Among the questions being asked in the aftermath of FERC ordering PJM Interconnection not to hold its base residual auction in August are what a subsequent order will mean for capacity markets and if a three-member FERC will function better at addressing tough issues.
The July 25 order caught many people by surprise, and the concurring statements of the different commissioners shows some animosity on the 11th floor, several sources said. The disharmony has become more apparent in the PJM order and other rulings, beyond the usual level of disagreement in concurring or dissenting statements of previous rosters of commissioners, they said.
The state subsidies for generation resources, or preferences for certain types of resources, is not limited to PJM, but they have been brewing there in bigger numbers and FERC’s ultimate decision on the rates for the upcoming auction could be a bellwether for how similar issues will be handled in other regions, said Tony Clark, a former commissioner and current senior advisor at Wilkinson Barker Knauer LLP.
Capacity markets had been viewed as an added prop to ensure reliability of power supplies, but the state interventions are undercutting the concept and capacity markets could take a back seat to energy markets similar to the design in the Midcontinent Independent System Operator (MISO), Clark said. “Everyone is anxiously waiting” for the upcoming decision on the PJM market, but “there is no silver bullet” once the Commission is down the three members, he said.
The PJM ruling followed nearly a year of inaction after a June 2018 order where FERC deemed the grid operator’s existing rules for the auction would not produce just and reasonable rates. Commissioners Cheryl LaFleur and Richard Glick dissented in the 2018 order, and three commissioners issued concurring statements on the July 25 order. LaFleur and Glick asserted that the predicament is not the fault of PJM but FERC, for failing to address the issues associated with PJM’s capacity market and out-of-market subsidies from state resource decisions, while Commissioner Bernard McNamee defended the decision and said to suggest that FERC is the source of the problems facing PJM is to ignore nearly a decade of attempts to address the interaction between competitive markets and out-of-market subsidies.
Other recent cases where a lack of action from FERC led to rulings affecting energy markets include the ONEOK Elk Creek Pipeline case (IS19-688, IS19-689), where a natural gas liquids pipeline tariff took effect by rule of law over the objections of LaFleur and Glick, who wrote a joint statement, and an ISO New England tariff taking effect by rule of law because of a lack of quorum, with statements from Glick and Chatterjee explaining their opposing views.
The writings of commissioners in the statements have become more pointed than in the past, reflecting Washington in general being more divided, said Clark. “FERC is more in the spotlight than it was in the past,” with energy and environmental issues being on more of a collision course, said Clark. Differences of opinion are nothing new, but in the past some of them might have been kept within the FERC headquarters, compared with today, where everything is in the open, he said.
The ability to compromise or give and take can be difficult with four commissioners, compared with a full complement of five, but the discord among the current commissioners appears to be getting sharper, said two former commissioners who asked not to be named. One of them served at FERC with a commissioner who wrote a lot of dissenting statements, which could make it hard to reach a compromise on some major issues.
The PJM case dragged out for a long time with no resolution, and FERC has been operating with four commissioners for quite a while, illustrating the importance of having a full roster of five, said Glen Thomas, president of the PJM Power Providers Group. The current commissioners are pretty collegial and know how to work together, and they know how to disagree too, said Thomas. “I’m not ready to draw any conclusions” about increased disharmony, he said after the PJM order was issued.
Others have reached that conclusion, with several long-time practitioners before FERC stating that the lack of agreement or willingness to compromise on some important cases does not reflect well on the Commission. Some split-vote items, such as consideration of greenhouse gas emissions when reviewing natural gas pipeline applications, are well-known and understandable, but the recent rulings have showed more challenges to reach consensus.
An attorney that has practiced before FERC since the 1980s said there is often tension among commissioners on certain topics, but “I’ve not seen things quite like this.”
Chairman Neil Chatterjee has bristled at the notion that FERC has become more polarized or political and not reached agreement on major items.
FERC is working to resolve the issues in the PJM auction case and it is common for oil pipeline rates to take effect by operation of law, Mary O’Driscoll, spokeswoman for the Commission, said in reference to the ONEOK Elk Creek pipeline case.
“It’s wrong to suggest that Commissioners having differing viewpoints on extremely complex issues reveals some sort of dysfunction. There’s a reason this is a Commission made up of members from both political parties and a variety of backgrounds: Everyone is entitled to, and should come at issues from, their own perspectives,” O’Driscoll said.
All of FERC’s achievements over the past 10 months have been accomplished on a bipartisan basis, as FERC has always functioned, she said. “Chairman Chatterjee remains dedicated to working with his colleagues to address the challenges and opportunities facing us, and building consensus wherever possible,” she said.
FERC has made a lot of significant accomplishments, O’Driscoll continued, listing orders that included approval of LNG export projects, rehearing on an energy storage rule, notices of inquiry on incentives for power transmission investments and return on equity issues for transmission owners, streamlining rules for market-based rate sellers in power markets and processing more than 100 pipeline 501-G filings and other rulings in the wake of a court remand and congressional passage of the Tax Cuts and Jobs Act.
The common refrain from FERC that a vast majority of orders go out with unanimous support can be a bit deceiving because the big, important items are where there tends to be controversy and disagreement, said Clark. “Congress is the same way,” in that a lot of legislation is passed with bipartisan votes that does not make headlines, but the complex items take longer to work through, he said.
Clark said he wrote his share of dissenting statements, and he viewed them as somewhat of a failure to convince one or two commissioners to agree with his views.
Agency leaders always strive for unanimous orders, because that is when the message is the strongest from the rulings, said Thomas, who chaired the Pennsylvania Public Utility Commission in the early 2000s. The reason most state and federal regulatory commissions have an odd number of members is to ensure there is a majority for the rulings that are issued, and members need to work together to achieve that majority, he noted.
The announced departure of LaFleur by the end of August will leave FERC with three members – Chairman Chatterjee and Commissioners McNamee and Glick. McNamee appears to be very deliberative on the issues and cautious about not voting on items where there may appear to be a conflict of interest due to his past work at the Department of Energy and in private practice, a few sources noted.
An attorney that focuses on pipeline matters said in many areas of the Commission’s work, McNamee will be the swing vote given the divergent views of Glick and Chatterjee on some important matters. He and others reached for this story do not believe the White House will nominate replacements for what will be two vacancies for quite some time. A three-member FERC could run more smoothly in issuing orders with an odd number compared with the dynamics of four commissioners, but the positions McNamee takes, and if he recuses himself, will be closely watched.
Glick and Chatterjee agree on a lot of items and wrote a joint op-ed on pipeline security matters, but the number of differing views appears to be increasing, sources noted, referring to cases already mentioned and comments when Chatterjee decided to close an investigation of possible market manipulation in MISO without consulting other commissioners. Glick’s concurring statement on PJM, where he said the Commission has shown an absence of leadership, could be taken as a jab at Chatterjee and such remarks were not made publicly in the past, said one of the former commissioners who asked not to be named.
Many sources believe Chatterjee knows he can move an order on PJM once LaFleur leaves. “He knows where the votes are, and we’ll all know in a few weeks,” said Clark.
Among the frustrations for generators are the grid operator and market participants were headed down a path until the 2018 order came out, said Thomas. “We’ve been calling for FERC action on this matter for a long time,” but obviously “the commissioners are not on the same page.” He hopes FERC can reach a resolution so that generators who do not have subsidies are not punished.
The upcoming order will be a watershed moment for capacity market design in light of state-supported resources, said a former FERC staffer. She and others said they believe McNamee will play a key role.
By Tom Tiernan firstname.lastname@example.org