February 2020, Vol. 247, No. 2


FERC Boosts Natural Gas

By Stephen Barlas, Contributing Editor; Washington, D.C.

An order issued by the Federal Energy Regulatory Commission (FERC) in December against state subsidies for nuclear and renewable energy – called “out-of-market subsidies” – apparently gives a big boost to electric utilities using natural gas and the pipelines that feed them. 

The “capacity order” issued by FERC allows PJM, the largest regional transmission organization (RTO) in the United States, essentially to disregard state “clean energy” subsidies, including the increased use of alternative energy sources to ameliorate climate change, as it considers prices of energy sources when administering its wholesale capacity market, covering 13 states. 

In capacity markets, generators bid for supply three years before that supply is needed. RTOs and their sister independent system operators (ISOs) in other regions, such as New England, are charged with assuring electricity is available at a reasonable cost and when needed in the states they cover.

FERC Chairman Neil Chatterjee said issuing the order, “An important aspect of competitive markets is that they provide a level playing field for all resources, and this order ensures just that within the PJM footprint.” For example, a Grid Strategies report states that combined subsidies in Illinois, Ohio and New Jersey (key PJM markets) for nuclear power plants alone could approach $600 million in 2020. The FERC order also negates subsidies that result from states mandating higher renewable and nuclear percentages in state energy generation portfolios as part of responses concerning “climate change.”

Commissioner Richard Glick opposed the order saying, “From the beginning, this proceeding has been about two things:  Dramatically increasing the price of capacity in PJM and slowing the region’s transition to a clean energy future. Today’s order will do just that. I strongly dissent from today’s order as I believe it is illegal, illogical and truly bad public policy.”

The order, which favors natural gas, may well set a precedent for FERC decisions on how other RTOs and ISOs price energy in capacity auctions. The American Petroleum Institute (API) had been pressing FERC to give the PJM, which is lacking in solar and wind energy, the authority to disregard subsidies. 

Dustin Meyer, director of Market Development for API, said, “Natural gas has earned its market share growth, and our country has greatly benefited from the increased adoption of domestically produced natural gas for electricity generation, having reduced carbon emissions to generational lows. We look forward to continuing our work with FERC and PJM to ensure policies promote a level playing field.” 

Ohio and Pennsylvania are the two biggest electricity markets in the PJM region. Ohio, for example, recently approved subsidies for First Energy Solutions, a major nuclear power provider in the state. Ohio has at least six natural gas plants in some phase of planning or development and more than $25 billion is being spent to build new power plants – nearly all of which are natural gas — across the Appalachian Basin states of Ohio, Pennsylvania and West Virginia. The eastern half of Ohio also lies atop the Utica and Marcellus formations. 

Lawrence K. Friedeman, a commissioner on the Public Utilities Commission of Ohio (PUCO), told a House committee in May the state has 113 natural gas pipeline operators, and more than 71,000 miles of transmission, distribution and gathering lines. 

The Nexus Gas Transmission pipeline, owned by Enbridge, and the Rover Pipeline, owned by Energy Transfer LP, pick up gas in eastern Ohio and move it through the state and elsewhere in the PJM region. Neither company replied to a request for comment on the FERC order.

That FERC disadvantaged nuclear power is clear from the statement by Maria Korsnick, president and chief executive officer of the Nuclear Energy Institute. She said, “FERC’s order intrudes on states’ authority to protect the environment by undermining policies that support carbon-free, reliable, electric generation for their residents while keeping prices low.”

  Democrats in Congress were dismayed by the FERC decision, too. House Energy and Commerce Committee Chairman Frank Pallone Jr. (D-N.J.) said FERC “is handing a literal lump of coal to New Jersey and other PJM states that are trying to tackle climate change, grow clean energy jobs and reduce costs for consumers.” 

The FERC order results from a decision in June 2018 in which the commission determined that PJM’s Open Access Transmission Tariff was unjust and unreasonable because the Minimum Offer Price Rule (MOPR) failed to address the price-distorting impact of resources receiving out-of-market support. 

FERC ordered the PJM to submit a replacement rate that retained PJM’s current review of new natural gas-fired resources under the MOPR, and extended the MOPR to include both new and existing resources, internal and external, that receive, or are entitled to receive, certain out-of-market payments. The PJM replied with two alternatives that did not pass FERC’s muster, resulting in FERC issuing its own decision in mid-December 2019 on how subsidies must be accounted.

“This is necessary because the record demonstrates that an immediate threat to the competitiveness of the PJM capacity market is the decision by some states to use out-of-market subsidies to prevent or delay the retirement of state-preferred resources that are unable to compete with more efficient generation,” FERC stated in its order. 

Despite claims that the FERC order hurts the prospects for “clean energy” in the United States, API points out that natural gas-fired transmission in the PJM region since the 2007/2008 delivery year increased by nearly 90%, relative to coal and nuclear, which have decreased by 6% and 30%, respectively.  At the same time, CO2, NOX and SO2 emissions in PJM have been reduced by 30% since 2005.

Moreover, PJM officials acknowledge that the development of renewable power capacity has stalled across the region. “In our interconnection queues, we used to have a significant amount of renewables in the queue,” said Stu Bresler in an S&P Global story. “That has come down drastically. I’m not sure why.”

Accidental Release Reporting for Pipeline Construction

Construction companies working on building or repairing pipelines would have to report “accidental releases” to the Chemical Safety and Hazard Investigation Board (CSB), a federal agency that issues reports mainly on fires at industrial and manufacturing facilities. The proposed rule applies to companies in NAICS code 237120, which comprises establishments primarily engaged in the construction of oil and gas lines, mains, pumping stations, refineries and storage tanks. The work performed may include new work, reconstruction, rehabilitation and repairs.

The CSB was established in 1990 but did not start operating until 1998. Its congressional authorization requires it to have an accidental release reporting requirement. None has been produced, though the CSB issued an advanced notice of proposed rulemaking in 2009. Nothing happened for a decade, until Feb. 4, 2019, when a U.S. District Court judge ordered the CSB to issue a rule requiring the reporting of accidental chemical releases to the CSB. The court gave the CSB one year to issue the rule. The proposed rule was published on Dec. 12, 2019, making it unlikely the agency will meet the court deadline.

The proposed rule requires reporting for releases of “extremely hazardous substances,” which include any substance that alone, or in combination with other substances or factors, causes death, serious injury or substantial property damages. Any release must be reported; there is no threshold. In addition, a report must be issued if the release causes “substantial property damage” above $1 million. Reports would have to be issued within four hours of the release.

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