Neil Chatterjee, Chairman of the Federal Energy Regulatory Commission, joins Phil Sharp, a former U.S. representative for the state of Indiana and a member of the advisory board at the Center on Global Energy Policy, on this special edition of the Columbia Energy Exchange podcast, recorded live at the 2019 Columbia Global Energy Summit.
They discuss the technological and market changes that have impacted the regulatory landscape of U.S. energy, the efficiencies of a competitive market, threats to the resilience and security of power-grids, and FERC’s role in addressing the threat of climate change.
Chairman Chatterjee was confirmed to the FERC by the Senate in 2017, serving as Chairman from August to December 2017 and from October 2018 to present. Prior to joining, he was energy policy advisor to U.S. Senate Majority Leader Mitch McConnell (R-KY). Before this, he worked as a Principal in Government Relations for the National Rural Electric Cooperative Association and as an aide to House Republican Conference Chairwoman Deborah Pryce. He began his career in Washington, D.C. with the House Committee on Ways and Means.
On April 10, the 2019 Columbia Global Energy Summit in New York City hosted top politicians, business leaders, and academics for a variety of lively discussions on what to expect in changes to the oil and gas landscape, the latest research on powering the low-carbon transition, navigating U.S. political fields to advance climate solutions, how to assess risk and build grid resilience, and much more.
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Bill Loveless: Hello and welcome to the Columbia Energy Exchange. A podcast from the Center on Global Energy Policy at Columbia University School of International and Public Affairs. I’m Bill Loveless. This episode of the Columbia Energy Exchange is the final one in a special series recorded in front of a live audience at the 2019 Columbia Global Energy Summit in New York City on April 10th. The gathering saw a variety of energy sector leaders with CEOs, politicians and researchers presenting and discussing cutting-edge research for climate solutions. Emerging challenging in energy, geopolitics, changes to the oil and gas landscape. The view on energy and climate from Washington and a whole lot more. You can catch the recordings of all these conversations by visiting Energypolicy.columbia.edu. On this episode, we hear from Chairman Neil Chaterjee of the Federal Energy Regulatory Commission. One of four commissioners who make up this independent and bipartisan federal government agency that regulates U.S. interstate transmission of electricity, natural gas and oil and with a goal to ensure grid resilience. The chairman joined Phil Sharp from the Center’s Advisory Board and a former U.S. representative from Indiana to discuss the technological and market changes that have impacted the regulatory landscape of the U.S. energy picture. The efficiencies of competitive market, the attributes of grid resilience to help identify threats and for its role in addressing the growing threat of climate change. Here is the conversation.
John: We are going now to move to one of our keynote presentations and for that purpose, I am very pleased to have the honor of introducing Phil Sharp who will be well known to many of you. Phil is a member of our advisory board at the Center on Global Energy Policy. He was before that the president of resources for the future, a major environmental think tank in Washington DC. And certainly also well known to many of you in the audience, a former member of congress for 20 years from the state of Indiana. Phil served as the chairman of the energy and power subcommittee and that subcommittee, it is important to note for purposes of the next discussion, that subcommittee provided leadership on the energy policy act of 1992, EPAC 92 which promoted wholesale power competition. Last Phil is a former board member of the Electric Power Research Institute, EPRI and Duke Energy Corporation. Phil Sharp over you to. The floor is yours.
