Host Jason Bordoff sits down with FERC Commissioner, Neil Chatterjee, to discuss these developments and what's in store for U.S. electricity markets.
Among many topics Jason and Commissioner Chatterjee discuss, several include: FERC's decision to reject the Department of Energy's NOPR ensuring full cost recovery for power plants with a 90-day supply of fuel on hand; the future of US grid reliability and resilience; state and local government's role in energy policy; top issues facing FERC today including cyber security, battery storage and baseload power.
View the transcript
Jason Bordoff: Hello and welcome to the Columbia Energy Exchange, a podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. And today I want you all to get excited because we’re going to talk about FERC, that’s right FERC. I remember years ago when I clerked on the DC Circuit Court of Appeals, I recall my fellow clerks and I groaning when we might get assigned a technical and dry case involving the Federal Energy Regulatory Commission, but far from being a back water . Today, FERC is front and center in some of the most significant energy issues facing energy policy makers around the country.
Most recently of course, FERC voted on a highly publicized and highly controversial proposal from the Department of Energy to address concerns about grid reliability viewed by many as an effort to support struggling coal and nuclear plants. FERC rejected that proposal. FERC also has on its docket, controversial gas pipeline projects, LNG export proposals and much, much more and beyond these specific agenda items, of course new questions have emerged about FERC’s regulation wholesale power markets as the electricity system overall undergoes some of its most transformational changes in decades.
So, today we’re going to talk about all of that with Neil Chatterjee. Neil is a Commissioner – a new Commissioner about six months into his job at the Federal Energy Regulatory Commission. Neil is a native of Kentucky, the heart of coal country and he worked for many years for Kentucky Senator and senate majority leader, Mitch McConnell. Neil was nominated to FERC by President Trump and confirmed by the U.S. Senate in August of 2007. He then served for several months as the acting chairman of FERC. He joined us at Columbia University for an event to discuss all of these issues and before that event, sat down for this conversation on Columbia Energy Exchange. Commissioner Neil Chatterjee, thanks for joining us on Columbia Energy Exchange.
Neil Chatterjee: Thanks for having me.
Jason Bordoff: And congrats on the new job about five months into it I guess since confirmation.
Neil Chatterjee: I appreciate it.
Jason Bordoff: So, I want to start before we talk about so many issues, talk about how the power sector, the electricity sector is changing and everything else on FERCs agenda. But just want to give our listeners a little bit of sense about you and your background. Raised in Kentucky, Leader of Mitch McConnell’s state, an important coal state in the country. Just talk a little bit about kind of what it was like growing up there. Did coal play an important role in your family and community? Does that affect -- in what way does it affect how you view policy issues around the energy today?
Neil Chatterjee: Sure, thank you for the question. Growing up in the commonwealth of Kentucky, it’s a wonderful experience. There are elements to the significance of coal fire generation that are just ingrained in the culture and the life blood of the communities there. I think people in Kentucky depend on coal not just for their livelihood and for their jobs, but it’s direct employment, it’s indirect employment. It’s part of the fabric of communities there. And so, yeah, it’s definitely something that I grew up around seeing families, travelling to communities where coal was the epicenter of their lives.
It has an effect there in line with Kentucky horses, Kentucky bourbon and Kentucky basketball. In terms of how it’s impacted me from a policy perspective, obviously the time I spent working for Leader McConnell in the Senate, he was elected by the people of Kentucky to fight on behalf of the constituencies in the commonwealth and was a vigorous defender of coal and coal fire generation and the direct and indirect jobs surrounding it. And it was an honor for me to staff him in that capacity.
But now, I’m making that transition from Capitol Hill Partisan to independent regulator. And it really is a different job and in my role as a commissioner at the Federal Energy Regulatory Commission, those sympathies, those views that I had, the experiences that I had growing up in Kentucky, the work I did with Senate McConnell, well it’s part of my background and who I am. They don’t factor into the decision making at the commission.
Jason Bordoff: I mean that’s a good tee up to sort of the thing I wanted to talk about first which has been most in the news lately which was the controversial issue before FERC recently with its decision to reject a proposal by the Energy Secretary Rick Perry to strengthen resilience in U.S. power markets by requiring -- that plans have 90 days of fuel supply on hand that was largely seen as an effort help coal and nuclear and FERC rejected that in a unanimous decision. I think – and there was a rare show of by-partisanship in Washington today. Just give us a little bit of a sense of behind the scenes, how that played out and why FERC reached the conclusion that it did.
