Federal Energy Regulatory Commission Chairman Neil Chatterjee defended his agency’s progress Thursday, saying the two Republicans and one Democrat remaining at the five-member commission are moving ahead on key issues, such as expanding the country’s transmission network and integrating batteries into regional energy markets.
But Chatterjee's remarks at a Washington, D.C. event will not quell concerns from energy companies that FERC’s lack of action on key issues — such as replacing mid-Atlantic grid operator PJM’s capacity market, which it declared invalid last year — could be extended further by a lack of a quorum at the agency.
Earlier this month, Democrat Richard Glick reported that he had been informed of a previous administrative error that has forced him to recuse himself until December from matters involving his former employer Avangrid, a utility group that does business within PJM.
Chatterjee’s speech Thursday focused on the sunnier side of FERC’s docket, such as its work on Order 841, the groundbreaking mandate for the country’s grid operators to integrate batteries and distributed energy resources into their energy, capacity and ancillary services markets.
Chatterjee, a Kentucky native and former aide to Republican Senate Majority Leader Mitch McConnell, said he is “cognizant of the very real impacts of climate change and believe[s] it’s incumbent on all of us to confront it. This is in part why I have focused my efforts at the commission [on] addressing barriers to competition for energy storage and distributed energy resources in energy markets.”
But talking to reporters after the speech, Chatterjee acknowledged that FERC’s lack of action to approve a replacement to the PJM capacity market is leading to “frustration” from energy companies that rely on the country’s largest capacity auction, valued at roughly $10 billion, for a significant portion of their revenue.
“Look, I understand their frustration,” he said in response to questions about delays in the PJM decision.
“They’ve been waiting for a long time," Chatterjee said. "We continue to work hard at it."
"Commissioner Glick has indicated he is likely to recuse from that proceeding and is not seeking a waiver. But we will continue to do our work to ensure that once that quorum is restored, we can act as expeditiously as possible.”
Why the PJM decision is taking center stage
FERC’s 3-to-2 July 2018 decision that found PJM’s capacity market to be “unjust and unreasonable” due to its treatment of state-subsidized resources has been roundly criticized by environmental and clean energy groups, as well as state attorneys general and utility regulators.
The criticism centers on two aspects. First, the decision threw out an existing market mechanism without providing a replacement. Second, its preferred market mechanism, the minimum offer price rule, threatens to eliminate gigawatts of state-subsidized generation from PJM’s capacity market in years to come.
This could effectively bar capacity market participation for gigawatts of solar and wind power expected to be built under state renewable portfolio standard programs in PJM’s 11-state region stretching from Illinois to Maryland. But it could also challenge state-subsidized nuclear power plants in Illinois and New Jersey, the nuclear and coal plants that won subsidies from Ohio lawmakers this year, or future resources receiving state assistance.
The costs of barring these resources could add up to billions of dollars in higher rates for customers in PJM territory, with various projections ranging from $1.6 billion to $5.7 billion a year.
In the short term, the primary effect of FERC’s decision has been to force PJM to delay its capacity auction over and over again. That’s because FERC has failed to respond to PJM’s alternative proposal filed in October and has offered no alternative to PJM, while providing no guidance on when it might do so.
That’s forced PJM to schedule, then delay, its capacity auction three times — once from April to May, once from May to September, and most recently from September to an unknown future date. With Glick's recusal, the earliest FERC could take up the PJM issue is December, pushing an auction into 2020.
The resulting delay and uncertainty are likely most harmful to the natural-gas power plant operators that supply the vast majority of PJM’s annual capacity needs. Out of the roughly 164 gigawatts of unforced capacity cleared in PJM’s last capacity auction in May 2018, these power plants supplied all but the roughly 11 gigawatts supplied by demand response, 2.8 gigawatts from energy efficiency, 1.4 gigawatts from wind power, and 500 megawatts from solar.
While wind and solar projects tend to rely on capacity payments for a relatively slender portion of their revenues in PJM territory, perhaps around 10 to 15 percent on average, natural-gas-fired power plants may rely on capacity payments for up to about half their overall revenue, Wood Mackenzie Power & Renewables senior analyst Daniel Muñoz-Álvarez noted in last week’s GTM Squared column.
Recusals loom for McNamee on grid resilience
While FERC’s remaining Democrat is now planning to recuse himself from a raft of Avangrid-related issues until December, its newest member, Bernard McNamee, is under pressure to recuse himself from matters relating to his previous work at the Trump administration's Department of Energy.
That’s where McNamee worked on and publicly defended Energy Secretary Rick Perry’s attempt to force grid operators and utilities to buy energy at out-of-market prices from power plants with at least 90 days of fuel on site.
But earlier this month, McNamee revealed that White House Senior Counsel Scott Gast has given him a waiver clearing him from the portion of the ethics pledge governing executive branch appointees that would require him to recuse himself from proceedings involving clients of his former law firm — as well as a group of “former clients and their respective affiliates and subsidiaries” whose names have been blacked out in Gast’s waiver letter (PDF).
Gast said it was "appropriate and in the public interest" to grant the waiver to allow "McNamee's participation in significant issues pending before the commission.”
McNamee has been previously criticized for failing to make clear just what issues he will recuse himself from.
At Thursday’s event, Chatterjee said that “I actually think we’re in pretty good shape” in terms of managing FERC’s docket with its members’ recusal issues.
“I think we’ve done a good job of mapping out where we may have recusal issues, and we have a strategy in place to tackle it," he said. “I don’t think the volume and quantity of matters that will require recusals is something we cannot manage. I think we’ll be fine.”
Chatterjee objected to a reporter’s question about whether the lack of a replacement nominee for FERC has left the commission with a 2-to-1 Republican majority to achieve partisan goals, pointing out that his nomination by Sen. McConnell was not taken up by the Obama administration, despite the fact that “[t]here was not a Republican on the commission from September of 2016 to August of 2017."
"I don’t recall these similar kinds of questions being asked then, because I think the commission was able to move forward and do their work — and I anticipate we will do the same.”