Phil Sharp: Well, thank you very must John. I’m delighted to have been invited to be here with the chairman of frankly as a former member of congress. I’m happy to be invited just about anywhere. But, let me just, Mr. Chairman, can you say a word about the job you and others have at FERC because my personal view is that, probably one of the toughest policymaking job in the federal government or in the state government are the folks that have to regulate electricity. It is not only the technical issues but of course drive the electricity but the radical changes in technology, the radical changes in the market that have occurred. The very complicated division of authority between federal and state regulation which is very hard for most people to comprehend. It’s always changing as well. And then of course, this is a whole industry that is under the pressure of what to do about climate change as well. Part to give evidence to the intellectual problem here by the fact that, 25 years ago, the Harvard Electricity Policy Group was formed to try to understand with industry, with environmentalists, with all the stakeholders, all these complicated issues of creating a competitive marketplace at the federal and in some cases the state level. And it’s going on for 25 years. They assume within 5 or 10 years, they’d be out of business. But it’s going on and now even of course, the center here at Columbia has taken on those issues as well. That Mr. Chairman just a word about you. The chairman brings a lot of very significant experience to this job. He’s worked in substantive positions in the house of representatives. Substantive positions in the senate and as well as in the private sector working with the role of electric cooperatives which provide electricity to many, many Americans but frankly in a lot of policy discussions. They don’t get much attention, they deserve, I represent our role in electric, so you can appreciate that. But let me do this to start off easy with Mr. Chairman, you might give sort of your sense of what’s happening at FERC, what your priorities are at the institution?
Neil Chaterjee: Thank you and thank you again for having me. It’s an honor to be here and it’s a privilege to be on stage with you and I’m looking forward to this discussion. You know, this is an exciting and significant time to be at the commission. It’s kind of humbling, how much we have on our plates right now. I think just the fact that we have this crowd here today that is here with keen interest on the issues with the commission is indicative of the significance of the issues that we address. You know, you talk about electricity and its importance and one of the things, I learnt in my experience working with rural electric cooperatives is how electricity has the capacity to transform communities and transform people’s lives and the electric cooperative program existed to provide that electricity to farmers in rural communities. And really transform America in a lot of ways and as we look at the reliability of the grid and how to deal with the radical evolution in technology and the rapid transformation of our generation mix, I recognize that the issues that we have to navigate at the commission touch every single American and you can’t say that about a lot of government agencies that are decisions impact every single American and increasingly, no country, when it comes to energy, no country is on an island. There is now this global, you know, connectivity that is occurring in the energy space and so FERC as a domestic regulator but now we are seeing that the decisions that we make at the commission don’t just touch every American. They have global implications and so it’s an exciting time to be at the commission but it’s also a heavy time to be at the commission.
Phil Sharp: Well, of course, as you know and electric grill is of the interconnected with Canada. So, there is a very cross border issue there.
Neil Chaterjee: And when you talk about issues like LNG exports and the like, I mean, those are issues of economic significance, environmental significance and geopolitical significance.
Phil Sharp: Sort of failed to mention your massive jurisdiction over the impact line and certification of LNG facilities but the natural gas and the integration of that with electricity is which back in my day in congress, they were just like two different worlds between natural gas and electricity and today they very much interact with each other in the marketplace and of course the regulatory agenda.
Neil Chaterjee: Sure, and that increased interdependence of gas in the power sector is, you know, one of the pertinent issues that we have before the commission as we look not just at infrastructure but at security as well because now that we are so dependent on our pipeline infrastructure for electricity, you got to ensure that infrastructure is secure.
Phil Sharp: We’ll just take a moment there and talk about your role as a commissioner on the new bills of the pipelines, the transmission lines, even some of the generation facilities, you people are engaged in a lot of these and I’m curious, one if you can articulate some of what the commission hears from all those people that are trying to engage in the new energy projects and then to what degree some of those issues are falling into your decision making?
