The U.S. Senate has confirmed two nominees to the Federal Energy Regulatory Commission.

John Norris

The approvals of President Obama’s picks—John Norris, who already sits on FERC, and Tony Clark, who currently chairs the North Dakota Public Service Commission—came without debate May 24.

Norris, who joined the commission in January 2010 for a term that expires June 30, 2012, was approved for a full five-year term, while Clark will serve the remainder of a term that expires June 30, 2016.

The North Dakotan’s arrival will return FERC to its full five-member complement, following the departure of Commissioner Marc Spitzer in mid-December.

With Norris returning and Clark coming on board, the regulatory panel will include three Democrats—Chairman Jon Wellinghoff, Cheryl LaFleur and Norris—and two Republicans, Phillip Moeller and Clark.

NRECA applauded the Senate’s action. “We have a good working relationship with Commissioner Norris and his staff,” noted Rich Meyer, the association’s senior regulatory counsel.

Tony Clark

“Chairman Clark is an experienced pick from a state where there is a strong electric co-op presence,” he added.

NRECA CEO Glenn English sounded a similar note at the time of Clark’s nomination. In North Dakota, and during a term as president of the state utility regulators’ national trade association, English noted,  “Tony has demonstrated that he understands the challenges electric cooperatives and other utilities are facing today.”

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Electric cooperatives say the Environmental Protection Agency’s proposed carbon reduction standard deviates from the Obama administration’s “all of the above” energy pledge by eliminating coal as a fuel for new plants.

A new EPA rule would affect carbon emissions at coal-based plants to be built in the future. (Photo By: Basin Electric Power Cooperative)

At separate public hearings May 24 in Washington, D.C., and Chicago, co-op officials told the agency that its rule takes coal off the table as a future generation source, shows no benefits, and threatens to stymie research into carbon capture and storage technology.

“Losing the option to generate power from coal, which has historically stable costs compared to oil and gas, is a risk we should not be willing to take,” Craig Chrispell, an environmental specialist at Hoosier Energy, Bloomington, Ind., said at the Chicago hearing.

Speaking in Washington, Carol Whitman, NRECA senior principal, legislative affairs, said the rule pushes utilities toward natural gas generation, even though parts of the country lack the necessary transmission or infrastructure to handle it.

“This proposal completely ignores these siting impediments and instead focuses only on computer model-generated projections of future wholesale natural gas prices,” she said.

The rule, proposed March 27 under the Clean Air Act, would set the first national limits on carbon emissions from future fossil fuel-based plants. They would be subject to a cap of 1,000 pounds of carbon dioxide per megawatt-hour, about the level of a new combined-cycle natural gas plant.

President Obama emphasized an “all of the above” energy strategy in his State of the Union message earlier this year.

While the EPA has suggested employing carbon capture and storage could help new plants reduce emissions, Whitman said the agency’s rule could set back efforts to develop an affordable, commercially viable technology.

NRECA and several G&Ts have been working on the technology, but those investments are expensive and will trickle off if utilities have to devote their resources to meeting immediate new carbon caps.

“Thus, this rulemaking will destroy any reasonable opportunity to develop CCS technology in this country for domestic application or for exportation. For these reasons it should be withdrawn,” she said.

In addition to statements at the public hearings, NRECA and other co-ops plan to file extensive comments, which the agency said it will accept through June 25.

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Utilities seeking additional time to comply with the Environmental Protection Agency’s sweeping mercury and air toxics rule should file requests directly with that agency. That’s the word from the Federal Energy Regulatory Commission.

FERC has advised utilities to go west—to EPA headquarters—to seek more time to meet a sweeping air rule. (Photo By: VisualField)

The EPA rule requires utilities to use maximum achievable control technology to meet new standards and gives plant operators three years to comply. It provides for the possibility of a one-year extension, to be granted by the state in which the plant is located.

It also provides EPA the option to allow an additional year to meet specific reliability concerns.