Neil Chatterjee: Sure. So, initially I’ve been rather open about this when Secretary Perry made his proposal. I was initially sympathetic to the idea that he was rising to the question that he was asking. In the near decade and a half that I spent working in and around Capitol Hill, I encountered law makers of all backgrounds, all political stripes who talked about the importance of having in all of the above approach to energy and the need to have a diverse of array of resources and then certainly the nature of the legislative body and people representing their constituencies, you had law makers from different parts of the country who advocated on behalf of fuel sources and generating sources that are in their backyards.
And so, Senator McConnell was fierce advocate for coal fire generation as I mentioned and had repeatedly over the time that I worked for him expressed concerns about the rapid transformation in our generation mixing and in the grid and what that impact would be on coal communities. So, I came in with that initial sympathy to the secretary’s proposal. But as I’m going through this transition from a Capitol Hill to an independent regulator, I’ve always had an appreciation for FERC’s independence and its processes.
Actually going through it and having the experience and working with staff and working with stakeholders and building the record and looking at the record, I was very clear that despite my sympathy for the question that the secretary asked that if we were to take any action, it would have to be legally defensible and also would not distort markets. I’m a big believer in markets. I think we’ve invested time and resources in developing the market construct that we have today. And I didn’t want to anything to distort that or damage that.
And ultimately, the conclusion that we all came to was that looking at the record that we had before us, the secretary’s proposal specifically focused around 90 days of onsite fuel just did not mean legal muster and it failed that critical plight that I had laid out that it be legally defensible and you just couldn’t make the case that existing tariffs were unjust and unreasonable because they didn’t factor this in. And so, I was happy to have reached this by-partisan unanimous conclusion with my colleagues. And I do think I’m proud of the decision and I do think it was a great demonstration of how FERC will maintain its independents in this environment.
Jason Bordoff: And I guess the question is, do you think there is – if this wasn’t the right remedy, do you think there’s a problem here that needs to be addressed? You supported the decision, but you noted in a statement that commission could have considered an intern position that would have provided some insurance that resilience wouldn’t be jeopardized by the loss of some base load power plans. What did you mean by that? What’s the concern there?
Neil Chatterjee: Yeah. So, I do think that this issue is one that we need to examine to see if in fact there is a resilience threat to the grid. And I think in addition to our unanimous decision to set aside the _____ [00:08:44] submitted to us by Secretary Perry, we also opened a new docket to really dig into this question and to work with the RTOs and the ISOs to kind of make the determination as to figuring out what threats should the grid be designed to withstand. Historically, the grid has been designed to withstand the loss of any single transmission element or generator. But a lot of things have changed since that became the industry’s de facto design standard many, many years ago.
And so, for example, we now have a much greater dependence on natural gas. So, should the grid be designed to withstand the loss of a pipeline? Similarly, cyber and physical security are a bigger worry today. Should we be designing the grid to withstand the loss of a substation due to an attack? And my hope is that we will get a clear-eyed assessment from the RTOs about the unique threats in their regions and what they’ve been doing to address those threats. And from there, the commission can then decide what if anything we need to do to ensure that the grid is resilient to those threats.
Jason Bordoff: These issues have gotten a lot of attentions since the Polar Vortex. A few years ago, the FERC order noted the commission has addressed reliability in the bulk power system with ways that may have supported resilience, but in note of the term, resilience is sort of now was a common term in the he commission vernacular. And so, just how do you -- what does reliability mean and what does resilience mean and how are they different and which one or should -- or both should we be concerned about right now?
Neil Chatterjee: So, obviously we need to be concerned about reliability. I think from my view, that is the foremost responsibility of the commission and my role at the commission.
Jason Bordoff: And by that you mean, keeping the lights on.
Neil Chatterjee: Keeping the lights on. I think in terms of resilience, what I hope that this new docket will help us to find is what those resilience challenges are. What we may find is the challenges differ in different regions of the country. The generation mix in different parts of the county may lead to differing units that are under duress and what their need is for both reliability and resilience and security.
