FERC Chairman Neil Chatterjee sat down for a public interview at a Resources for the Future event on September 4, 2019 in Washington, D.C. The head of our nation’s top energy regulatory agency discussed a number of topics including his definition of success at FERC, pathways to decarbonization, and the growing sense that FERC has become politicized. I have attached a rough transcription of the conversation preceded by some of the highlights of the interview:
- Success at FERC means the creation of a regulatory ecosystem that enables new technologies to flourish and broadens their participation in the market. And we need to do that in a way that maintains market efficiencies, reduces carbon emissions, and passes legal scrutiny.
- Market-based solutions enabled by fair and fuel-agnostic regulations are the most effective way to reduce carbon emissions.
- I don’t like the idea that FERC has been politicized, and you shouldn’t read too much into 2-1 decisions. I welcome a speedy process to fill the vacant commissioner slots, but I’m confident we can continue to do our job effectively as is.
- We are concerned about and looking into grid resilience, cyberattacks, the interdependence of gas with rest of the power sector, the utility of capacity markets, and the balancing of state-level energy and environmental priorities with the integrity of markets.
- Congress should be setting national energy policy, not FERC.
- I wish FERC would go back to being a boring agency.
Q: How did working with Senator Mitch McConnell influence you?
It informs my work. I can’t quantify how much I learned from him through his work ethic, discipline, leadership, and bipartisanship. When I worked with him, our policies were passing with 80 votes in the Senate. These were consequential energy bills. He bridged the interests of Kentuckians with those in the Senate. We had to make sure the legislation could clear President Obama’s desk.
But today I have a different job. At FERC it’s incumbent that we view issues in a nonpartisan way. It took me a while to make that transition to being an independent regulator. I used to advocate for Kentucky. That’s a land of coal-fired generation. When I first came to FERC one of the issues on our desk was a proposal from the U.S. Department of Energy regarding a Notice of Proposed Rulemaking (NOPR) to compensate coal and nuclear. I wanted to help the coal industry, but I take seriously my new role whereby we need to abide by the record before us and the evidence. It was tough to not be able to help them, but the record did not justify the action they were asking us to take. That experience, while challenging, was a good one for throwing me in the deep end and showing me that I had to transition quickly.
Q: You also opened a docket on grid resilience. Where does that stand? What are the greatest risks the grid faces and what’s FERC’s role?
The NOPR did not support the action. But the notion of grid resilience – identifying the attributes of resilience and the potential threats we face – is important. We have been carefully poring through the record we have today, which is better than when NOPR was proposed. First, we need to determine the definition of resilience. Then we need to identify any short- or long-term threats to the grid. Then figure out what steps to take. It’s taking a long time, but hopefully we’ll be able to proceed soon. We’ll do it thoughtfully.
Q: Can you offer any insight regarding what some of the biggest risk factors are?
The energy transition has been remarkable for consumers and the environment. We need to understand the implications of these changes. There’s increased interdependence of gas and the power sector. If twenty years ago there’s a natural gas pipeline outage, power plants don’t flinch. That’s not the case today. We need to understand these connections. I’m pleased that the RTO/ISOs are doing in-depth fuel security analyses of their own systems. This isn’t putting the thumb on the scale for any fuel.
Q: What about cybersecurity?
We all need to contend with cyber risks more seriously than before. There are big benefits to technology innovation. But that increases this risk. We are vulnerable to cyberattacks. We’ve taken steps. We’ve looked at supply chain risk. Attempted intrusions are reported. But we can do more. Our offices work with our state and federal partners to stay ahead of these evolving threats. We have the responsibility to certificate natural gas pipelines. But security falls to the TSA. We have engaged in aggressive dialogue with them to ensure that they are taking the appropriate steps and focusing on the threat of a physical or cyberattack.
Q: FERC works with states. That can lead to challenges since many states have different energy and environmental policies that intersect with the power markets. We can talk about capacity markets too. What is FERC’s role in ensuring the integrity of markets while simultaneously incorporating state level desires?
