Sep
06
2017

PURPA: What Lies Ahead for Consumers?

Yesterday’s House Energy Subcommittee hearing on the Public Utilities Regulatory Policy Act of 1978 (PURPA) provided enough sparks to warrant further coverage in our second blog this week. Will those sparks start a fire of activity at FERC, in Congress, or in state legislatures preparing for 2018 sessions?

Decades ago, renewable energy was an infant industry. The nation was stunned by the Arab oil embargo and envisioned running out of commonly-used generation and transportation fuels. In the late 1970s, Congress reacted with several sweeping statutes, including PURPA, that still impact today’s energy industry and consumers.

PURPA attempted to ensure that renewable energy, from smaller generators deemed “qualifying facilities (QFs)” could reach the market. The heart of PURPA is Section 210, which requires utilities to buy output from QFs. In the early years, cogeneration benefited, with other renewable sources coming on as technology matured. Over the last 39 years, states and the Federal Energy Regulatory Commission (FERC) have interpreted PURPA 210 requirements in many and varied manners, resulting in some positives (more renewable energy) but also negatives (higher prices for consumers).

PURPA was last revised in the 2005 Energy Policy Act, but after hearing another decade-plus of concerns about its forcing too-costly sources of renewable generation onto the grid, lawmakers agreed to, as full Committee Chairman Greg Walden (R-OR) said, “look at it with fresh eyes and … determine whether its provisions are working effectively.” Last year, PURPA reform was the subject of a FERC technical conference (although FERC took no formal action after the conference). Yesterday’s hearing allowed both sides to make their best case again.

Xcel Energy, which has a significant renewable portfolio, asked lawmakers point-blank to revisit PURPA and remove Section 210. Xcel cited examples of QF developers manipulating project sizes to force their way into preferential treatment under Section 210, and instances of paying above-market costs for renewable energy. An Idaho public service commissioner relayed difficulties in exercising state discretion, especially when negotiating with FERC, to determine whether particular QF projects create a net benefit for consumers when assessed for impacts on cost and reliability.

Other voices, including representatives of the Solar Energy Industries Association, asked for strengthening of PURPA’s mandatory purchase provisions. SEIA’s witness offered that even as “renewable technologies are emerging as cost-competitive alternatives to traditional generation sources, PURPA is more important than ever.” He also highlighted that renewable projects rely on PURPA, because it “provides key exemptions from specified regulations that would hinder the ability of a project to obtain financing. PURPA’s mandatory purchase obligation is a vital backstop that financing parties require as a necessary condition of their investments.”

While this may sound like an esoteric D.C. policy battle, PURPA has impacted customer bills and the evolving generation mix for quite some time, a trend which has only increased with the growth of private (rooftop or ground-mount) solar installations. Many of the examples cited at the hearing rang true, especially considering research PACE conducted earlier this year.

PACE’s recent report “Net Metering: Costs, Customers, and a Smarter Way Forward” assessed PURPA’s impact on retail net metering for private solar installations. It drew a line between PURPA’s requirement that “utilities pay solar owners a capped rate for electricity equal to the avoided cost of power generation” and the result that “regulators nationwide interpreted this mandate on their own terms and calculated avoided cost in a way that made sense to them.”

Unfortunately, in too many states, this means non-solar customers bear the burden of overly-rich compensation for private solar power. We also noted that FERC “muddied the waters” for state regulators several years ago, making it harder for them to stick with PURPA’s original avoided cost price cap.

A long-ago statute merits an even older quote. Confucius said “life is really simple, but we insist on making it complicated.” Clearly, regulating utilities, ensuring a diverse generation resource mix, and assessing potential new entrants to the marketplace is complex. However, it should be easy to focus law and regulation on what really concerns consumers: costs and reliability. If sparks from yesterday’s hearing take fire, policymakers at all levels should keep it simple as they assess whether this 1970s policy makes sense for consumers in 2017 and beyond.

