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Chairman Neil Chatterjee Statement
October 17, 2017
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At Energy Bar Association 2017 Mid-Year Energy Forum

“It’s an honor to be here with you today.

“I’d like to start by thanking President Bob Weishaar and the entire EBA team for hosting the Mid-Year Energy Forum and for inviting me to address you now.

“It’s been a fast paced and energetic first two months for me and my team at the Commission.

“Thankfully the staff throughout the building has been willing and effective in helping us settle in.

“I’ve enjoyed getting to work with and know Commissioners LaFleur and Powelson and their teams.

“Commissioner LaFleur’s years of service and depth of experience have been invaluable. Commissioner Powelson and I have known each other for years and bonded as we went through the Senate confirmation process together. I lean on him for his leadership and knowhow derived from his impressive tenure in his home state of Pennsylvania.

“I’m eager to welcome two new colleagues into the fold as soon as they can clear the Senate process. I have gotten to know Kevin McIntyre on a personal level and am looking forward to working with and learning from him and his decades of legal expertise. I’m also looking forward to his humor and encyclopedic knowledge of college basketball to get me through March Madness.

“Rich Glick and I worked together in the Senate, but he also brings a considerable private sector background to the job which will provide a necessary perspective to our work. I think each of us has unique attributes that complement each other and will serve us well during our time at FERC. I am confident that in working together, and with all of you in this room, we can move forward on the many challenges that face the Commission in the coming months and years.

“The good news for Kevin and Rich is that we have already cleared more than 200 orders ahead of our Open Meeting this week, and we are well on our way to getting through the back log that accrued as a result of the loss of quorum.

“I am eager to see what else we will be able to accomplish once they join us.

“Before I go any further, I have to give the usual lawyer disclaimer: the views expressed herein are my own opinions and don’t necessarily reflect the opinion of my fellow Commissioners or FERC Staff.

“Now, moving on to what I’d really like to discuss with you today. I want to use this occasion to share what I envision as my priorities for the Commission’s activities during my time here. To be clear, I don’t view the efforts I’ll discuss today as a drastic change in direction from FERC’s previous years of work. The Commission has not been sitting on its hands over the past four decades: its 1,500 employees are some of the brightest and most dedicated in the federal government and, in conjunction with the Chairman and Commissioners, they are always working to identify ways that FERC can do its job more efficiently and serve the American people even more effectively. That said, the restoration of the quorum and the change in leadership does, in my view, present an opportunity to bring a fresh perspective to that work. Today I’d like to talk with you more about my own perspective and the areas where I believe FERC can continue to build and improve on progress made by the Commission through the years.

“For instance…

    Streamlining project review processes to improve review timelines…

    Better aligning electric transmission investment incentives with need…

    Maintaining grid reliability and resilience in a period of rapid change…

    Bolstering defenses regarding ever-evolving cyber threats…

    And evaluating de novo review of enforcement actions and PURPA reform.

“These are some of the key areas I’d like to address today, areas where I believe FERC can build upon the successes of the past to grow stronger in meeting the demands of the future.

“One of the biggest complaints that I hear from stakeholders is that it takes too long to review applications for natural gas and hydropower projects.

“That’s not to say that the Commission doesn’t have success stories. Since a quorum was restored on August 10, my colleagues and I have voted on around five Bcf/d of new natural gas pipeline capacity — the most recent examples being the approval of the Atlantic Coast and Mountain Valley Pipeline projects just last week.

“The opportunity to move forward with these critical projects so expediently after the restoration of a quorum was no small accomplishment. It’s a testament to all the hard work done by Commissioner LaFleur, Commissioner Honorable and the entire Commission staff during the no-quorum period.

“Even still, we won’t be resting on our laurels here. FERC’s review of hydropower projects, from formal application submission until issuance of a FERC certificate, can take around 30 months on average.

“A relicense of a hydro project, can take on average more than four years. Even before the loss of quorum in February 2017, the period from formal application submission until issuance of a FERC certificate for new natural gas pipeline projects had been taking up to 18 months for significant projects. For Atlantic Sunrise in particular, that magic number was 22 months by the time it was approved in February 2017.

