Transcript:
James Lawler: [00:00:00] Welcome everyone to Climate Now, a podcast that explores and explains the ideas, technologies, and the on the ground solutions that we’ll need to address the climate crisis and achieve a net-zero future. I’m James Lawler, and if you like this episode, please leave us a review wherever you get your podcasts.
Share this episode with your friends, or tell us what you think at contact@climatenow.com. Today on the podcast, I’m joined by guest host Monica Varmin, a partner at G2 Venture Partners, where she focuses on investments in green technologies. We’re going to talk with Neil Chatterjee, who is the former chairman and commissioner of the Federal Energy Regulatory Commission, or FERC.
FERC is the federal agency that regulates the interstate market for the transmission of electricity and natural gas, among other functions. FERC also plays a key role in getting new energy capacity connected to the electric grid – referred to as interconnection. But currently the wait time to get new energy projects approved and connected to the grid is measured in years. [00:01:00]
More than 1.4 terawatts of generation and storage is in queue throughout the country waiting for approval. Most of it is in the form of renewable energy. Former Commissioner Chatterjee will explain what actions his agency took and is taking to help accelerate the process to add decarbonized sources of energy to the grid.
But first, our new segment This week in Climate News.
Monica Varman: I’d love to introduce
Julio Friedman, the Chief Scientist at Carbon Direct, and Chief Carbon Wrangler. Julio and I will be talking about the big climate stories of this past week, starting with Davos. Where the World Economic Forum has been held over the past week as it is every year.
One of the big climate stories coming out of Davos this year is the EU’s response to the US Chips and Inflation Reduction Acts to counter it with their own sort of green deal. So essentially, as a lot of our listers know, the Inflation Reduction Act incentivizes a lot of local sourcing and production of clean energy [00:02:00] technologies in North America and among free trade partners, not all of which have been clearly defined yet, and many ways has been explicitly somewhat protectionist, in that the goal is to create green jobs and provide a smooth energy transition to workers in America. So in response, the EU has been putting pressure in the United States to expand the definition of free trade partners for a few months now. We’ve seen some of the, especially on the EV tax credits, some of the requirements around what a free treat partner is, be relaxed to perhaps include the EU, Japan, South Korea, and some of the US’ allies.
But this week we saw a really strong response in the EU, in that they’re looking to create their own sort of semi-protection, as clean energy technologies bill. On net, for the climate movement, this seems like it can be only a positive; the more production of clean energy technologies we have, the more diversified our supply chain of technologies is globally and among allies. That that really feels to [00:03:00] me that it can only be a positive. But it’ll be interesting to see the shifting geopolitics of it in the meantime.
Julio Friedmann: Yeah, that’s really an interesting story and part of the reason why is because a lot of climate activity now is tied to industrial policy around the world. We certainly saw that in the United States with CHIPS and the IIJA, the Infrastructure Investment and Jobs Act, and the 2020 Appropriations bill as well as the IRA, and we are not alone. We’re seeing the same thing in Japan, for example, with their green transition bill. China is putting money into industrial policy for clean tech, and so Europe has, I think, realized, correctly, that not everybody likes to be smacked. Some people like lollipops and perhaps lollipops is a good way to get people to invest at home.
One of the things that John Kerry said at Davos was, in order to solve climate, you need money, money, money. And that brings us to the topic of banks. There’s been a certain amount of criticism of many of the investment banks for their continued investment [00:04:00] in fossil energy and traditional forms of energy and in particular the Glasgow Financial Alliance, which was started at top 26 with Glasgow, and has 130 trillion of assets under management, has come under fire for continuing to invest in traditional fuels, noticeably HSBC. I looked at that in the same time as this story about the fact that the Fed is seeking disclosures from banks around climate risk.
And that climate risk could be stranded assets. It could be due to climate change and adaptation associated with it, but they want disclosure as a means of just giving customers a better sense of how their money’s being used in investment risks. I see these two stories as kind of linked and it reflects a couple of things.
