabal Trail in the proceedings on remand have already divided the Commission along party lines. In its March 14, 2018, Order on Remand Reinstating Certificate and Abandonment Authorization, the three-Republican majority adhered to the methodology the Commission environmental staff first introduced in mid-2016, employing upper-bound estimates of GHG emissions with explanations of the inherent difficulty in providing more granular detail. It also declined, as in past orders, to employ the Social Cost of Carbon tool, noting the inherent difficulties of meaningfully employing the Social Cost of Carbon in the Commission’s decision-making.[14]

Lastly, the majority questioned whether the Commission has authority to deny a certificate because of concerns about GHG emissions from the end use of gas, noting that Congress or the executive branch, not the Commission, is responsible for deciding national policy on the end use of natural gas.[15]

The two Democratic Commissioners dissented separately, asserting that the order on remand should have included more granular assumptions in the evaluation of GHG emissions, adopted the Social Cost of Carbon to evaluate both the impact of GHG emissions from downstream gas use and the public convenience and necessity of projects generally, and determined that the impact on climate change of GHG emissions from downstream gas use must be factored into the determination of the public convenience and necessity of a new project.[16]

But far and away, Sabal Trail‘s greatest significance is that the panel majority’s application of Public Citizen does not appear defensible, making the case worthy of U.S. Supreme Court review, especially in light of the current administration’s desire to expedite the authorization and construction of new infrastructure. If Sabal Trail is reviewed and reversed by the Supreme Court, FERC will have a far clearer path through its NEPA process in pipeline certificate cases.

Where the Sabal Trail Panel Majority May Have Gone Wrong

The panel majority appears to have misapplied Public Citizen in two separate respects: (i) on the statutory authority of FERC, in presupposing that the Commission has authority under the NGA to deny a pipeline certificate because of concerns about GHG emissions from the end use of the gas transported by a pipeline, and (ii) on causation, as noted by Judge Brown, in wrongly attributing to FERC causation of GHG emissions by the power plants served by the FERC-authorized pipeline, when a separate state agency had sole authority to license the construction and operation of the power plants that are the source of such emissions, and categorically to prevent such emissions by refusing to issue a license.

Whether FERC has statutory authority to deny a pipeline because of concerns about GHG emissions from power plants served by the pipeline

Although the panel majority correctly articulated the touchstone of Public Citizen that “[a]n agency has no obligation to gather or consider environmental information if it has no statutory authority to act on that information,”[17] it failed to apply that limitation in the context of the Commission’s statutory authority to act on the information claimed to be necessary.

To justify collecting information on downstream power plant emissions, the panel needed first to determine that the Commission has statutory authority to deny a certificate to a new pipeline because of concerns about the effects on climate change of GHG emissions from the power plants proposed to be served by the pipeline. Because the panel majority never addressed that issue, the statutory authority element of Public Citizen is missing.

The proffered justification that “FERC could deny a pipeline certificate on the ground that the pipeline would be too harmful to the environment”[18] is insufficient, as it fails to define FERC’s statutory authority in the context of the specific information sought on downstream GHG emissions from the end use of the gas.

Having no express statutory authority to regulate the end use of gas, the Commission’s power to affect end use in certificate cases derives from its authority under Section 7(e) to determine that a proposed service is required by “the public convenience and necessity.” However, the precedent to date indicates that the Commission’s latitude in exercising such authority is limited, confined to furthering Congress’ purpose in enacting the NGA to assure interstate consumers “an adequate and reliable supply of gas at reasonable prices.”[19]

For example, in the leading case, FPC v. Transcontinental Gas Pipe Line Corp.,[20] the Supreme Court upheld the authority of the Federal Power Commission (FERC’s predecessor) to deny a certificate for the transportation of gas from the Gulf Coast to New York City to alleviate inner-city air pollution because of the Commission’s overriding concerns about the end use of the gas for power generation.

