While speaking with TransmissionHub about the 10th anniversary of the 2003 Northeast blackout, FERC Commissioner Philip Moeller elaborated on the initiatives he is focusing his efforts on today to ensure reliability of the electric grid.
Moeller was sworn in for his most recent term as commissioner on July 16, 2010; his term expires June 30, 2015. He was sworn in previously on July 24, 2006, for a term that expired June 30, 2010.
When you look at the transmission industry, what would you say the major issues are today versus 10 years ago, when the 2003 Northeast blackout occurred?
There are three areas that I’d say I’m a little more focused on. The first is greater attention to cybersecurity now than we would’ve had 10 years ago. [The second is] greater attention to physical security, making sure that the actual grid can withstand somebody trying to attack it or nature attacking the grid through storms or some other weather event.
The third area is a concern I have over the greatly increased use of natural gas to generate electricity, which is not a bad thing, but it’s is a very different paradigm than we’ve had traditionally in this country. You’re going from, let’s say typically [with] coal, a plant that would have a relatively secure supply chain, of say a 30-, 60- or a 90-day pile of coal, to one that’s now “just in time” fuel delivery off of a pipeline. That has pretty profound implications. That’s my issue over the last couple of years that I’ve been pushing the industry to address. And that is a reliability issue. It’s not insurmountable and it’s not a bad thing. It’s improved our emissions profile, and the price of natural gas is low so consumers have benefited from that; but it’s a very different mindset to go from a reliable system of perhaps a three-month supply of fuel to being dependent on [instantaneous fuel] for your usage.
I’m trying to watch trends to see where they’re going and have us address the issues before it’s a complete crisis, which is why I ticked this off a couple of years ago. Initially there were a lot of voices in the industry, a lot who said this is a big deal but a lot who said it’s not a big deal.
Now two years later, we have universal agreement that it’s a big deal, and it’s profound – short-term [issues], like next winter, and more medium-term [issues] related to market structures, and longer-term issues to make sure we have financing to build more pipelines, since the traditional method of financing them with long-term contracts from the local distribution company is kind of being replaced by this new customer set of theirs which is power plants that on a daily basis may or may not take it.
So [power plants] may not be signing long-term contracts but when they take it they take a huge amount, so we have to figure out how we come up with new financing models to make sure we have enough pipelines in place. It’s going to be very very tight in the summers of 2015 and ’16 in the Midwest and any other place that’s got a lot of coal because the timeline to me, the Mercury Air Toxics Standard [MATS] rule is tight, it’s basically April of 2015 with most states giving a year extension. They’re shutting down, retrofitting and in some cases repowering coal with gas in such a tight timeframe that they’re scrambling – and I think they’re doing a good job of it, but they’re scrambling to figure out their dependency on all the pipes that serve the Midwest and whether that perhaps will create some reliability challenges for them, based on which plants in which locations may not have enough gas.
When you said one of the long-term challenges is financing, is that on the electric or gas side, or both?
It’s both. Primarily what I was focusing on was on the gas side, in terms of the new demand for pipelines being driven largely by electric generation, not by traditional local distribution company gas growth. Gas consumption for heating and cooling has actually been going down as we get more efficient appliances, at least on a per capita basis. So the new demand for pipelines is really from the electric side and yet the electric side has never really financed these pipelines. So that’s the challenge there.
On the electric side, that issue of financing transmission and what’s a fair rate of return given the risks, that’s been a hot and heavy debate at FERC the whole time I’ve been there. It continues to be a debate and I’ve been on the side of, this is a very risky business to get transmission built and risk needs to be compensated appropriately. I’ve been on the side of things saying somewhat higher returns are appropriate given the nature of the industry, and the siting issue, the fact that FERC doesn’t have siting authority, is a major risk issue. It just is. And I think that should be compensated in the returns.
What do you see as the biggest issues with respect to how the natural gas/electric interdependency is going to affect transmission planning today?
As it relates to transmission planning it’s very load-pocket specific, but I know that PJM has been scrambling and for the last couple years and has been telling state regulators, ‘Hey, we’re going to need your help in terms of the transmission world, we’re going to need these things in a hurry just to maintain reliability based on which coal plants are shutting down in a very tight timeframe.’ And they’ve been on that mantra for a couple of years but I think everybody’s scrambling to get them done in time. And the really interesting thing is what if they don’t get them done in time, by April 2016? Then what is EPA going to do if we’ve got some serious reliability issues pending?
FERC has authority over siting pipelines and none over where transmission lines go. How do you think that will help facilitate the natural gas/electric system coordination? Do you think it will help facilitate it?
I’ve always been on record that I think FERC should have more authority, but Congress would have to give it to us. If you compare the natural gas siting, if it crosses state lines, basically we get a lot of pipeline built in this country, and I think it’s a good process at FERC that’s fair and open to the public. There are always changes made based on public reaction, but the stuff gets built. Arguably, once it gets buried, people are less likely to think about it than a transmission line that’s visual.
A lot of these issues we’re really facing real pressure in the Cleveland area because of shut-downs of the coal plants, and they need to upgrade their transmission to help solve that problem. We have the same problem in southern California, [which is] more dependent on the once-through cooling issue, not the MATS. Still, it’s EPA; in this case it’s a water regulation where a lot of those plants will be shut down because they can’t afford to modify the once-through cooling.
If you’ve been down there it’s some of the most expensive real estate in the world. There’s no way a power plant is going back in that site. They’ve got to upgrade that transmission and do other creative things to keep those load pockets reliable and they’ve got to do it in a really quick timeframe where people don’t want it. It’s going to be very, very tough and it’s proving that way in both PJM and MISO and eventually in California. Very, very tough.
This is probably a whole ‘nother discussion but there are super challenges coming down the pike for southern California related to the need to ramp up generation service when the renewables go away, either when the wind stops blowing or, more importantly, when the sun goes down, because they’re bringing on so much solar in the next few years that they’ve got to get this ramping capacity just increased by almost unimaginable amounts so where the sun goes down the system ramps up. And that’s going to be all gas-fired plants.
They’re going to need to deal with that. They’ve got five or six years to do it but that’s not very long in the utility business. So generation is going to be part of that but just based on the physics of load flow, transmission is going to have to be probably a disproportionate amount because they won’t be able to put power plants where they used to be when they get shut down from once-through cooling.
What’s your feeling about the willingness of the gas side to coordinate with the electric side? There seems to have been a lot of pushback about revealing information that might be counter-competitive.
It kind of depends on what part of the gas industry you’re talking about – obviously it’s not monolithic. There’s the production side and, to them, they’re not enthusiastic about changing the rules. But if they look at it from a pure bottom line they should be engaged and interested in making this transition work because this is a huge new customer base for them, and so they have skin in the game to make the transition as smooth as possible. That’s from the production side.
I think similarly from the pipeline side they should be similarly motivated and I think they are, because if they get it right they’ve got another big set of customers.
And then on the local distribution company side, they’re the ones who are kind of along the lines of, ‘We’ve been getting along fine for decades, and we’re not the ones causing this new situation so we don’t want to pay for somebody else’s problem.’ To some extent I can understand that. To another extent the world’s not going to stop just because it’s not their preferred situation. These are still issues we have to deal with because, again, if they get it wrong – and I mean a collective ‘we’ – and something goes wrong and public health, and safety is endangered because there’s not enough gas to go around when people need it, then everybody looks back, including local distribution companies.
So they should be motivated, and I think they are, to be productive players in this discussion. They just don’t want to pay more than their share. From a business perspective, they’d rather pay their share than nothing to make the system work better.
I have to balance all these concerns in the decisions I make.