The May 17 policy statement [Docket PL12-1] addresses this final year. Any decision on whether to grant it “rests entirely with EPA,” FERC said.

And while the commission will send comments on extension requests to EPA, it is up to the environmental agency to decide the extent to which that input is considered.

The policy statement directed generators to provide the commission a copy of their extension requests. FERC will examine the material to determine whether compliance with EPA’s rule could result in violation of a commission-approved reliability standard.

While FERC will vote on its comments before providing them to EPA, this will not represent a final determination that a reliability standard has been, or will be, violated. Similarly, it will not be considered a final agency action that would trigger civil penalties or other enforcement actions.

The commission underscored that the policy statement addressed only a narrow provision of the rule: how it will provide advice to EPA. “This is not a policy regarding how FERC will handle all electric reliability concerns arising from compliance with EPA regulations,” noted Chairman Jon Wellinghoff.

To fulfill its reliability responsibilities, Wellinghoff said, FERC will continue to review information regarding the regulations’ impact on the grid “and consider if we need further steps” to monitor their effects.

FERC indicated that its policy statement took into account responses to a Jan. 30 staff white paper. Comments filed by NRECA and other energy trade associations suggested that FERC take a minimal role in advising EPA on utilities’ extension requests. Industry and industry stakeholder groups should provide the key input, the groups advised.

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A pair of U.S. senators is siding with captive shippers, saying they shouldn’t have to pay extra in shipping rates because an investment giant bought a major freight railroad.

Sen. Kent Conrad

U.S. Sens. Kent Conrad, D-N.D., and John Hoeven, R-N.D., urged members of the Surface Transportation Board to reject an $8 billion addition to BNSF Railway Co.’s cost of doing business.

Berkshire Hathaway paid an $8 billion acquisition premium when it bought BNSF in 2010. Adding the premium to BNSF’s asset base, as the railroad wants, would increase coal hauling rates since they are tied to the carrier’s variable costs, Conrad and Hoeven said.

“Congress has given the STB discretion to protect shippers from unreasonable rates, and STB should ensure its regulations for cost are fair and conform to its regulatory purposes,” the senators wrote in a letter to the board, which oversees the freight rail industry.

Sen. John Hoeven

Captive shippers who lack access to competitive rail service hope the Conrad-Hoeven letter will add impetus to their concerns about the acquisition premium. The letter was released a few weeks after a March 22 STB hearing, during which shippers, railroads, economists and elected officials weighed in on the issue.

The board has not set a deadline for a decision.

Conrad and Hoeven said inclusion of the premium could undermine a landmark 2009 STB case involving Basin Electric Power Cooperative, Bismarck, N.D., and Western Fuels Association.

The G&T and the fuel supply co-op won a judgment that capped rates for 16 years and received hundreds of millions of dollars in damages from excessive shipping rates.

“These capped rates would be affected by any inclusion of an acquisition premium. Because there is over $200 million in the form of future rate calculations, the pending decision would have a significant impact on the 2009 case, consumer electricity bills, and rail rates for North Dakota businesses and citizens,” Conrad and Hoeven said.

In an April 23 letter to Conrad and Hoeven, Matthew Rose, chairman, president and CEO of BNSF, responded that inclusion of the premium is in line with accepted accounting practices. He suggested the railroad would be open to phasing in the cost over three or four years.

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Safety valves are in place to prevent rules regulating power plant emissions from impacting electric reliability, making legislation unnecessary, according to Federal Energy Regulatory Commission Chairman Jon Wellinghoff.

FERC Chairman Jon Wellinghoff discusses the commission’s agenda at a meeting with energy reporters. (Photo By: Todd H. Cunningham)

The chairman offered his perspective at an April 26 roundtable with reporters at FERC headquarters in Washington, D.C., in response to a question about Capitol Hill concerns over the cumulative effect of federal environmental regulations on the grid.

