FERC Can Lead the Way on Clean Energy
Yesterday President Biden named Rich Glick to be the new chairman of the Federal Energy Regulatory Commission, the nation’s energy regulator. After years in which FERC’s rules and policies have failed to keep pace with, and even impeded, the nation’s energy transformation, Glick has an opportunity to reorient the Commission for the future.
A clean electricity system is key to fighting the climate crisis. Acting squarely within its statutory mandates, FERC can help transform our power system and accelerate the equitable transition of the power, transportation, and building sectors away from fossil fuels and toward the carbon-free electricity we need to address climate change.
Among the most pressing reforms FERC faces are:
- Building the power grid we need to run a carbon-free economy;
- Prioritizing equity and environmental justice in FERC decision-making; and
- Taking a hard look at climate impacts and the real need for new gas infrastructure.
FERC holds extensive authority for regulating the nation’s electricity and gas industries. The Federal Power Act requires that electricity rates and practices be “just and reasonable,” and not “unduly discriminatory” or “preferential.” On the gas side, the Natural Gas Act says that FERC must determine whether a new interstate pipeline is required by the “public convenience and necessity” or whether a new liquefied natural gas (LNG) terminal is “consistent with the public interest.”
FERC’s interpretation of these broad terms can frustrate or facilitate clean energy development, and courts rarely second-guess FERC’s decisions.
The Future Is Here, the Power Grid Isn’t
We are at a critical inflection point in the energy transformation. Clean energy is affordable and reliable, transportation and building electrification is now happening, and the overriding imperative of fighting climate change is stronger than ever. FERC’s markets and transmission—rules need to keep pace.
Power markets are on a crash course
Competitive power markets cover more than two-thirds of the country. Their designs differ based on a combination of historical accident and the electricity regulatory structure of the states. One important difference is how the regional transmission organizations (RTOs) organize their capacity markets, in which power producers are paid for a pledge to produce electricity during times of high demand.
The structure of these capacity markets in much of the nation unfairly gives an advantage to large, fossil-fuel resources while making it harder for solar and wind to compete. Trump-era FERC orders restrict state-supported clean energy resources from selling in the capacity markets. At the same time, the markets also artificially inflate capacity revenues for traditional power plants, keeping far more fossil plants online than are needed to maintain system reliability.
Among the urgent needs for FERC to address in all markets are to:
- Bar the practice of blocking state-supported clean energy resources from capacity markets;
- Initiate a rulemaking that brings how each RTO ensures reliability in line with the needs of a carbon-free power grid;
- Encourage the development of alternative market structures, including structures with more of a state supervisory role, that can ensure resource adequacy at the lowest possible cost while also meeting state clean energy standards; and
- Investigate the market implications of the practice of “self-scheduling” generating units (most often coal plants), which allows them to run regardless of the market clearing price.
Finally, FERC needs to implement Order 2222, which allows smaller and non-traditional power sources to compete in markets. These new technologies, like electric vehicles and energy storage, are essential components of an equitable, just, and pollution-free energy system, and FERC holds tremendous power to accelerate their deployment. Making sure it works correctly is crucial for clean energy—and customers’ bills.
Transmission reforms are long overdue
It is long past time for FERC to catalyze necessary transmission development. In many areas of the country, our power grid is nearly at full capacity; clean energy cannot expand without grid upgrades. Yes, billions of dollars are being spent on transmission, but most projects are for local reliability or rebuilding the existing grid in place. In other words, we’re building and replacing local roads when we need interstate highways, and spending for yesterday’s needs rather than tomorrow’s.
Decarbonization will be nearly impossible without a national power grid that brings renewable energy from where its plentiful to where it’s needed. FERC must reorganize our transmission planning and spending rules around this goal.
Among the primary obstacles to transmission development are the long and complex planning processes that fail to fairly value the benefits of new projects, and disputes over who pays for the new projects. The result is that customers face higher costs because lower cost clean energy can’t make it to their homes and our efforts to deliver 100% carbon-free power face stiff headwinds.
FERC can take several steps to help bring the grid into the 21st century, including for example:
- Put decarbonization on equal footing with reliability and cost as a governing principle of transmission planning;
- Replace FERC’s weak “coordination” requirements—which have broken the nation’s power grid unto largely independent fragments—with a set of strong planning rules that can build the nationwide grid we need;
- Improve cost allocation rules—who pays what for new transmission, including that costs are fairly apportioned among all beneficiaries of the projects, and that all of the energy and climate benefits of new transmission are accounted for assessing the projects’ value;
- To wring significantly more efficiency from the grid, develop new incentives for grid-enhancing technologies—which often are the cheapest solution but aren’t appealing to utilities because they don’t offer the same high rate of return on investment; and
- Apply “smart from the start” principles to transmission planning, which can help address human, equity, and habitat impacts early in the conceptual planning process.
