December 2017 Vol. 72 No. 12
Washington Watch
Natural Gas Players Oppose Perry Coal/Nuclear Subsidy Proposal
The natural gas industry is attempting to turn back an attempt by Energy Secretary Rick Perry to, in effect, subsidize coal and nuclear suppliers to electric utilities at the expense of natural gas suppliers.
Perry instructed the Federal Energy Regulatory Commission (FERC) in September to propose a rule to provide rate incentives to electric utilities that have a 90-day fuel supply onsite in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters. That would allow regional transmission organizations (RTOs) and independent system operators (ISOs), which essentially regulate wholesale electric supply and demand in various regions of the U.S., to adjust rates to benefit utilities that depend on coal or nuclear power.
FERC took public comment on its Grid Resiliency Pricing Rule until the end of November and will ostensibly decide whether to adopt Perry’s proposal, modify it or extend consideration of it sometime after that. FERC Chairman Neil Chatterjee emphasized on an FERC podcast on Oct.25, that this is an independent agency and, while not in so many words, made clear that the FERC doesn’t take orders from the Department of Energy. “I remain committed to upholding the Commission’s independence when considering the DOE NOPR, and the many other issues that may come before us,” he said.
Perry’s charge to the FERC follows a report issued by the Department of Energy this summer on the state of the electric grid and its reliability, and surmised future reliability problems based on projected retirements of older coal plants particularly. The report alluded to the impact, for example, of the early 2014 Polar Vortex, an extreme cold weather event, during which PJM Interconnection (PJM), a major RTO, struggled to meet demand for electricity because a significant amount of generation was not available. According to the DOE Staff Report, the loss of generation capacity could have been catastrophic, but a number of fuel-secure plants that were scheduled for retirement were called upon to meet the need for electricity: American Electric Power reported that it deployed 89 percent of its coal units scheduled for retirement in 2014 to meet demand during the Polar Vortex, and Southern Company reported using 75 percent of its coal units scheduled for closure.
Paul Bailey, president and CEO of American Coalition for Clean Coal Electricity, explained at a recent hearing in the House Energy & Commerce Committee that the nation’s coal fleet comprises 1,004 individual generating units located at 377 power plants that represent a total of 262,000 megawatts (MW) of electric generating capacity. Some 60,000 MW of coal-fueled generating capacity (20 percent of the coal fleet) had retired by the end of last year. An additional 41,000 MW have announced plans to retire. Altogether, these retirements represent one-third of the nation’s coal fleet.
In comments to FERC, the Interstate Natural Gas Association of America (INGAA) said the DOE proposal “disparages the reliability of natural gas-fired generators, and implicitly the reliability and resilience of the natural gas supply and delivery system, in attempting to make the case for the proposed grid reliability and resiliency rule.” In fact, INGAA pointed to a recent DOE report that concluded, “Hurricanes Irene and Sandy did not have a major impact on natural gas infrastructure and supplies in the Northeast.” The group suggested, instead, that FERC ask RTOs and ISOs to report on how they value reliability and that FERC use the information to move forward with any rulemaking, but on a fuel-neutral basis.
The Natural Gas Supply Association argued, “The facts are impressive with interstate pipelines delivering 99.79 percent of firm contractual commitments over the last decade – a number that includes fulfilling firm shippers’ requests during the Polar Vortex, when natural gas demand was at a record high and nine percent higher than the previous winter.” The NGSA noted many generators in ISO and RTO markets choose to rely upon interruptible or secondary firm transportation service, instead of primary firm transportation service, so they may be more vulnerable to supply interruptions. But it is their decision to choose those contracts.
Moreover, the DOE Grid Study recounts that “many coal plants could not operate due to conveyor belts and coal piles freezing” during the Polar Vortex, “three nuclear reactors totaling 2,845 MW of capacity were shut down, and five operated at reduced levels due to disruptions in transmission infrastructure, reduced demand from distribution outages, and precautionary measures to protect equipment” during Superstorm Sandy.
The House Energy & Commerce Committee held two hearings in September and October on electric grid reliability. At one on Oct. 13, Marty Durbin, executive vice president and chief strategy officer of the American Petroleum Institute, argued that increasing use of natural gas in electric power generation has not only enhanced the reliability of the overall system, it’s also provided significant environmental and consumer benefits. “As an example, since 2008 average annual wholesale power prices in PJM have decreased by almost 50 percent,” he related.
Major consumers of natural gas also weighed in against Perry’s proposal. The Process Gas Consumers Group, composed of manufacturers that rely on natural gas for electric plants, stated that FERC had already taken a number of steps to assure reliability.
BLM suspends implementation of methane flaring rule
The Bureau of Land Management (BLM) has suspended and extended the deadlines for some of the provisions in its November 2016 final rule on methane flaring from gas wells on public lands. The 2016 final rule became effective on Jan.17, 2017. Many of the final rule’s provisions are to be phased in over time, and were to become operative on Jan.17, 2018.
A coalition of gas and oil groups has challenged the legitimacy of the rule, arguing it is the Environmental Protection Agency (EPA) that has the authority under the Clean Air Act to regulate methane emissions, the major contaminant among greenhouse gases. That was the argument made in April 2016 by the Independent Petroleum Association of America (IPAA), Western Energy Alliance (WEA), American Exploration and Production Council, and U.S. Oil and Gas Association. They argued that instead of worrying about methane emissions, the BLM would be better served by directing its resources towards processing applications for the pipeline rights-of-ways across federal and Indian lands that are essential for the building of gas capture technology.
“Timely processing of such applications would have a much greater and more immediate impact on reducing flaring levels than BLM’s proposed one size-fits-all, command-and-control regulation,” the groups said.
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