President Obama’s choice to head the Federal Energy Regulatory Commission (FERC), Ron Binz, is scheduled to face questions from the Senate Energy and Natural Resources Committee during a confirmation hearing on September 17th. The Institute for Energy Research has compiled a top-ten list of questions to frame the important issues surrounding Commissioner Binz’s confirmation. For some background on what FERC does and why FERC matters, please see this assessment by IER.
1. Does Commissioner Binz believe the FERC chairman can drive new energy policy without explicit authority from Congress?
President Obama nominated Commissioner Binz to head FERC amid an explicit push to advance Obama’s climate agenda by regulatory fiat. As EPA Administrator Gina McCarthy stated recently, the President “said he wasn’t going to wait for Congress, but that he had administrative authorities and that it was time to start utilizing those more effectively and in a more concerted way.” Will Commissioner Binz restrict himself or FERC to carrying out the limited duties Congress has delegated to FERC?
FERC is the agency responsible for ensuring that electricity and pipeline transmission charges are “just and reasonable.” Historically, FERC stuck to this mission. It remains to be seen if FERC will follow the President’s activist lead in pushing through new rules and taking on new objectives without Congressional authority.
Recently, FERC has shown that it can legislate, in spite of Congress. Pieces of Order No. 1000, a landmark FERC rule that changed how electricity transmission costs are allocated, are a carbon copy of legislation that failed in Congress. As the Wall Street Journal wrote when the rule was proposed in 2010:
“Senators Harry Reid of Nevada and Jeff Bingaman of New Mexico, both of whom have big wind and solar projects in their states, pushed a Senate energy bill this summer that would have socialized these transmission costs. That bill has stalled, so FERC—supported by the White House and Democratic leaders—may move on its own.”
The Wall Street Journal has explained that, “Commissioner Binz is the latest Presidential nominee who doesn’t understand the difference between making laws and enforcing them.” The article reiterates, “Commissioner Binz is part of the White House’s damn-the-voters strategy of imposing through regulation what Congress won’t pass….” Before Commissioner Binz is confirmed, he ought to answer this fundamental question of the proper role of FERC and the FERC chairman.
2. Does Commissioner Binz truly believe that natural gas is a dead end?
As Commissioner Binz said in March:
“On a carbon basis, you hit the wall in 2035 or so with gas. I mean, you do. And it’s certainly helping my state [Colorado]…but we also have to understand that without [carbon capture and storage], I think that’s a dead end, a relative dead end—it won’t dead end until 2035 or so—but that’s when we’re going to have to do better on carbon than even natural gas can do.”
What is this “wall in 2035”? Where has Congress authorized or created this wall? Why does Commissioner Binz believe there is a wall?
3. Given Commissioner Binz’s characterization of natural gas as a “dead end,” would he hamper the transportation or international trade of natural gas?
Natural gas production on federal lands has fallen during the Obama administration, even as it has dramatically increased on private and state lands. This is a result of federal regulation. Given FERC’s crucial role in natural gas transportation and oversight of liquefied natural gas (LNG) import and export facilities, would Commissioner Binz actively slow down the FERC process for reviewing LNG export facilities? Would he make transportation of natural gas more costly?
In short, would Commissioner Binz be even-handed in regulating the infrastructure for a commodity that he deems to be a “dead end”?
4. Does Commissioner Binz believe that coal is an important part of electric reliability and affordability?
FERC’s own Office of Electric Reliability estimated in 2011 that the Environmental Protection Agency’s coal-crippling Utility MACT rule would “very likely” remove 41 GW of coal-fired electricity generation from the supply mix. Departing chairman Jon Wellinghoff failed to support his staff’s assessment, calling it a “back of the envelope” calculation. FERC staff’s assessment has proven to be accurate, if a slight underestimate, with over 15 GW of coal-fired units already shut down and dozens more scheduled to go off line when the Utility MACT rule takes effect in 2015.
If Commissioner Binz is confirmed, the closures forced by Utility MACT will hit the grid during his chairmanship. Given the seriousness of blackouts—the 2003 Northeast blackout affected over 50 million people—and the continuous challenge in balancing the electric grid, does Commissioner Binz acknowledge the fundamental role of reliable generation (as from coal) in supporting a stable electric grid? Further, would Commissioner Binz support his own staff within the Office of Electric Reliability and challenge the EPA when the two agency’s predictions about the future of the electric grid are at odds?
5. Would Commissioner Binz continue collecting record fines from financial institutions engaged in trading in FERC-regulated markets?