“The FERC review process continues to get longer and longer due in large part to increased participation in the process by stakeholders, including numerous legal challenges.

“I anticipate that a flashpoint for many of those legal challenges will be the question of economic need for a new natural gas pipeline project.

“The dissents to Friday’s decisions approving the Atlantic Coast and MVP pipeline projects suggested that FERC should depart from its longstanding policy of relying on precedent agreements with shippers to demonstrate economic need in favor of weighing a broad range of economic, social and aesthetic values. Although I respect my colleague’s position on this question, I strongly disagree.

“The Commission has historically prioritized precedent agreements in its analysis because those are clear, unequivocal statements of economic need by the market itself. The companies who are willing to enter into contracts to pay for transportation on the service on a pipeline have a much clearer understanding of the market need for the gas than we could develop through studies here in D.C.

“The regulatory uncertainty created by burdensome delays in the project review process are problematic for numerous reasons for those on both sides of the issue.

“Here’s what I mean.

    Delays discourage investment in projects. It’s a question fundamentally of opportunity costs: if I were a financial investor or a project sponsor, I’d want predictable cash flows and return and would be reluctant to put my money toward a project for which there’s no predictable length of time for the regulatory review process. Furthermore, if FERC believes my project is a non-starter, I would prefer to learn that sooner rather than later so I can invest elsewhere.

    Delays harm the communities in areas surrounding a project. When I look through the dockets for our hydropower licensing and natural gas pipeline proceedings I see both adverse and supporting comments from concerned citizens in communities near a project. I see comments from union laborers who recognize these projects as a source of stable jobs for hardworking middle class Americans. I see comments from residents of struggling small towns who see a pipeline or a hydropower project as a long-term source of tax revenues that they desperately need to fund essential social services. And, I see comments from landowners who are concerned that a project infringes on their property rights as well as comments from activists concerned about its environmental impacts.

    “FERC owes both sides an opportunity to articulate their position, to have it reviewed thoughtfully by the Commission, and ultimately to receive a timely up-or-down decision. Transparent, predictable decision-making helps each of the concerned Americans I described, on both sides of the issue. I think we owe it to them to provide such a process.

    Finally, delays can cause broad-based harm to end users and consumers. Delays can have direct impacts, hitting consumers in the pocketbook by way of higher monthly electric or natural gas bills. They can also result in indirect impacts to consumers: when delays increase the price industry pays for energy, the costs of goods and services throughout the economy inevitably increase.

    “To be clear, FERC is most definitely not the principal source of those delays. No matter how diligent FERC staff is, there are many areas of the project review process that we simply have little control over.

    For instance, some delays are created by various other federal and state agencies. Statutory requirements give other agencies significant roles in the licensing processes for natural gas and hydropower projects. Those agencies have different missions and may not be as focused on the permitting process as FERC is. Coordination and consultation with state entities takes time — and as we all know, some states can take aggressive positions regarding the scope of their rights on projects.

    Many delays are the results of incomplete applications. This is a frequent and avoidable problem, which results in the Commission requesting additional information and, inescapably, dragging out the review process. Fortunately, there are tools in place to help. The pre-filing process is designed to help produce more complete applications, to ensure that stakeholders’ concerns are addressed, and to guarantee that the best path forward is developed. FERC staff stand by to assist in the pre-filing process — a process that helps us, help you.

    And finally, other delays are driven by the sheer number of comments received from stakeholders. It takes time for the Commission to thoughtfully review and respond to comments. This part of the process cannot be shortchanged; FERC is dedicated to ensuring that everyone’s view is heard and their concerns are addressed to the best of our ability.

    “While these contributors to delays do not stem from FERC itself, that is not to say that we shouldn’t examine our internal project review processes to identify greater efficiencies as well. Given the importance of the pipeline and hydroelectric projects we review, one of the highest values within FERC is continually evaluating areas where there is room for improvement. I’m proud of the efforts we’ve undertaken already, some of which I will share with you now.