Because other fuels could be readily substituted for natural gas under steam boilers, the Commission  determined that using a wasting resource like gas in power plants was an “inferior use,” whose adverse effects on the availability and price of gas to other interstate consumers would be exacerbated if power plant supply deals like the one proposed in Transco were allowed to proliferate.[21]

Whereas the basis for the Commission’s exercise of authority in Transco can be readily linked to the NGA’s statutory purpose and, as the Supreme Court found in Transco, to Congress’ intent in the 1942 amendments to NGA Section 7 to permit the Commission to take account of the potential “economic waste” of gas in exercising its certificate authority,[22] no such statutory grounding is evident to support the notion of denying a pipeline certificate because of concerns about the effects on climate change of emissions from the end use of the gas transported by the pipeline.

Nowhere does the NGA authorize the Commission to regulate the emissions of downstream gas users, much less establish de facto emissions standards for such users to address climate change through exercise of its authority under Section 7(e) to condition or deny pipeline certificates. Lacking any apparent statutory authority to deny a new pipeline based on GHG emissions by downstream gas users, it appears that the Commission had no obligation under NEPA to gather or consider information on power plant GHG emissions in authorizing the Sabal Trail Pipeline.

Whether authorization to operate the pipeline or authorization to operate the power plants is the legally relevant cause of the GHG emissions from the power plants

Judge Brown’s dissent correctly explains why Public Citizen requires that FERC’s certificate order not be found the “legally relevant” cause of the GHG emissions of the power plants served by the Sabal Trail Pipeline. Instead, as Judge Brown explained, the legally relevant cause is the authorization granted by the Florida Power Plant Siting Board to construct and operate the power plants.

Simply put, the GHG emissions are the byproduct of power plant operations and would not occur separate and apart from the licensing of the power plants by the Florida Power Plant Siting Board. And only the Siting Board, not FERC, has the legal authority to prevent such operations. True, the denial of a FERC certificate could make power plant operations more difficult, but it would not affect the legal authority of the owners to continue operations using other supplies of natural gas or alternative fuels to run the generating equipment.

In these circumstances, the chain of causation as to the Commission’s responsibility is broken, meaning that the GHG emissions cannot be attributed to its action. Accordingly, it was not required to consider the indirect effects of GHG emissions from operation of the power plants in its review of the pipeline certificate application under NEPA.

Lastly, to end where we started, Public Citizen is on point. The issue there was whether the Federal Motor Carrier Safety Administration (FMCSA) was required to consider the environmental effects of increased truck traffic between the U.S. and Mexico in instituting its truck inspection program following President Clinton’s lifting of the moratorium on the entry of Mexican trucks into the US. Because the FMCSA lacked statutory authority categorically to prevent the cross-border operations of Mexican trucks, the court determined that it was not the relevant cause of such environmental effects.

Similarly, in Sabal Trail, the issue is whether FERC must consider the environmental effects from the operation of power plants served by a gas pipeline in authorizing the pipeline. By the reasoning of Public Citizen, because FERC lacks the statutory authority categorically to prevent the operation of such power plants, it cannot be viewed as the legally relevant cause of the environmental effects of such operations.

Conclusion

Reversal of Sabal Trail will help to restore rationality to the NEPA review process for new gas pipelines. The panel majority’s suggestion that a new pipeline “causes” new power plants served by the pipeline reverses the commercial reality of project development, putting the fuel supply cart before the market demand horse as the determinant of new pipeline expansions. The fact is that new pipelines do not get proposed or built without market demand for the gas proposed to be transported.

Reversal will also restore restraint in the conception of FERC’s statutory authority to act in the “public convenience and necessity” under NGA Section 7(e). As Transco suggests, FERC’s authority to affect the end use of gas is limited to actions related to advancing the NGA’s statutory purpose; it does not include the power to control directly or indirectly the GHG emissions of downstream end users of gas. Not that control of such emissions is not important or is in some way affected with the “public interest” — it is just that Congress or other agencies, not FERC, have the authority to regulate them.

Lastly, reversal will restore a sensible understanding of Public Citizen. As Judge Brown points out, where another agency has the authority categorically to prevent the GHG emissions from power plants served by a new pipeline by refusing to issue the license for construction and operation of the power plants, FERC’s more limited action in authorizing a pipeline to serve the power plants cannot be viewed as a legally relevant cause of such emissions.