One of them: these are really international. The Fed can do it at once, but we are gonna have to see disclosures of banks from around the world. Europe is trying to tie its banks into greater conformance. The founder of the Glasgow Financial Alliance, Mark Carney, spearheaded the issues around financial disclosure and transparency. [00:05:00]
So we’re seeing banks having to do more and more of this. It also reflects the truly international nature of this and how difficult it is. At the time when Ukraine is being bombed, and people are desperate for traditional fossil energy supplies. The banks are getting pilloried for putting money into what their governments are actually asking them to do, at the same time as they are trying to figure out how to negotiate a green transition, at the same time as they have to disclose all of their financial risks around climate and also deliver a fiduciary return.
And all of these are tied into these global trade systems where investments can happen anywhere in the world. I expect that this is gonna continue to be, in part, just a straw man that people whip. But Secretary Kerry is right. We do need a lot of money to make this transition, and that is going to require banks to reimagine the way that they think about risk, the way that they think about disclosure and the way that they think about their investment portfolios.
Monica Varman: Absolutely. Julio, what else are you reading this week?
Julio Friedmann: Well, since we have an international [00:06:00] theme here with Davos in the EU, and you were talking about concerns about, you know, trade and so forth, I want to mention what was a sleeper story – the meeting between Janet Yellen and her counterpart, Vice Premier Liu He from China.
There is no world in which climate success is met without massive investment and participation from China and the US. Both countries need to really bring their A-game to climate. And it was interesting to see how both warm and simultaneously prickly the conversation was. And the thing that gave me the most hope from this was that the meeting lasted for two and a half hours.
In a one hour meeting, everyone gives their talking points and then they walk away. Here was actually enough time to get past the talking points and bite into the details about how to think about constructive work, together. And we simply need to continue to pursue ways for the two countries to work together on climate constructively.[00:07:00]
James Lawler: Now for our interview segment. As I described in the introduction, a significant number of proposed renewable energy projects are buried in red tape before they can be connected to the electric grid. The Department of Energy estimates that the amount of solar power, wind energy, and energy storage in queues today is roughly the same amount needed to reach 80% of the US electricity from net-zero carbon resources by 2030. The former Federal Energy Regulatory Commission, or FERC, Chairman and Commissioner Neil Chatterjee will help answer why that is. What’s stopping the United States from unlocking this treasure trove of clean energy? What is FERC proposing to do about the backlog? And how does he see this playing out, in the long term?
Monica, what should we know beforehand?
Monica Varman: I think one of the most exciting things that happened at FERC in recent years, is how the agency has shifted towards supporting grid resiliency with cleaner solutions. When Neil was chairman, the agency established two very important roles that are relevant to our discussion today:
FERC Order #841 basically introduced energy storage [00:08:00] into wholesale markets. FERC Order #2222 did the same thing for distributed energy resources, or DERs, which are small-scale power generation or storage technologies like rooftop-solar and electric vehicle infrastructure. Utilities had fought to keep these resources off the grid, and there are still ongoing debates and tensions over getting these resources connected to the grid.
The proposed rules that we’ll talk about today to use the backlog, and provide better long-term planning, are also extremely important to achieving that net-zero future that we talk so much about.
James Lawler: So we’ll start with Neil introducing us to FERC and its mission before talking about the proposed rules that the agency introduced last year to smooth the way for connecting new electric generation facilities to the grid. And then explore how these new rules can help make the grid more reliable and resilient.
Neil, it’s great to have you on climate now. Can you start by telling us what does FERC see as the role in the transition to renewable energy, and how does that play out at the state and local levels?
Neil Chatterjee: Yeah, I really felt like during [00:09:00] my tenure at the commission, I had a front row seat to the energy transition and an appreciation that FERC’s role is critical. I do believe that FERC is the principle energy body, certainly regulatory body, in the US. FERC’s most solemn obligation is its oversight of the reliability of the grid, and so it’s really important that as we transition to a cleaner energy future, we not take our eyes off of reliability.
So FERC will play a critical role there. And then I’m a big believer in markets and I think the role that FERC plays in overseeing the competitive markets in the country, that is where we have seen great benefits for consumers, for the economy and for the environment. And we’ve been able to continually squeeze carbon out of the US power sector.
And that’s largely been driven by market forces. And I think FERC’S role in overseeing those markets will continue to be essential to enabling the energy transition, as well as maintaining that focus on reliability. A lot of the challenges I dealt with during my [00:10:00] tenure was trying to square the impact of state policies with efficient market function.
