By Rory D. Sweeney
WASHINGTON — Resilience, pipelines and the Public Utility Regulatory Policies Act topped the discussions at the National Association of Regulatory Utility Commissioners’ winter meetings last week, which were attended by hundreds of state regulators, utility officials and other industry stakeholders. Here are some of the highlights:
‘Beacon of Stability’
All five FERC commissioners spoke about grid resilience and how RTOs and ISOs should plan to address it.
Commissioner Neil Chatterjee said he hoped FERC’s response to the Department of Energy’s Notice of Proposed Rulemaking assuaged some fears about the commission’s impartiality.
“I’m increasingly gaining appreciation for the role the commission plays … to be a beacon of stability in an otherwise volatile regulatory and legislative landscape,” he said during a panel for NARUC’s Committee on Gas. “I understand why people were concerned. You have four new commissioners coming in, and here’s [Senate Majority Leader Mitch] McConnell’s coal guy. People were concerned that the right decision would get made. I hope now that, in the aftermath, … that people … around the country will have confidence that we’re going to continue going forward in a fuel-neutral, nonpolitical, reasonable way.”
He acknowledged his sympathy for efforts to save coal, given his Kentucky origins.
“The significance of coal-fired generation and the mines, the role they play in the economy, it goes beyond energy and reliability. It really is part of the lifeblood of some communities. … When the plants close, the mines close, the jobs go away, people are left, their only asset is their homes and oftentimes those homes, they have no value because of the lack of economic opportunity, so it’s really, really difficult. Of course, I was sympathetic to the plight of the people in my home part of the country.”
FERC Chairman Kevin McIntyre defended the NOPR as “widely misunderstood by many in the industry” but also acknowledged it had not been a priority for the commission.
“Some of the items we work are actually of our choosing. Others are foisted upon us,” he said.
McIntyre acknowledged that state and federal policy “do overlap in some ways” and assured attendees that the commission takes its rulemaking responsibilities “very seriously.”
“That makes it hard. One cannot simply say, ‘OK, that sounds close enough for us,’” he said. “This country has benefited enormously from robust, competitive markets, so one has to be very careful taking any steps that could have the result of, or even be perceived as, casting aside recognition of those important market benefits.”
Commissioner Robert Powelson told attendees at a Committee on Water panel that he expects any proposal from an RTO to have state support. He said “unequivocally” that any proposal “will not garner any support if I don’t hear from the … member states … on the proposal.”
Commissioner Cheryl LaFleur said, “Of course the views of the states are very important,” adding that states can change grid operators if they prefer.
“We don’t assign you,” she said. “In some regions, the states are not unanimous on one solution, and it does allow the FERC to figure out what’s just, reasonable and nondiscriminatory using our own judgment.”
Commissioner Richard Glick stressed the importance of FERC developing a proposal that actually addresses resilience issues.
“It seems to me … that some RTOs are suggesting things that don’t necessarily [relate] to resilience,” he said.
‘Fresh Look’ at Pipeline Policies
The low cost and abundancy of natural gas also had regulators focused on pipeline infrastructure. Several FERC commissioners discussed McIntyre’s plan to review the commission’s 1999 policy statement on pipeline approval.
“It has been policy at the FERC not only since 1999, but prior to that, to ensure that no pipeline proposal is approved where there is not a demonstrated need for the project. What has evolved … is the standard for determining how that is measured and should it continue to evolve,” McIntyre said. “It’s time for us to dust that off and have a fresh look at it and see what changes, if any, are appropriate to that.”
He said FERC should take into account many variables, including environmental concerns and whether the commission should weigh how many contracts with a pipeline have been signed by affiliates of the applicant.
“They’re still independent market participants, but is that enough?” he said. “Should the regulator look at the stance in that sort of situation and say, ‘That doesn’t seem like a valid arms-length measure of pipeline need.’”
Glick said, “The commission’s kind of veered away from … its approach that it had taken in the past toward considering whether there’s a need for a pipeline.” He said it “seems to be backwards” that the commission has to provide the certificates necessary to access private land to do surveys necessary to determine where pipelines should go.
Chatterjee said he’s “strongly supportive” of reviewing the policy, is concerned about landowner issues and understands the “complex tension that exists.”
Bruce McKay, a senior energy policy director at Dominion Energy who spoke during a panel on pipeline infrastructure, said, “Increasingly, energy policy is being made on a project-by-project basis. The keep-it-in-the-ground movement … the strategy seems to have shifted to go after pipelines and transportation of energy as a way to change energy policy, as opposed to getting likeminded people elected or persuading those elected into office or in policymaking roles to change policy.”
He said that, like highways, the overall capacity of the nation’s pipeline system doesn’t address local constrictions.
“If you can’t get it where you need it when you need it, it becomes a real problem,” he said.
Kimberly Harris, CEO of Puget Sound Energy and chair of the American Gas Association’s board of directors, noted that the U.S. used 147.1 Bcf of gas on Jan. 1.
“We actually set the all-time record for the output of the natural gas system,” she said.
Two-Way Street on PURPA
The commissioners are also interested in reviewing how FERC handles PURPA.
“The question is whether there are steps at the FERC level that will improve the overall playing field of PURPA today,” McIntyre said. “The answer is probably ‘yes.’”