Such recognition of FERC’s authority as limited will also extend comity to requisite state and federal agency actions in the integrated resource planning of new power generation at the state level and the air permitting process at the state and federal levels for GHG and other emissions from power plant operations.

The original version of this article was published by Law360.  James M. Costan is a partner in Dentons’ energy practice. Jay represents clients on a wide range of public utility and energy matters, including energy transactions and federal and state regulation of the sale and transmission of electricity, natural gas and LNG and the licensing of energy projects.  The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] 541 U.S. 752 (2004) (Public Citizen).

[2] Id. at 767-69.

[3] Sierra Club v. FERC, 827 F.3d 36, 49 (D.C. Cir. 2016) (Freeport).

[4] 15 U.S.C. §§ 717b and 717f.

[5] In mid-2016, FERC environmental staff started preparing “upper-bound” estimates of GHG emissions from downstream gas use to support NEPA reviews. Such estimates assume that the full delivery capacity of the pipeline will be consumed 24/7 for gas-fired power generation.

[6] 867 F.3d 1357 (D.C. Cir. 2017) (Sabal Trail).

[7] Id. at 1373 (citations omitted).

[8] The vacatur and remand had minimal effect on pipeline operations, because most construction had been completed by the time of the D.C. Circuit’s decision in late August 2017. Thereafter, issuance of the mandate was held in abeyance pending completion of the rehearing process in late January and then was stayed until late March, affording FERC sufficient time to complete a supplemental environmental impact statement and issue an order reinstating the Certificate of Public Convenience and Necessity on March 14, 2018. Florida Southeast Connection LLC, 162 FERC ¶ 61,233 (2018) (Order on Remand).

[9] Freeport, supra; Sierra Club v. FERC, 827 F.3d 59 (D.C. Cir. 2016) (Sabine Pass); Earth Reports Inc. v. FERC, 828 F.3d 949 (D.C. Cir. 2016) (Earth Reports).

[10] Sabal Trail, 867 F.3d at 1381 (Judge Brown dissenting), quoting Freeport, 827 F.3d at 47, Sabine Pass, 827 F.3d at 68; and Earth Reports, 828 F.3d at 952.

[11] See 81 Fed. Reg. 51866 (Aug. 5, 2016), Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews, available at https://www.federalregister.gov/documents/2016/08/05/2016-18620/final-guidance-for-federal-departments-and-agencies-on-consideration-of-greenhouse-gas-emissions-and.

[12] See 82 Fed. Reg. 16576 (April 5, 2017), Withdrawal of Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews, available at https://www.federalregister.gov/documents/2017/04/05/2017-06770/withdrawal-of-final-guidance-for-federal-departments-and-agencies-on-consideration-of-greenhouse-gas.

[13] https://www.transportation.gov/sites/dot.gov/files/docs/OMBW020Circular0/020No.0/020A-4.pdf.

[14] Order on Remand at PP 22-51.

[15] Id. at P 29.

[16] Id. (separate dissents of Commissioners LaFleur and Glick).

[17] Sabal Trail, 867 F.3d at 1372, citing Public Citizen, 541 U.S. at 767-68.

[18] Id. at 1373.

[19] E.g., California v. Southland Royalty Co., 436 U.S. 519, 523 (1978); NAACP v. FPC, 425 U.S. 662, 669-70 (1976).

[20] 365 U.S. 1 (1961) (Transco).

[21] Similar concerns about the need to husband gas supply for high priority end uses drove the Commission ‘s directive that pipelines institute end-use curtailment plans to address the nationwide gas shortage in the 1970s. See FPC v. Louisiana Power & Light Co., 406 U.S. 621 (1972).

[22] Transco, 365 U.S. at 10-22.

 

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Must FERC weigh GHG emissions in pipeline reviews?