What would Commissioner Binz plan to do with FERC’s authority to fine financial institutions up to $1 million per infraction, per day? Since 2012, FERC has collected more than $1 billion in fines, penalties or settlements from seven companies, for market manipulation accusations. In FERC’s recent exercise of the market manipulation powers Congress granted it in the Energy policy Act of 2005, it has introduced regulatory uncertainty in energy markets. William Scherman, FERC’s former General Counsel, has said “people are concerned there are no clear rules about what constitutes market manipulation.” He went on to discuss the unintended consequences of such enforcement actions, stating, “People are going to start exiting the market because the risk of compliance is just too significant.”
The latest example is JP Morgan, which recently agreed to a $410 million settlement, the highest amount ever levied by FERC. The second highest was last year, when Constellation Energy Group was accused of power market manipulation and agreed to settle for $245 million. FERC also recently fined Barclays $489 million, a charge Barclays said it would contest. How would Commissioner Binz deal with the issue of regulatory uncertainty in energy markets, and how would he reassure traders that legitimate activity will not be punished?
6. What would be Commissioner Binz’s “top initiatives”? And what new offices would Commissioner Binz plan on creating within FERC?
As IER has noted, the FERC chairman’s top initiatives set the stage for future rulemakings. They also re-align FERC’s priorities and often lead to the chairman establishing completely new offices within FERC, as chairman Wellinghoff did on two occasions. The top priorities of current FERC chairman Jon Wellinghoff are: “smart grid,” demand response, integration of renewables, and Order No. 1000 (electricity transmission planning and cost allocation). Chairman Wellinghoff chose these priorities over consumer-focused initiatives such as keeping utility bills affordable and ensuring stable, abundant supply.
In March, Commissioner Binz said in a panel discussion on “future trends in electricity” that he would like to hold utilities to “some output goals,” including “reductions in carbon.” He ended by saying “We can make up our own list.” What outcomes would Commissioner Binz hold utilities to as FERC Chairman? Would Commissioner Binz direct FERC to carve out a new Office of Carbon Reduction? Where in federal law has Congress called for FERC to set goals such as “output goals” or “reductions in carbon?”
7. Given his record at the Colorado Public Utility Commission, what would Commissioner Binz do to improve his track record of jet-setting and violating ethics rules?
According to the Denver Post, Commissioner Binz spent more than 200 days on the road in 3 and a half years, attending conferences, “jetting to Greece, Jordan, Santa Monica, San Diego, Santa Fe, Whitefish (Mont.), Las Vegas, Hawaii, San Francisco, Amelia Island (Fla.), Park City, Seattle, Austin, Los Angeles, and numerous other hardship outposts.”
In 2011, Commissioner Binz was subject to Colorado’s Independent Ethics Commission, because he had violated a rule by accepting a travel reimbursement from an energy analysis firm. The Commission found he did violate the rules, but no penalty was warranted. Does Commissioner Binz consider himself to be the right person to chair a federal agency whose main purpose is to responsibly oversee and regulate energy markets?
8. Would Commissioner Binz prioritize the issue of transparency?
As Senator Vitter highlighted in a recent report by the Senate Committee on Environment and Public Works, “The Obama Administration has advanced the most aggressive, far-left environmental agenda ever and developed the most secretive, behind-closed-doors way of doing it. And that’s not by accident.” If confirmed, what will Commissioner Binz do to reject this “culture of secrecy and evasion?”
9. Does Commissioner Binz want the US energy sector to look like Germany’s?
Germany has come full circle after its failed experiment in top-down spending on renewables, and is currently building reliable coal plants and cutting government funding of renewables. Given the failure of Germany’s green energy plan, and the fact that electricity prices in Germany are more than double electricity prices in the United States, it is surprising that Commissioner Binz cites Germany as the model for energy policy. Earlier this month, Der Spiegel even referred to electricity as a “luxury good” in Germany.
As Binz said in March about the prospect of quickly moving toward renewable energy: “I think the pace can be rapid. And if you ask the question what’s the distinction between Germany and the United States, or between Mississippi and New Jersey on this, it’s policy. It’s not resources, it’s decisions by legislatures and public utilities commissions, and the buy-in of utilities that makes these policy changes happen.” Does Commissioner Binz look to Germany as an example of good policy?
10. What role does Commissioner Binz see for renewables, and for himself in promoting them?
In 2012, the National Renewable Energy Laboratory published a study that outlined a future scenario in which 80 percent of U.S. electricity in the year 2050 comes from renewables. Commissioner Binz referred to the study as “ground-breaking,” and “a very compelling document.” Given that wind and solar generated less than 4 percent of our electricity in 2012 and hydroelectric power contributed less than 7 percent, would Commissioner Binz feel compelled to push for faster adoption of renewable sources of electricity? If so, where would he find the Congressional authorization for FERC to push for renewables, which are more costly and less reliable and other source of electricity?