Happy Gatherings, Unhappy Regulatory Disintegration

Happy Gatherings, Unhappy Regulatory Disintegration

First, some good news. There was a terrific gathering of members and guests of Western Power Trading Forum (WPTF) in Carlsbad, CA in mid-February for our Winter Meeting. In fact, it was the largest gathering of a WPTF meeting to date. We even had to close registration due to space restrictions. There was a range of great speakers from Katherine Blunt of the Wall Street Journal to Kevin Poloncarz of Covington & Burling on environmental policy developments. The weather was perfect, and everyone was happy to see each other, catch up and network. WPTF has really become a community of members across the West, and that showed its value during this meeting. But it has taken years for this to come to fruition and much of the vibe of the group should be credited to the founding Executive Director, Gary Ackerman.

As many of you know, Gary has his own views on many things that he expresses in his Burrito blog. Some of these views I share, some I do not. But his force of personality and his sincere interest in his fellow electric market nerds was the necessary ingredient to the formation of the WPTF community and sustaining it in the difficult years of the early 2000s. The community has grown in numbers and reach but it might not have been possible without Gary’s unique personality. But enough about Gary as he might become intolerable with too much praise…

Unhappy

So, with that good meeting in the books, why is my mood so glum? It came about from the last Open Meeting of the Federal Energy Regulatory Commission (FERC) on February 17. It represented, in the view of many, as a spectacular over-reach of authority which may exacerbate partisan tensions over energy policy at a time when the industry and country can ill afford it. The specific items that have excited reaction even in mainstream business press concern policy in the Natural Gas area:

  • Policy Statement on Certification of New Interstate N.G. Pipelines, and
  • Consideration of GHG Emissions in N.G. Infrastructure Reviews

The essence of these two policy changes can be seen in the FERC fact sheet. Broadly speaking, this represents a huge change to certificating natural gas infrastructure to determine the effect of future projects on greenhouse gas emissions. The assertion is that FERC has authority under the Natural Gas Act (NGA) and the National Environmental Protection Act (NEPA) to regulate downstream carbon emissions in these areas. Much of the negative reaction to the FERC action is focused on how the Commission sees these acts as allowing for an entirely new certificate review standard.

What causes me such angst and concern is the effect of this action on the interpersonal dynamic of the Commissioners. Their interactions have been unusually contentious and partisan since 2017 but may have just taken a turn for the worse and put FERC firmly in the national political storm on Climate Change. As many WPTF members heard from our speaker at the Winter Meeting last week, there is an active debate in Federal Courts about how far any part of the Executive Branch or Independent Agency may go in promoting a major change of policy such as whether or how to regulate carbon emissions.

Our guest speaker – Kevin Poloncarz of Covington & Burling – discussed a case that is to be argued before the US Supreme Court this session relating to the Obama “Clean Power Plan.” Even though this Executive Order from two Administrations ago is a dead letter, a challenge has been mounted as to whether the Administration had the power to act on a major policy change (e.g., regulating carbon emissions) absent an explicit direction by Congress. There are conflicting precedents that seem to suggest that carbon should be regulated. The precedent, however, is not completely clear. As the ability of Congress to act on large policy issues has seemed to wane over the last several years, more issues have been put to the Federal judiciary – no surprise to anyone paying attention. Some members of the Court are concerned that the judiciary is being politicized and therefore issues should be decided by legislative bodies (Congress). This view is known as the “Major Issues Doctrine.”

Going further into the decision making between the branches of government is too much in the weeds. Suffice it to say that this issue is front and center in the national political debate and has very ugly partisan agendas that go beyond the actual policy discussion (my side gets a win, your side gets a loss). But a majority of the FERC has arguably taken a momentous change to Green House Gas Policy and its application to certificating Natural Gas facilities under the Natural Gas Act that many believe is an overly ambitious attempt to determine the effect on climate change of new Natural Gas Pipelines and related infrastructure.

One does not have to be a climate change skeptic – and I am not a skeptic – to believe that the majority at FERC just got way out in front of accepted legal interpretation of the Commission’s authority to certificate Natural Gas facilities. Here, I was particularly receptive to Commissioner Christie’s dissent.  He argues that even if you believe climate change must be addressed, legal precedent is confused on what FERC should do, if anything. He further asserts that there is no direction to FERC from Congress in this area of the Natural Gas Act.

Perhaps more concerning to me is that this and other actions by the Commission in the previous Administration have eroded faith in the boring - but effective - FERC process.

One could argue that this disintegration in the process began with efforts by DoE in 2017 to get the FERC to consider subsidies for coal generation to achieve a previously unknown doctrine of “resiliency.” The absurdity of the assertion by presumably serious people and the pursuit of this unique policy appears to have impelled the leaders of FERC to lessen the engagement of the professional staff of FERC in the policy process. But the de-emphasis on institutional knowledge and accepted legal precedents which staff has done so well seems to have created an environment in which normal process restraints on policy aspirations with tenuous legal authority are viewed with suspicion.

Remembrance of things past…

During my tenure as a member of FERC staff, I was sometimes frustrated by the deliberative process that the Commission and its staff imposed on many issues that I thought required more urgent action. But over time, I came to appreciate the machinations as regulatory due process that is necessary to allow for confidence in investments.

There is a view by many in the history of economics that the basis of success of Western economies is predicated on property rights that are protected by rule of law which, in turn, allow for the extension of credit (finance). A predictable regulatory process that follows the record and the law – despite often being frustrating – bears more sustainable results. At least it would keep FERC from getting in the middle of the ugly national political food fight between climate change skeptics and environmental zealots.

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