Trump’s response to Harvey, Irma, Maria and Sandy: more subsidies for coal-fired power

Those who wondered how President Trump would make good on his promise to put coal miners back to work now have their answer. On September 28 2017, Secretary of Energy Rick Perry dusted off a rarely used power in the Department of Energy Organization Act 1977 (DOEOA) and sent the Federal Energy Regulatory Commission (FERC) a proposal that it make a rule to “establish just and reasonable rates for wholesale electricity sales”. By this he appears to mean allowing coal-fired (and nuclear) plants to charge higher prices based on their contribution to the resilience of electricity suppliers. (Click here for the text of the Notice of Proposed Rulemaking (NOPR)).

Background

For many, the salient feature of US energy markets over recent years has been the astonishing ability of the unconventional gas industry to produce cheap fuel for power generation that allows new gas-fired plants to out-compete existing coal-fired or nuclear power stations. This new abundance of cheap gas has transformed not just the US, but arguably world energy markets, and along the way it has produced dramatic reductions in US greenhouse gas emissions.

Conventional wisdom recognizes the importance of what are generally thought of as baseload generating plant in markets with increasingly high proportions of (often intermittent) renewable generation, and it has two answers to the question of how to make sure there is enough power when there is a risk that the lights may go out because there is not enough plant on the system that can run regardless of whether the wind is blowing, the sun is shining, or gas supplies have been disrupted as a result of extreme weather events. The first is to let the market function freely and hope that the ability of the most secure generators to supply power in extreme conditions will enable them to charge sufficiently high peak prices (albeit on a very infrequent basis) in the wholesale electricity market to allow them to remain in business. The second is to create a “capacity market” alongside the wholesale power market. The capacity market is then designed so as to ensure that resources that will ensure security of supply are maintained at times when it is threatened, by providing sufficient incentives to sufficiently reliable sources of capacity to remain available to keep the lights on. Rather than just waiting for a chance to charge extremely high prices at a few moments when other generators are unable to satisfy demand, they are paid a regular (but lower) premium for being available “just in case”.

Politicians and politically sensitive regulators, if not free-market purists, tend to prefer the capacity market route, because it helps prevent wholesale prices from rising to what might seem excessive levels, and carries less risk that you will have to wait until the lights have gone out a few times before sufficiently reliable generators will act on the electricity market’s signal that it is worthwhile remaining in the market. As a result, capacity markets have been a feature of the US power industry for a number of years. Although subject to frequent rule-changes, one of their guiding principles, in theory if not always in practice, is to try to maintain a level playing-field between the different potential sources of capacity – which can include not only all forms of generation, but also demand-side response. The NOPR is a radical departure from this technology-neutral approach.

Reliability and resilience

The NOPR follows on from the Department of Energy (DOE) Staff Report to the Secretary on Electricity Markets and Reliability commissioned by Perry earlier this year (downloadable here). One of the conclusions of that report was: “Markets recognize and compensate reliability, and must evolve to continue to compensate reliability, but more work is needed to address resilience.” It drew a distinction between reliability (“the ability of the electric system to supply the aggregate electric power and energy requirements of the electricity customers at all times, taking into account scheduled and reasonably expected unscheduled outages of system components”) and resilience (“the ability to reduce the magnitude and/or duration of disruptive events, [which] depends upon [the ability of infrastructure] to anticipate, absorb, adapt to, and/or rapidly recover from a potentially disruptive event”).

Reliability has sometimes been seen as synonymous with dispatchability – the ability of certain technologies to produce power on demand (as compared to “variable” renewables like wind and solar). Resilience on the other hand has often been seen more in terms of the power system as a whole, and the need to improve the resilience of power transmission and distribution networks in the face of increasingly frequent and more severe extreme weather events has been a major driver of increases in network spending. Whereas some would regard gas-fired, coal-fired and nuclear generation as equally reliable, the report, and the NOPR, shift the focus onto resilience and see that quality in terms of the security of a generator’s fuel supplies. In simple terms, coal-fired and nuclear plants are more likely to carry stocks of fuel than gas-fired plants, which tend not to store reserves of fuel, but rely on pipeline supplies. Interestingly, however, despite the NOPR’s focus on “fuel-secure” plants that can store a 90-day supply of power on-site, such as coal and nuclear, the DOE Staff Report noted that “[m]aintaining onsite fuel resources is one way to improve fuel assurance, but most generation technologies have experienced fuel deliverability challenges in the past.  While coal facilities typically store enough fuel onsite to last for 30 days or more, extreme cold can lead to frozen fuel stockpiles and disruption in train deliveries.”  There appears to be a disconnect between the DOE Staff Report’s conclusions regarding fuel supply challenges for all forms of generation and Secretary Perry’s proposal to promote coal and nuclear plants, specifically, which might lead one to draw the conclusion that the move is more motivated by politics and the negative economic consequences to communities resulting from the loss of the retiring coal and nuclear generators and less by the attributes those resources offer the electric grid.