There’s no one-size-fits-all solution. Some of the challenges being faced in the Northeast are very different than those being faced in the Southwest or in California. And so this was something that we really wrestled with during my tenure at the commission, and the commission, quite frankly, continues to still wrestle with it.
What has basically been happening is that, and this was all pre-passage of the Inflation Reduction Act, but that in the absence of federal legislative guidance on particularly carbon mitigation, states were taking it upon themselves to implement policies to achieve their own decarbonization goals.
And what was happening was some of those state policies were coming into a conflict with efficient market function. I thought we took market-protective steps in trying to address some of the concerns that were raised by market participants, who felt that they were being impacted by state subsidies.
But if the end result of [00:11:00] that was the dissolution of the markets, that wasn’t an acceptable outcome either. And so what I came to appreciate is, in my view, the solution to finding this balance to enabling states and regions to pursue decarbonization goals while maintaining efficient market function was through a transparent price on carbon.
And so since such a thing is difficult to attain at the federal legislative level, my colleagues and I simply worked on providing a roadmap so that if a state or region in a FERC-jurisdictional market chose to amend their tariff to include a price on carbon, that it would be legally viable for FERC to make a determination on whether such a tariff amendment was just and reasonable.
These were pretty significant steps laying the path forward for a price on carbon in FERC-jurisdictional markets: removing barriers to entry for innovative new technologies, updating reliability standards, some work on transmission, which I know we’re gonna get to in a little bit, you know, trying to bring some clarity to FERC’s ROE methodology, [00:12:00] revisiting the manner in which FERC issued incentives for transmission.
These were all things that I felt were appropriate, in our role as an economic market regulator, to just create that regulatory apparatus to enable the transition while still focusing on reliability.
James Lawler: So FERC in 2022, released two notices of proposed rulemaking, in an attempt to reduce the backlog of renewable energy projects connecting to the grid.
So renewable energy is now one of the cheapest forms of energy, which has led to many solar and wind projects being developed, which is good. But it turns out that these new developments are finding themselves waiting on average of three years to connect to the grid, according to a recent FERC press release.
So that backlog slows down our energy transition and in turn, our response to climate. It threatens grid reliability and could lead to increased energy costs. So first, I wonder, Neil, if you could explain to us why there has been this backlog, and then what are the [00:13:00] potential additional rules that would address that?
Neil Chatterjee: Yeah, look, this is a huge deal with the passage of the Inflation Reduction Act, much has been made about the substantial investment that Congress has put down on the clean-energy transition: a $369 billion investment. Yet, some studies have stated that the projected emissions-reduction goals that could be achieved by the IRA, would be dramatically reduced if we don’t considerably pick up the pace at which we build out transmission in this country, and we need to get transmission built, and clean energy interconnected to the grid in order to avail ourselves of the opportunities that could come from the Inflation Reduction Act. But the challenge is, it’s really, really hard to build things in this country, and FERC and Congress are both trying to tackle this. But, look, these are complicated [00:14:00] issues.
I had wanted to tackle this during my time at the commission. Sat down with my staff in, I think late 2018, early 2019, and we looked at how much time we had left, and came to the conclusion that transmission reform would be such an all-encompassing exercise. That it would take up so much bandwidth that we wouldn’t have been able to focus on things like 2222 and 841 compliance and Purpa Reform and carbon-pricing.
And so, we opted to do kind of targeted fixes on transmission where we could, and in some ways I think we cleared the decks to free up the commission to really dig into this. And I applaud chairman Glick and my former colleagues for taking this on because it is critical. And similarly, there’s an effort with permitting reform, taking place in Congress right now.
And what’s interesting about it, is that historically the opponents of building energy infrastructure in this country, because it was largely fossil infrastructure, are now the [00:15:00] proponents of building out transmission to get clean energy onto the grid.
And I was screaming from the rooftops in my waning days at FERC, that you could not tie up natural gas pipelines, on the one, hand in legal obstacles and not expect those same challenges under the Natural Gas Act to apply to transmission under the Federal Power Act. And so there therein lies the difficulty in the conundrum. And so, Congress is trying, through permitting reform, and FERC is working hard-
James Lawler: So, I’m sorry to cut you off Neil, but just explain what you just meant there. Just for people who aren’t familiar with all the stories and how everything works. When you said, tying up natural gas pipelines would present the same obstacles to building out grid infrastructure. What do you mean by that?