It’s challenging. I believe in states’ rights to make their own decisions, but I also want these markets to succeed. When states make public policy regarding their own resource mix that impacts other states with different goals, it creates market challenges. For example, in 2018 ISO-NE proposed a Competitive Auctions with Sponsored Resources (CASPR) project where they looked at ways to balance state public policies with the competitive wholesale electricity market structures in the region. FERC was able to accept what ISO-NE wanted, and that that was great.
Take a look at the energy imbalance market out West. They have diverse energy portfolios. But the states worked together collectively, demonstrated leadership, and are working towards decarbonization goals. There are complex challenges when you deal with diverse states with different governmental dynamics. It’s important that these markets function.
Q: Certain states with capacity markets may remove those markets and take over the resource adequacy at the state level with the public utility commissions. Do you have thoughts or advice?
People have been questioning the utility of capacity markets. Are they delivering what was envisioned and intended? We’re coming to a point where different states are taking actions for different reasons. We are struggling with that.
Q: The New York Independent System Operator (NYISO) considered the notion of a “carbon adder” where you incorporate the externalities of CO2 emissions into the power price. Do you have a view on how New York or other states might reconcile how clean power works in the marketplace?
I don’t want to prejudge anything that would come before FERC.
Q: You are on the record about being concerned about climate change. What’s FERC’s role?
We’re not an environmental regulator. We’re a market regulator. But I believe market-based solutions are the key to achieving those carbon reductions. Look at all the policies that weren’t passed by Congress – cap-and-trade, carbon tax, the Clean Power Plan. Yet power sector emissions are on the decline because of the market. There’s a business case to be made for renewable energy. It’s competitive on its own without the need for government subsidies, partially because there are no fuel costs.
The role that FERC can play is breaking down barriers and creating a regulatory environment that allows them to flourish. In last year we issued FERC Order 841 regarding how battery storage could be compensated for all the attributes they provide to the system. That might be a seminal moment for mitigating carbon emissions. Batteries can alter our energy landscape and deal with key reliability questions. It’s a perfect example of how a market regulator like FERC can play a role. The same holds for aggregated distributed energy resources (DERs).
We have also seen that the increased deployment of natural gas and renewable energy has replaced more carbon intensive fuels, which has reduced emissions. China and India are still carbon intensive. The United States does its environmental landscape better and cleaner than anyone. I believe that the U.S. being a net exporter for the first time in 60 years has economic benefits and geopolitical implications. If U.S. liquified natural gas (LNG) can displace more carbon intensive energy in other parts of the world, that will be a big deal.
Q: You say pipelines are taking too long to get going. What’s up with that?
We will review the way we evaluate our certification policy statements. I’m hopeful this review will let us take significant steps to address the concerns of land owners. We need better transparency and communication with them. We don’t expect them to track FERC dockets. There are things we can do internally that can help land owners. A recent FERC project was upheld in DC Circuit Court, but they said that we can put landowners in regulatory purgatory. I want to address those considerations.
Q: Do you see a role for Congress there?
I’ve been vocal about this. I believe in Congress’s role in setting energy policy. Almost all energy policy action in recent years has been through an omnibus rider or the tax code. FERC is constrained by the laws that it, yet some pivotal decisions are falling to us regardless. I may temporarily benefit from that, but it’s not good for the country. Congress has the tools to affect the direction the country should go. FERC shouldn’t be setting national energy policy.
Q: Commissioner Cheryl LaFleur is now done with FERC. Having one less commissioner allows you to take action more quickly. But there’s a question about the intentions of the remaining commissioners, and whether that decision making is actually a good thing for the commission. Should decision making be constrained in any way? How should we think about decisions in the future?
We need at least three commissioners to have a quorum. I don’t like this sense of politicization at the agency. When Cheryl came in, no one talked about the politics of the commissioners. When Commissioner Kevin McIntyre became ill, he stopped voting. For the past 11 months every order has been bipartisan since we’re split 2-2. I push back on the idea that it’s been political. I’m confident that we can continue to do our work. People shouldn’t read too much into 2-1 votes. I do think that there are some real differences in our interpretations of the law. Losing Cheryl was tough because she was willing to negotiate and compromise. Without her there, if we fall on 2-1 divides, it will be perceived as political. The ultimate arbiter is the courts about whether our orders are legally durable. My success or failure metric is whether we pass legal scrutiny.
