A very friendly ‘no’ from federal energy regulators is bad news for consumers

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Screen Shot 2017 07 032With a critical swing vote soon to be lost, reading last week’s majority opinion is enough to make you gather up the torches and pitchforks and head for Washington.

I refer not to the impending retirement of Justice Anthony Kennedy, or any of the controversial decisions he and his colleagues on the U.S. Supreme Court rendered last week.  Rather, I am talking about a 3-2 ruling made on July 2 by the Federal Energy Regulatory Commission (FERC).

It is bad news for consumers indeed.

At issue is a plan to dole out free money, in the name of “fuel security,” to Mystic Station just north of Boston – New England’s biggest generation facility.  Owned by the Chicago-based energy mega-conglomerate Exelon, Mystic announced earlier this year that in the absence of a region-wide bailout the plant and its gas-fired generators would shut down in 2022.

In an effort to oblige Exelon, nonprofit regional grid operator ISO New England (ISO-NE), asked the FERC to waive a pile of tariffs, which are the approved terms and conditions by which generators, utilities and grid operators provide service.  The FERC denied this request.

But this was probably the friendliest “no” in the history of utility regulation.

“We . . . accept ISO-NE’s conclusions that the retirement of Mystic . . . under current ISO-NE Tariff provisions, could cause ISO-NE to violate mandatory reliability standards as soon as 2022,” ruled the agency.  The regulators ordered the grid operator to file a new tariff rather than seeking waivers of the old one.

Chairman Kevin McIntyre and Commissioner Neil Chatterjee voted in favor of this result.  Dissenting were commissioners Robert Powelson and Richard Glick. Sadly, casting the tie-breaking “yes” vote was the sole New Englander on the FERC, former National Grid executive Cheryl LaFleur.

The concurring option with which she cast that decisive “yes” vote is a study in tepid analysis.

“Reasonable people can certainly debate the reasons for the lack of infrastructure development in New England,” LaFleur wrote, alluding to the persistent claim that difficulties in developing new interstate natural gas pipelines have brought the region to the brink of rolling blackouts, but “I am optimistic about the region’s long-term prospects to transition to a clean and secure energy future.”

LaFleur bought into the notion that because Mystic is the only gas generator in New England that gets fuel deliveries by boat – and is thus not dependent on gas pipelines – a bailout for Mystic is “a difficult but necessary step.”

Commissioner Glick was having none of it.

He criticized his colleagues for relying uncritically on ISO-NE’s recent and controversial fuel security analysis – a report that many stakeholders (including our office) have criticized.  Quoting the comments of the New Hampshire Public Utilities Commission, Glick pointed out that this analysis “merely provides directional guidance” and is “not a forecast of actual future events.”

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According to Glick, the fuel security analysis (which holds out the prospect of rolling blackouts during the winter of 2024-25) was not created “with the intention of creating generic tariff provisions for bailing out any generator that the ISO believes is needed for fuel security.”

Bailing out Mystic will not in itself send electric rates in New Hampshire through the roof.  But Glick added a dire warning indeed:  “I suspect that the most likely outcome of today’s order will be a parade of uneconomic generators seeking cost-of-service rate treatment under the guise of fuel security.”

Cost-of-service rate treatment is exactly what we supposedly got away from by restructuring the electric industry to eliminate old-fashioned, vertically integrated utility monopolies.  The parade of generators begging for a return to the good old days could well include facilities like Seabrook, Merrimack and Schiller stations.

That should worry you if you think that, after the payment of at least a billion dollars in stranded costs to former utility owners, New Hampshire customers have finally put the era of guaranteed cost recovery for the state’s coal and nuclear plants behind them.

Fuel security is a legitimate concern.  Something like half the region’s electric generators rely on natural gas, but on cold winter days it is heating customers who have the priority claim on available fuel.  This is partially a matter of safety but it also reveals a potentially fatal flaw in the way wholesale electric markets have worked so far.  Electric generators have historically declined to purchase “firm” gas supplies.

New “pay for performance” market rules adopted by ISO-NE are supposed to address that.  But they’re only beginning a six-year phase-in period.  “The New England region has yet to either test, or see the benefits of, the Pay-for-Performance reforms,” pointed out Commissioner Powelson in his dissent.

Powelson, incidently, recently announced he is leaving his federal post after only a year on the job.  His departure from the FERC is the public utility equivalent of the Anthony Kennedy retirement.  As the former chair of Pennsylvania’s utility regulator, Powelson was a moderate voice in FERC deliberations.

There are many different potential approaches to the fuel security challenge.  Congress, or perhaps the FERC, could require wholesale electric and natural gas markets to align themselves.  We could improve the way we manage existing pipeline capacity, as the Environmental Defense Fund has persuasively argued.  The process by which ISO-NE plans the transmission grid could be improved to take account of fuel security challenges.

Glick rattled off all of these possibilities in his dissent, warning that our region “may be heading down a path of second-best solutions that are overly focused on the wholesale rate and will ultimately raise as many economic, legal, and policy questions as they answer.”

Indeed, the FERC’s reliance on the ISO-NE fuel security study seems to beg for scrutiny by the U.S. Court of Appeals for the District of Columbia Circuit.  The standard of review is “arbitrary and capricious.”

Here we have a textbook case of arbitrary and capricious decision-making.

The FERC acknowledges that “it’s possible to achieve different results by changing assumptions in the model used for that study.” The agency acknowledges that “fuel security analyses do not currently have an established methodological framework” and “there are no industry standards or best practices.” But the FERC nevertheless concludes the methodology used by ISO-NE was “reasonable” – reasonable enough, indeed, to put the region back on the path to 1950s-style regulation.

The region – and, indeed, our nation – deserve better and more vigilant energy regulation than that.



Power to the People is a column by D. Maurice Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere. It is co-published by Manchester Ink Link and InDepthNH.org.


About this Author

Donald M. Kreis

Power to the People is a column by Donald M. Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere.