FERC sidelined while energy subsidy fight rages
The nation’s grid watchdog has been out of service for nearly a month because of political wrangling in Washington, and already the ripple effects are forcing a faceoff among states, the utility industry and fossil fuel companies over nuclear subsidies.
The Federal Energy Regulatory Commission, or FERC, which regulates the nation’s wholesale energy markets, wants to address the subsidy fight. But because it lacks a quorum, until President Trump nominates new commissioners, it is not allowed to do much more than listen to those embroiled in it.
The growing dispute between the power companies and states has much to do with the rapidly changing U.S. electricity grid, where older nuclear power plants are becoming too expensive to operate in an electricity market dominated by low-cost natural gas.
States such as New York and Illinois have created billions of dollars in subsidies to save their nuclear fleets, which is prompting merchant and natural gas utilities, and most recently the oil industry, to cry foul and sue the states for distorting the market.
In the meantime, FERC is being pressed more than ever before to act as a fair arbiter in the fight, which utility officials frame as one that pits the commission-overseen markets against state-imposed subsidy programs.
This is a “huge issue” for the energy industry, said one official representing the oil and natural gas sector, which has recently stepped into the fight over Connecticut adopting subsidies similar to those in New York and Illinois.
The Electric Power Supply Association, representing natural gas utilities, wants the commission to counter the growth in subsidies before they spread to other states. The nuclear industry is fanning out to begin lobbying legislatures in Ohio, Pennsylvania, New Jersey and Connecticut to adopt policies that would “force consumers” to pay higher electricity prices to save their plants, the group said.
“These attempts will prove as controversial in those states as is already true in New York and Illinois,” said John Shelk, president of the group. “At the same time, there is growing recognition that state subsidies strike at the very heart of the wholesale markets” that the commission regulates. The markets provide tens of millions of consumers with “reliable and competitively priced electricity,” he said.
Shelk’s group and others sued Illinois this month over its nuclear policy, as it battles New York in court over the state’s zero emission credit program to keep its nuclear plants running.
The largest nuclear utility, Exelon, called the arguments “parochial,” explaining in a statement that it “opposes misguided … efforts to block state lawmakers from taking legitimate steps to protect the environment and promote sound economic policies for their citizens.”
Curse of the frozen FERC
FERC was forced into crisis mode Feb. 4 after the normally five-member commission shrunk to just two members. That means it lacks a quorum of at least three commissioners and cannot take up any major issues such as the subsidy fight.
The problem arose after Trump appointed Democratic commissioner Cheryl LaFleur to serve as acting chairwoman of the independent federal agency. But Trump’s decision didn’t sit well with former President Barack Obama’s appointee, Chairman Norman Bay, who resigned almost immediately after Trump chose LaFleur, sending the commission into crisis.
Bay’s resignation came “somewhat to our surprise and certainly to our disappointment,” LaFleur said this month while addressing an annual conference of state utility regulators in Washington.
She said her tour at FERC has been “non-standard,” but that “the last three weeks have been the strangest set of plot twists yet.”
Republican Sen. Dean Heller of Nevada was more blunt, telling a grid storage conference last week that Bay’s departure is “effectively paralyzing the commission.”
LaFleur issued an emergency order that gave senior staff at the agency greater authority to manage the day-to-day activities of overseeing the wholesale electricity and natural gas markets. But the commission cannot issue orders that address major policy concerns or address conflicts over its rulemakings without at least three members on the panel.
While the lack of quorum affects progress on the issue, it doesn’t affect the court cases in which his members and others are suing the states, Shelk said.
Shelk’s members and others pressed FERC to deal with the issue last year when “the issue was out-of-market payments and long-term contracts in Ohio,” he said. That had to do with coal-fired power plants being subsidized by ratepayers. But the principle is the same, he said.
“A number of our members and non-members filed a complaint at FERC … saying this is going to distort the markets,” Shelk said. They wanted FERC to order grid operator PJM Interconnection to do something about it. But FERC “declined” to do anything immediately. Instead, the commissioners agreed there was a problem and asked that the industry give them more time to study it. “But then nothing really happened,” he said.
In January, Shelk’s group filed an amended complaint at FERC over new Illinois subsidies for nuclear plants that were approved late last year. Soon after that, his group and individual utilities sued.
Shelk said the complaint essentially said to the commission that the “Ohio issue has gone away, but the broader issue still remains.” It says that “now you’ve got Illinois and potentially even more states in PJM doing these out-of-market schemes for one fuel, one technology, and this is going to mess up the market.” They want the commission to act by May, which is when PJM has scheduled its next auction to line up power plant capacity for the next three years.
Shelk’s group wants FERC to prevent PJM from including the nuclear charges in the auction.
Shelk is also coordinating with the American Petroleum Institute in opposing the subsidies in other states with nuclear plants.
The oil group represents natural gas drillers that supply power plants. One of the group’s state affiliates recently testified against Connecticut’s pursuit of nuclear subsidies at a state assembly hearing earlier this month.
“When our region has been paying 50 percent more for electricity as compared to the rest of the nation, energy policies need to focus on bringing consumers the best prices rather than picking winners and losers,” said Steven Guveyan, the director of the Connecticut Petroleum Council.
“Providing government subsidies sets a dangerous precedent, distorts the market and provides no incremental environmental impact,” Guveyan said. “Instead of expanding government carveouts and subsidies that could add costs for consumers, the state of Connecticut should embrace the markets, which, thanks to abundant and affordable natural gas, have been delivering lower electricity prices.”
Robert Powelson, the new head of the National Association of Regulatory Utility Commissioners, said he prefers the FERC-overseen grid operators, instead of state legislatures, to work out how generation is priced.
“I think where we are as state leaders is, I think, it’s best left to [the grid operators] when it comes to price formation,” Powelson told the Washington Examiner in a recent interview. “That’s kind of where it should be, and then let the FERC do the screening of this passes the litmus test of the Federal Power Act, [and] you’re not disrupting or displacing other power generation resources.” Powelson, in addition to his role as NARUC president, is a member of the Pennsylvania state utility commission.
Behind door number one
LaFleur said last week that the commission will hold a technical conference on the issue to address the concerns, although the agency cannot do much to intercede until Trump nominates new commissioners and the Senate confirms them.
LaFleur, who hails from Massachusetts that is part of a nine-state cap-and-trade program, told state regulators at a conference in Washington that she would use the conference to find a middle ground between what the markets dictate and what the states want in terms of policy.