    The Commission conducted a voluntary review of our agency actions to identify actions that potentially burden domestic energy use and production consistent with the goals of Executive Order 13783. Now FERC is an independent agency, so we didn’t have to respond to this Executive Order — we chose to do so because the goals of the EO are consistent with the high premium we place on improvement of the Commission’s work. That analysis is still under review, but the Commission will make public its actions related to the EO as appropriate based on the EO and the Commission’s internal processes.

    The Commission staff published new LNG Project Resource Report 13 Guidance in February 2017. This document assists project applicants in ensuring that the information submitted with their application is complete, thereby avoiding needless delays resulting from FERC staff being forced to ask for additional information.

    The Commission is engaged in ongoing efforts to comply with FAST-41 statutory reporting obligations. FERC is an active participant in the implementation process under the statute, and staff have appeared before Congress to discuss our efforts. A number of qualifying FERC projects are now tracked on the program’s online Permitting Dashboard. This effort has the potential to really focus agencies on permitting, thereby creating a more efficient process with robust participation from a variety of stakeholders.

    And, later this week, the Commission will consider a new policy statement on establishing license terms for hydroelectric projects during our Open Meeting. This was announced in the Sunshine Notice, so I can tell you its title — but you’ll have to wait until Thursday for the details. I would encourage you to stay tuned.

“Though these are all significant improvements, more work remains.

“Ultimately, I would like to see FERC significantly reduce its review timelines for major natural gas pipeline certificates and other projects.

“I’m under no illusions as to the magnitude of that challenge.

“It will require us to take an even harder look at our regulations, policies and practices than we have done in the past.

“And, of course, it will require an enormous effort from FERC staff, who are already engaged on a number of other critical issues currently facing the Commission.

“Although it’d be premature to predict the concrete measures that will emerge from that effort, I envision that one of the areas we’ll be looking at will be our relationships and interactions with other federal and state agencies.

“For example, even if legislation is not enacted to make those interactions more efficient, I believe we should pursue understandings that can be reached on an agency-to-agency basis to help improve the review process.

“Before moving on, there is one last but very important point on the issue of project timelines I would like to point out.

“While I may not be in a position to identify additional, discrete process improvements FERC will undertake as I stand before you today, I can promise that any efficiency-aimed action we take will not cut corners.

“We at FERC work tirelessly to cultivate a compliance-focused and safety-conscious culture, and we demand that project developers live up to similarly high standards. When project developers do not live up to their legal obligations they will be held accountable. Safety and environmental protection are essential parts of what we do.

“That’s not going to change as we look for greater efficiencies in our review processes. I know I speak for my fellow Commissioners in unequivocally rejecting the premise that safety, compliance and efficiency are zero-sum propositions.

“Now hydropower and natural gas projects are not the only area in which FERC might improve…

“I don’t think anyone would dispute the fact that we need significantly more and upgraded electric transmission capacity throughout the country to meet diverse end-user needs and energy policy objectives.

“That’s why I believe that it’s critical for FERC to ensure that there are policies in place that adequately incent investment in transmission infrastructure.

“Changes in the generation mix also require changes in the transmission system. Gas displacement of baseload generation assets in PJM and other parts of the country require new transmission assets to bring that energy to market. Ambitious state renewable portfolio standards in New York, California and elsewhere demand new or upgraded transmission infrastructure to link distant renewable generation assets with industrial consumers and major population centers.

“Persistent transmission constraints in the Mid-Atlantic region and in the vicinity of New York City result in congestion costs that get passed on to consumers in their electric bill or in higher costs for goods and services. Cost-effective new transmission infrastructure that relieves those constraints can result in long-term consumer savings.

“Transmission infrastructure can also go a long way in helping to address concerns regarding the reliability and resilience of the nation’s grid.

“The challenge facing my fellow Commissioners and I is determining how to create a regulatory ecosystem that promotes development of new or upgraded transmission infrastructure while also protecting consumers.

“As all of you know, the Commission has grappled with this issue for some time, with Order 1000 representing the most notable example of those efforts. In my opinion, the most critical near-term piece of the transmission-investment puzzle is ensuring that the right financial incentives are in place to attract the investment capital for new infrastructure satisfying the policy goals I just described.