The proposed rule

The DOE’s proposed rule would require all regional transmission organizations (RTOs) and independent system operators (ISOs) (like MISO) to adopt market rules that would establish a rate applicable to generators able to store a 90-day supply of fuel on-site (i.e. coal and nuclear generators) that ensures that those generators recover their costs and a fair return on equity (the traditional cost-of-service pricing standard in the U.S.).  In short, because coal and nuclear resources have not been able to compete in markets dominated by low-cost natural gas, the DOE is requesting/directing FERC to establish market rules that will pay them more in an attempt to stop the trend of the retirement of coal and nuclear plants.  It is a surprisingly blatant attempt to have FERC, which has traditionally favored technology-neutral market rules, set up rules that subsidize specific technologies in order to prop them up.

New York and Illinois have already started moving toward establishing a credit for nuclear generators as part of their programs to reduce greenhouse gas emissions in their states.  So there may be some support at the state level for nuclear as a cleaner form of power.  States have not been moving toward providing credits or subsidies for coal, however (except, perhaps, for those states whose economies are somewhat reliant on the coal industry), so we would expect to see some significant pushback from state governments as to the subsidy for coal.  Also, to the extent that state programs are creating incentives for renewables to enter the market and FERC is creating incentives for coal and nuclear to stay in the market, ratepayers ultimately end up paying for both, even if both are not needed from an energy standpoint.

If you accept the principle that coal and nuclear need “extra help” beyond what they can obtain from the current capacity market, to support their continued operation, there are of course many different ways that such help could be provided. There are also legitimate policy questions to be considered about the risks that in compensating such generators for the service they can provide in particular circumstances, you end up unnecessarily distorting competition in the wholesale power market as a whole. In short, an alternative approach to the resilience problem would be to continue with efforts to enhance co-ordination between wholesale gas and power markets and the development of gas storage capacity, and to improve interconnection between the US’s different regional power markets.

What next?

In response to the NOPR, FERC staff have put together a list of 30 questions (many of them in several parts) for interested parties to comment on, teasing out both the principles behind the proposal and the potentially tricky details of its implementation (click here for the list). But there is apparently little time for either stakeholders or FERC to ponder all these questions, since the DOE has set forth a very aggressive timeline for this matter.

  • It is directing FERC to take final action in the matter within 60 days, or in the alternative to adopt the DOE’s proposed rule as an Interim Final Rule subject to further change after opportunity for public comment.
  • It states that the comment period will be 45 days or whatever period FERC sets out, if FERC can issue a notice establishing a comment period within 2 business days.
  • The DOE also proposes that any final rule adopted by FERC become effective 30 days after it is issued and would require RTOs to submit a compliance filing proposing their tariff revisions to FERC within 15 days of that date.

This is an extraordinarily accelerated timeline, particularly given the issues at stake and that most RTOs have a lengthy stakeholder process for developing new tariff revisions.  Under the DOEOA, FERC is required to “consider and take final action on any proposal made” by the DOE expeditiously in accordance with reasonable time limits set by the Secretary of Energy.  However, while FERC must act upon the proposal, it has exclusive jurisdiction, and thus complete discretion to accept, reject, or modify the DOE’s proposal.  So FERC could issue an order rejecting the DOE’s proposal but initiating a similar rulemaking effort on a more realistic timeline. FERC issued a notice inviting interested parties to file comments on the DOE proposal by October 23, and reply comments by November 7.