Sep
04
2017

D.C. Update: Energy Playbook and Rosters

The Texas and Louisiana coasts continue to suffer post-Harvey. Donations to the Salvation Army to support relief efforts can be made:

·       Online at helpsalvationarmy.org.

·       By calling 1-800- SAL-ARMY.

·       By texting STORM to 51555.

Congress returns today, facing a bevy of high-profile issues, now potentially even more complicated by the need to assemble a massive federal aid package (Texas Governor Greg Abbott has floated $180 billion) in the wake of Hurricane Harvey. Still, we can report some energy developments, and look at more coming down the field. As many of us welcome the return of fall weather and college football season, PACE asks: will consumers emerge with a winning record?

After several months of running key federal agencies with skeleton crews and too many “players to be named later,” federal agencies are beginning to get senior personnel needed to shape the new Administration’s approach to energy and environmental regulations that impact consumers’ access to affordable, reliable energy. Personnel at the Department of Energy (DOE) and the Environmental Protection Agency (EPA) are critical players, and PACE is glad to see some new team members taking the field. 

On August 3rd, the Senate confirmed Deputy Energy Secretary Dan Brouillette. Mr. Brouillette has a deep Capitol Hill background and energy chops, having served in senior roles with Rep. Billy Tauzin and the House Energy and Commerce Committee as the Energy Policy Act of 2005 formed up. He was also a member of Louisiana’s State Mineral and Energy Board from 2013 to 2016.

On September 1, the White House released a few dozen names of agency nominees. At DOE, we should see Bruce Walker as Assistant Secretary of Energy, Electricity Delivery and Reliability and Steven Winberg as Assistant Secretary of Energy for Fossil Energy. Both have utility experience. Joining the Environmental Protection Agency will be Matthew Leopold as Assistant Administrator and General Counsel, and David Ross, as Assistant Administrator for the Office of Water. Each brings a state policy perspective to EPA.

PACE hopes the White House will continue to name key personnel, including the Rural Utilities Service Administrator at the Department of Agriculture. Especially as Harvey re-construction begins, the Department of Homeland Security needs a new leader, a role vacated when General Kelly moved over to become White House Chief of Staff. DHS works closely with the utility industry, DOE, FERC and the White House on electric grid reliability. Rumors that Energy Secretary Rick Perry might transition to DHS continue, but that scenario doesn’t seem likely, especially post-Harvey.

The Federal Energy Regulatory Commission (FERC) is now operating with a quorum, since the Senate confirmed Rob Powelson, a Pennsylvania energy regulator, and Neil Chatterjee, longtime congressional staff, in early August. Chatterjee, acting Chairman at this time, announced a full complement of staff earlier this month. On Thursday, the Senate Energy and Natural Resources Committee will hold a nomination hearing on another pair of Commissioners. Rich Glick is a longtime Democratic energy staff person and formerly a lobbyist for Iberdrola. Kevin McIntyre, a leading energy lawyer, will take the FERC chairman slot after the Senate confirms the pair. 

Even though prospects for Congress debating and passing a comprehensive energy bill have dimmed significantly for this year, the House Energy & Commerce Committee continues to examine critical issues via its “Powering America” hearing series. Tomorrow, the Energy Subcommittee, chaired by Rep. Fred Upton (R-MI), will look at PURPA (the Public Utilities Regulatory Policies Act of 1978). As related by the hearing background memo, “PURPA … required electric utilities to begin to purchase additional output from a new class of generating facilities that receive special rate and regulatory treatment under the law. These facilities are designated “non-utility generators” or more commonly known as “qualifying facilities” (QFs).”

The hearing will examine PURPA’s “current effects on consumers, and consider whether reforms … are appropriate due to changes in the power generation sector. As the recent PACE net metering report noted, state interpretations of PURPA led to many diverse approaches to net metering compensation. If the Energy & Commerce Committee can help highlight that retail net metering costs consumers millions of dollars, and encourages states to adopt policies that are fair to all consumers, PACE will call it a field goal.

