FERC’s Chatterjee casts doubt on state exodus from capacity markets

Source: By Jasmin Melvin, Platts • Posted: Wednesday, February 12, 2020

Washington — Critics of the Federal Energy Regulatory Commission’s sweeping changes to PJM Interconnection’s capacity market should pump the brakes on rhetoric asserting a coming state exodus until auctions are held and the impacts on generators and consumers are better known, Chairman Neil Chatterjee told reporters Tuesday.

 “For all the people expressing concerns and the potential about leaving the capacity markets, [they] need to do the analysis, see how this all shakes out,” Chatterjee said during a press conference at the National Association of Regulatory Utility Commissioners’ winter policy summit.

FERC’s December 19 order (EL16-49, EL18-178) expanded application of the minimum offer price rule (MOPR) to all new resources receiving state subsidies in PJM. Some entities, such as merchant generators and PJM’s independent market monitor, applauded the order as decisive action to combat the potential price-suppressing effects of state subsidy programs. Others, including state agencies, clean energy groups, public power advocates and nuclear power interests, bashed the order as detrimental to state clean energy and decarbonization goals, and argued that it would likely raise consumers’ electric bills.

Chatterjee stood by the legal durability of the order, pointing to support from PJM’s IMM despite assertions during a Monday panel at the NARUC conference that the order would not hold up in court. “It’s my belief that had we done nothing, it most certainly would have led to the demise of the capacity markets,” he said. “Ultimately we will have to see how the rehearing goes and see what the legal durability is from there.”

STATE, FEDERAL TENSIONS

Asked whether he believed states might exit the capacity market, Chatterjee declined to speculate on what the states may or may not do.

“Let’s see how this shakes out, let’s see how the auctions go, let’s see what the impacts on these generators are before anyone makes these kinds of decisions,” he urged. “But I think when folks do the analysis and see the benefits of participation in organized markets, I would think the state would have to think twice about losing the benefits that their consumers enjoy from participation in these organized markets.”

Pressed on the perception of some state regulators that cooperative federalism is being eroded under the Trump administration, Chatterjee said, as a conservative, he was a big believer in states’ rights and understood their frustration.

But he countered that it was not “fair to say carte blanche that we are overriding state authority.”

He said the capacity market issues illustrated “the benefits and the stress of this tremendous energy transition,” adding that energy infrastructure, with national security and energy security implications, was raising “complicated questions that test state lawmakers and test federal lawmakers.”

While there is “a lot of focus … on tension between the states and federal regulators,” Chatterjee said there were also many areas where there was continuing, active cooperation and positive conversations, including topics involving cybersecurity, innovation and energy transition.

He mentioned discussing with state regulatory colleagues during the conference FERC’s proposed revamp of how it implements the Public Utility Regulatory Policies Act, a move he said would give more flexibility and decision making power to the states.

GAS POLICY

Chatterjee advocated a similar wait-and-see approach to pending litigation that could throw a wrench into FERC oversight of interstate natural gas pipeline construction.

“You’ll drive yourself crazy trying to anticipate every move and how the court may respond,” he said. “We are trying to demonstrate our concern and commitment to the plight of landowners, but we’re not going to make any structural changes within the commission in anticipation of what may or may not happen.”

Asked how we would feel if Congress pursued Natural Gas Act changes to allow retroactive refunds when gas pipeline companies overcharge — something former Commissioner Cherly LaFleur supported during a February 5 congressional hearing — Chatterjee said he thought “it would be appropriate for Congress to act in that regard.”

Later questioned about the NARUC gas committee’s resolution supporting such a legislative change, Chatterjee said doing so would provide additional protection to consumers. Pipeline companies have argued against making such changes to the NGA that might upset the predictability that has enabled investments to expand the pipeline network.

As for LaFleur’s insistence during the congressional hearing that it was time for FERC to return to the notice of inquiry it launched in April 2018 to take a comprehensive look at its process of reviewing pipelines, Chatterjee told reporters he was holding to his position that “for the policy to have durability,” it must garner consensus among a full complement of commissioners.

“We have just not been in a position, unfortunately since Chairman [Kevin] McIntyre’s tragic passing, that we’ve had a full complement of five able to tackle these issues,” he said. “The regulated community would need certainty in this area, and that’s why I think it’s so important to not just have a consensus but a full consensus view on something this substantial.”