“In concrete terms, this means that the Commission must address the question of what represents a just and reasonable Return on Equity for transmission projects in the wake of the D.C. Circuit’s Emera Maine decision. This is a difficult question, and my colleagues and I continue to evaluate the path forward.

“But it also means casting a wider net than just our response to a single DC Circuit decision. For example, I believe that FERC should take a hard look at Order 679 and our transmission incentives policy statement to consider innovative ways in which we can apply the principles animating those documents to better promote transmission development.

More efficient review processes for natural gas and hydropower projects, incenting investment in electric transmission infrastructure — these are elements of a broader challenge facing the Commission. That is, how can we preserve a reliable, affordable and resilient energy supply for Americans despite rapid changes in the way energy is generated, transmitted and consumed in the United States…?

“Reliable electricity is the foundation of our modern civilization and economic prosperity. We need only look to the devastating situation currently facing our fellow Americans in Puerto Rico to see how difficult even the basic necessities of life become without reliable access to electricity.

“Maintaining a high level of reliability throughout the country is a difficult challenge in light of the retirement of older dispatchable resources and the integration of huge amounts of renewable generation in a relatively short time.

  • Between 2002 and 2016, approximately 59,000 MW of coal generation capacity retired, and DOE has stated it anticipates an additional 12,700 MW of coal generation capacity will retire through 2020;

  • Between 2002 and 2016, approximately 4,600 MW of nuclear generation capacity announced plans to retire; since 2016, there have been an additional 7,100 MW of announced nuclear retirements; but

  • Between 2002 and 2016, variable renewable energy generation like wind and solar went from niche players to market-driving resources. In 2002, there was less than 5,000 MW of nameplate wind and solar capacity, but by 2016, there was over 100,000 MW of wind and solar capacity. And that number is expected to continue increasing in the years ahead.

“That the nation’s electric grid has remained reliable despite these changes is no coincidence.

“Instead, it’s the result of constant vigilance on the part of operators, industry and state regulators. It’s the result of linemen who risk life and limb every day on the job. It’s the result of industry making investment decisions informed by system reliability needs and not just by short-term profits. It’s the result of careful management of grid operations and organized markets by RTO and ISO personnel.

“And yes, FERC has also played an important role here. Reliability is, and will continue to be, our foremost priority. The Commission facilitates the creation of market structures incenting reliability-related investment, monitors and enforces grid reliability within those markets, and provides oversight of NERC’s reliability standard-setting activities.

“In my view, the DOE NOPR fits comfortably within those efforts. As I have mentioned in recent days, I believe there’s real value in Secretary Perry initiating a conversation regarding whether FERC-jurisdictional organized markets adequately compensate certain generators for their contribution to the reliability and resilience of the nation’s grid.

“This is entirely consistent with FERC’s historical efforts to ensure that organized markets provide necessary compensation for reliability-related services including, but not limited to:

  • Order 755 providing compensation for frequency regulation in organized wholesale markets; and

  • Orders providing for the approval and refinement of capacity markets in certain RTOs and ISOs.

“The DOE NOPR contemplates and builds on FERC’s existing regulatory initiatives on price formation.

“It’s a conversation that I believe we need to have.

“We must ensure that we don’t find ourselves coming to regret not having asked hard questions like these amidst all the changes in the energy industry.

“I know that the DOE NOPR has caused some to raise concerns regarding the independence of the Commission.

“But let me be clear.

“I remain committed to upholding the Commission’s independence on this, and the many other issues that may come before us. That’s a sentiment that I am sure my colleagues would firmly agree with.

“The 1977 Department of Energy Organization Act establishes FERC as an “independent regulatory commission.” Over the last four decades, my predecessors in this position and my fellow Commissioners have zealously guarded that independence. That’s not going to change so long as I and my colleagues sit on the Commission.

“FERC consists of genuine public servants who strive above all to keep the public interest at heart. And while we may approach the Commission’s business from different perspectives based on our individual experiences and backgrounds, each of us does so with an open mind and in good faith.

“Another difficult reliability-related question with which FERC, industry and the states must continue to grapple is the ever-evolving threat of cyber-attacks on our nation’s grid. It’s no secret that the cyber threats our nation faces are constantly changing day-to-day, even hour-to-hour. If you’ll recall, at the beginning of the year the news was all about Russian efforts to probe our electric grid for weakness. Now news outlets are reporting that North Korea could be targeting our electric grid as well.