Neil Chaterjee: Sure. So, you know, we’ve got a process that’s been in place since 1999. We have a certificate policy statement that sort of governs how we assess and evaluate project applications. And under the leadership of my predecessor chairman Kevin McIntyre, he felt it was necessary to take a look at our policy statement. See what’s working and see what’s not. You know, I think, I feel pretty good about our current policy. But there is always ways that we can do our jobs better. Some of the things that we have been hearing about. I’ve been particularly sympathetic to the concerns from landowners and I think the commission project sponsors and like we can all do a better job. Communicating with landowners, making sure they understand what’s happening in their communities. What their rights are, what their, you know, possible, you know approaches to mitigation are. It is not a landowner’s responsibility to be tracking for filings. And so, we have to do a better job. Project sponsors have to do a better job relating to landowners. I’d like to look for ways to make our process more efficient. I think, it’s necessary for security, for reliability. But any improvements in a process have to be done, that efficiency has to be gained without sacrificing environmental compliance or safety. And that is sort of the lens that we are taking as we look on the pipeline side to improving our process. When it comes to transmission, what I would like to see, we’ve got to ensure that the grid of the future is in place so that American consumers can take advantage of this tremendous technological innovation and I think we’re doing some things at the commission right now to look at the way that our equity policy, our incentives policy to see are we incenting the right kind of transmission? Are we, how do we ensure that consumers see the maximum benefit to these projects and I think that’s going to be important to having that grid of the future in place and finally I’m a big believer in competition. And I think we’ve seen the benefits of competition in our electricity markets. FERC initiated proceeding order 1000 nearly a decade ago to try and inject competition into the transmission space. And I think everyone is in agreement, almost a decade in that order 1000 is not working the way it was intended. I’d love to find a way to introduce that cost discipline, that efficiency and the consumer benefit into the transmission process. So, there is a lot going on in the infrastructure space.
Phil Sharp: Well, as one of the advocates for bringing competition into the system that we thought, a lots of good things. But the question also kind of arises in this that increase in the state governments have engaged in policies whether it’s through RPS, the missions, policy try to make sure that the existing nuclear plants and things or other ways that they are engaged in actually also on the generation side. Many people are concerned that, that’s limiting the competitive aspect of the wholesale market and I don’t know to what degrees those are issues. I know, maybe onto your agenda but how do you sort those out?
Neil Chaterjee: Look, these are incredibly complex vexing challenges and the commission is really struggling with this right now. And we have been for some time. What you’re seeing is two things that I fundamentally believe in colliding. I believe in markets, I believe in the benefits to consumers that are derived from the efficiencies of competition and functioning markets. I believe in the environmental impacts of markets. What we are seeing is that power sector, carbon emissions are 1990s levels in the U.S. and that is largely being driven not by regulation but by market forces, by consumer choice. And so, I’m a big believer in those markets. But I’m also a big believer in state’s rights. In cooperative federalism is complicated and I think you have to respect the rights of states and local governments to make decisions about their own energy futures. But what’s happening now is those two things are colliding. The decisions that states are making are having an impact on competitive markets. And how to navigate that, it’s a really difficult challenge. We have some pending contested matters before us. I can’t speak specifically to some of these questions. But what I can do is cite one of my former commissioner Tony Clark, who served for a number of years on the commission. He wrote a very thoughtful white paper on this and I can sum it up very quickly. To what he said basically, you got to make a tough decision one way or the other. Either, you take the approach that once you join one of these organized competitive markets, you seize your state’s autonomy at the door and you have kind of a market based minimum offer price rule to everything or you take the opposite approach where you completely try to accommodate all state policies and if you try to do anything in the middle, you get run over. And the thing is, there are really, there is significant consequences to either of those hardline approaches. So, we’ve been trying to go up the middle and we are finding out that when you try that, you get run over.
Phil Sharp: Well, in fact, I know one of the issues that might arise, I mean, I hear one major utility kind of publicly threatening to pull out of PJM, out of the thing because they are unhappy with which by the way is sort of a whole another _____ [00:14:36] regulatory system that we have in place with the RTOs that wasn’t meant to discourage them. But it was a creation that could have been at another level in a sense of regulatory activity.
Neil Chaterjee: So we have a very prominent proceeding in that area right now, so I can’t.
Phil Sharp: Yeah. This is called _____ [00:14:56] communications not allowed to speak to.
Neil Chaterjee: Yes. I’m not trying to be evasive.
Phil Sharp: It’s the law kind of thing. Let me, let’s turn a little bit into this issue of protecting the infrastructure we have which of course is high on your plate now. I wonder, if you might want to address some of those issues? I think, they fall into resilience, reliability, security.