So, I look forward to hearing back from the experts -- the RTOs and the ISOs as well as the reply comments from others. And I hope at that time, my colleagues and I will have a robust docket to look at. I think the example I would like to see -- ISO New England recently came out with a fuel security study that I thought was very, very well done and a candid assessment of some of the challenges that they face. And my hope is that others will put similar thoughtful effort into their submissions.
Jason Bordoff: And so by resilience, you mean kind of reliability is keeping the lights on. Resilience is getting things back up and running when something goes wrong. Is that what we --?
Neil Chatterjee: That’s a rough construct. But again, I don’t want to – this is something that we will build out through the record. And I think it’s one of the fundamental questions that we’re still discussing and evaluating.
Jason Bordoff: And do you think those problems stem from the changes in the fuel supply mix or are they -- I think the records submitted in this case showed -- I think tell me if it’s right, most of the time when there have been problems and power outrages, they’ve been weather related, transmission and distribution, wires go down, rather than necessarily the fuel mix. All fuels, people noted are problems of coal piles freeze and natural gas pipeline goes out. How much is of the fuel mix versus the rest of the system?
Neil Chatterjee: So, again I think we want to look at this in a fuel neutral way as I mentioned earlier. What we want to asses is what threats should – we’ve been designing the grid to be secure from. And so, again I think the focus would be less so on fuel sources and the attributes to those fuel sources than a real in-depth examination of what the rapid changes in our grid mean for safety, for security, for reliability and resilience. And I think again, I can’t stress enough that we’ll do it in a fuel neutral way and we may find out that distributing resources coupled with storage potentially could be resilient that a gas generator on a well head could have onsite fuel supplies. So, I mean we’ve got to see what comes out in the record and what gets developed.
Jason Bordoff: And grid resilience isn’t the only big issue for FERC these days. Chairman McIntyre recently I think when he testified – listed others like cyber security, electricity storage, utility rates of return; just talk a little bit about your kind of rundown on what you think the biggest issues will be on your agenda over the next couple years?
Neil Chatterjee: Yeah, we’ve had a full plate. And again, a lot of these things have been at the forefront of the energy policy debate for some time now. They're coming to heads – so it’s an exciting time to be at the commission. I have to state up front one of the things that was most daunting upon my confirmation was getting through the backlog that had accumulated during the no-quorum period. That coupled with the _____ [00:14:04] really took up a lot of the oxygen throughout the fall. And so, I’m looking forward to really digging into some of these issues going ahead. I commend Chairman McIntyre for his decision to revisit our policy statement on pipelines to certificates.
In my time with the commission to date, my experience with our process is that it’s a good process that it’s an open process. We work with stakeholders from all angles and ensure that our process is done in a legally sound way that doesn’t cut corners, that doesn’t sacrifice safety, that doesn’t sacrifice environmental compliance. But you can always find ways to make improvements of doing things better and I’m committed to working with my colleagues through that process. I also want to make sure that I have an open door and I hear from a lot of people. And they're passionate folks on all sides who have strong views on this process and these matters. And I want to work with everyone to try and build consensus and achieve that that consensus with my colleagues.
Jason Bordoff: Talk about cyber security and how big a concern and risk that is, it should be and what FERC’s role in addressing it is.
Neil Chatterjee: So, I think one of the exciting things about the technological innovation – I mean I really -- I'm excited about the innovation that is leading to real changes in the way that we generate, distribute and consume power. And I think that should be embraced. That said, with that innovation comes a downside risk and that’s increased vulnerability to potential cyber attacks which could have really significant impacts. And so, I think the key there, FERC needs to continue to work with NERC which establishes standards. But I think the NERC standards are the floor, not the ceiling. And we need to vigilant about staying ahead of these ever evolving threats.
Jason Bordoff: And talk – the role you anticipate battery storage playing in wholesale markets and the provision of reliability and resilience services. How big a role can it play and how does FERC address that?
Neil Chatterjee: I mean it could be huge. I mean we have to see what steps that innovation will bring. We currently have a proceeding before. We’re assessing barriers to competition and access for storage technology. But I think, you know we’re still at the early stages to see how this could develop. It could be a real breakthrough and a game changer. But we have to figure out what role storage plays, how it should be compensated, scalability, lot of exciting possibilities.
Jason Bordoff: FERC issued a proposed rule about – a year ago I think on the integration of energy storage in the wholesale markets. Is that the one you're referring to?