Next month, we’ll return to the D.C. field, provide more complete rosters and organizational charts, and ask how these special teams at key agencies and legislative committees are delivering for consumers as we get closer to halftime for the 115th Congress and end of the first quarter for the new Administration.

Aug
30
2017

After the Storm: Lessons Learned from Harvey

The Texas and Louisiana coasts continue to suffer the devastating effect of Hurricane Harvey. Donations to the Salvation Army to support the Hurricane Harvey relief efforts can be made:

With Hurricane Harvey still dropping untold amounts of rain on Gulf Coast states, it’s timely to start looking at how energy infrastructure weathered the storm. According to the Energy Information Administration, which is tracking facility outages and energy production slowdowns on its website, “over 45 percent of total U.S. petroleum refining capacity is located along the Gulf coast, as well as 51 percent of total U.S. natural gas processing plant capacity.”

The Wall Street Journal reported on August 30 that the storm “has shut a significant portion of [Texas] shale production, cutting off as much as fifteen percent of U.S. oil supplies.” The area’s oil and natural gas pipeline transportation system, too, is either underwater or shut down, and analysts say we can’t yet predict when that important infrastructure will recover.

Consumers from Texas to the mid-Atlantic could see higher gasoline prices for some weeks to come, especially if the Colonial Pipeline experiences extended difficulties coming back online. But natural gas disruption seems to have been eclipsed by diminished demand, with the result so far that natural gas futures prices are only fluctuating slightly.

Texas is also home to significant wind (21 Gigawatts, with about 2.1 gigawatts directly along the coast). However, Harvey’s impacts on renewable energy are receiving much less coverage in the traditional energy press. Bloomberg noted last week, though, that “one of the worst things that can happen to a wind farm is too much wind.” The Solar Energy Industries Association lists Texas as #9 on its list of top ten solar states, but I haven’t yet seen an account of how production from solar facilities fared after a week of cloud cover and heavy rains.

Electricity outages haven’t yet reached levels similar to those seen in Katrina, Rita, and other recent storms of note; slightly more than 300,000 outages were reported as of yesterday. The Electric Sub-Sector Coordinating Council (ESCC) leads coordination between the Department of Homeland Security, the Department of Energy, and the entire electric utility industry. Daily, and sometimes hourly, calls boosted situational awareness and response. Now, hundreds of line-worker crews from all around the country are headed to Texas and Louisiana to restore poles, wires, substations, and transmission lines.

With Congress set to return after Labor Day, the cost of a federal recovery package will be front and center, along with reauthorization of the National Flood Insurance Program. The first job is to assure swift and effective federal aid for the millions of people and thousands of businesses in need. But other policy discussions may take as long, or longer, than the actual physical recovery.

Already, interest groups who don’t support a balanced domestic energy portfolio are pushing out extreme rhetoric, describing the floodwaters as a toxic soup, and using the storm to rehash long-standing talking points. It seems likely that we’ll see renewed attacks on the Administration’s Executive Order to streamline federal permitting. Groups may also push for targeting Federal Energy Management Agency assistance to projects that pass arbitrary climate change tests.

As these debates unfold, policymakers should step back from daily news about the storm and ask for more information. They can rely on many experts in federal agencies and the energy industry who have weathered multiple storms and recoveries. In every industry, and after every significant natural disaster, there are always lessons to learn and processes that can be improved. There are also examples of what went right that should be recorded and repeated.

Many policymakers understand the interconnected nature of our oil, natural gas, and electricity networks. Even though this was truly an unprecedented event, the U.S. energy industry by and large weathered the storm. Consumers benefited from the great diversity of energy sources used to generate electricity, as well as the regional and national networks of oil and natural gas pipelines. In all the post-event debate, PACE will make sure that story gets told.