The Law of Unintended Consequences

Wikipedia says that “Unintended Consequences” are a social sciences term that describes “outcomes that are not the ones foreseen and intended by a purposeful action“.

That effect is in full-swing within the Trump Administration, and FERC is playing a big part in it.

In general terms, the impact of unintended consequences is that if that if you take a radical action in any given context, chances are there’s going to be results that you never dreamed of.  Part of the reason why is that you are often going from a known and possibly static situation into uncharted territory where you may unwittingly be unbalancing the system.  And I think it’s clear to most people that the the Trump Administration is turning into a Massive Experiment of Unintended Consequences writ large.  The President is promoting new and radical change, and the effects in many cases are not at all what the President was probably looking for.  Today we’re focusing on one – energy policy.

We now have a President who is pushing for coal in all conceivable areas – coal mining, coal burning, coal infrastructure, coal, coal, coal, bring him more coal!

But he’s doing this just as the coal  industry was ramping down into a slow slide towards oblivion.

The result is that “the system” is reacting in unintended ways.  I’ll bet when Trump was elected you figured projects like Natural Gas Pipelines would suddenly be approved in whole sale, right?  Well actually, no.  Instead, Trump’s coal push is putting natural gas into a tail spin, and leading agencies like the Federal Energy Regulatory Commission (FERC) to defend natural gas as a new status-quo (and not the wave of the future at all), and to increasingly look to renewables for growth.

The Administration’s stumbling on agency nominations have further thrown FERC into chaos.  The debacle with Norman Bay, the late nominees, and the two absences still on the commission have sowed confusion and opened cracks of bipartisan in-fighting.

The DOE 90-day fuel requirement NOPR

To help promote Trump’s “Coal, coal, coal, coal everywhere!” mantra, the Department of Energy recently issued a “Notice of Proposed Rulemaking” to FERC, available here:

https://energy.gov/sites/prod/files/2017/09/f37/Notice%20of%20Proposed%20Rulemaking%20.pdf

What this NOPR is saying is that coal and nuclear power represent “Fuel Secure” generation, and are keys to resiliency and reliability on the American power grid.  They are stating that many generation plants must have 90 days fuel supply on-hand in case of problems with things like Pipelines.  In effect, they are trying to de-emphasize natural gas and renewables on the grid, and instead use “fuel secure” plants like coal and nuclear instead.

As part of its rationale, the NOPR points to the 2013/2014 “polar vortex” winter, and uses the arguments that sky-high power prices showed strains in the system, and that we were near the breaking point, and the problem was too much natural gas and renewables, and not enough nuclear and coal.  Bring on more coal and we’re all good people!

The response?  The coal and nuclear industries love it.

Everyone else hates it.  Literally – everyone else.

Including FERC.

8 former FERC commissioners, including 5 ex-chairpersons, sounded off against the proposed rule making:

https://www.washingtonpost.com/news/energy-environment/wp/2017/10/19/former-ferc-commissioners-reject-energy-secretary-perrys-bid-to-help-coal-plants/?utm_term=.6193973ec3a2

One ex-Commissioner was quoted saying “To me he’s effectively proposing to subsidize them and put a tax on consumers in doing so. It’s a tax in different clothing. It’s going to cost customers more money to run dirty old coal plants”.

Current commissioners agree.  Commissioner Powelson spoke at a conference recently on this topic, debunking the polar-vortex angle:

http://www.utilitydive.com/news/powelson-rejects-polar-vortex-arguments-underpinning-doe-cost-recovery-plan/507436/

In his talk, Powelson said:

“There’s a dirty little secret going around that the gas guys didn’t perform during the Jan. 6 and 7 timeline,” he said. “I am here to tell you unequivocally that is not the case, and I can’t stand here and represent what we call a mistruth that the gas industry caused the interruptions of the Polar Vortex.”

The industry agrees.  The final North American Electrical Reliability Corporation (NERC) issued a report talking about the real causes of price spikes during the polar vortex winter:

http://www.nerc.com/pa/rrm/January%202014%20Polar%20Vortex%20Review/Polar_Vortex_Review_29_Sept_2014_Final.pdf

They indicated that poor maintenance, lack of cold-weather readiness, and poor pipeline scheduling were the true culprits.  As one example, at many coal plants coal supplies were frozen solid and unable to be used during the coldest days when power was needed the most.  In other cases whole plants were full of frozen equipment.

Meanwhile pipelines were flowing just fine with no outages.  The only problem on the pipeline side was scheduling – effectively gas was going to people who didn’t need it all that badly at the time (like industrial users), and meanwhile electrical generators were turned away.

“More Coal” won’t fix this problem.  Better maintenance and preparedness will.

What is interesting here for us is that multiple agencies and pseudo agencies are all saying the same thing: there were no natural gas shortages during the Polar vortex winter, and pipelines were not a problem.  Which complete neuters the arguments of companies like PennEast using the polar vortex price spikes to justify their pipelines.