“It’s clear that defending our nation from international cyber threats is one of the most serious challenges of our time. To really protect our nation’s critical infrastructure, the federal government must work collaboratively with states and utilities. At FERC, our Office of Energy Infrastructure Security is a great resource for state governments and utilities looking for additional help in improving their security posture.

“As Chairman, I’m committed to using all the tools at FERC’s disposal to support OEIS’s mission and stay ahead of evolving cyber threats with risk-informed solutions. I’m proud to report that since August, the Commission has undertaken a number of cyber-related initiatives:

  • Just this week, we will consider a revised CIP Standard on Cyber-Security Management Controls. This item was announced in the Sunshine Notice and, again, I’d encourage you to stay tuned for details.

  • Our staff is also committed to assisting industry through voluntary efforts.

  • Staff just released a report on “lessons learned” from a number of CIP audits.

  • And the Commission also recently directed staff to continue working with industry regarding whitelisting and air gapping practices.

“While we at FERC are sensitive to industry concerns, it’s important to acknowledge that the right approach is not always the most popular one. Additionally, it’s important to remember that NERC’s Critical Infrastructure Protection Standards, although an important part of managing cyber security risks, establish a floor -- not a ceiling.

“I can promise you that during my time on the Commission, I will use all the tools at my disposal to continue responding to evolving cyber threats.

“There are two other areas of importance concerning the Commission that I’d like to touch on: de novo review and PURPA reform.

“EPAct 05 gave the Commission broad new enforcement authority to combat abuse in electricity markets. I believe that FERC’s enforcement responsibilities are a critical part of our mission and that the electricity markets work best when investors, operators and the public have confidence that everyone is playing by the rules. However, this new enforcement authority has not come without some controversy. One of the main points of contention has been over the scope of de novo review under the Federal Power Act.

“As many in this room know, the courts have rejected FERC’s interpretation of de novo review five times under the Federal Power Act.

“The courts have spoken, and I, for one, am listening.

“I believe that the proper scope of de novo review is a matter my colleagues and I need to examine so we can chart a new course that is fair and legally defensible. And of course, it wouldn’t be an EBA conversation without PURPA coming up at least once, right?

“PURPA reform receives a significant amount of attention both at the Commission and on Capitol Hill.

“The energy landscape that existed when PURPA was conceived was fundamentally different than it is today: solar and wind power were fledgling technologies, there was no open access to wholesale electricity markets and natural gas was in scarce supply.

“As we all know, none of those things are true today, which is why PURPA so often feels like it’s out of sync with our modern energy landscape.

“While the fundamental aspects of PURPA are established by the statute, the Commission has discretion to evaluate how it implements the law within the context of our evolving energy markets.

“To this end, I believe my colleagues and I should continue to examine the record developed in the 2016 technical conference to determine whether changes in our existing regulations and policies could better align PURPA implementation with modern realities.

“One particular area where many parties have indicated a need for a different approach is the “one-mile rule” for qualifying facilities. Of course, others may exist too, and we owe it to stakeholders to continue taking a hard look at our regulations to identify those opportunities for improvement.

“So as I’ve outlined today, it’s an exciting time at the Commission.

“I’m honored to have the opportunity to work with my colleagues Rob Powelson and Cheryl LaFleur to address the numerous issues currently facing us.

“We’ve made a lot of good progress already, but much work remains.

“With the continued support of our excellent FERC staff, I am confident this Commission can effectively address many of the challenges before us.

“As we do so, I will remain focused on advancing the priorities I described today – improving our project review processes, ensuring electric transmission investment incentives align with need, protecting grid reliability and resilience, defending against ever-changing cyber threats, and more. The road ahead may not be an easy one. But I am committed to serving this Commission and advancing its purpose to the best of my ability.

“I want to again thank my colleagues and FERC staff for the role they play in our endeavors, just as I want to thank each of you for the unique role you play.

“It’s been my privilege to be here with you today, and I look forward to working with you in the days to come.

Thank you.”

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