A Conversation With Neil Chatterjee About U.S. Energy Regulation
Episode ID S3E07
July 26, 2023
Neil Chatterjee’s five-year journey with the powerful Federal Energy Regulatory Commission was punctuated by periods of high drama — from his meteoric rise to lead the agency to his surprise demotion. In this episode of Power Plays, the former FERC chair reflects on his ground-breaking policy moves and why he’s optimistic about energy jobs in rural areas. He also addresses the recent role of politics, arguing that it might be time to “make energy policy boring again.”
Teri Viswanath: It’s hard to imagine any regulatory body that has had more influence on the U.S. power sector than FERC. The agency has responsibility for ensuring that the nation’s power system remains reliable. And that’s a tough job…but I had no idea of just how tough, until I sat down with Neil Chatterjee.
Hello, I’m Teri Viswanath, the energy economist at CoBank and your co-host of Power Plays. For this month’s podcast, my colleague and co-host Tamra Reynolds and I caught up with Neil.
Chaterjee was appointed to FERC in 2017 and briefly served as interim chairman that year before being named chairman for a second time in 2018. Neil was demoted from the role in late 2020, leaving the agency the following August. His five-year journey was fascinating. According to Utility Dive, “he started his tenure with the Trump administration as a perceived ally of the coal industry and he ended up as a perceived martyr for climate policy.”
A neat summary, but having heard Neil speak at various conferences and observed how he patiently answered questions from the audience (myself included) and hearing the deep empathy he has for the Kentucky coal communities he’s served…well, there’s more to Neil. I wanted to hear his story and better understand where we might be headed on the regulatory front.
Here’s what Neil had to say…
Neil Chatterjee: Because of broader legislative intransigence and the fact that we didn't have really, a national energy policy or any kind of real legislative guidance from the U.S. federal legislative branch, that a lot of the key policy decisions and legal decisions that would drive the energy transition would fall to agencies like FERC.
As I look at it, FERC Order 2222 — like two by four — really was one of the things that I am proudest of. But, it was a long journey to get to the point where we could put that order removing barriers to entry for aggregated, distributed energy resources.
So in early 2017, President Trump had come into office and FERC had lost a quorum. FERC needs a minimum of three members to function and statutorily to get out any work, and the commission fell under three members for a period of seven months. We actually dropped down to one member at the commission by June of 2017. In this period that the commission was unable to take action, there was a significant accrual, a backlog that had occurred on a number of items on both the power and the gas side. Particularly the natural gas industry was very focused on restoring a quorum to get pipelines and LNG export facilities moving again at the commission. And, there was a big focus on getting me and another nominee, Rob Powelson of Pennsylvania, confirmed quickly so that we could restore that quorum and get back to approving pipelines.
Well, it looked like everything was coming together smoothly to move me through when Senators Ed Markey of Massachusetts and Sheldon Whitehouse of Rhode Island stopped the process and they put a block on my nomination.
At first, I was a little surprised because having been a staffer in this Senate, I had a very good relationship with a number of senators on both sides of the aisle, including Senators Markey and Whitehouse. I was surprised that these senators who I thought I had a friendly relationship with were blocking my confirmation. So, I came and I met with the both of them and what they said was, "Neil, we understand that there's going to be a lot of pressure on you to evaluate applications for pipelines when you get sworn in to FERC, but there's a couple of things that we want you to take a look at when it comes to energy storage and aggregated distributed energy resources. We're not asking you to commit to take any kind of action, just please don't focus solely on pipelines, there's real opportunities. We think there's quality policy here. Just take a look at these issues. And, again, you don't have to commit to us that you'll do anything, but please keep an open mind." That's all they asked. When I said, "Of course I'll keep an open mind to these matters," they lifted their hold on my nomination and I was able to go forward and be confirmed.
What I came to find is that the senators were right. I'm a big believer in innovation and opportunity and what it would take to spur innovation here was not a mandate or a subsidy, things that I would struggle with from a policy standpoint. I looked at some of the structural obstacles to these resources competing in the markets and being compensated for all of their attributes and I thought, "This is kind of conservative, smart energy policy and I want to pursue this."
