FERC’s Chatterjee highlights COVID-19 demand disruptions, resource threats

Source: By Larry Pearl, Utility Dive • Posted: Wednesday, April 29, 2020

  •  Federal Energy Regulatory Commission Chair Neil Chatterjee is focused on how the current pandemic might impact current generation sources, and how the power sector will emerge from this crisis, he told Atlantic Council’s Energy Advisory Group Chair David Goldwyn during a Zoom-based interview on Tuesday.
  • A top concern is whether reliability will be threatened if some facilities close and can’t reopen after the current crisis subsides and power demand rises. But Chatterjee rejected the notion that FERC’s actions with PJM are a threat to renewables and urged states to wait and see how the next couple of auctions go, before moving to exit the RTO’s capacity market.
  • Another key issue is determining the correct approach for the return on equity for projects in order “get the critical energy infrastructure we need in this country built,” he said while defending FERC’s actions on gas pipelines and other matters.

Dive Insight:

What will the current shift in demand and cost implications mean for different sources of generation? Chatterjee asked during the virtual ‘fireside chat.’

“Right now, because of low cost, because of flexibility, gas is being dispatched at a higher rate — that’s putting pressure on renewables, on nuclear, on coal. And what is going to be the state of those businesses coming out of this? And could we see shutdowns occur as a result of economic pressures and then when we reopen, see a surge in demand and potentially have threats to reliability?”

These are “serious questions” he said, “and I want to start thinking through and talking about these things now, so that we’re not reacting when the country inevitably reopens.” FERC’s main goal is to “make sure that the grid remains reliable and affordable” and will do so in a “fuel neutral way,” he said.

While Chatterjee said that fuel neutral approach has driven the commission’s efforts regarding PJM’s Minimum Offer Price Rule (MOPR) — a rule intended to reduce the market impacts of state subsidies for preferred generation resources — states and others argue that FERC’s actions will hurt renewables.

Chatterjee rejected that idea, noting that PJM’s independent market monitor also does not believe the MOPR construct will negatively impact renewables.

“I’m a big believer in the business case for renewable energy,” he said, adding that he thinks renewables have matured to a point where they can compete on their own without the benefit of subsidies.

Nevertheless, a number of states, including New Jersey, Maryland and Illinois are suing FERC over its MOPR actions, and some are exploring leaving the PJM capacity market.

Chatterjee’s message to them: Wait and see how this all plays out.

“Let’s see how … the first couple of auctions go before we make a judgment,” he said.

But Jeff Dennis, general counsel and managing director at Advanced Energy Economy, said he understands why states have to consider all their options in the face of MOPR.

“The problem for the states is that the MOPR decisions entrench in federal policy and FERC precedent the principle that state policies are something to be mitigated, rather than accommodated, in wholesale markets,” he told Utility Dive via email.

“With such a federal policy in place, the results of one or two capacity auctions won’t change the reasonable desire of the states to explore their long-term options for continuing to pursue energy and environmental policy objectives within their authority,” he continued.

John Moore, senior attorney and director of the Sustainable FERC Project at the Natural Resources Defense Council, was also skeptical.

“Under the MOPR, states that invest in clean energy will not see the full benefits of their investments, and their ratepayers will be forced to subsidize unneeded fossil fuel plants. Next year’s auction results won’t change that. The full impact of the MOPR will probably not be felt for several years,” he told Utility Dive in an email.

“Ideally, in that time, the courts will overturn the MOPR or PJM will reform its capacity market. Regardless, states with renewable goals should be preparing to leave capacity markets if necessary,” he continued.

In addition to the country’s future generation mix, another critical topic to focus on for the post-pandemic future is determining the best approach to return on equity for utilities.

FERC has been “discussing at length” a better way to calculate that return, given fluctuations in demand and pricing, Chatterjee said, “both in terms of getting our ROE policy right as well as looking to the future and when we come out of [the] pandemic.”

Chatterjee noted that FERC has taken a number of steps in this space over the past several months, including a new proceeding on how the commission grants ROE incentives, which he said is shifting from a traditional risk-based approach to a more consumer benefits approach.

“In the short term, the best thing the commission can do is to finish … the rulemaking on incentives, to address some of the pending cases that are before us, so that we provide that clarity and certainty in the short term. But I do think long term we need to take a step back and evaluate these types of policies going forward, post pandemic and try and understand how the … energy landscape may be impacted and change as a result of that,” Chatterjee said.

Industry players agree on the need to focus on ROE.

“As we look to turn the corner in this crisis, ROE is now more important than ever as we plan for future infrastructure investments that will help us to deliver a cleaner energy future for our customers, while putting many skilled Americans back to work,” Adam Benshoff, the Edison Electric Institute’s executive director of regulatory affairs, told Utility Dive via email.