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Panelists expect FERC under Biden to look closely at carbon pricing, pipelines

The Federal Energy Regulatory Commission could take further steps to accommodate carbon pricing in wholesale power markets and consider the environmental impacts of pipelines if Democrat Joe Biden wins the U.S. presidential race, panelists said during the S&P Global Platts Financing U.S. Power Virtual Conference.

Although FERC is an independent agency, Biden could nominate new commissioners and select a Democratic chairman more likely to pursue policies that could facilitate his goal of decarbonizing the U.S. power sector by 2035. Currently, FERC has two Republican members and one Democrat, with two open seats. President Donald Trump has nominated Republican Mark Christie and Democrat Allison Clements to fill the two vacant seats, but those nominations have yet to be voted on by the full U.S. Senate.

Among other things, FERC will be "likely less restrictive under a Biden administration" when it comes to state goals to lower greenhouse gas emissions, said Thomas Rumsey, senior vice president of external and regulatory affairs for Competitive Power Ventures.

A push by several states to adopt carbon pricing prompted FERC on Oct. 15 to issue a proposed policy statement to guide regional grid operators that want to integrate state-determined carbon pricing in wholesale power markets. The policy statement followed a technical conference that FERC hosted in late September, where participants generally agreed that the commission has the authority to approve carbon pricing proposals from grid operators under Section 205 of the Federal Power Act.

FERC took that action under GOP Chairman Neil Chatterjee, but panelists at the S&P conference expects the matter to get continued focus under Democratic leadership.

With Biden in the White House, "I would agree that carbon pricing is definitely going to be an issue," said Christi Tezak, managing director of research for ClearView Energy Partners LLC.

"FERC can't be the lead on that issue, but I certainly would expect a Democratic majority at the FERC to be receptive to that issue, to integrating it in as an alternative and a better manifestation of state priorities to move forward with low-carbon strategies," Tezak said.

Tezak noted, however, that a carbon price is easier to factor into some markets, such as the single-state New York ISO, rather than larger multistate markets such as the PJM Interconnection and ISO New England.

Tezak also highlighted the occasional divide between FERC and states over generation policy, pointing to the commission's December 2019 order directing PJM to expand its minimum offer price rule to nearly all resources. That rule, critics said, could make it more difficult for state-subsidized clean energy resources to compete against older, unsubsidized coal and gas plants.

"The minimum offer price rule tells us that what FERC says with regards to states' rights may be one thing in their view and a different view in the eyes of the states," Tezak said. "We don't have something that seems to be meshing real well at the moment in PJM's [rule], particularly when it comes to basic generation services." As a result, "the proof of carbon price adoption in [regional markets] will lie in the pudding."

Former FERC Commissioner Branko Terzic, who is now managing director of Berkeley Research Group, said FERC's action on carbon pricing could be one of the most consequential things the commission does under a potential Biden administration.

But the impact would depend on several factors, Terzic added. "If they have a Democratic majority and support, would the carbon pricing be extremely high, would it be extremely low?" he pondered. "Would they use their own analysis of what the price of carbon is [or] would there be an administration-wide number that they would be required or encouraged to use?"

Pipelines

A Democratic-majority FERC could also bring greater scrutiny of proposed gas pipelines' climate change impacts, panelists said.

"There are concerns that a new makeup of the commission may in fact push them along the lines of the District of Columbia Court directing the commission to look at end uses of natural gas vis-a-vis climate change," Terzic said. He was referencing an August 2017 decision from the U.S. Court of Appeals for the District of Columbia Circuit that required FERC to do further analysis of a pipeline project's downstream greenhouse gas emissions related to power production.

"It's going to be very interesting to see how far the FERC could go down that line under a new administration," Terzic added.

Tezak agreed, saying she expected FERC's pipeline reviews with a Democratic chairman would place "much more emphasis on environmental impact and lower emphasis on economic benefit."

The potentially tougher climate analysis for pipelines comes as those projects face an already hard time getting state water quality certifications.

"There may have to be a little more federal standardization of the pipelines," Rumsey said. "You build a billion-dollar project and then be held captive for a water quality certificate."

Tezak echoed those comments, saying downstream emissions should not be considered in the context of a pipeline's water quality permit. "Where the air quality issues and where the carbon issues need to be discussed, should not be in the context of a water quality certificate for an eight-mile lateral," she said. "It should be discussed at the permitting level before [a developer] builds the plant."