At the time, there wasn't a lot of Republican interest in energy storage and in DERs, but it was okay. I felt like this was a justifiable approach to take. But, what was interesting is some of the legal questions surrounding energy storage, we were a lot further along in answering those than we were when it came to some of the really complex behind-the-meter issues with DERs. I had to make a tough decision and I wound up actually splitting what had been a really large connected rule-making that would have done it all, and I broke it into smaller pieces. The first piece wound up being FERC Order 841, which removed barriers to entry for energy storage resources.
What I'm really proud of in looking back at our efforts on 841 is we got a unanimous vote at the commission to have it move forward. And then suddenly, within a couple of years, you had Republicans in Washington and in state capitols touting the benefits of energy storage because the rule really worked out, but it wasn't without its challenges. There were sensitive jurisdictional questions about whether FERC was creeping into retail jurisdiction, which was really state jurisdiction, and whether we were overreaching. Ultimately, the utility industry, EEI, NRECA, APPA, along with the states' NARUC, pushed back and litigated the rule.
It went all the way to the D.C. Circuit and the DC Circuit upheld our approach. This was really significant because while we were waiting for the legal process in FERC Order 841 to shake out, we were simultaneously working to put together what became FERC Order 2222. We learned from the experience with 841 and ultimately, the product that became 2222 was much more legally durable because of our experience in implementation and compliance with 841 and we also heard from stakeholders.
One of the stakeholders we heard from were small distribution co-ops throughout the country who were truly worried about being overwhelmed if the rule was fully implemented. We really didn't have anything on a potential opt out for some of these small distribution systems in 841, and so we learned from that and were able to build in a opt in for some of these smaller distribution systems when it came to 2222.
I think the combination of the two rules in particular will be significant, but 2222 in particular could really transform the way that we generate, distribute, and consume power in this country. You can harness the power of thousands and thousands of EVs, suddenly you're competing against the power plant down the street and you're doing it at the point of demand and that's really exciting. We may look back ten years from now and say FERC Order 2222 was the most significant thing that this agency could have done to really drive the energy transition and reduce carbon emissions.
Viswanath: You made this comment that, hey, DERs can hide in plain sight in our homes, our businesses, our communities, but their power is mighty. You made it a point about where we actually consume the electricity. We know that of all the electricity we generate, 65% is really going to be just keeping the system afloat. 35% is where we actually see that consumption.
I want to go back to your original focus, the thought being that you would focus on natural gas infrastructure.
Chatterjee: Yes, look, it was a huge focus of my tenure at the commission, and it was a challenge. Something that used to be a matter of routine has become very controversial, and that is the process by which certificate applications for natural gas infrastructure has just come under tremendous scrutiny, and it's become very emotional. We had protesters come to the commission, come to the commissioners' homes, go to job sites, and antagonize people working on project sites, and so it's very tough.
I really felt that we worked hard at the commission to take in some of the concerns that were brought to us by landowners, by folks with environmental concerns, folks with safety concerns. We put pressure on project sponsors to make sure that restoration was completed, and that projects weren't allowed to start flowing gas until the land was put back to the way it was before. What we found is there were differences amongst companies within the industry, and sometimes there were good actors who were penalized because some of their peer companies didn't handle things in the best way.
That the FERC process is long, it's complicated, it's arduous, and it's expensive. People like to quote a statistic that FERC is a rubber stamp because there've only been two projects ever rejected by the agency. Well, that doesn't account for all the projects that were withdrawn. I was actually a staunch defender of FERC's processes. I tried to be constructive in working with my colleagues to find ways to account for the emissions associated with FERC's natural gas approvals. I cut a bipartisan deal to account for the direct emissions associated with the liquified natural gas export facilities that FERC approved. That bipartisan agreement ultimately led to a breakthrough in LNG and we got, I think, 14 LNG export facilities approved during my tenure as chair of the commission.
We need more infrastructure in this country. We need a lot more infrastructure — natural gas pipelines and transmission lines, in order to maintain reliability, in order to maintain resilience, affordability and energy security. But here's the tricky thing, and I was actually screaming this from the rooftops during my waning days at FERC, that you could not tie up the approval process for natural gas pipelines on the NGA side and not expect those same obstacles to re-emerge when it comes to citing electric transmission on the Federal Power Act side.
What's really interesting about this whole situation we find ourselves in today when it comes to permitting in the U.S. is that the historical opponents of building energy infrastructure (because it was largely fossil infrastructure) are now the proponents of building out transmission to get clean energy onto the grid. What they are finding is that the same playbook that they used to frustrate pipeline development is now being used against them to frustrate transmission buildout.