Q: How quickly do you want two more commissioners?
I understand it takes a long time. We have so much important work. We welcome a speedy process. We have so much on our plate. We have a great team with great counsel. I’m confident we can address these questions with who we have now.
Q: What do you think about the way the public views FERC’s work?
I think it matters. At first I didn’t appreciate the significance of electricity writ large. We take it for granted. FERC has always been a significant agency, but it just flew under the radar. In the last decade for various reasons, FERC’s profile has been enhanced. There’s more scrutiny now. I don’t think the work is any more consequential work than it has been, but there’s more attention now. In absence of federal legislation, more falls on us. Energy policy was boring when I came to Congress. As issues around climate change and the energy transition gained more attention, FERC’s visibility has risen too. Because FERC is highly technical, my colleagues and I have tried to communicate with the public about the key matters before us.
Q: You talked about the role of FERC in breaking down market barriers. Are there other types of analyses that we should do that go beyond that? For example, demand response has been enabled by data, IT, etc.
In addition to breaking down barriers, we’ve been making iterative changes. Innovation drives changes in the market. We do a good job at FERC of not just reacting to changes but looking forward. I give a lot of credit to Former FERC Chairman Norman Bay for a lot of this stuff. I believe in markets to the extent that I do because of the innovation they’ve created in areas like transmission, new power sources, and storage. Competition drives innovation and cost discipline.
Q: When you look back at your work at FERC, what does success mean to you?
A regulatory ecosystem that enables new technologies to flourish and broadens participation in our markets. And making sure we’ve done our work in such a way that we maintain market efficiencies while reducing carbon emissions.
Q: If you decide a new technology was mature enough to replace natural gas, can you actually make that happen? Can you require that plants convert to a renewable energy source?
We were created in 1978. We’re governed by two acts. Our first responsibility is the reliability of the electric grid. We are technology and fuel neutral. In your hypothetical, our role would be to ensure the market structures allow the technology to compete and be compensated without artificial barriers, while also ensuring that the reliability of the grid wasn’t impacted.
Q: What role do you see for Public Utility Regulatory Policies Act (PURPA) reform?
PURPA was passed in late 1970s out of concern regarding our natural gas supply. But energy markets have changed tremendously since then. Congress should modernize the Act, but FERC can do stuff too. I think there’s a business case for renewable energy, as do many investors. I think they can stand on their own. It’s good for markets and innovation.
Q: Has FERC started thinking about vehicles-to-grid?
It’s a little outside our purview. But given vehicle electrification we have to look at its impact on demand and electricity reliability. Electric vehicles (EVs) raise fascinating new questions. I met with some petroleum retailers that were paying to retrofit charging stations, but also eating the charging costs. They wanted to know whether they could pass the charging costs onto consumers. It seems like an easy problem, but if they resold electricity it could trigger FERC jurisdiction. The energy transition has so much potential, but there are complex legal and policy questions. This is one example of that. We need more conversations between all these sectors.
Q: What are your views about climate change mitigation, and how do your thoughts intersect with the administration?
I believe in climate change. Market efficiencies are having a positive effect in lowering power sector emissions. I tend to talk about it in terms of the business case for renewable energy. Those arguments are all well-received by my peers.
Q: You serve in a polarizing moment. Can you speak to the value of public service? Is it worth it?
It’s so important. The same holds for stakeholders and advocates. Everyone needs to be part of the conversation. I can say that all the staff at FERC are genuine public servants. They might come in with a worldview, but not with an agenda. They want to do good. I’m the Chairman by circumstance following the death of Kevin McIntyre. I want to follow his model of being a public servant who wanted to do right by the public.
Q: If you could ask Congress for clarifications or to enhance your jurisdiction, what would ask?
I’d ask them for solutions that would make energy policy boring again. Leave it to the engineers and lawyers. That will get things done.