From return on equity (ROE) matters to siting challenges, former FERC Commissioner Philip Moeller touched on various aspects concerning the U.S. electric power industry during his keynote address at TransForum East, which was held in Washington, D.C., and presented by PennWell’s TransmissionHub.
The “ROE debate is one that’s been very painful over the last several years,” Moeller said at the event on Dec. 1. “I, generally, was known as someone who was on the higher end of promoting transmission development. I was comfortable with higher ROEs because” of the value of transmission, the enabling aspect of transmission investments, and the fact that for the most part, transmission costs account for “no more than 15% of a consumer’s bill.”
He continued, “[W]e’ve been in a period of extraordinary monetary policy with basically subsidized interest rates and that, of course, affected the ROE debate and the returns were getting kicked down to points where we thought it was generally unacceptable. So, a couple of years ago, the commission undertook an attempt … [and] came up with a policy that wasn’t unanimous and some would say it was good or bad.”
Moeller said that FERC “has to be very, very weary of seeing those returns get kicked down … because, obviously, the capital will flow wherever those higher returns are, and the need for transmission will continue.”
The issue of siting continues to be one that is very frustrating, Moeller said.
During his tenure at FERC, the commission put into place “a great policy, [that is] completely irrelevant now, basically, that dealt with FERC’s, at the time, backstop siting authority, that was part of the 2005 Energy Policy Act.”
That was a key provision of that bill, mainly because it involves interstate commerce, he said, adding that there should be a federal role in the matter.
“FERC should legally have backstop authority when it affects interstate commerce,” he said, noting that there have been a couple of court decisions on the matter, particularly by the United States Court of Appeals for the Fourth Circuit in Virginia that “gutted the little authority that FERC had.”
That is unfortunate because just the specter of FERC being in the role of a backstop authority figure forced the states to work together a little better, Moeller said.
“When the Fourth Circuit gutted that authority, … my sense was that with the removal of FERC as a potential arbiter of those kind of disputes, the siting issues didn’t get any better and probably got a little bit worse,” he said. “We would need a federal law changed to restore that kind of backstop authority at FERC. I don’t see that coming any time soon, but I hope that debate will continue because I think it’s a necessary policy change, although it would be difficult, politically, for some people to support it.”
On the other hand, he noted that FERC has interstate pipeline authority and while it is getting harder, pipelines generally “get built if they’re crossing state lines because of the role of the commission as the ultimate decision maker when those projects are brought before the commission.”
One of the frustrations that has continued is the resource agencies’ approach towards a transmission project at the state and federal level and “a lack of accountability for a decision,” he said. “I’m not saying necessarily a decision that’s pro-transmission, but just a decision.”
As an example, Moeller noted that on the now-energized Susquehanna–Roseland transmission line, which involves Public Service Enterprise Group’s (NYSE:PEG) Public Service Electric and Gas and PPL’s (NYSE:PPL) PPL Electric Utilities, “the Park Service … essentially took their time in making a decision.”
Prior to that line, he said, consumers in New Jersey were paying an extra $200m a year in congestion costs because of a lack of transmission.
Moeller said that he has told “some of the folks on the Hill” that “perhaps we can get something into federal law, where at least the Secretary’s office had to be accountable after a certain time period if there hadn’t been a decision made on going forward.”
The flip side of that is that if one rushes the resource agencies, then it gives them an excuse to just say no, he said.
“But, we wanted to make sure that there’s sufficient time to consider a project, but have the right set of accountability, particularly going all the way up to the top, so that if there is a delay, someone is responsible for it,” he said.
While he does not know if that will become federal law in the next few years, at least it will help the debate related to federal resource agencies making more timely decisions and being more accountable for them, he said.
“[S]iting still has a long way to go before it’s a more efficient process and all you have to do is compare it to the interstate natural gas pipelines to show just, frankly, how bad it is,” he said.
Moeller also addressed the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan, noting that under the plan, states can meet their state implementation plan goals by increasing the amount of renewables that they consume within their state, which has a lot of potential for transmission expansion.
“My role in the Clean Power Plan debate and discussions was to kind of constantly push EPA to recognize the complexity of the electric grid and the fact that their goals may be laudable but they had to take a deeper look into achievability of some of those goals, specifically building the pipes and wires to meet building blocks 2 and 3” of the plan, Moeller said.
He said that that role should continue for everybody who has a role in perhaps influencing EPA and how it moves forward with the Clean Power Plan.
Noting that it takes years for a transmission project to be completed, Moeller said, “[T]he EPA has to keep in mind that transmission is just often very difficult to build, for both siting and cost allocation reasons, and they cannot expect an immediate compliance – and immediate is actually about 2022 at this rate – in terms of transmission expansion to meet certain state goals.”
He noted that there is “a need for leadership to point out that agencies need to work together better to make sure that these projects are considered on a timely basis.”
Whether there will be progress in that area, he said that he is “hopeful, but not terrifically optimistic on that.”
Among other things, he noted that FERC’s natural gas-electric coordination efforts, which began almost four years ago, continue today.
“[A]s we move toward natural gas being, certainly, the easiest generation source to site, but also increasingly necessary to back up renewable intermittent generation, we’re going to need more pipelines as the squeeze of the closure of [certain] plants and the uncertainty over how states implement the Clean Power Plan all play out,” Moeller said.
He said that he is pretty bullish on the future of natural gas as the source is flexible and easier to site, and the need for better coordination between the electricity and natural gas sectors continues.
If the conversation around transmission development can focus on the value of transmission, “perhaps we can shift the nature of the debate a little bit to allow for the necessary expansion of the grid going forward,” he said.