Resilience, pipelines & PURPA: FERC regulators preview major issues at NARUC
State utility regulators heard from all five federal energy regulators at a conference in Washington this week.
This year's winter meeting of the National Association of Regulatory Utility Commissioners (NARUC) gave state regulators the uncommon opportunity to hear from all five regulators on the Federal Energy Regulatory Commission in the space of just a few days.
On Tuesday, FERC Chairman Kevin McIntyre gave the keynote address at the Washington conference, praising Secretary of Energy Rick Perry and laying out priorities for his year at FERC. Commissioner Cheryl LaFleur was there the day before, addressing how the grid can prepare for electromagnetic pulses and other high-tech security risks.
LaFleur returned on Tuesday to make an appearance at the Committee on Energy Resources and the Environment, where Commissioner Richard Glick addressed regulators on pipeline approvals and clean energy. Commissioner Robert Powelson spoke Monday to regulators on the Water Committee, covering FERC's resilience docket, and Commissioner Neil Chatterjee was on hand for a "fireside chat" on NARUC's Gas Committee on Tuesday.
FERC regulators are unable to speak about the details of ongoing regulatory efforts, such as the contents of their order on distributed resources and energy storage, expected at the Commission's open meeting on Thursday. But the appearances revealed much about their approach to three separate issues: FERC’s resilience docket, the commission’s pending pipeline policy review, and potential reforms to the Public Utilities Regulatory Policy Act (PURPA).
Commissioner Powelson kicked off the FERC procession with a thinly veiled warning to regional grid operators about the filings they are preparing in FERC's grid resilience docket, set up in January after the commission rejected a coal and nuclear subsidy plan from the Department of Energy.
Any solution in that docket, he said, "will not garner any support if I don't hear from the [PJM] member states or the New England states on the proposal."
The comment came as the PJM Interconnection, operator of the nation's largest electricity market, prepares to send a controversial plan to reform its capacity market to its board on Wednesday for approval, which could kick it up to FERC for consideration. The grid operator's staff supports the plan, but most states in the market are opposed.
Coming so close to the PJM vote, market watchers could see the comment as a warning to it and other grid operators about state input to their resilience plans, and Powelson was comfortable with that interpretation.
"Good," he responded with a laugh. "Everything I say they should take into account. [FERC is] their regulator."
Glick had another word of caution to grid operators, warning them that their resilience filings must squarely address that issue, and not attempt to use the docket to get approval for market reforms that may not find support in a different setting.
"Some RTOs are suggesting things that don't necessarily, at least to me, really relate to resilience," Glick said. "They may be using this process as an opportunity where they may otherwise pursue a filing under the Federal Power Act under Section 205 or 206 for instance."
Glick's statement follows concerns from clean energy advocates that proposed pricing reforms in markets like PJM and ISO-New England could raise revenues for large, polluting generators without meaningful contributions to resilience. Glick did not address those worries directly, but said the commission should "weed out" any proposals not directly related to grid resilience.
"If there's really truly a resilience issue, we need to address it," he said, "but if this is just an opportunity for them to try to get something done that they can't get done in their stakeholder process, I have great concerns about that."
Other FERC regulators were not as direct in their messaging, but all agreed that state input to any resilience filing would be critical to its approval. In places where there is not consensus on an approach, LaFleur noted that FERC can make a final determination.
"The specific issues that the RTOs are grappling with right now deal with how to adapt market rules for the various state policy choices," LaFleur said. "Obviously state views are important and I know in some regions states are not unanimous on one solution and it does lie to FERC to determine what's just, reasonable and non-discriminatory using our own judgment."
Chatterjee, meanwhile, said the structure of FERC's resilience docket, with 60 days for grid operator comments followed by a 30-day reply comment period, will help bring state voices to the fore. He reiterated a call for grid operators to perform analysis like the ISO-NE fuel security report, filed with the Commission last month.
McIntyre used his speech to appeal to state regulators to be "collaborators with us" in resilience policy, "whether through RTO and ISO processes or otherwise."
"Tell us what needs to happen and why with an eye toward shoring up the resilience of our grid," he said. "Let's try not to get hung up in notions of bailouts of particular fuels — I don't think that advances the ball at all — but let's think deeply about the policies that are implicated by these questions.”
McIntyre also noted that many resilience issues involve power systems that FERC doesn't directly regulate.
"We recognize in all of this that much of resilience happens at the level regulated by you state regulators," he said. "The distribution systems are very much involved in the concept — it's not just the big old honking power plants ... So again don't be bashful in sharing your views."