Neil Chaterjee: I think at the commission, myself and my colleagues staff. I think, we would all be in agreement that our foremost responsibility is to ensure the reliability of our grid and our infrastructure. We want to make sure that when Americans hit the switch that the lights come on that the air comes on in the summer, the heat comes on in the winter because it’s so vital to not just American prosperity but security. We are all benefiting from the just tremendous evolution in technology and innovation that we are seeing. But that transition in our generation mix that technological innovation comes with a downside risk and that downside risk is increased vulnerability to cyber threats and cyber actors. And what we are finding now is increasingly and this is a really dramatic change. 21st century warfare, almost, you know the infantry, the folks on the front lines, private companies who are responsible for playing a significant role in ensuring the integrity and reliability of the grid and it’s a real, real serious threat. We are taking our role in this very seriously. One of the issues that a fellow colleague of mine, commissioner Rich _____ [00:16:31] have been very vocal on is the issue of pipeline security. Physical and cyber security of pipelines. It’s one of these issues where as I mentioned earlier, because of this increased interdependence of gas in the power sector, 20 years ago, if a single pipeline went out, generator might not have even flinched. Today, you might have eight or nine generators dependent on a single pipeline and an outage could have significant cascading impacts if there was a single point of failure. And our enemies know this. I’ve been very encouraged since commissioner _____ [00:17:06] called for a closer examination of this issue. We’ve seen the department of homeland security, the TSA which is responsible for you know, safety of our aviation, of our highways, of our surface transportation, of our railroads. They also have jurisdiction over the safety of our pipeline infrastructure and there was a GAO report that sort of criticized TSA’s approach to pipeline, cyber security. TSA has really stepped up and have had tremendous dialogue between our staff and with the TSA administrator. They are putting more resources and focus towards pipeline cyber security. And industry has stepped up because you know, it is in industry’s interest to ensure the integrity of their systems. They don’t want to see an outage of security risk. I’ve been very pleased there. When it comes to the cyber security of our grid, again this is where we have to be cognizant that technological innovation comes with increased vulnerabilities to cyber threats. We work with NAERC, the North America Energy Reliability Corporation on standards. Standards are important. But I think standards of the floor, not the ceiling. I think we have to go above and beyond standards.
Phil Sharp: Approve their standards.
Neil Chaterjee: We approve their standards and but again, I think standards of the floor. When I think about the ceiling, you know, the threat actors who wish to undermine the reliability of our grid, you know, they are ever evolving and we’ve got to continue to be vigilant to try and stay ahead of them and so we actually have an office of energy infrastructure security at the commission that works with our federal and state partners, works with industry, works with state corridors to go above and beyond those standards to ensure that we are staying ahead of these very sophisticated bad actors.
Phil Sharp: Well, in fact, when I was on Duke’s board, they were with one nuclear plan actually shifting from the analog system of operation to the digital system of operation and of course that was the first and foremost question was how to make sure they could preserve no interference with that plan. Let’s go, almost a combination of these two issues which seems to be arising in New England. I think they are calling it a fuel security in which they are trying to get natural gas pipelines into make sure that, that winner and things like that. They have the gas for the electricity system. But there is a practical problem and that is they don’t need, as I understand, that capacity all the time. So, you’ve got a heavy investment that might have to be made if you go through with this and this just leads to the challenge of how much more cost, we are willing to impose on the system in order to get a high level of security and reliability?
Neil Chaterjee: You know, the issue of fuel security in New England is a very serious one. And I want to applaud the independent system operator, ISO, New England, they did a very detailed fuel security study to identify, you know some of the challenges and vulnerabilities they have and something that the commission is vigilant on. We need to ensure that the infrastructure is in place so that, you know, if you have a very harsh winter, that the worst consequences don’t materialize and I applaud the ISO for taking steps to address that.
Phil Sharp: Can I just quickly ask you, we’re gonna return to questions from our audience, kind of thing about the issue of trying to cut greenhouse gas emissions in this country to some of the levels you people make decisions obviously affect that and I’m just curious how this critical issue comes up in your deliberations, if you can point any examples of them?