He indicated several issues to examine, including the project size necessary to be a qualified facility. He said calculation of the avoided-cost rate used for PURPA contracts “is still a very old-fashioned process, determined administratively state by state.”
A panel of the Committee on Electricity addressed PURPA issues, arguing that both sides of the issue take advantage of the law for their needs. Advocates for QFs said utilities fight accepting QF energy in favor of their own generation projects, while utilities said QF developers skirt rules to get their projects automatically approved, such as breaking them into smaller-sized units that are automatically accepted.
“The gaming of regulations goes both ways, and you expect that,” said Steve Thomas, an energy contract manager for paper company Domtar.
PURPA opponents contended the law requires utilities to pay for and accept energy production from QFs even if the utility doesn’t need the energy, which can create reliability and operational issues. Proponents say the rule helps QFs crack into markets and that utilities have the tools necessary to avoid paying for energy they don’t need.
“The problem is that utilities don’t want to ever stop buying,” said Todd Glass, an attorney representing solar developers. “They want their own generation. They want to continue building. They want to continue buying. They just don’t want to buy from QFs. … What you need to do is hold the utilities to the task of doing avoided cost. If you’re going to eliminate the ability for QFs to sell to them, you need to eliminate their own ability to self-build and buy for themselves too. You shouldn’t have it both ways: that the utility can get rid of the QFs and then just self-deal.”
Kendal Bowman, Duke Energy’s senior vice president of regulatory affairs and policy, said utilities can avoid taking on QF capacity by reducing their avoided-cost rates to zero — but they are still required to buy the energy as it’s produced.
“That is 70% of that avoided-cost payment,” she said. “Roughly 30% is capacity. The other 70% is energy.”
Montana Public Service Commission Vice Chairman Travis Kavulla said FERC has interpreted PURPA as requiring states to forecast utilities’ avoided-cost rates to set long-term QF contracts.
“This type of administrative pricing essentially requires states to guess at future market prices, allowing QFs to lock in rates that substantially overstate the actual avoided cost as it’s revealed in real time,” he said. “It’s not altogether clear whether a more competitive approach, if states were to embark on it, is legal and comports with FERC’s implementing regulations of PURPA. … It’s ironic that, in the context of a trendy, happening industry like renewables, we’re stuck debating whether or not they should rely on such an arcane crutch like PURPA.”
Glass said PURPA hasn’t solved the problems of getting small energy projects into large utilities.
“Where there is monopoly ownership of generation, transmission and distribution, the problems remain the same,” he said. “Yes, it’s an improvement, but [QF resources accounting for] 9% [of generation] is all we’ve gained in the last 40 years [since PURPA was enacted]. The rest of it is coal, gas, nuclear and the same hydro that existed in 1978. So, yes, we’ve made improvements, but have we achieved a diverse portfolio yet? I don’t think so. We have made strides, don’t get me wrong, in diversifying, but we’re not there yet.”
Thomas saw it both ways. He agreed that cogeneration facilities need the long-term assurance of contracts like PURPA to get approval to make the capital expenditures necessary to build the facilities. But he also supported not paying for more capacity than necessary.
“Certainly any gaming — somebody who can force a utility that doesn’t need to buy capacity or energy to buy capacity and energy — is not good,” he said. “But we do also support the idea that if I want to bring capacity and energy to your system, that it be fair in price.”
He credited PURPA for enabling combined heat and power and waste heat recovery facilities to exist.
“We self-fund our generators. We pay for them out of efficiencies for taking something that was going to go unused and turning it into electricity. I honestly don’t know that that ability would have been there without PURPA to try to, for lack of a better word, force utilities to look at allowing these extra generators,” he said. “It’s hard … to make the case at a new facility to put in the extreme capital cost for generation if we don’t know what the market’s going to be or if the market’s going to be pulled away from us. And PURPA, even if it’s not used, if it’s there, it gives us some [assurance] that we can build those assets.”
Thomas said the goal is to have it both ways.
“That’s what we’re looking for: the wisdom to reshape PURPA as needed to make sure customers don’t have to buy generation and energy that they don’t need, but that when there is a need or when that energy could be fit into a cost curve, that they be allowed to be there,” he said.
Glass objected to Thomas’ characterization.
“During the 90s, I represented pulp-paper companies, steel companies, aluminum companies, developing PURPA projects. Utilities hated us. Even more than they hated us, they hate renewables now. To have a revisionist history where utilities have always liked you guys, they don’t. They don’t like you now, they didn’t like you then, they’re not going to like you in the future if you’re the last man standing,” Glass said.
Panelists discussed several ongoing initiatives to revise the rules. NARUC has sent a request to FERC to reconsider how it handles PURPA. U.S. Rep. Tim Walberg (R-Mich.) has also introduced a bill that would allow state regulators to assume some PURPA decision-making currently held by FERC. Kavulla testified on behalf of NARUC in support of the bill before a congressional subcommittee in January. (See House Panel Considers Bills on PURPA, LNG Exports.)
Thomas warned that Walberg’s legislation would substantially deter cogeneration projects.
“There’s a lot of energy that would go to waste if that were to happen,” he said.