FERC regulators also weighed in on their expectations for the Commission's upcoming review of its pipeline approval policies, the first since 1999.
McIntyre announced the review at his first open meeting in December of last year, but revealed nothing about the timeline or regulatory vehicle for the review in his speech. He did, however, outline two priorities for the review: pipeline need and environmental impacts.
FERC currently judges pipeline need by precedent agreements — contracts for pipeline capacity signed before the project is built. LaFleur and Glick, both Democrats, have called that practice into question, arguing FERC may need to consider if those contracts are coming from affiliates of the pipeline builder.
McIntyre assured regulators that would be part of the review, along with considerations of climate impacts. The D.C. Circuit this month reiterated a ruling invalidating FERC's climate analysis on the Sabal Trail pipeline, forcing the agency to redo its environmental impact statement.
Since arriving at the Commission last fall, Glick has been outspoken on those pipeline issues, and he expanded his argument on Tuesday, saying FERC's approach to project approvals appears "backwards" when eminent domain issues are involved.
Under the Natural Gas Act, pipeline companies must weigh the need for a project against the potential adverse impacts to landowners and the environment. In some cases, Glick said, the companies cannot get enough information for FERC because landowners prevent them from entering their properties for surveying.
FERC approval of a pipeline triggers federal eminent domain powers that allow companies to enter these properties. Glick said FERC will sometimes grant those final construction certificates to get that information.
"It appears to me at times the Commission says we need more information on a particular issue but in order to get access to that land to get that information we're going to have to grant a [construction] certificate in the first place to allow the company to get access to the land to do surveys," he said. "I think we're supposed to actually find in the first place that the adverse impacts are not going to be significant before we grant the certificate, not after."
Asked about the issue after his speech, Chatterjee said he shares Glick's concerns about eminent domain and has spoken with him on the subject.
"You have that inherent tension if landowners aren't willing to give access and there's sufficient demonstration of need," he said. "I think the point he raises is absolutely a significant one."
Chatterjee noted that he raised issues of eminent domain in his concurrence on FERC's decision to approve the PennEast Pipeline last month. Commissioner LaFleur also wrote a concurrence laying out issues with assessing pipeline need, while Glick dissented over concerns that much of PennEast's capacity was contracted for by its direct affiliates.
"I think Commissioners LaFleur, Glick and myself are all identifying some of the same concerns," Chatterjee said, "and I want to work with both of them as well as the chairman and commissioner Powelson to see how we can improve that process."
The Public Utilities Regulatory Policy Act is an issue particularly familiar to NARUC members. Last year, the organization sent a letter to FERC asking it to reform the 1978 law, which obligates utilities to purchase power from certain qualifying facilities, usually small renewable energy generators.
Renewable energy developers say PURPA still plays a crucial role, particularly in states without wholesale electricity markets, in ensuring utilities purchase clean energy from independent suppliers instead of building their own generation.
A number of utilities argue that energy developers can "game" size requirements for PURPA by slicing larger projects into smaller parts, forcing utilities to buy power from them. Many also complain that the avoided cost calculations that determine compensation for PURPA resources are out of date. In its letter to FERC, NARUC called for regulations that would move away from administratively-determined avoided costs and encourage competitive solicitations for PURPA resources.
McIntyre said the size requirement and avoided cost calculations will be on the table for FERC this year.
"The PURPA calculation of the avoided cost level ... that is still a very old-fashioned process determined administratively state-by-state in coordination between the state regulator and the affected utilities," McIntyre said. "Should that be reformed? I know there's a strong feeling among many stakeholders that it should be."
McIntyre and fellow FERC regulators stressed that while the commission can tinker with PURPA implementation, Congress would have to weigh any major changes. Glick said he wants to see FERC not only deal with utility concerns around avoided costs and siting, but also issues renewable energy developers raise about state reforms.
"My personal view is we can tinker around the edges, maybe address the one mile rule," Glick said, "but also I think we have to address some of the concerns from the developers about how PURPA is being implemented in many states on issues such as contract length or avoided cost determinations."
A bill pending in the House would make major changes to the law, but Glick, a former Senate staffer, said it is unlikely to make it through the chamber he once served.
"I think the Senate is a much more difficult body for proponents of legislation trying in a significant way to reform or eliminate PURPA," he said. "I think there's a very strong difference of opinion between Senate Republicans and Democrats on that issue so I don't really see a lot of guidance coming from Capitol Hill."
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