December 2017, Vol. 244, No. 12



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 with a 90-day fuel supply onsite in the event of supply disruptions. That would allow regional transmission organizations (RTOs) and independent system operators (ISOs), which essentially regulate wholesale electric supply and demand in various regions, to adjust rates to benefit utilities dependent on coal or nuclear power.

FERC was taking public comment on its Grid Resiliency Pricing Rule until Nov. 30 and will ostensibly decide whether to adopt Perry’s proposal, modify it or extend consideration of it. Chairman Neil Chatterjee emphasized on a FERC podcast on Oct. 25 that his is an independent agency and indicated that it 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 which reported 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 to run.

According to the DOE staff report, the loss of generation capacity could have been catastrophic, but several 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% of its coal units scheduled for retirement in 2014 to meet demand during the Polar Vortex, and Southern Company reported using 75% of its coal units scheduled for closure.

Paul Bailey, president and CEO, American Coalition for Clean Coal Electricity, explained at a recent hearing of the House Energy & Commerce Committee that the nation’s coal fleet is comprised of 1,004 individual generating units located at 377 power plants that represent a total of 262,000 megawatts (MW) of electric generating capacity. About 60,000 MW of coal-fueled generating capacity (20% 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 which 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 that 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% 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 9% higher than the previous winter.”

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 and “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, 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%,” he related.

Major consumers of natural gas weighed in against Perry’s proposal. The Process Gas Consumers Group, composed of manufacturers who rely on natural gas for electric plants, stated FERC has already taken a number of steps to ensure reliability. For example, the commission approved the New England ISO’s “pay for performance” program and winter reliability programs which provide financial incentives for generators to be prepared to perform in extreme weather events.

Also, to handle issues related to possible natural gas supply interruptions, FERC issued an order to allow increased communication between electric system operators and pipeline operators, increasing electric operators’ information about gas pipeline status in dispatching gas-fired generators.

Solar and wind energy providers and environmental groups such as the Natural Resources Defense Council oppose the Perry proposal.

BLM Suspends Implementation of Methane Flaring Rule

The Bureau of Land Management (BLM) suspended and extended the deadlines for some 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 have challenged the legitimacy of the rule, arguing the Environmental Protection Agency (EPA) 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), the Western Energy Alliance (WEA), the American Exploration and Production Council, and the U.S. Oil and Gas Association.

They argued that instead of worrying about methane emissions, the BLM would be better served directing its resources toward processing applications for the pipeline rights-of-ways across federal and Native American 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.

The BLM’s rule on venting and flaring of methane was also the subject of legal action undertaken by the WEA, IPAA and some of the western states most prominently affected. This litigation has been consolidated and is pending in the U.S. District Court for the District of Wyoming. The groups filed a separate request in federal court for an injunction and a stay of the rule, but those motions were denied by the court on Jan. 16, 2017 and the rule went into effect the following day.

Although the court denied the motions for a preliminary injunction, it expressed concerns that the BLM may have “usurped” the authority of the EPA and the states under the Clean Air Act, and questioned whether it was appropriate for the 2016 final rule to be justified based on its environmental and societal benefits, rather than on its resource conservation benefits alone. The next stage in the litigation will be the court’s consideration of the merits of the petitioner’s claims.

The possibility that the BLM rule could be overturned led to the BLM’s decision on Oct. 16, 2017 to delay until Jan.1, 2019 implementation of parts of the rule that would have gone into effect on Jan.1, 2018. In the meantime, the BLM will review the Obama administration rule to determine where it falls out of compliance, if it does, with President Trump’s Executive Order 13783, entitled, “Promoting Energy Independence and Economic Growth.”

Section 7(b) of Executive Order 13783 directs the Secretary of the Interior to review four specific rules, including the 2016 final rule, to determine whether to revise, suspend or rescind those rules. The result of that examination may lead to the BLM proposing a revision of the methane rule.


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