The FERC chief voiced a greater sense of urgency on the grid’s vulnerability to cyber attacks. The electric system is “potentially vulnerable,” Wellinghoff said, but added there has been no indication of increased exposure during his five and a half years at FERC.

The commission works with its reliability watchdog, the North American Electric Reliability Corp., in developing critical infrastructure protection standards related in part to cyber security, the chairman indicated.

However, he said, there is a need to do more, because NERC is not set up to respond quickly to a threat.

On another reliability issue, the chairman noted that FERC is holding a technical conference on possible geomagnetic interference from solar storms on the bulk power system.

Once assessments are made about threats and mitigation costs, he said, the commission will have an indication of whether, and how, it should work with NERC to minimize potential impacts.

The commission chief also discussed the changing mixture of natural gas and coal in the generation portfolio. Wellinghoff said that the changing fuel shares were an incremental, region-specific concern requiring further study. “But I’m not very concerned about it.”

Regarding market manipulation, the chairman said he hoped there would be no more cases of the magnitude of the Constellation Energy Commodities Group, where a settlement totaled $245 million. “I hope people have gotten the message,” he said.

Wellinghoff scoffed at complaints that FERC’s distinction between fair trading and manipulation is not clear. “Anyone who reads the Constellation case will get a clear signal,” he said. “If anyone thinks it’s not clear, that’s their problem and not ours.”

Finally, the chairman said he has no intention of going elsewhere anytime soon. “My term ends in June 2013,” Wellinghoff noted. “I have no plans to leave before then.”

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If regulators fail to address the nation’s increasing reliance on natural gas for electricity generation, reliability risks seen in some regions might become more widespread, NRECA cautioned.

Regulators must address issues stemming from the use of natural gas to fuel electricity generation, NRECA says. (Photo By: Ron Thomas)

The Federal Energy Regulatory Commission has previously made efforts to address the interdependence of the gas and electricity sectors, the association acknowledged in recent comments (Dockets AD12-123 and RM96-1-037).

However, it added, FERC must offer further guidance “to improve the communications and coordination between the two industries.”

NRECA’s comments emphasized that FERC is the only entity with “the ability to receive direct input from market participants and asset owners operating in both sectors” and to act on this information.

The comments were filed in a proceeding stemming from concerns expressed last winter by Commissioner Philip Moeller. He pointed out that recent problems, such as the Southwest power outage of February 2011, “suggest that more resources need to be allocated to planning for the increased use of natural gas to generate electricity.”

Moeller’s concerns were echoed by Commissioner Cheryl LaFleur, who noted personal experience with “a near-miss situation” in New England in January 2004.

According to Rich Meyer, NRECA senior regulatory counsel, the commissioners’ words, together with the comments filed, “will produce a fair amount of momentum.” As a result, he forecast a near-term technical conference, with a more formal notice of inquiry or rulemaking likely following.

The proceedings could be separated into “baskets” of communication, operations and other subjects, as posed by Moeller, NRECA specified. It called for a flexible approach to the rulemaking proceedings and development of either mandatory standards or flexible guidelines based on each basket.

NRECA’s comments counseled flexibility in dealing with regional differences, such as markets with regional transmission operators and those without. However, it underlined, “These types of differences … cannot justify inaction.”

The association also called on FERC to study the change in gas flows resulting from expanded use of gas-fueled electricity generation.

“The commission will need to balance the desire to protect existing shippers from the cost of expansions that are necessary to serve these new demands,” NRECA said. However, it added, new generation must not be burdened by high pipeline expansion costs.

The association called for prompt action. “The industries are fast approaching the point where coordination between them must be achieved regardless of whether there is a consensus,” NRECA underscored.

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NRECA CEO Glenn English says a greenhouse gas standard proposed by the Environmental Protection Agency will effectively prevent the use of coal at new plants to produce electric power.

A new EPA standard coal effectively block construction of new coal-based power plants. (Photo By: TVA)

The rulemaking, issued March 27, requires carbon dioxide emissions from new fossil-fuel plants to be roughly equivalent to the emissions from a new combined-cycle natural gas plant.

