America’s electric grid is undergoing unprecedented changes that could threaten reliability in discrete markets. This was the take-away lesson from the Federal Energy Regulatory Commission’s annual reliability conference in Washington, D.C. yesterday. To watch an archived webcast of the conference, or read participant testimonies, click here.
The challenges facing the grid are many:
- Due to breakthroughs in drilling, natural gas is historically cheap. Gas, in turn, is the benchmark that sets wholesale electricity rates. With prices depressed, utilities and independent power producers have retired almost 4,000 megawatts of nuclear power, due primarily to nuclear power’s relatively high operating costs, although Clean Water Act compliance costs contributed to these decisions.
- At the same time, the EPA is waging a war on coal, which, when combined with depressed prices, has lead to the retirement of 22,000 megawatts of coal-fired electricity. Due to one egregious regulation, known as the Utility MACT, many thousands more megawatts of coal-fired electricity will retire next spring.
- Gas has been filling the void left by coal and nuclear retirements. Gas fired generation capacity has increased to now represent more than 40 percent of total capacity in North America, an increase from under 30 percent as recent as five years ago. This presents challenges unto itself, because the natural gas pipeline system wasn’t built to accommodate electricity production. The ensuing bottlenecks can have reliability impacts. This was a major lesson from last winter’s polar vortex.
- Finally, the enactment of green energy production quotas in 30 States has resulted in widespread use of intermittent renewable energy sources like solar and wind energy. Because the power supplied to the grid must be balanced carefully with power consumed from the grid, the unreliable nature of green energy presents engineering challenges.
Into this milieu will be thrust FERC’s next chair to succeed Jon Wellinghoff, whose term ended last November. FERC’s role in protecting the grid’s reliability stems from an amorphous mandate in the 2005 Energy Policy Act. In fact, FERC has limited power to effectuate policy that impacts reliability; however, in practice, the commission can perform a vital role as an information clearinghouse and a source of expertise. The chair, moreover, has a bully pulpit. Ideally, he or she would also act as the grown up in the room when EPA contemplates politicized regulations with broad consequences for the electricity sector.
The President’s first pick for the job was Ron Binz, whose nomination was scuttled by the Senate Energy and Natural Resources (ENR) Committee when it became apparent that he was an opponent of all forms of conventional energy.
For his second pick, the President chose Norman Bay. And again, the President took the highly unusual step of nominating someone for FERC chair who isn’t a currently serving commissioner. Instead, Bay comes from FERC’s Office of Enforcement. Bay’s confirmation hearing before the Senate ENR Committee took place on May 20th (webcast here). As a former prosecutor, it should come as no surprise that he was adept at handling questions in person. However, in answers to follow up written questions, Bay raises serious red flags about whether he’s an appropriate pick for chair, especially in light of the tumult within the electric sector.
For example, Ranking Member Lisa Murkowski’s second question basically asked what was Bay’s experience within the electricity sector, beyond being head of FERC’s Office of Enforcement (which, it should be noted, encompasses duties that are discrete within the FERC). In response, Bay elaborated on his collaboration with two national energy laboratories in New Mexico. Needless to say, his answer doesn’t inspire confidence in his ability to effectively manage FERC’s response to the tectonic shifts now afflicting the electric industry.
Ranking Member Murkowski’s eighth question addressed EPA regulations. In response, Bay vouched for EPA’s reliability analyses. This is very troubling, because EPA’s reliability modeling has been second guessed by an informal FERC vetting, and also proven wrong by events.
Read all of the questions and answers here. In a later post, I’ll address Bay’s record at the Office of Enforcement, including juicy allegations of lying leveled by Bay against a former FERC official. In this post, I wanted only to highlight Bay’s evident absence of experience and also his apparent willingness to buy into EPA’s flawed reliability analyses. These qualities would serve poorly any FERC chair. Yet they are especially inappropriate characteristics for a FERC chair in the midst of unprecedented change within the electric sector.