Back to basics at FERC

On May 20th, the Senate Energy and Natural Resources Committee plans a hearing on the nominations of Cheryl A. LaFleur and Norman C. Bay to the Federal Energy Regulatory Commission.

Spring has brought better weather and opportunity in Washington. Louisiana’s own Sen. Mary Landrieu (D) recently became chair of the committee, which enjoys jurisdiction over energy issues ranging from oil and natural gas to electricity. The senator from the sportsman’s paradise knows abundant supplies of energy mean affordable prices for consumers. It’s fair to expect the senator will question the nominees about FERC issues important to the Pelican state, such as liquefied natural gas exports and plans by a hedge fund to abandon a 370-mile natural gas pipeline that could eliminate service and double the utility bills of thousands of Louisianans.

I hope Sen. Landrieu and her colleagues will ask Mr. Bay and Ms. LaFleur about FERC efforts to protect the reliability of the nation’s power grid and ensure the affordability of electricity for consumers. The FERC nominees should also address FERC’s controversial and unprecedented effort in its Order 1000 to restructure the nation’s transmission grid.

As spring arrives, the deep freeze that slammed the North for weeks has given way to moderate temperatures. But last winter’s polar vortex has left a heaping pile of questions about future rate shocks and the ability of utilities to keep the lights on. Consumers want utilities and regulators to get back to the basics of sensible economics. According to recent polls, cost and reliability rank ahead of all other electricity issues for consumers.

Ratepayers are justifiably worried. Last winter’s polar vortex was not just a historic winter storm but a warning about how we will deliver energy on a future grid designed on policy and not economics.  Federal regulations forcing the retirement of coal-fired plants, and the dash to low priced natural gas, raise the certain guarantee of power shortfalls and price volatility.

As a series of cold snaps marched across the East Coast last winter, it’s a fact that coal saved the day—and just barely and only temporarily. American Electric Power Company president Nicholas Akins told members of Congress that almost 90 percent of the generation his utility needed to meet power demand in January won’t be available in 2015. “This country did not just dodge a bullet – we dodged a cannonball,” Akins said.

FERC can’t be blamed for freezing temperatures, volatility in the natural gas markets or environmental restrictions imposed by other federal agencies. But it remains unclear how FERC’s plans for the nation’s power grid will address reliability and affordability issues. FERC’s approach to transmission, without a better understanding of electrical generation shortfall, seems less a solution than part of the problem.

Order 1000 imposed radical changes in the way utilities and regions plan and pay for new transmission. Washington would micro-manage the electricity system by demanding top-down regional planning that ignored state and local authority. The FERC also wanted electricity costs determined in a new way. Instead of shielding consumers from high rates, FERC mandated costs be spread more widely and benefits defined more broadly.

FERC’s approach in Order 1000 was predicated on the goal of building a nationwide high-voltage transmission system that would deliver enormous amounts of intermittent clean electricity thousands of miles from the windiest parts of the country to the nation’s heavily populated cities. The advent of low priced natural gas and the rise of solar energy, especially distributed generation, raise questions about whether Order 1000 encourages construction of overpriced transmission projects that are already obsolete and a waste of ratepayer funds. 

The FERC’s implementation of Order 1000 over the last year has only exacerbated concerns about the commission’s grid effort. These orders saddle many consumers with unfair transmission costs, assert unprecedented FERC authority over public power and erode the traditional authority of state and regional regulators.

As a result, these federal efforts have divided the FERC, provoked a backlash in Congress and caused a vigorous response from state utility regulators. Last July, the National Association of Regulatory Utility Commissioners issued a resolution stating that state Order 1000 “inappropriately infringes on State authority” in key areas of transmission policy. FERC’s failure to recognize the indispensable role that states play “could actually delay successful transmission planning and cost allocation,” the resolution stated.

On Capitol Hill, Landrieu’s predecessor, Sen. Ron Wyden (D-Ore.), as committee chairman, was so displeased with FERC’s rejection of key aspects of a compliance plan for the Northwest that he threatened legislation if FERC failed to reverse its ruling. Landrieu has expressed doubts about FERC’s approach to transmission since 2009.

Congress is the appropriate forum for consideration of national electricity power and the upcoming hearing provides an opportunity to continue the debate on FERC transmission policy. Here’s the bottom line: It’s time for FERC to focus on keeping the lights on and ensuring just and reasonable rates for consumers. Economic value for ratepayers must take precedence over government policy.

Skrmetta is chairman of the Louisiana Public Service Commission.

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