Neil Chaterjee: Sure, and this is something that I’ve been very vocal about just to be clear, I’m a Republican. I’m from Kentucky. I worked for a number of years for senator _____ [00:20:51] and I was appointed chairman of FERC by President Donald Trump. I believe climate change is real. I believe man has an impact and I believe we need to take steps to mitigate emissions urgently. I’ve been very pleased. I’ve been very pleased by what I’ve seen as I mentioned earlier in my comments that power sector emissions are at 1990s levels. We are way, way down. And I think that is a product of markets, of consumer choice and of this evolution that we are seeing in technology. The increased deployment of renewables. The increased deployment of gas and I think, if we can create an ecosystem, I mean, how FERC would address this is if we can create an ecosystem in the regulatory ecosystem in which these new technologies can flourish and be compensated for the attributes and values they provide. I think that will have tremendous environmental and climate benefits and then as we look globally, I think we have seen concrete evidence of how the increased deployment of gas has led to a reduction in power sector emissions here in the U.S. The fact that the U.S., you know, when you and I were earlier discussing the energy policy after 2005 and then the early 2000s when I was working in the house of representatives, we were talking about building LNG import facilities here in the United States. The fact that the U.S. is now a net energy exporter, we have such a tremendous opportunity globally with U.S. LNG that well, I think not just have economic benefits here in the U.S., not just have geopolitical benefits because the U.S. is a player in this space as a counterweight to Russia has significant geopolitical implications. But it also has significance to climate. U.S. LNG displacing dirtier fuels around the world will lead to reduction in global carbon emissions and I think the role that the commission plays in getting the infrastructure sided has a significant role in the global climate conversation.
Phil Sharp: That is probably a continuation of one of our questions comes to us about, are you able to build a bipartisan consensus for how to conduct life cycle greenhouse gas emission analysis on pipelines to move permitting forward? You also face with LNG export terminals, I know.
Neil Chaterjee: So, it’s you know, one of those things that, that we are evaluating as we review our certificate policy statement. We’re negotiating, you know, how to move forward on some of these infrastructure projects. I think, you know, what we have to focus on is, you know, the positive environmental benefits that can rise from getting this infrastructure built in a safe and environmentally conscious way. And we at the commission have to also stay within our statutory parameters and what the natural gas act allows for. And that’s something my colleagues and I are discussing every day.
Phil Sharp: Well, another question from my audience is, whether the FERC has been examining or sees any risk in projects that have a majority of the financing coming from foreign companies or specially even government entities and government investment firms such as pipelines or LNG exports or transmissions to a degree foreign investment. Is it an issue?
Neil Chaterjee: I can’t yeah, that’s a more like a _____ [00:24:22] type question. You know.
Phil Sharp: _____ [00:24:26] by the way is the government task force that examines these kind of questions for the president.
Neil Chaterjee: No, no, but that would be _____ [00:24:35] question.
Phil Sharp: There is one other some changes in rate structure and investment recovery needed to protect assets standard. This is for the stranded assets questions by the energy transition as you well know when we open up the markets. Stranded assets was the biggest issue for a while. But go ahead.
Neil Chaterjee: So, that’s, you know, that’s one of the significant challenges that we are seeing right now, with this transition in our generation mix. I mentioned that, you know, consumers are benefiting. I mentioned the tremendous benefit that these markets have had for Americans. But those benefits aren’t being felt equally. There are certain regions in the country where this rapid change in our generation mix, the increased deployment of renewables, the increased deployment of affordable abundant gas has put significant pressure on traditional forms of base load power like coal and nuclear and you mentioned earlier that certain states are taking actions, you know, that are having market impacts. That’s what we are seeing. So, in certain states, the value of nuclear power, they are taking steps to keep those plants open to deal with this question of, you know, when these plants are struggling to compete in a competitive environment but they play a significant role whether it comes to carbon mitigation or employment or the tax base in the state. That’s one of the, that speaks to that challenge of that state market conflict that we are seeing.
Phil Sharp: Well, also, it shows the complicated relation between the government and regulation and the marketplace because in the normal private sector industries, there aren’t any stranded assets. You’re just dead in the water. You lose. Yeah, and as an investor or a business or whatever. But here there has been a philosophy of well, if you’ve been protected by the _____ [00:26:25] system, somehow, we have an obligation to even beyond that. I’m not sure I buy it excuse me.
