Winter Energy Cost Crisis Compels Federal Regulators to Seek Solutions

There is nothing like a cost crisis to manufacture political will to move our energy policies in the right direction.

Recently the Federal Energy Regulatory Commission (FERC) held a technical conference on the record setting 2014 cold snap.  They looked at the impact on natural gas prices and consequent steep rise in utility bills from California to New York.  They heard from grid operators, state regulators, residential consumer advocates, as well as gas and transmission companies. After all was said, two questions remained unanswered.  First, who pays for energy infrastructure upgrades? Last, who will allow energy infrastructure upgrades?

From the Not-In-My-Back-Yard groups to militant environmentalists, policy makers often struggle to get beyond the hype of opponents to all forms of energy.  Wind power causes “eye pollution” and kills birds. Solar is simply unreliable, requires vast amounts land, and cannot work without backup fossil fuel power – like Big Wind.  Hydro has long term impacts on fish, birds, and communities north and south of their dams which alter rivers and aquatic habitats.  Fossil fuels release harmful emissions that ruin air quality among other things.  Transmission is riddled with expensive hazards, nuclear is perceived as dangerous and the list goes on.

Despite the backdrop of discontent, this FERC hearing seemed different as the focus was aimed at developing policies to make markets work better. For once I felt that regulators were listening to the markets and ratepayers on how to make energy more affordable and reliable.  One expert emphasized the need to maintain conventional baseload energy sources including nuclear and coal. Others highlighted expanding pipeline capacity in addition to expediting permit processes.  Surprisingly, there was little mention about climate concerns as the only comments on solar and wind were, “investigate their performance and the value of their subsidies given intermittency.”

California and Midwest grid operators raised significant concern about being held hostage by imported foreign power. Specifically, gas deliveries from Canada were redirected to satisfy Canadian needs forcing western utilities to make record withdrawals of gas storage supplies causing them to activate emergency pricing mechanisms (aka “paying premium prices”) to attract natural gas into their systems.  New York did not have this problem as it exported power north of its international border into Quebec, rescuing Canadian ratepayers from potential blackouts during the deep freeze.

If the goal of our energy policies is affordability and reliability, then we cannot allow short-term political objectives to hijack the discussion on how to meet current and future demand.  Poor energy policies result in the exorbitantly high prices as experienced this past winter and projected for this summer.  They also suffocate economic growth and carry devastating environmental consequences – see Germany and Japan.

With respect to FERC, they have taken bold steps to diagnose the winter power problems.  While some causes are clear, more independent research must be conducted to orient the design of market solutions. We should have confidence FERC will prescribe a strong solution similar to their capacity zone recommendation for New York’s Hudson Valley in 2007 which is slated for implementation this May. The hope is they stay the course to craft an affordable, reliable, and diverse energy system for years to come.