Whether expanding or increasing the efficiency of existing lines and corridors or building new lines (including underground HVDC lines in transportation corridors), FERC needs to act now to break the gridlock.
PURPA: It still matters
In July 2020 FERC issued a rule that effectively guts use of the Public Utility Regulatory Policies Act (PURPA) by small solar developers and others. Among its changes, FERC eliminated the requirement for utilities to offer a fixed energy contract option, instead allowing utilities to offer rates that vary according to market indices or other formulas. FERC’s general reasoning is that markets have become much more open and competitive so PURPA is no longer necessary. This, of course, overlooks the fact that PURPA applies precisely where markets are neither open nor competitive.
FERC could provide an enormous boost to the solar market by issuing a new rule that requires states to either (1) offer long-term contracts on terms that are truly comparable to the guaranteed rate of return utilities earn on their own generation assets or (2) carry out open and competitive solicitations to serve all electric energy and capacity needs. A new PURPA rule would drive renewable energy growth in portions of the country where utilities have prioritized continued operation of their legacy fossil fuel plants over cost savings for customers from readily available wind and solar energy.
New PURPA regulations should be coupled with an enforcement strategy that ensures compliance. Shockingly, despite PURPA’s clear language authorizing FERC to bring enforcement actions against utilities and states, the Commission has never brought such an action.
Bring Equity and Environmental Justice to the Fore
Decisions involving the power sector over many decades have grievously harmed underserved and disenfranchised communities, while accelerating the pace of climate change. In the crystalline words of one writer, “you can’t have climate change without sacrifice zones, and you can’t have sacrifice zones without disposable people, and you can’t have disposable people without racism.”
The transformational shift to clean energy must be inclusive of all communities and that begins with an understanding of how FERC actions exacerbate inequality and injustice.
Congress’ recent prod to FERC to activate its Office of Public Participation after 42 years of FERC inaction is a much-needed step forward. For FERC to breathe life into the office and account for environmental justice and public interest, it will need to take concrete steps, including:
- Authorizing the office to conduct its own investigations and engage in the full scope of FERC’s dockets and proceedings;
- Create an advisory board of representatives of the consumer, environmental justice, and other under-served communities;
- Ensure the full and regular funding of the office regardless of who is leading FERC; and
- Establish a FERC initiative to explore its role in long-standing equity and environmental justice harms in the energy sector and the potential for FERC action to address them.
Gas: Taking a Hard Look at Impacts and Need
The Natural Gas Act requires FERC to reject gas and LNG projects that are unneeded or inconsistent with the public interest. FERC has not treated this as a high bar. It has approved almost all the more than 400 gas applications it has received since 2000.
FERC’s gas reviews are blinkered in at least two fundamental ways. FERC looks very narrowly at whether a project is “needed,” and FERC doesn’t assess a project’s full climate impacts.
First, on the issue of need: Rather than considering all relevant factors, including potential customer cost savings and demand projections, FERC relies almost exclusively on contracts between the pipeline developer and potential gas shippers, including when the shipper is itself a corporate affiliate of the pipeline and there is no arms-length market support for the project. The need analysis has essentially been reduced to a “check-the-box” paper exercise. But there are clearly other factors that inform whether a project is “needed.”
Second, FERC is supposed to balance a pipeline’s potential benefits against its harms, including environmental harms. For LNG projects, FERC is required to determine whether an export terminal is consistent with the public interest. Both of these require FERC to assess a project’s climate, environmental, equity, and other impacts.
Despite these requirements, FERC has downplayed consideration of climate impacts in its reviews. Many members of the Commission have refused to assess the project’s upstream (for example, emissions from gas extraction) and downstream (for example, power plant emissions) climate impacts. GHG emissions from LNG exports are also a serious concern.
FERC has justified its refusal to do a complete climate impacts assessment in part by the alleged lack of a “universal accepted methodology” for assessing such impacts. But that’s a dodge, as now Chairman Glick has repeatedly explained in dissent. FERC can choose one well-grounded methodology, or FERC could use multiple methodologies to identify a range of potential impacts on climate change. Instead, some on the Commission want to just punt.
To align FERC’s work with national climate goals and to avoid building unnecessary gas projects that will soon become stranded assets, the Commission must reassess gas pipeline need and fully incorporate equity and climate change considerations into its project reviews. Process-wise, it could accomplish these reforms by:
- Issuing a new gas infrastructure approval policy to reflect the dramatic changes in the gas market since its last review in 1999, and
- Either adopting a Social Cost of Carbon or establishing a methodology for assessing climate change impacts of proposed projects.
The Choices Are Clear
With the right policies and reforms, FERC can help our country avoid the worst effects of the climate crisis. Clean energy is now economic energy, and electrifying our nation is a key to winning the fight against climate change. We cannot afford to prop up dirty, legacy power sources any longer; FERC must keep pace with the dramatic energy transformation taking place across the nation.