Neil Chatterjee: Yes.
Jason Bordoff: Let me turn for a minute to another issue that attracts a lot of attention and sometimes controversy, natural gas pipelines. The Trump administration has indicated it would like to see application processes move faster and get infrastructure done more quickly. FERC in December, I think announced it would sort of undertake a review of how the pipeline process works. Tell me what we should expect and what the kind of questions are that FERC would be looking at.
Neil Chatterjee: Yeah look, I think while – and I spoke on this a little bit earlier. While there’s always a desire to do things more efficiently and there are plenty of folks who feel that the process is taking too long, I for one don’t think that FERC is the obstacle that is leading to the elongated timeframe. But there are things that we can do within our own processes to make greater efficiencies. But we’ve got to do that without cutting corners, without increasing legal risk, without scarifying safety, without scarifying compliance. And I also want to work to make FERC a little bit more user friendly if you will so that people feel that their voices are heard throughout the process.
I think we do a pretty good job of addressing people’s concerns. I for one am concerned about land owners. I respect private property rights and the concerns that some land owners have and want to encourage people to engage with us in a process because there are rerouting and other mitigation tools available. And I would like to have a better process in place to work to address those land owners concerns. So, that will be one of my primary focuses. I'm sure my colleagues will have other areas that they’ll focus. As with all matters before the commission, we will handle it in a sober responsible way and evaluate the data in a fact based evidence way and hopefully come to consensus.
Jason Bordoff: One of the issues that comes up with pipelines and there’s legal challenges and court cases and opposition around is the scope of the environmental review and there is a DC circuit case recently that had said that FERC needed to look at upstream emissions, the emissions that come from burning the gas that goes through the pipeline. What are your thoughts on – and to what extent should FERC take into account upstream or downstream environmental impacts when assessing the environmental impacts of any particular project?
Neil Chatterjee: So, we did have that court ruling in the Sabal Trail pipe case and actually that week, we put out the Nexus pipeline order. And in that I think we largely anticipated the court’s arguments in the Sabal Trail case and I think addressed a lot of those question and had that robust analysis that was in place. Again, I think FERC takes its environmental responsibilities and evaluating these projects very seriously. I for one believe that climate change is occurring then it’s man-made and that we need to take steps to mitigate it. But I think that larger contacts carbon policy is handled by other agencies and that we have our role and we’ll continue to perform – I think we do a good job with it.
Jason Bordoff: One pipeline project that was especially kind of controversial here in this neighborhood here in New York was PennEast which was recently approved by FERC. One of your fellow commissioners Glick dissented on that in terms the showing of need that the developer made. What's your view of – what does that mean to show need? What kind of case so developers need to make an order kind of pass the FERC process.
Neil Chatterjee: So, I understand and I'm open to hearing more of my colleague’s concerns in this area. I do disagree with this notion about how one determines need. I think the affiliate contracts and the subscription for this particular project did demonstrate need. I wrote --
Jason Bordoff: Just so people understand, this concern was the way they showed need was through buyers that were affiliates of the developer and it was in arm’s length from his --
Neil Chatterjee: And he raised some questions on whether that was a significant demonstration of need. My view is the markets ought to determine need, not Washington bureaucrats such as myself. There have been projects that the commission has approved in the past there will not build because the market made the determination that the need wasn’t there. And so, that’s just an area where to date, I perhaps disagree with my colleague. But that said, as we work through these issues in the coming years, I'm certainly open to a dialog and hearing out his and others views on the subject.
Jason Bordoff: I would you sign this dramatic cold spell electricity prices spike, New England turn to coal and oil for electricity, bring in even molecules or gas from Russia through LNG. Does that inform your thinking about whether they are market needs or that’s not --?
Neil Chatterjee: I still think -- I'm very reluctant to rush to judgment over a cold snap that we just had. I think we’re still evaluating what happened. I think the grid preformed well. But that said, I think we need to do a lot deeper analysis on how they grid performed during that period before we jump the policy conclusions.
Jason Bordoff: Yeah. I mean that sort of raises the point we were talking about before looking from the survey that FERC is doing now from the ISOs about what problems there are if any with reliability and resilience. Did the recent – it got a lot of attention during the Polar Vortex. We saw during the recent experiences as you said, I think the people thought the grid responded reasonably well. FERC undertook some changes and ISOs undertook changes after the Polar Vortex. I think Chairman McIntyre made a comment recently that they grid could have even held up without call. Does that give you more confidence that kind of any reliability or resilience problem has been mitigated?
