Solutions For Gas Coordination

The New England energy community recently had the opportunity to hear from the newest member of the Federal Energy Regulatory Commission (FERC), Tony Clark. Appointed in June from his position on the North Dakota public utilities commission, Clark said that he had held off doing any public speaking until he had had a chance to get up to speed on the work of FERC and settled into the organization. Clark’s talks before different forums (I attended two such talks) suggest that he not only has settled in and gotten up to speed, but that he possesses the right skills and demeanor to be an excellent addition to the Commission panel.

It’s not often that we hear regulators discuss their “regulatory philosophy.” Indeed, one wonders if it even occurs to some regulators that they should have a philosophy or a theory of thinking that guides decision-making as opposed to a policy agenda or case-by-case thinking. So, it was particularly refreshing to hear Commissioner Clark speak in terms of his philosophy.

Commissioner Clark spoke in terms of following “solid economic signals” rather than “picking outcomes and then building regulatory mechanisms that get you there.” He said that he looks for a solid record to support decisions, believes that it is best for regulators to “promote certainty and avoid mistakes to the greatest extent possible” and, finally, “when all else fails, make a decision and move on.”

Commissioner Clark exhibited a clear understanding of the challenges facing the region with respect to the coordination of electric generation with the supply of natural gas. He identified four key factors in determining whether a region’s needs are “acute.”

1. The region is dependent on natural gas.
2. Seasonal fluctuation in natural gas use and electric generation.
3. Restructured retail markets and
4. Constrained pipeline capacity into the region.

As we have previously discussed, New England hit all four.

The solutions Clark identified were mostly what we are already pursuing as a region: Market incentive mechanisms, greater coordination between the gas and electric industries and ongoing dialogue. But, when questioned about changing the paradigm of FERC authority over pipeline certification as a tool to address these challenges, he demurred to a concern about national precedent.

Certainly, precedent should be a concern of any regulator but so should being open to different solutions to unprecedented challenges. There has been little or no significant change in FERC’s approach to the pipeline certification review process since the enactment of the Natural Gas Act in the 1930s.

Commissioner Clark’s critical factors in identifying an “acute” situation call for new approaches to the certification standards. Otherwise, what is the significance of being deemed “acute.”

Perhaps, through conditioning authority, the Commission can certify pipeline construction in a way that doesn’t saddle gas and electricity consumers with all of the cost burden and leaves open opportunities for alternative approaches. It is incumbent for us, as a region, to flesh out those alternatives and present them to FERC with a solid evidentiary and policy record of support.

We cannot reasonably expect FERC to devise a new approach on its own. But we can expect the commissioners to embrace new ideas thoughtfully and clearly presented.