When Climate Is King, Perversities Follow

By Benjamin Zycher

Thursday, November 18, 2021

 

Back in the old days, the Federal Energy Regulatory Commission took its mandate seriously — specifically, to provide:

 

Economically Efficient, Safe, Reliable, and Secure Energy for Consumers . . . at a reasonable cost through appropriate regulatory and market means, and collaborative efforts.

 

Translation: A stance of neutrality and objectivity with respect to the complex choices over the competing forms of energy to be delivered to consumers. It is not FERC’s job to reform the policies adopted by Congress.

 

Consider an example of how that principle was applied. In 2018, all five FERC commissioners unanimously rejected the bailout for coal and nuclear plants proposed by the Trump administration. That proposed rule would have pressured FERC “to establish just and reasonable rates for wholesale electricity sales . . . to ensure that certain reliability and resilience attributes of electric generation resources are fully valued.” The Trump Department of Energy promoted this rule because of the reduction in the reliability of electricity supplies caused by governmental favoritism of wind, solar, and other unconventional sources of power.

 

The message from the FERC commissioners then was clear: It is not our job to manipulate prices so as to compensate for the perverse consequences of policies implemented by Congress and other executive agencies. Reforming those policies is their job; ours is to implement our legal mandate to maintain neutrality among competing forms of energy within the existing legal framework. If the Trump administration would like those policies amended, let it do the hard work of convincing Congress and of promulgating new regulations consistent with the law. Until then, however, it is the job of the organizations operating the grid — the independent-system operators and the regional transmission operators — to ensure reliability.

 

Moreover, as FERC chairman Richard Glick noted at the time, the proposed rule “had little, if anything, to do with resilience, and was instead aimed at subsidizing certain uncompetitive electric generation technologies.” In the larger context, were a regulatory agency to violate its mandate in order to compensate for the adverse effects of policies enacted by Congress, the incentive for Congress to avoid problematic policies would be weakened. FERC’s decision, then, was appropriate on both a short- and long-term view.

 

How the times have changed: We now observe growing favoritism on the part of FERC’s majority toward unconventional energy, wind and solar power in particular. However unsurprising — FERC commissioners are subjected to strong political pressures and have incentives to yield to them as they contemplate their future careers — this shift is deeply inappropriate and will have perverse consequences for years to come.

 

Consider, for example, the FERC review of its long-standing policy statement on the certification of new interstate natural-gas facilities — pipelines in particular — that began earlier this year. FERC has asked for “new information and additional perspectives that would assist the Commission in moving forward with its review.” The review notice continues:

 

To guide the process and focus on adding to the existing record, the Commission seeks comments on new questions, . . . for example, . . . on how it identifies and addresses potential health or environmental effects of its pipeline certification programs, policies and activities on environmental justice communities.

 

Translation: Mandate, schmandate. Forget about the legal requirement that FERC focus on efficiency, safety, reliability, and security. Notwithstanding the authority of the Environmental Protection Agency and other bureaus to address the “potential health or environmental effects” of proposed pipeline projects, FERC now is soliciting comments — that is, thinly disguised rationales — with which it can justify its new penchant for sticking its nose into matters that heretofore were none of its business. And the new focus on “environmental justice communities” — three words the definitions of which are infinitely elastic — is so amorphous and so open-ended that FERC will be able to pick any constraints it chooses on applications for gas-pipeline approvals, in a manner essentially independent of the actual legal mandate that Congress has promulgated.

 

Should you view this danger as merely theoretical, consider the recent FERC decision last March on a replacement pipeline sought by Northern Natural Gas Company. The project was approved; so what’s the problem? Answer: The approval came after FERC “assess[ed] how emissions related to the project might impact the climate, representing a significant break from previous assessments.”

 

Chairman Richard Glick — previously unwilling to subsidize uncompetitive electric-generation technologies — “has long argued the commission should be considering climate impacts as part of its assessment of environmental impacts and whether a project is in the public interest.”

 

In other words, it is now wholly appropriate for the agency to put a “climate” thumb on the scale. The project was approved after FERC determined that the attendant greenhouse-gas emissions were insufficient to affect climate phenomena, because the new pipeline would merely replace an existing one. Glick elaborated: “We essentially used the eyeball test. [The pipeline] didn’t seem significant in terms of the impact of those emissions on climate change.”

 

So “eyeball tests” now will exert some significant influence over FERC regulatory decisions. Could any procedure — combined with the “environmental justice communities” nostrum — be more ad hoc? In his partial concurrence and partial dissent, Commissioner James Danly argued that the approval “violates the Administrative Procedures Act by reversing its longstanding determination that it is unable to assess the significance of a project’s greenhouse gas emissions.” He stated also that the decision “exceeds our authority under the Natural Gas Act,” and noted that FERC’s decision has deviated from its mandate and “marks a drastic departure from established Commission precedent and does so without warning.”

 

Will FERC now expand its “mandate” to include dubious analysis of the climate impacts not only of the proposed pipelines themselves but also of the natural gas to be transported? The answer is far from obvious, a reality that does not bode well for investment in basic energy infrastructure.

 

Consider again FERC’s actual mandate to advance the goals of efficiency, safety, reliability, and security. Is a regulatory process increasingly ad hoc, ill-defined, politicized, driven by decision criteria far outside FERC’s actual areas of expertise, and certain to display shifting standards over time consistent with those objectives? The question answers itself. And such a regulatory system will not facilitate the long-term flow of private-sector investment needed to preserve and enhance the safety, efficiency, and environmental improvement that are the fundamental goals and outcomes of a market economy. FERC has embarked on a path deeply perverse, however popular among interest groups opposed ideologically to fossil fuels, in terms of both energy policy and the protection of the rule of law. It ought to return to first principles.