Between FERC and a Hard Place

The Federal Energy Regulatory Commission is trying to avoid being drawn into the political battle over the regulatory agenda being pursued by the US EPA against fossil fuel emissions in the wave of new environmental regulations being issued by the agency.   US EPA knows it is only a few votes away from being overturned in the US Senate where even Democrats running for re-election want desperately to avoid having to take a stand on this issue.

Industry trade groups, state regulators and industry leaders that see the EPA regulatory push as a full frontal assault on fossil fuels in pursuit of an obvious political agenda are doing everything they can to stop the regulations from going into effect or to make sure they are a 2012 election year issues that forces all politicians to take sides.  The environmental advocates for greenhouse gas emissions reduction and using less fossil fuel are pushing back and trying to push the agenda forward before it is too late.

On top of that rising gasoline prices have drawn national attention and threaten to hurt the President’s reelection chances each time a voter fills up his or her gas tank.

What does this have to do with FERC?

Some Congressional genius in our political past, decided to fragment the responsibility for energy policy and regulation across a wide range of Federal agencies.  In its wisdom Congress designated:

  • US EPA with responsibility for enforcing clean air and clean water policies but left it to the agency to define the details of regulations to do so.
  • Department of the Interior took on the responsibility for managing the energy production on Federal lands and thus controls a gigantic portion of the best available real estate for wind, solar, oil and gas and hydropower production in the US.
  • Department of Energy inherited the nuclear facilities and fuels, the national laboratories and, of late, the industrial policy and investment strategies for emerging technologies that are giving it Solyndra headaches.
  • Department of Defense is all hot and bothered over energy security so it has gone on a mission to create microgrids and renewable energy resources at military bases and to use its substantial influence to develop mobile energy potential, energy storage capabilities and other technologies it thinks it will need to fight future wars with growing energy demands from its arsenal of technologies.

FERC is an independent regulatory agency focused on defining fair and reasonable market prices, setting allowable tariff prices and adjudicating complaints between market participants.   But some now want to assign it a Solomon like role of assessing the impacts and implications of the rulemaking jumble of these other Federal agencies on resource adequate and electricity reliability.  If this sounds to you like a no-win front row seat at a mud-slinging contest, then you understand why FERC is reluctant to get involved.  Ironically, it may actually be the least-worst solution.

Congress passes these laws without a clue about how they will actually work.  They authorize the Federal agencies to adopt rules to implement and enforce the law, but the law is so vague that it is sometimes impossible to interpret Congressional intent. This is why things are so messed up in Washington and why it scores so low in our public opinion polls.  Regulation, rather than defining procedures to implement a clear policy, is being used to write entirely new law and policy.  Then additional regulations like the “endangerment finding on the health effects of CO2” take a law and turn it into a battering ram.  Such a law likely would not have been approved by Congress in the first instance, but it has become de facto law through regulations.

FERC is being called upon to rationalize the irrational.  Do we really want to shut down so many coal fired power plants in such a short period of time that we jeopardize electric grid reliability?  Was it Congressional intent to use regulations to drive up the cost of a legal activity like producing electricity from fossil fuels to the point where it is no longer economic to do so? Did Congress intend to drive up electricity rates to end use customers to pay for the cumulative cost of emissions reduction, renewable energy expansion and smart grid deployment this much?

Do you see what I mean?

All of these rules and regulations have been written by policy advocates who reject any responsibility to balance the cost and benefit of their regulatory actions.  The resource agencies tell us their job is to protect the environment.  They decide alone what methodology to use.  Are they selectively counting the benefits and selectively forgetting the costs?  Is that really their biological opinion or is it their political opinion.

There is no standard methodology for calculating regulatory cost benefit.  There is no administrative law judge responsible for forcing these Federal agencies to own a burden of proving the need for the regulation they propose or the reasonableness of their cost in the public interest. Yet in Federal rules enforcement companies and individuals are often guilty until they can prove themselves innocent.

FERC is being asked to assert itself as an independent arbiter of reasonableness in Federal regulations affecting energy.  By opening a proceeding and taking testimony about the implications and impact of proposed EPA regulations on greenhouse gas emissions and their effect on electricity reliability, resource adequacy the reasonableness of the balance of cost and benefits of the proposed rules, their implementation timing and cost, the industry is crying out for common sense.

But Congress has not authorized FERC to define common sense in Federal rulemaking—-and it may not like the answer FERC gives.  But this is another useful signpost about how our Federal regulatory and rulemaking process is broken and needs to be fixed.

There ends the rant.

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3 thoughts on “Between FERC and a Hard Place

  1. I agree that the division of responsibility for federal energy policy is poorly defined.

    I think you’re wrong, though, that FERC “is trying to avoid being drawn into the political battle over the regulatory agenda being pursued by the US EPA against fossil fuel emissions.” In fact, I think that the commissioners are all too eager to insert themselves into a debate that is not really under their jurisdiction. FERC has suggested that EPA’s regulations raise questions of reliability. However, FERC’s responsibility to address reliability derives from EPAct 2005. This statute gave FERC the authority to establish operational and planning standards but specifically excluded capacity or adequacy from the commission’s jurisdiction.

  2. Hello Gary:
    You should expand on your research and develop an article for Businessweek or Barons along the lines that you laid out. Energy does have a lot of chiefs and no Indians. FERC is institutionally conservative and risk averse, which may be a good thing. I personally wish that FERC would act more like NYSERDA but there again, as you would note, it is not given that authority. Market reliability is its raison d’etre.

    I would like Congress to impose an exergy requirement on all utilities, which would really change the marketplace. In that regard FERC would need to ensure reliability and efficiency.
    Currently there is no efficiency metric on the industry which is extraordinary. Ayers-Warr metrics could be applied. GHG play no role. I find it interesting that in the CERA conference, exergy was not a topic.

    I am forwarding your blog entry to a Businessweek editor as a story idea that you might want to develop.

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