How a Change in FERC Leadership Will Affect the American Energy Industry

By: Evan Federico

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The Federal Energy Regulatory Commission (“FERC” or “the Commission”) will play a crucial role in President Joe Biden’s ambitious plans to tackle climate change and reduce greenhouse gas emissions from the power generation sector. FERC is an independent agency that regulates the interstate transmission of electricity, natural gas, and oil. Biden has already named Democratic Commissioner Richard Glick Chairman of FERC. Once Republican Commissioner Neil Chatterjee’s term expires in June of 2021, Biden is expected to appoint another Democrat to the panel, which will secure a 3-2 Democratic majority. The economic impact of this shift in political power is likely to be significant for both the fossil fuels and renewables industries. Three possible areas that bear watching: (1) reforms that encourage state efforts to subsidize renewable power, (2) increased buildout of high-voltage transmission infrastructure, and (3) increased scrutiny of proposed natural gas pipelines.Lack of federal action on emissions in recent years has led to an increase in state-level emissions targets and renewable portfolio standards. However, oil, gas, and coal power generators opposed those state-level policies, arguing that state preferences for renewables were “distorting” the market and artificially suppressing prices. Under the previous administration, FERC responded to these complaints by setting a price floor, the “minimum price offer rule” (“MOPR”), for generators bidding into certain capacity markets.

Observers in the energy sector widely expect a newly constituted FERC to reverse or weaken the previous administration’s controversial MOPR policy because it effectively raises the price of state-subsidized resources bidding into regional capacity markets. The vast majority of state subsidies and incentives are granted to “clean” energy sources such as solar, wind, and nuclear power. An official from the American Wind Energy Association criticized MOPR as “threaten[ing] states’ rights and hinder[ing] [states’] ability to bring more clean energy to their communities.”

A major obstacle to the Biden administration’s stated goals of widespread adoption of renewable energy resources is a lack of high voltage transmission infrastructure. Renewable industry groups say high voltage transmission lines, which can carry large amounts of power long distances, will allow the transmission of wind and solar power generated in more rural areas to be brought to areas with higher power demand. A FERC staff report sent to Congress in August of 2020 concluded that an increased build-out of high voltage transmission lines can also improve the reliability, stability, and resiliency of the transmission system, as well as help with restoration and recovery after weather events. Improving overall grid reliability will no doubt be on the top of FERC’s mind after witnessing the power crisis in Texas in February 2021. The largest barrier to building more high voltage lines is the lengthy state or multistate regulatory processes that the lines must go through to be approved. Additionally, complicated permitting regimes that require the approval of local governments impede the development of these lines. Look for FERC to try to work with state Departments of Transportation to locate high-voltage transmission lines along highway rights of ways.

A Democratic-majority FERC is also expected to take a harder look at the approval process for liquified natural gas terminals and pipelines. In particular, FERC Chairman Glick has expressed a desire that the Commission spends more time considering the impacts of pollution from such pipelines and terminals on communities that live nearby. In a February 2021 Policy Statement, FERC requested that new interstate natural gas pipeline developers address the impacts their projects have on “environmental justice.”  Increased scrutiny of natural gas pipelines and terminals may lead to a longer and more expensive permitting process, functionally raising the resource price and making other energy sources more competitive.

The changing of the guard in Washington always brings new policy priorities, but the new Biden administration comes in especially focused on addressing climate change and building new renewable energy infrastructure. Keep an eye on moves the Federal Energy Regulatory Commission makes over the next few years, as it will likely play a critical role in shaping the future of America’s energy industry.

 

Evan Federico is a third-year law student at Wake Forest University School of Law.