The FERC 2017/2018 winter outlook

Meanwhile, FERC issued its annual Winter Outlook report last week on October 19th.  This is a regular report which talks about the state of the Electric and Natural Gas markets in the country, and make projections on potential issues to look for throughout the winter months.

The full report is available here:

https://www.ferc.gov/market-oversight/reports-analyses/mkt-views/2017/10-19-17-A-3.pdf

The report is summed in its first slide, recreated below:

Screen Shot 2017-10-24 at 2.34.08 PM

In a nutshell, it says that power markets and natural gas markets are in very good shape.  The only “growth” in natural gas is from exports (surprise, surprise!).  The report specifically mentions that changes in the markets from the “extreme winter events of 2014” have largely fixed systematic problems, and as a result we are in excellent shape going into the winter (all without PennEast).

They do mention pipeline additions which are further stabilizing markets, stating:

“Since 2016, nearly 2.5 Bcfd of new field-to-market capacity has been added and another 3.4 Bcfd is expected to come online between now and April. Collectively, these additions provide consumers in markets from New York City to Chicago with cheaper supply from which to feed winter needs.”

Again, all without PennEast.  They are too little, too late.

Later on in the slide deck, they explicitly talk about energy trends as shown below:

Screen Shot 2017-10-24 at 2.38.57 PM

This shows a massive decline in coal-powered plants.  And that while natural gas remains huge in the power market, the real growth stories are Solar and Wind. Together solar and wind are growing at a ferocious rate.  The story is simple: coal is on the way out, natural gas is our present, and renewables are our future.

The FERC Partisan Split

As if this wasn’t enough going on in FERC and the industry, Trumpian stumbles in agency nominations have roiled things even farther.  When Trump assumed the Presidency, he elevated Cheryl LaFleur over Norman Bay (Despite Bay warning that he’d resign if that happened).  In response, Bay did in fact resign, and on his way out the door he issued a blistering critique of how FERC operates, and changes that must be made to fix it:

http://www.roanoke.com/opinion/editorials/editorial-norman-bay-s-curious-farewell-address/article_0464f186-2fc6-5488-bd79-4343d20fa9da.html

Note that Bay and LaFleur are democrats.

As a result of Bay resigning, FERC was without a quorum for 6 months and unable to do much of anything.  Finally a quorum was resumed, but instead of cleanly installing a new set of Commissioners, the Trump Administration and the Senate instead installed a temporary new Chairman as a Republican representative, plus one more Republican to the commission, barely meeting a quorum of 3.  Meanwhile the presumptive chairman has yet to be officially brought to the Senate, so the current Chairman pro-tem is seen as a lame duck from day one.

Amongst all this, FERC recently approved the Mountain Valley Pipeline, but, in a surprise move, Cheryl LaFleur dissented.  Just as Norman Bay (a Democrat) called for reforms and better looks at true public need for pipeline projects, LaFleur said much the same, indicating that the Mountain Valley Pipeline looked an awful lot like another pipeline being approved at the same time, and maybe it was time FERC stood back and looked at more than just self-dealing precedent agreements and actually looked at the market conditions themselves (heaven forbid!).

Conclusion

The net result of this coal-push from Trump is that there has been a radical shift in how agencies are presenting the energy industry.  Under Obama natural gas was the focus and there was massive growth there.

Now, under Trump, things are different.  Trump has gotten behind Zombie Coal.  Meanwhile, natural gas is starting to become the New Coal – it’s taken on most of the generation load, but there is more emphasis on the “transition” aspect of it.  Renewables are where the future and growth is at.

And while this is happening, FERC is for the first time cracking along partisan lines, and the minority party is calling for new looks at public purpose and need behind pipelines, and saying the self-dealing agreements may not be a good indicator of actual need.

And while all this is going on, PennEast is falling behind as a “me, too!” natural gas pipeline proposal that appears to have missed the market, missed its opportunity, and faces as massive a set of protests as any.

To gauge just how screwed PennEast is, let’s circle back and look at this NOPR 90-day fuel issue.  It’s been reported that FERC’s systems are melting down from the massive commenting on the FERC docket on this issue.  See the below for details:

https://www.rtoinsider.com/ferc-doe-nopr-coal-rick-perry-78274/

The article indicates that they received “over 300 comments”.  Looking at the docket there are now 589 comments.

By way of comparison, the PennEast application docket has seven thousand, eight hundred and eighteen comments on it, including thousands of intervenors (and the pre-filing docket has another 2,856).

 

Published by

Mike Spille

I'm a thinker, an analyzer, a synthesizer. Maybe not in that order. I live in West Amwell NJ with my wife Kristina, our two kids Day and Z, our two dogs Fern and Cinna, and two cats Ponce de Leon and Xavier.

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