Neil Chatterjee: So, you know, there’s been significant legal challenges of late, to building out natural gas infrastructure. When it comes to citing, in particular, of natural gas pipelines and the environmental impacts of natural gas pipelines, the visual impacts of liquified natural gas export facilities, the audial [00:16:00] impacts, environmental justice questions.
These are all questions that are being applied to the process in which FERC and other entities evaluate applications for natural gas infrastructure. Those same questions are going to come up again when it comes to building transmission infrastructure. But we need that transmission infrastructure to get clean energy onto the grid.
This is the delicate balance: is if you make it easier to build transmission in this country for the long term, you may make it easier to build natural gas pipelines in the short term. Personally, in my view, that’s a trade off worth making. Not everyone shares that view. And therein lies some of the challenge, at least at the congressional level, to getting it done. It all comes down cooperative federalism: what is the appropriate balance between the federal regulators and their state counterparts? And I give FERC a lot of credit. From the beginning of this massive undertaking, the commission has been working hand in glove with the states.
They started off with a joint task force with the federal commissioners [00:17:00] and a select group of state commissioners representing a diverse array of interests. And they’ve been working to try and sort through some of these really, really complicated issues. And so when it comes to interconnection and interconnection reforms, you mentioned it can take years to get through the queue.
The commission is proposing rules changes with some significant reforms that would, kind of, lead to increase in efficiency of the interconnection process, try and minimize some of these delays, and try and really make sure that ready projects can get through these queues in a timely manner. It’s simple, but it’s not, as just doing better on the queue processing speed.
And so FERC is proposing to put in some firm deadlines and establish penalties if transmission providers fail to complete interconnection studies on time. This seems like [00:18:00] basic common sense stuff, but it’s not, it’s difficult. You know, you look at solar and storage perhaps being co-located. Currently, they’re considered separately in the queue, and I think some of the reforms would require transmission providers to allow more than one resource to co-locate on a shared site behind a single point of interconnection and share a single interconnection request, rather than being considered separately.
This is very kind of bread-and-butter to FERC, but, you know, these are really tricky and complicated issues, and so they’re sorting through that on interconnection. And I think that is huge because to me, all of the rest of it, all of that investment made by the Inflation Reduction Act, taxpayer funds, it’ll all be for naught if we don’t get through the interconnection queue.
James Lawler: So what will the transmission proposed rule do and how will that help with the backlog?
Neil Chatterjee: So there’s a couple of rules, right? So I just mentioned, on the interconnection side, some of the proposed reforms that will just bring greater [00:19:00] efficiency to the queue process, to kind of weed out what are the real projects, what are the ready projects, versus speculative projects.
Should all projects be considered equally? I do think this idea of enabling resources that are co-located to be able to come in under a single application, will lead to some efficiencies. I’m a big believer in deadlines to streamline the process and make things efficient. Hopefully that will lead to some alleviation of the congestion in the queue.
But that’s only part of it. FERC is really looking at significant reforms across the board, including looking at planning and the manner in which we go about transmission planning in this country. Do we need a longer term view of planning? Particularly as the grid is increasingly tested by extreme weather events being driven by climate change. Do we need to take that longer lens, look at regional planning over the course of 20 years, maybe revisiting them every couple of years, but have a longer view on how we plan the system and how we plan the grid? [00:20:00] We’re looking at siting, and this is something that’s tricky, I just mentioned with natural gas pipelines.
Look, nimbyism is not political or ideological, it is difficult to get infrastructure built in this country because people don’t necessarily want infrastructure coming through their property, and when you marry that up with concerns around environmental justice, you know, the easiest way to get things built in the country is to use existing right of ways, but if those existing right of ways are subjecting the same communities that have had to withstand the first round of infrastructure build, that’s a moral question that we have to answer.
And then there’s a question of who pays for all of this? When it comes to allocating costs, is it where the power is being generated? Is it where it’s being consumed? What happens to those states in the middle that are not benefiting from the generation of the power or its consumption, but maybe would benefit from alleviated transmission congestion?
Should they be considered beneficiaries and have to pay for some of this infrastructure [00:21:00] build out? It’s very, very controversial and very, very complicated, and you can see why FERC is working so hard and diligently to try and get it right, and why they’re working hand in glove with their state counterparts, because these are really thorny issues.
