This is one of four articles related to the 2021 State of the Electric Utility Survey Report. To see the other articles and download the report, visit our State of the Electric Utility landing page.
Utilities have a long list of priorities for the federal government, according to Utility Dive's 2021 State of the Electric Utility (SEU) Survey Report, released this week. Tax credits, enhanced cybersecurity requirements, baseload generation support, a carbon price and strong federal decarbonization targets were among the top issues respondents from public power entities, electric cooperatives, and investor-owned utilities want the federal government to address.
The SEU survey was taken by respondents before the results of the 2020 presidential election were known, and the federal landscape has shifted dramatically since then. The White House is now aiming for a 100% carbon-free power grid by 2035, 15 years earlier than the 2050 target many utilities have set. And most utilities are still wary of more prescriptive federal policies, favoring instead market-based approaches — though some would prefer federal regulation over a patchwork of different state approaches.
Meanwhile, the Federal Energy Regulatory Commission is now chaired by Richard Glick, who has pledged to make "significant progress" on the energy transition, and has already taken action to consider the climate impacts of gas infrastructure, lower barriers to demand response aggregations and more.
Utilities mixed on what FERC should prioritize
Respondents submitted their answers before Glick took over as chair of FERC. But results from the 2021 SEU survey reflect some evergreen issues as well as ongoing tensions amid among power sector stakeholders.
Accommodating state renewable energy policies, strengthening cybersecurity requirements, supporting baseload generation and establishing a carbon price were among the top priorities survey respondents believe FERC should tackle. Slightly lower priorities include addressing how state subsidies impact the competitiveness of the wholesale markets, updating transmission incentives and applying a clear and consistent method for assessing climate impacts.
"The host of issues being tackled by FERC underscores their importance at a critical time in the industry," said Karen Felton, power & utilities leader for Ernst and Young Americas, in an email. "Cybersecurity and Critical Infrastructure Protection, along with thoughtful consideration of how we prepare for extreme weather events in light of the Texas power failure are only a few issues that we consistently hear about from clients as among those they'd like to see prioritized."
The first priority for respondents was that the commission work with grid operators to better ensure state renewable energy policies are being accommodated, with 35% choosing it as their top issue FERC should address.
Tensions among states, grid operators and federal regulators have risen in recent years, particularly as FERC under the Trump administration took action to combat state subsidies within eastern regional transmission organizations. Critics said the move appeared to be a sign of the federal government attempting to interfere in state resource decisions. Market uncertainty borne out of the conflict still has not been resolved in some cases.
In New Jersey, for example, the minimum offer price rule (MOPR) expansion across the PJM Interconnection, which effectively raised the price for all state-subsidized resources bidding into capacity markets, is the subject of an ongoing proceeding within the state's Board of Public Utilities, pitting energy providers against investor-owned utilities who have vastly different ideas about how the state should mitigate the MOPR impacts.
FERC, since the SEU survey was conducted, has announced a series of technical conferences intended to address these and other issues within wholesale markets, with the first one taking place in March. But one of the issues that sparked the MOPR expansion in the first place was competitive generators' push for the commission to tackle what they saw as distortive impacts of state subsidies on the wholesale power markets.
Nevertheless, just 23% of survey participants believe FERC should address whether state subsidies are impacting the competitiveness of the wholesale market, falling below power sector professionals' preference that the commission "take action" to support baseload generation (31%) or set a carbon price on the power sector (30%).
Supporting baseload generation would likely be hazardous politically, given the outrage that followed the Department of Energy's 2017 proposed rule to provide compensation to power plants with onsite fuel, such as coal and nuclear, that was ultimately shot down by the commission. And it seems unlikely that the current commission would take up a similar issue, given FERC earlier this year closed the resilience docket opened in response to the DOE proposal.
But generators still want to ensure the power mix is reliable, said Electric Power Supply Association CEO Todd Snitchler. A rational market design would ensure adequate resources are available as the power mix changes, he said.
"You're still going to need to retain those resources that can keep the lights on when those other resources are unavailable," said Snitchler. "And if we're calling that baseload generation, then yeah, that [market] redesign or that approach to make sure those resources can continue to operate is critically important."
EPSA and other competitive generators, who had originally pushed FERC toward the MOPR expansion, have begun to embrace policies like a clean energy standard or a carbon price, which they characterize as more market-based decarbonization solutions. Some 30% of respondents said FERC should prioritize establishing a carbon price mechanism for the power sector. Though the commission seems unlikely to pursue a carbon price unilaterally, it issued a policy statement last fall affirming its authority to approve such a mechanism if proposed by a grid operator.
Support for federal tax credits, targeted federal decarbonization policy strong
The majority of the 2021 SEU respondents — 50% — said that providing financial incentives for renewable energy development is the most effective way to decarbonize the power system. Just under half — 45% — of respondents cited strong federal decarbonization policy, backed up with clear targets, regulation and enforcement as the most effective way to decarbonize.
In separate questions, respondents also cited the federal tax credit additions and expansions as the most effective way to bring more renewable energy and energy storage onto the power grid.
Some analysts maintain that policy drivers would better and more efficiently decarbonize the power sector.
It seems that stronger federal renewable portfolio standards or other federal mandates would be a more effective and efficient way to bring renewable energy onto the grid, said Sanem Sergici, a principal at Brattle.
"But ... you have to keep in mind that these are utility folks … living and breathing in this environment," she said, adding they might be skeptical "about the state and federal directed pathways" and extending tax credits might make it "easier for them to justify these investments," she added.
Investor-owned utilities support revamping existing tax credits, increased federal research and development and creating new, technology-neutral tax credits, according to the Edison Electric Institute. Rural electric cooperatives would like to take advantage of these incentives, said Louis Finkel, the National Rural Electric Cooperative Association's (NRECA) senior vice president of government relations, but are unable to, because of the way the tax credits are currently structured. Instead, NRECA has been advocating for credits to be converted into a direct pay mechanism, something the renewable energy industry has also pushed for, particularly since the COVID-19 pandemic.
"Part of why we've seen the price come down and those renewable resources become more competitive, is ... because of that tax policy," said Finkel. "But it hasn't been equal for all market participants and for all utilities. And so, without question, this is a priority for us."
The December stimulus package included tax credit extensions for wind and solar and a new tax credit for offshore wind development, omitting tax incentives for standalone energy storage.
Insufficient state and federal incentives for energy storage development was the second most cited challenge, behind high costs, of integrating the technology, according to 2021 SEU respondents.
"To speed this process, the Biden administration could extend the US Investment Tax Credit to stand alone storage systems, which would be a welcome incentive," said Felton.