WASHINGTON — The Energy Bar Association last week named the general session at its annual meeting in honor of the late FERC Chairman Kevin McIntyre, who died last year. The two-day conference included discussions on climate change, distributed energy resources and transmission rates, along with speeches by current FERC commissioners. Here’s some of what we heard.
During the general session, which was about solving climate change, Karl Hausker, senior fellow at the World Resources Institute’s Climate Program, noted the growing number of companies, states and environmentalists calling for the use 100% renewable resources.
But Hausker also noted that the four pathways to limit global warming to 1.5 degrees Celsius in the U.N. Intergovernmental Panel on Climate Change’s report, released in October, only call for 60 to 80% renewables. Other studies, including those by the Obama administration and even the Natural Resources Defense Council, “all conclude that we can have a renewable-dominant system, but you can’t go all the way to 100%.” At a certain percentage, system operating costs increase exponentially, he said.
Hausker said other states are “trying to bridge this divide between the advocates of 100% renewables and those who would take a broader technology palate” by increasing their renewable portfolio standards but also setting a more long-term goal of zero emissions. “That’s a very significant development, and I think it’s a way we can bridge this divide between climate hawks.”
He also said, “we should spread our chips and not bet the climate on one or two technologies, no matter how green or fuzzy or politically acceptable they are right now.”
“We don’t really have a choice on whether to commercialize carbon capture and sequestration technology,” he said. “At a minimum, we’re going to be needing to draw CO2 out of the atmosphere by mid-century … we need to get on that task now.”
All Hands on Deck in Duke Storm Preparations
In a panel on natural disasters and utility infrastructure, Kodwo Ghartey-Tagoe, Duke Energy’s South Carolina president, talked about his utility’s new normal after surviving “two ‘500-year’ storms” — Hurricanes Irma in 2017 and Florence in 2018.
“So, we’re preparing year-round for these now, and I will tell you something we implemented recently: Every employee has a storm role in our company. You’re either answering phones, or you are joining a scout team to assess damages, or you join a logistics team to arrange for the feeding and caring of employees and contractors who do the restoration work. There’s a role for every one of our 30,000 employees.
“Lately because of all the flooding, we’ve had to find some innovative ways to [assess storm damage],” he continued. “We’ve become very adept at using drones to assess damages. … And these drones cannot just be piloted by anyone; you’ve got to be a licensed pilot to operate these drones. And when we run out of licensed pilots we have to reach out to our neighboring utilities.”
Ghartey-Tagoe said Irma “heightened the need for prestaging closer to where the storm is expected to hit,” a lesson he said the company put to use in preparing for Florence.
“It was the most challenging and most demanding effort in storm restoration in Duke Energy’s history,” he said. “We expected so much damage that we arranged for 20,000 resources to come into our territory before the storm even hit.”
About 2,000 personnel and their equipment were staged at the Darlington Raceway. “I’d never seen so many trucks in my life,” he said.
“I didn’t even know this until then: There are companies you can hire to come in and cook for 1,200 people — prepare three meals a day for 1,200 people.”
The loaned utility workers supplemented Duke’s own. “We had linemen whose families were impacted — their homes were destroyed — and yet they did not take a day off,” Ghartey-Tagoe said. “They were out there restoring customers.”
Innovation in FERC Hearing Processes
“This is not a panel; it’s an infomercial,” said FERC Administrative Law Judge John P. Dring, as he opened a panel on alternatives to hearings for disputes involving less than $1 million.
Dring said a survey he conducted two years ago found it cost $1 million to try a case at FERC involving a single witness. That means that in disputes less than that, there is an “economic foreclosure of due process rights,” he said.
As a result, Dring has been exploring alternatives, including expedited track 1 hearings with limited discovery and shorter briefing papers.
Steve Pearson of Spiegel & McDiarmid said a streamlined track 1 proceeding could be attractive to his clients: small, municipally owned transmission-dependent utilities.
It involves an “a la carte” procedural schedule tailored to ensure the case can be tried for less than the amount in controversy. The minitrials will have no precedential effect. Pacific Gas and Electric and the city of San Francisco recently incorporated minitrial provisions in their tariffs.
“You’ve got to be [interested in a] settlement. You’ve got to be focused on reaching a resolution to the case,” Pearson said. “If you’re interested in fighting, this isn’t for you.”
Jeffrey Jakubiak of Gibson, Dunn & Crutcher outlined the concept of a “harmonic auction,” which can be used to settle two-party disputes that can be quantified. “I think there are many cases that could benefit from this, maybe reactive power cases,” he said.
It begins at the midpoint between the two “terminal positions” — the outcome that each bidder considers optimal — with an agreed upon “interval amount,” the minimum change in bid positions.
The winner of a coin toss is given an opportunity to accept a bid offered at one interval away from the midpoint, in the direction of his or her terminal position.
If this bid is not accepted, the next bid price is one interval away from the midpoint in the direction of the loser of the coin toss.
If this bid is not accepted, the bid moves an additional interval amount from the midpoint, toward the coin toss winner’s terminal position (two intervals from the midpoint).
The process continues until one of the parties accepts the bid. Understanding the counterparty’s goal is essential to success.
“You want to say ‘uncle’ right before they do,” Jakubiak explained.
Back to the Future
One panel discussed whether FERC would ever resolve how to calculate the return on equity for transmission lines.
In October, FERC proposed a new method for calculating ROEs, saying it will no longer rely solely on the discounted cash flow model and instead use a composite of it and three other models. (See FERC Changing ROE Rules; Higher Rates Likely.)
The proposal was a result of the D.C. Circuit Court of Appeals rejecting FERC’s 2011 Opinion 531, which reduced a group of New England transmission owners’ ROE from 11.14% to 10.57%. John P. Coyle, a partner at Duncan & Allen, pointed out that FERC’s new calculations produced figures nearly equal to those calculated in Opinion 489 in 2006, which set the initial 11.14% rate.
“If Doc Emmett Brown were here today, he would say, ‘We’re going back to the future!’” Coyle said in his best Christopher Lloyd impression, while displaying a picture of the DeLorean time machine.
Coyle said that the court rejected Opinion 531 because FERC didn’t include any evidence to support its conclusion, not because it found the new ROE itself to unjust and unreasonable. He displayed data showing decreases in bond yields between opinions 489 and 531.
“What happened between 2006 and 2011? Let me see. Lehman Brothers filed for Chapter 11. We had the Great Recession.”
Kirkland & Ellis’ Robert Fleishman, who has edited the Energy Law Journal since 2005, was awarded the EBA’s 2019 President’s Award.
“Bob’s dedication to EBA is unparalleled. He has served in countless capacities since 1995, his term as editor-in-chief of the Energy Law Journal being just one,” said EBA President Matt Rudolphi in a statement. “I can think of no one more worthy of the President’s Award.”
Daniel T. Pancamo, of Phelps Dunbar, was named winner of the Jason F. Leif Chapter Service Award, and former EBA President Emma Hand, of Dentons, was named the EBA’s first Diversity and Inclusion Champion.
– Michael Brooks and Rich Heidorn Jr.