James Lawler: Can you briefly explain how FERC eventually implements these proposed rules? So who has the final say?
Neil Chatterjee: Yeah. So FERC is a quasi-judicial body, a quasi-legislative body. What do I mean by that? From a judicial standpoint, FERC is, it’s an evidence-based agency. The record developed in certain dockets is really what drives agency decision making.
It’s not like congress, where you know, you pass legislation and then it gets implemented. All of the commission’s actions are subject to judicial review and you wanna make sure that they can withstand legal scrutiny. And so the strength of the record underpinning the commission’s orders is essential to that legal durability in surviving the process.
Something as significant as reforming the way that transmission is built in this country: you want to ensure legal durability. [00:22:00] And so what FERC will do is put out this notice proposed rulemaking, it opened it for public comment. Then stakeholders can come in and file comments at the commission.
People can reply to the comments that were recently posted. You lay out all of the concerns, comments, questions, criticisms, suggestions, and agency staff, working closely with the commissioners, then evaluates all of that input and tries to put together a final order based largely on that record that is developed.
James Lawler: And so ultimately the final rule: is that one and the same?
Neil Chatterjee: There are multiple notices of proposed rulemaking here. So that it’s not like there’s just gonna be one transmission rule writ-large. I think maybe that initially was what was contemplated. Certainly if I had been chair, that probably would’ve been where I had started: was one macro, massive transmission reform.
I think I likely would have arrived at the same conclusion that my former colleagues did: is that would’ve been way too much to bite off. And I mentioned [00:23:00] earlier about like legal vulnerability. You don’t wanna have a massive rule making. The bigger it is, the bigger the legal target on it. By breaking into smaller pieces, it takes longer, no question.
But I think you have enhanced legal durability and you also minimize the vulnerability of a huge rule potentially toppling over one legally infirmed section.
James Lawler: What if anything, might be missing from these notices of proposed rules that might be key to loosening the backlog of these renewable energy projects?
Neil Chatterjee: Yeah one thing that I was surprised by, and quite frankly a little frustrated by, is the commission seems to have taken a step backwards on competition. So I’ve mentioned throughout this podcast, I’m a big believer in competition: that competition drives cost discipline, and innovation. About a decade ago, under former FERC chairman John Wellinghoff, a good friend of mine, he proposed this transformational FERC order, Order 1000 and the goal of FERC Order 1000 was to inject competition into the transmission [00:24:00] process: to add a competitive bidding process to significant projects. That instead of one transmission owner partnering up with a neighboring transmission owner to build a line, and not subject it to competition, that these big significant transmission projects will be open to competitive bidding.
And a decade in, I think most folks would agree that Order 1000 isn’t working in the way that the commission intended. I personally think part of the reason is that there were so many exemptions granted in order to build consensus around moving Order 1000 forward, that that kind of watered down the efficacy of the, the projected benefits that competition would’ve derived.
I would’ve liked to have seen FERC build on some of the suggestions to better enable competition in the transmission process. But FERC actually, not only didn’t they improve upon the Order 1000 process, they took a step backwards and reinstituted something called the [00:25:00] write-of-first-refusal or ROFR, which, to me, seemed odd, at this juncture, to take that step back away from competition.
You’ve had everyone from the FTC and the Department of Justice weigh in on this from an antitrust perspective and a competitiveness perspective. So I’m hopeful that, not only will FERC take heed of those comments and move away from the limited ROFR proposal, but I don’t wanna just stop there at the Order 1000 status quo, because that’s not working either.
I’m hopeful that the commission will take the difficult steps. As challenging as it may be to try and actually inject competition into the transmission space, there were a number of really constructive comments and suggestions that were filed throughout this process that I think could form the basis for FERC action to truly gain the benefits of transmission competition.
Monica Varman: Neil, I’d like to talk about a couple of the key rules that FERC implemented during your time as commissioner, that [00:26:00] we introduced earlier in the podcast. FERC Order #2222 in particular, requires regional transmission organizations, RTOs, and independent system operators, or ISOs, to incorporate distributed energy resources into wholesale markets.
Can you share with us the potential of introducing DERs in energy markets, especially in light of the Inflation Reduction Act, which will likely accelerate adoption of greener tech, like electric vehicles and heat pumps that can be aggregated and leveraged as local sources of power?