That’s half the emissions from a new coal plant, and English said the technology to accomplish that reduction does not currently exist.

“Because commercially viable carbon capture and storage technology is still years away, the rules issued by EPA have the practical effect of outlawing coal as a fuel source for the next generation of power plants,” English said.

The standard marks the first-ever limits on greenhouse gases under the Clean Air Act. A member resolution adopted by co-ops notes the Clean Air Act was never intended to cover carbon, and calls it the wrong vehicle to do so.

It is not all-encompassing, since it applies only to new plants, and does not include units that are in operation or will begin construction in the next 12 months.

However, English said the EPA regulations represent a dramatic departure from President Obama’s pledge in his January State of the Union address to pursue a diverse energy policy that taps all fuel sources.

“NRECA and its member electric cooperatives are extremely disappointed that the standard issued by the EPA has jettisoned American coal from the President’s all-of-the-above energy strategy,” he said.

In a statement, EPA said it does not anticipate that the rule will add costs to the electric power sector because utilities can switch to natural gas or employ clean-coal technologies.

English said that suggestion flies in the face of what’s practical to produce a reliable supply of power at affordable rates.

“Politicians cannot have it both ways. They can’t claim to support the use of all fuels while at the same time establishing requirements technology can’t meet for America’s most abundant domestic fuel source,” he added.

EPA will open a 60-day comment period after the rule is published in the Federal Register.

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Capital investment behemoth Berkshire Hathaway paid an acquisition premium estimated at $8.1 billion when it bought BNSF Railway Co., in 2010.

Sen. Al Franken

Now, freight rail customers and their supporters want the federal Surface Transportation Board to make sure they don’t have to foot the bill for that premium.

“Berkshire Hathaway has the right to pay as much as they want to buy BNSF, but shippers should not have to underwrite the purchase,” said Glenn English, chairman of Consumers United for Rail Equity, a shippers’ coalition.

English made his comments in a statement released before a March 22 STB hearing in which several speakers said captive shippers, who lack access to competitive rail service, will suffer if the STB sides with Berkshire Hathaway and BNSF.

“How Berkshire Hathaway accounts for its acquisition premium will directly affect how and when captive shippers can challenge rates before the board,” Sen. Al Franken, D-Minn., told the three-member panel, which oversees the freight rail industry.

Berkshire Hathaway, a holding company headed by chairman and CEO Warren Buffett, paid an estimated $27 billion for BNSF two years ago. It wants the STB to include the $8.1 billion premium, which is related to acquisition costs, in BNSF’s asset base.

Increasing the cost base would increase the cost of shipping coal and other commodities, and would change STB formulas that determine when shippers can contest excessive rates. Franken was among several speakers who noted the acquisition premium has nothing to do with actual rail service.

“If this premium is included in the railroad’s asset base, I fear it will send a message to the railroads that they can artificially inflate their assets to get around the board’s rules, and that will send a message to shippers that the board does not care about them,” Franken said.

John H. LeSeur, a lawyer for the Western Coal Traffic League, which represents NRECA and Basin Electric Power Cooperative, Bismarck, N.D., said the case is unique because the buyer is an investment firm, not another railroad.

“This transaction as structured by Berkshire offers no benefits to BNSF’s customers in the form of improved service or any other benefits. Instead, captive shippers are simply being asked to pay more for the same service they received before the acquisition,” LeSeur said.

An NRECA resolution also opposes efforts by railroads to embed acquisition premiums into the regulatory rate base.

The board did not set a deadline for a decision, and Vice Chairman Francis Mulvey called it a “complicated” case involving complex rate and accounting issues.

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Two nominees to the Federal Energy Regulatory Commission have indicated they see no pressing need for increased agency authority to site electric transmission lines.