Neil Chaterjee: The question of state’s rights and local governments and how those state actions are conflicting with markets.
Phil Sharp: Another question is how you feel about incentive rate making as a policy tool to encourage cost efficiency reliability better gas, electric integration?
Neil Chaterjee: I mean, so I mentioned earlier, you know, I think looking at our incentives policy, the commission last month opened up two notice of enquiries to look at how we evaluate return on equity and how we do incentives. We ask myriad questions to build a robust record. I think, again as I mentioned earlier, ensuring that we’ve got the grid of the future in place for consumers. We got to make sure, we have the right incentives policy in place and that we are valuing the right things. We are currently, you know valuing things through the lens of the risk of a project and we need to determine whether that is the right criterion or if there is some other thing that we need to be incentivizing to get that grid of the future built.
Phil Sharp: And returning to that issue of protecting the infrastructure and trying to get resiliency, you folks have been dealing with possible notice of proposed rule making and people want to know, what you can say and can’t say. Is that about to come out or is that… What is the status of that?
Neil Chaterjee: Yeah, so we don’t speak to timing on matters to the commission but you know, in the fall of 2017, secretary Perry submitted a proposal making to the commission. To deal with this issue of grid resilience. And I think my colleagues and I all agree that secretary Perry raised a very significant and relevant question but unfortunately the action that he asked us to take, the record that we had before us did not support the action that he had requested and so my colleagues and I unanimously voted to turn down that proceeding but we simultaneously opened up a new proceeding for the commission to do its own evaluation of the issue of grid resilience and what we now 14 months into that, 15 months into that and we are far more robust record today than we did when secretary Perry submitted the notice of proposed rule making in the fall of 2017. So, what we are trying to carefully and thoughtfully examine is what exactly is this construct of grid resilience? What are the attributes of resilience that we want to value? Once and those are very specific questions that we solicited comments for in our record. Once we can determine what those attributes of grid resilience are and what this construct is, we then need to do a careful examination, to see is there a threat to the resilience and security of the grid other than the short term or the long term and if we determine that there is in fact a short term or a long term threat to the resilience of the grid, then what do we do about it and I think all my colleagues would be in agreement that whatever steps we take to address it, should we identify that there is a threat to resilience, be market based. But I want to be clear, if we take any action, whatever action we take will be fuel neutral, will be technology neutral and will not in any way be influenced by politics.
Phil Sharp: Well and that goes to some of the audience will not have ever had focused on, FERC in the administrative rule making in this country but given the fact that there is so much attention to the Wild West presidential campaigns or even of congress, I don’t think they appreciate maybe just say a word about what you have to go. You talked about building record. Just, can you mention a couple of those steps, just to help reassure, especially our students to know, this is a serious business and process of decision making.
Neil Chaterjee: So, I think especially for the students, I think the best way to frame up, you know the significance of the commission, how we do it. So, FERC is a bipartisan board that five of us, three from the party, the White House, two from the party that doesn’t have the White House. And the reason for having this bipartisan structure is to ensure stability. I think, it is important for stakeholders for the regulator community, for consumers that FERC be a beacon of stability because what you need out of FERC is clarity and certainty and evidence based decision making. I view FERC like the IRS. You don’t want any surprises from the IRS. You don’t want any surprises from the commission and I think the fact that we have such a rigorous process. The fact that we have these ex parte communication rule so that we can’t be influenced by stakeholders before us. I think that’s really, really important to providing that certainty and stability.
Phil Sharp: Well, Mr. Chairman, our time unfortunately has ran out but we really appreciate your being here but more importantly, the work that you’re doing and the fact that we do have a serious decision making element in the government which, I could say most Americans were not sure of. But thank you so much.
Neil Chaterjee: Thank you.
Bill Loveless: For more information about the Columbia Energy Exchange and the Center on Global Energy Policy, visit us online at Energypolicy.columbia.edu or follow us on social media at Columbiauenergy. I’m Bill Loveless. We’ll see you next week.