Neil Chatterjee: Yeah, thank you for the question.
I’m really excited about it and genuinely believe that DERs have the capacity to be a game-changer that could fundamentally alter the way that Americans generate, distribute, and consume power. It got to be so much so, that my staff would make fun of me and say it was cliched when I’d use “game-changer”.
But oftentimes cliches exist for a reason because they speak to the reality of something that can occur. 2222 came on the heels of FERC Order 841, [00:27:00] which similarly removed barriers-to-entry for energy storage technologies. I think those two rules in combination really have the capacity to be historic.
You mentioned EVs, advanced appliances. You know, I can add rooftop solar to the list. A single EV owner doesn’t have the capacity on his or her own to impact a power market, but if through the power of technology and aggregation you can harness thousands upon thousands of EVs, Then suddenly you’re competing against the power plant down the street, and you’re doing it at the point of demand.
This was a really exciting process to work on. It took us almost three years after we issued FERC Order 841 to finish 2222. We wanted to get it right and there are a lot of complex jurisdictional questions. A lot of really intricate, illegal behind-the-meter questions that we wanted to answer properly. [00:28:00] And ultimately we were validated, I felt in some ways, in our approach, by the DC circuit upholding for FERC Order 841, which enabled us to move forward. Now, I mentioned a moment ago that I thought 2222 had the capacity to be historic. I think the difference between it being a ‘significant’ rule and a ‘historic’ one will come down to the compliance and implementation process. And I know the RTOs and the ISOs are at work with stakeholders now and working with the commission on that process. And it’s one that I’m gonna closely watch because there, there’s really tremendous opportunity here.
Monica Varman: Somewhat related to DERs, microgrids are another off grid solution that can offer localized, decentralized power in a variety of use cases.
Can we get your thoughts on microgrids?
Neil Chatterjee: There’s definitely interest in it, and I think as you look at potentially the increased utilization of things like demand response and distributed energy resources playing a bigger role, you could potentially see greater decentralization, but we need to think through what [00:29:00] all that means for reliability, in particular for cyber vulnerability.
I think you could make a compelling case both ways that further microgriding would actually make you more cyber-secure to a mass attack, but maybe potentially more vulnerable to smaller attacks. I think as technology improves, as we see the benefits of innovation, as we see greater consumer interest in this, as we see some of the reliability challenges that we’re experiencing in different regions of the country, as we see the complexity of a grid that will be increasingly tested by extreme weather events being driven by climate change, but that the steps needed to combat climate change accelerating the deployment of weather-dependent resources. That’s a really complicated dynamic that we’re all like sorting through.
And so I think we’re gonna be contemplating all different kinds of solutions. Decarbonization is the greatest financial opportunity of our lifetimes, and one of the things that I’m gonna work on, in [00:30:00] terms of getting like more conservative engagement on carbon mitigation is, we need to stop looking at this as, you know, environmental policy, which people have hardened views on.
Take a step back and look at this from a more macro perspective on what a tremendous opportunity this is to create jobs and drive economic growth. And I think that is a message that people need to be more focused on is there are huge opportunities in decarbonization.
James Lawler: That was Neil Chatterjee, the former chairman and commissioner of the Federal Energy Regulatory Commission, FERC. It’s encouraging to know that we have the ability to nearly reach a net-zero carbon economy in the future with projects in the queue today. Including with some of the distributed energy resources we talked about.
The National Renewable Energy Laboratory recently completed an analysis that said distributed wind has the potential to profitably provide nearly 1400 gigawatts of capacity today [00:31:00]. That is enough energy to supply more than half of current US annual electricity consumption. We’ll continue to watch those developments at FERC as these proposed rules make their way through the process. And hopefully we can get that clean energy online sooner rather than later.
That’s it for this episode of the podcast. For more episodes, videos, or to sign up for our newsletter, please visit climatenow.com. Tune in next week for our next conversation.
Climate now is made possible in part by our science partners like the Livermore Lab Foundation. The Livermore Lab Foundation supports climate research and carbon cleanup initiatives at the Lawrence Livermore National Lab, which is a Department of Energy applied science and research facility. More information on the foundation’s climate work can be found at livermorelabfoundation.org.