John Norris

John Norris, a current commissioner who has been nominated for another term, told the Senate Energy and Natural Resources Committee that existing regulations should be given time to work before new transmission siting authority is considered.

Nominee Tony Clark saw limited circumstances under which such authority could be useful, such as when a single state or locality was blocking a transmission line of regional or national importance.

Clark, who chairs the North Dakota Public Service Commission and served a term as president of the state utility regulators’ trade group, acknowledged that this view is at odds with those of many state counterparts.

But in his National Association of Regulatory Utility Commissioners leadership post, the North Dakotan noted, he had “successfully worked across regional lines, philosophical lines and party lines for consensus-oriented solutions that benefitted our nation’s consumers.”

Tony Clark

Norris told senators at the March 20 confirmation hearing that the major hurdle facing transmission development is not regulatory obstructionism, but an inability to reach consensus on cost allocation. This could be resolved if FERC’s Order 1000 is given a chance to work, he suggested.

That commission directive, issued in July 2011, requires public utility transmission providers to improve grid planning processes and to allocate the costs of new transmission to their beneficiaries.

If Order 1000 does not resolve the cost allocation challenge, and states withhold siting approvals, the matter may need to be revisited, Norris said. But a decision is “premature” at this time, he asserted.

“Increased FERC transmission siting authority is a controversial issue,” noted Rich Meyer, NRECA senior regulatory counsel. “It is not surprising that neither nominee called for new legislation during their confirmation hearing.”

On another hot-button issue, Norris told the committee that while Environmental Protection Agency rulemakings on mercury and air toxics have potentially serious impacts on the grid, he believes that the commission has “sufficient tools available” to safeguard reliability.

Sens. Lisa Murkowski, R-Alaska, the committee’s ranking minority member, and John Barrasso, R-Wyo., expressed particular concern over the potential repercussions of EPA rules.

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Federal regulators have conditionally accepted a proposal by the nation’s bulk power system reliability watchdog to modify the latter’s enforcement practices.

The nation’s grid reliability watchdog will focus on more serious risks to the system under a modified enforcement approach. (Photo By: JacquesKloppers)

The North American Electric Reliability Corp.’s “Find, Fix, Track and Report” initiative, dubbed FFT, received the Federal Energy Regulatory Commission’s nod on March 15. Under the program, NERC and the industry would report minor violations that have already been remedied to the commission in a streamlined manner.

This would free up additional time and resources to focus on more serious reliability risks, proponents say.

NRECA strongly supports the initiative [Dockets RC11-6, et al]. According to Barry Lawson, associate director, power delivery and reliability, “approval of this phase of the FFT program is a good first step in helping to minimize unnecessary compliance costs and activities.”

The association will work with regulators and stakeholders in implementing future program phases to provide further cost savings for cooperatives, subject to NERC reliability standards, Lawson added.

Speaking prior to the commission’s vote, FERC Chairman Jon Wellinghoff noted that while the order did not significantly alter NERC’s proposal, it provided some guidance on implementation.

As an example, he said, there have been instances where NERC’s risk assessment was “problematic,” and better understanding is needed of how such assessments will be made in qualifying a possible violation for FFT treatment.

Accordingly, the chairman specified, until FERC and NERC gain more experience with assessment of risk under specific scenarios, FFT eligibility is being limited to possible violations posing only a minimal risk to system reliability.

Wellinghoff identified several other areas where guidance has been provided. They include documentation requirements and mandatory public disclosure, with certain exceptions, of the identity of an entity subject to an FFT matter.

The FERC chief also expressed concern that the FFT mechanism might have “an adverse impact on self-reporting” of violations. He noted that NERC’s one-year report on the FFT program, required by the commission, is to include an analysis of any such impacts.

NERC’s proposal represents a major change in how FERC will enforce compliance with reliability standards, Wellinghoff noted.

Therefore, he concluded, the order’s limited conditions and guidance are appropriate to ensure that the FFT mechanism achieves its goals without damaging the commission’s ability to ensure such compliance.

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