Unsurprisingly, much of the industry is far from happy about all this.  The trade associations have by and large rolled out in opposition to the accelerated timeline.  Within a few days of the NOPR, a joint motion of industry associations was filed proposing a 90 day initial comment period and a 45 day reply comment period by the following industry associations:  The Advanced Energy Economy, American Biogas Council, American Council on Renewable Energy, American Petroleum Institute, American Public Power Association, American Wind Energy Association, Business Council for Sustainable Energy, Electric Power Supply Association, Electricity Consumers Resource Council, Energy Storage Association, Interstate Natural Gas Association of America, National Rural Electric Cooperative Association, Natural Gas Supply Association, and Solar Energy Industries Association. (here)

It is remarkable to see the oil and natural gas associations on the same pleading with the municipal utilities, coops, independent power producers, consumer groups, and renewable energy associations.  Their motion argues that the proposed reforms laid out in the notice of proposed rulemaking would result in one of the most significant changes in decades to the energy industry and would unquestionably have significant ramifications for wholesale markets under FERC’s jurisdiction, and that the time frame allowed is far too short to consider such a significant change.  Answers in support of their motion were also filed by the Transmission Access Policy Study Group, Industrial Energy Consumers of America, National Association of State Utility Consumer Advocates, Northwest & Intermountain Power Producers Coalition, and the American Forest and Paper Association. However, in spite of this unusual amount of industry consensus, FERC has denied the request for an extension of time and is holding fast to its October 23 and November 7 deadlines.

It seems unlikely that FERC will be able to take any substantive action within the time frame set forth by the DOE (unless it rejects the proposal outright).

  • Acting Chairman Chatterjee (Republican) issued a statement in response to the August DOE Staff Report on Electricity Markets and Reliability that FERC would remain focused on the wholesale electric capacity market price formation issues, so there may be some will at FERC to proceed with this rulemaking, but there is likely to be strong state resistance, and as the trade associations point out, it is not going to be an easy matter to figure out how to insert a cost-of-service pricing regime for coal and nuclear resources into otherwise competitive wholesale markets.
  • One of the other Commissioners, Republican Robert Powelson, addressed the issue in a speech he gave this week, reaffirming FERC’s independence from the DOE and promising not to “blow up the markets.” He is quoted as saying “We will not destroy the marketplace.  Markets have worked well and markets need to continue to work well.”
  • The third sitting Commissioner, Democrat Cheryl LaFleur, endorsed Powelson’s comments on Twitter.  FERC staff have indicated that the agency is moving forward with the proposal and will take “appropriate action” within the 60-day timeframe requested by DOE (as noted above “appropriate action” does not necessarily mean “substantive action”).

It remains to be seen whether FERC will seriously entertain the DOE’s proposal, it could very well reject it quickly and go about business as usual, or (more likely) it could open an alternative proceeding to see if capacity and resiliency issues can be addressed through a better vehicle. Secretary Perry has stated that his intent in filing the proposal was to “start a conversation.”  FERC is one of the federal agencies that is typically the least impacted by changing political tides, and we do not expect to see the type of radical change in direction that has been seen in other agencies, such as the DOE, EPA and Interior.  Further, as described above, the commissioners have been telegraphing that they support markets and are unlikely to “blow them up,” but they have generally acknowledged that there have been significant changes in the industry that have put new pressures on the markets that may warrant taking a new look at whether there are attributes that the market is not pricing now that should be priced.  Earlier this year FERC conducted a two-day technical conference on the topic of how FERC’s markets are impacted by state goals (such as increasing reliability and decreasing emissions) and whether FERC markets should remain completely independent of such goals, seek to accommodate them, or seek to accomplish them.  Making predictions in the volatile scene of U.S. politics has become an increasingly dangerous game in recent months, but it seems that the most likely course of action for FERC to take regarding the DOE’s filing will be to wrap it up into the ongoing considerations of the markets and establish a more robust rulemaking to consider whether any and all of the attributes that the DOE and states are seeking to promote should be priced in the markets, most likely through a technology-neutral mechanism.

 

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Trump’s response to Harvey, Irma, Maria and Sandy: more subsidies for coal-fired power