FERC-in' Around

Order No. 1920 and Regulatory Politicization

Source: Politico

The Order of the Day

On May 13, in a sweeping reform of the Federal Power Act (FPA), the Federal Energy Regulatory Commission (FERC) issued its long-anticipated Order No. 1920. The landmark overhaul of the FPA’s Section 206 represents FERC’s largest transmission policy revision in over a decade, and is poised to completely alter the way that transmission projects are planned and approved across the U.S.

Order 1920, so named as an ode to the year of FERC’s founding, is a byzantine document, spanning 1,363 pages and explicating in minute detail the specific protocols and mandates that transmission providers must follow going forward. The order originated from the premise that significant gaps and insufficiencies currently exist in regulatory requirements for transmission planning and cost allocations. The stated intention of Order 1920 “requires transmission providers to conduct Long-Term Regional Transmission Planning that will ensure the identification, evaluation, and selection, as well as the allocation of the costs, of more efficient or cost-effective regional transmission solutions to address Long-Term Transmission Needs.”

Before getting too far into the weeds, it is useful to supply some context on the role of FERC in managing the nation’s electricity grid. The Commission is an independent agency, tasked with regulating interstate energy transmission, including electricity, natural gas, and oil. The agency also oversees some types of mergers and acquisitions between electricity companies. FERC’s mission statement is to “assist consumers in obtaining reliable, safe, secure, and economically efficient energy services at a reasonable cost through appropriate regulatory and market means, and collaborative efforts.”

On its face, Order 1920 requires transmission providers to implement a 20-year timeframe for planning regional project updates and expansion. This long-term planning process deviates significantly from previous regulations, which were much looser and mainly decided on a short-term, case-by-case basis. The new policies also require providers to take into consideration the increasingly changing mix of resources available to the grid as well as altered patterns of consumer demand when allocating new projects. This directive is linked to the anticipated technological trends and federal regulations toward electrification and decarbonization.

The decision, passed on a 2-1 vote among the three sitting commissioners, was hailed in an official press release as an “historic” event that will enable the high-tech grid of the future. FERC Chairman Willie Phillips is quoted as saying:

“Our country is facing an unprecedented surge in demand for affordable electricity while confronting extreme weather threats to the reliability of our grid and trying to stay one step ahead of the massive technological changes we are seeing in our society,” and “Our nation needs a new foundation to get badly needed new transmission planned, paid for and built. With this new rule, that starts today.”

Behind Rose-Tinted Glasses

However, behind all the pomp and circumstance, not everyone sees the rosy future supposedly envisioned by the new rules. In a scathing dissent, Commissioner Mark Christie, the sole Republican on the bench, called Order 1920 a “shell game” that would secretly put its thumb on the scale, tipping the balance towards the selection of intermittent wind and solar projects, at the expense of baseload coal, natural gas and nuclear. As FERC is supposed to remain resource agnostic, instead evaluating projects on criteria of efficiency and cost-effectiveness, this is a searing indictment from Commissioner Christie.

Christie further argued that the plan would allow resources with solid economic and reliability fundamentals to be mixed in with projects selected by a local jurisdiction on the basis of policy preferences, with their costs socialized across state lines. For example, if California regulation requires the state to meet a certain threshold of renewable wind and solar for its grid, these costs would be summarily passed on to other Western states that did not sign up for such legislation. Christie suggests that this rule reneges on a stipulation provided under the draft document preceding Order 1920 (the Notice of Proposed Rulemaking), that promised to require the explicit consent of the states throughout the project evaluation, selection, and approval processes.

Even more troubling, FERC may have overstepped its jurisdiction, usurping powers solely appointed to Congress. In his dissent, Commissioner Christie stated that the nature of Order 1920, veering off-course from providing technical guidelines into crafting policy, abrogates Congressional legislative authority. In other words, directing a policy agenda requires the consent of the governed, through proper legislative debate and representative approval. On these grounds, Christie argued that Order 1920 violates the “major questions doctrine,” invoked when administrative agencies exceed their mandate relating to important questions of policy, which should be reserved for Congress. Some legal analysts have denied that Order 1920 creates a “major questions” case, saying that the policies adhere to FERC’s prescriptive role set by Congress and legal precedent. However, given the high stakes to consumers involved in such a dramatic shift in electricity transmission planning, there is significant probative value in challenging the underlying principles to ensure they stand up to scrutiny.

Public Servants Turned Political Flunkies

The row over Order 1920 is emblematic of a more pervasive and worrying trend among executive agencies. For some time, FERC has become increasingly politicized, with decisions made down party lines. Gone are the days when Commissioners proudly announced that FERC “speaks loudest” when it “speaks with one voice.” Indeed, for a commission tasked with resolving mostly boring, routine technical grid connectivity issues, politicization portends an increasingly gridlocked decision process, paralyzed by party affiliation at the expense of being responsible consumer advocates.

This is not the first time that FERC has been accused of making politically motivated regulations. The agency came under fire during the Trump Administration for its apparent attempts to favor projects supplied by fossil fuel resources. In an obvious display of partisanship, Trump demoted FERC Chairman Neil Chatterjee in 2020, after he capitulated from the traditional Republican party line, voting in favor of opening regional grid operators to rooftop solar providers, and expressing support for introducing carbon pricing policy.

Under the Biden Administration, the agency has only doubled down on its political polarization. In 2022, the Senate Energy and Natural Resources Committee held a hearing to review FERC’s updated process for evaluating natural gas pipelines and liquified natural gas (LNG) terminals. Senators Joe Manchin (D-WV) and John Barrasso (R-WY) accused FERC of harboring a “political agenda,” taking a broadly expansionary approach to implement new hurdles for natural gas projects to clear before approval. These added criteria included evaluation of GHG emissions, as well as directives to incentivize companies to mitigate those emissions. Senator Barrasso suggested that “these policies are going to make it next to impossible to build any new natural gas infrastructure or upgrade our existing facilities in the United States.” Tellingly, the revised natural gas infrastructure rules were also decided on party lines, in a 3-2 split.

A Dereliction of Duty

First and foremost, FERC is charged with a duty to provide affordable and reliable electricity services for the American people. Regulatory politicization threatens to undermine this essential responsibility, as politically captured commissioners superimpose the preferences of their preferred party over the national interest. To wit, as energy market economist Travis Fisher points out, there is little mention in the language of Order 1920 discussing its potential impacts on end-use retail electricity prices. And, if Commissioner Christie’s analysis is correct, top-heavy intermittent resource allocation would only further destabilize the grid, as wind and solar are weather-dependent and unreliable, particularly during emergency situations. Without an even investment in baseload natural gas and nuclear to back up renewables and provide consistency, the grid is headed for catastrophe.

Whatever may come from Order 1920, the precedent set is unfortunately riddled with power-grabbing and political sleight-of-hand on one end, and insufficient technical and economic justification on the other. In other words, a 1,300-page puff piece with the power of law. But unlike most puff pieces, that leave behind a halo of afterglow, this one will most likely leave you in the dark.

Electrically yours,

K.T.