Neil Chatterjee: Again, I still think we need to do the analysis. Chairman McIntyre made that comment. But he addressed it in further comment. People focused on their comment. And Andy Ott of PJM testified on the same panel as the Chairman. And he pointed out that and I believe his quote was something along the lines of they could not have served customers had it not been for coal. Chairman McIntyre was very clear they coal played a significant role in the process. So, again I just don’t want to jump to any conclusions until we’ve done a deep analysis of how the grid performed.
Jason Bordoff: I'm curious how you think about the relationship between FERC and the states on a lot of these issues. We saw, I think -- tell me if I have this right. FERC overruled New York decision to deny water permit to the Millennium Pipeline, but previously FERC said it wouldn’t overrule a similar decision on the Constitution Pipeline. And then separate from pipelines, just with electricity, the growth of distributed energy resources which exists primarily as a customer device, but increasingly interact with the wholesale electricity markets start to blur the line between retail electricity which is regulated by the states and wholesale electricity which is regulated by FERC. So, how do you think about what the right balance is in regulating rapidly changing energy markets between the states and FERC?
Neil Chatterjee: Yeah. I mean I think there's a real tension there. I'm a firm believer in states’ rights. I believe in the ability for states and local government to make decisions about their energy future. But when those decisions have broader national implications, it’s something that we have to look to. And I think we’ve got just a myriad of differing state policies now that are potential, you know having impacts in markets where different states are taking different legislative actions to extend life lines to power sources that they feel are necessary for their energy decisions and to an extent those are starting to impact markets. FERC has a role to play there. But I’m always sensitive to that balance between the federal-states dynamic.
Jason Bordoff: We talked about this. I mean I want to come back to it with this question. It relates to the question of storage we talked a minute ago. But concerns about reliability and resilience come from idea that maybe shifting away from what's traditionally called base load power sources. And a lot of interesting discussion these days about whether the notion of base load power means anything, what it means today and is it still valid and relevant given the changes that have occurred across the electricity system or has it been sub planted in some sense by the notions of dispatchability and flexibility. So, what does base load mean to you these days?
Neil Chatterjee: So, I think that’s something that I hope we will significantly be able to look into as we explore this new resilience docket. I want to be sure. And one of the reasons in my concurrence to the decisions to set aside the _____ [00:26:38], I had talked about, a possible approach to give RTOs and ISOs the ability to amend their tariffs if they did feel that they were potential threats to resilience is -- you know, once these plants are shut down, they're gone. I think Chairman McIntyre said those decisions are irreversible. And so, whenever you’re in situation where market forces are leading to irreversible decisions, I just want to make sure we tread very consciously there.
And the reason I spoke to the important of potential an interim steps, not for all plants – you know, during this light of cold snap, Andy Ott pointed out there were plants that didn’t even run and you know those plants probably shouldn’t be operating. But there may be plants that are essential to reliability and resilience. And we just need to be very, very careful that as we’re undergoing the rapid transformation or generation mix that we understand what it means if in fact, these resources are pushed out of our generation mix.
Jason Bordoff: So, it’s fair to say that gas plus renewables or renewable plus storage -- that could provide equal reliability resilience to coal or nuclear, but it’s very location dependant and it depends on a circumstances.
Neil Chatterjee: Absolutely. I couldn’t have said it better myself. It very well could. And one of the things that I appreciate about the FERC process is that we will do it in a diligent way to ensure that if that is in fact the case and in fact there are no threats to reliability or resilience, we will have a record that shows that.
Jason Bordoff: You know, a lot of opponents of the proposed rule from the Department of Energy to FERC talked about it as subsidy for coal. Nuclear was very relevant to that as well. I just want to ask you about nuclear power. You mentioned climate change a minute ago and believe it’s real and as a policy issue. How should that policy consideration, climate change affect the way we think about nuclear power? Do you think there should be a regulatory solution for keeping economically challenged nuclear power on the grid because it’s a low carbon, zero carbon sources of energy?
Neil Chatterjee: So, I’m a big believer in nuclear power and because of my concerns about climate change and the need to mitigate emissions and reduce emissions, I think nuclear power as our largest sources of emission, free base load generation is significant. Similarly -- and I don’t think it’s inconsistent to say I’m worried about the impact in certain communities with the retirement of coal fire generation. Growing up in Kentucky, what I’ve seen is that when the minds close and the jobs that are directly and indirectly tied to those operations, they devastate local communities.
A lot of times people, their only asset is their home and their homes loose all value because people don’t want to move to communities where there's no economic viability. And it’s sad to say when the jobs go out, the drug dealers come in and you have a rampant opioid crisis in part of Appalachian that is really, really concerning. And so, as we’re making this energy transition, I’m hopeful that we can do it in a way that some of these communities can make those transitions with dignity. Similarly, as we take steps to our combat climate change, I think nuclear power should play a very important role in that.
That said, on both those fronts; the job and the community impacts of the retirement of coal operations and the value to migrating carbon emissions of nuclear power are not elements that factor into FERC’s approach. That is outside of the bandwidth of the statues that govern us. We’re market regulators and we make decisions based on the record reflecting market issues. Those are significant issues. I think they ought to be handled mainly by a congress and by other agencies.
Jason Bordoff: Do you think --? I’m curious. I mean I’ll just tell you my view and I’m curious of your reaction to it which is I think that analysis we’ve done – I've done at the energy center shows that it’s been market forces much more than regulation which has led to the decline of coal, cheap natural gas prices especially. You tell me if you agree with that. And then so – promises to bring coal jobs back by curtailing regulations, I think that’s unlikely to happen. And I don’t think this a partisan issue, I think on both sides of the aisle.
I don’t know that people have taken the concerns you just raised seriously enough to say, look, there are – you have communities in this country that for decades have often the in the expense of their own health have produced the energy that’s powered the U.S. economy. Those communities are seeing structural decline now because there was less demand for that fuel. And we need serious policies to help those communities economically diversify and rebuild. Do you think we’re doing enough there, do you agree with that view?
Neil Chatterjee: Yeah, absolutely do agree with that view. And I also agree that market forces are going to continue to put downward pressure, structural pressure on coal. I think regulations played a role. But I think the combination of regulations coupled with market dynamics have put us in the situation we’re in. We do need to find a way to invest of these communities, to find a path forward with some dignity because you can be both deeply concerned about the environment and deeply concerned about these communities. And I think it’s incumbent upon all of us, in government and outside government to address these issues.
Jason Bordoff: Yeah, I mean the pace of change has been staggering as you know. We just passed the shale revolution, 10 million barrels a day of oil production. U.S. is on pace to be the largest oil producer in the world. But, I think as you survey the changes across the energy system, the electric power system is probably changing us a rapidly or faster as any other part. So, we’re almost out of time. But just to conclude, think ahead sort of five or 10 years or maybe even longer, what do you think will be the biggest changes to our power sector nationwide, so the resource to a fuel mix, the extent of distributed resources or maybe the role storage will play, what are the big things that you think are going to look very different 10 years from now?
Neil Chatterjee: Yeah. I think we’re going to see just increased deployment of renewables. I think as technology improves, as costs comes down, as renewables become more economically viable, it’s clear there’s tremendous momentum there. And I think firmly believe that renewables and distributed resources will be an increasingly greater part of our generations mix. And I think that’s an exciting possibility. We have to make sure that as we undergo that transition and incorporate more and more renewable into grid that we maintain reliability. And I’m optimistic mistake that the coupling of this tremendous technological innovation with the diligent folks and at Federal Energy Regulatory Commission we’ll ensure that we can make that transition in a reliable way.
Jason Bordoff: Well, FERC will be at the heart of many of those changes and they’ll be on your plate for several years to come I suspect. So, thanks for spending time to help our listeners understand what you’ll be doing and what FERC is working on. And we hope you’ll come back and join us again. Commissioner Chatterjee, thanks for spending time with us on the Columbia Energy Exchange.
Neil Chatterjee: Thank you for having me.
Jason Bordoff: And thanks to all of you for listening. For more information about the Columbia Energy Exchange and the Centre on Global Energy Policy, visit us online at energypolicy.columbia.edu or follow us on social media at columbiauenergy. I’m Jason Bordoff; we’ll see you next week.