Viswanath: Well, let's talk about that. So, this year the Department of Energy released a proposed framework for designating these national-interest electric transmission corridors for specific transmission projects.
Chatterjee: You know, I've been in these gymnasiums where communities are opposed to energy infrastructure. It's a hard thing to tell folks in those communities that despite their concerns and despite their objections that it's in the national interest to build on their property. It's just very hard.
And there are other complex questions that come into this…
The reality is the easiest way to get transmission built in this country would be to just use existing right of ways, but then you're subjecting the same communities that bore the brunt of the last round of infrastructure buildout to having more infrastructure. Similarly, when it comes to cost allocation, who is going to pay for these huge CapEx projects, these very risky projects?
I can understand state A where the renewable power is being generated having an interest in building out transmission to get that renewable power to where the demand is. I can understand state C where consumers are clamoring for cleaner sources of energy, wanting to get that transmission so that they could get the clean power that's being generated in state A. What happens to state B? State B is neither benefiting from the generation nor the consumption of the power but they're having transmission lines built through their backyards that they don't want…and they're going to be expected to pay for it?
That is why despite all the best intentions, despite all of the incentives that are being put out there, there remain huge challenges to getting transmission built.
And, then the interconnection queue...
There's broad consensus at FERC and in Congress and elsewhere that the status quo is fundamentally broken and that across the regions, we need to better improve the interconnection queue process.
Viswanath: There's a couple of parts to reconnect on. Where from here and what's the most constructive pathway forward, Neil? What would you say that tack should be?
Chatterjee: So, one of the big challenges is that politics has really intruded upon energy policy in a way that it hadn't before. When I first came to Washington in the early 2000s, energy wasn't political. It's really over the next decade or more that politics kind of took over energy policy. And it's unfortunate.
As I reflect, John McCain was the Republican nominee for president in 2008. He was the primary author of a cap and trade bill. Mitt Romney was the Republican nominee for president in 2012. He was openly calling for a price on carbon. There was a time when even climate change was a wonky technical issue, it wasn't political.
Sadly, energy, like everything else now, has become very politicized.
People ask me all the time, "Well, Neil, what is the solution to this? How do we get politics out of this? How do we put the genie back in the bottle?"
My hope, and I'm not saying this to be funny, is that we make energy policy boring again. Now, when energy policy is really boring and you leave it to the engineers, and the lawyers, and the economists, and the nerds — no offense to anyone listening to this podcast if you fit into one of those categories — you get constructive outcomes without the drama.
When it comes to things like inter-regional planning for transmission or cost allocation or siting, when it comes to the physical and cyber security of a pipeline, these are really wonky technical issues that we have to take seriously. If we can take the politics out of it and focus on the substance, I am hopeful that we might see some changes in the U.S. and globally.
And where my optimism stems from is one of the smartest things the Inflation Reduction Act did was make a concerted investment in domesticating the supply chain for clean energy.
I think if that investment bears fruit, we really could create a paradigm in which red supply feeds blue demand, in which the jobs of the clean energy future will start to grow in rural red states. That will stem some of the apprehension that is coming from the energy transition. If the IRA can lead to creating some of these jobs of the future in clean energy in places like Kentucky and Wyoming and Oklahoma, then suddenly I think you'll see a change in mindset. And we can all work collectively towards working our way to that clean energy future and taking some of the politics out of it.
Where I have found as a Republican from Kentucky who worked for Mitch McConnell and was appointed and later fired as chairman of FERC by Donald Trump, that I've been able to talk about climate change and the clean energy transition. I talk about it in terms of the business case for clean energy, that consumers are actually benefiting from the opportunities in the clean energy transition.
There are clear opportunities in the energy transition but there are also communities that get left behind. We've got to make sure that they don't get left behind and that they get the opportunities as well.
Viswanath: I really want to thank you for the work you've done. You've been terrific and impactful on our industry, so I deeply appreciate your efforts.
Chatterjee: Thank you so much for having me.
Viswanath: As Neil emphasizes, the amount of investment that is needed across the electricity sector in the United States is going to be substantial for the next few decades. Recent congressional actions supporting energy infrastructure investment is encouraging, but without a clear process to enable permitting and siting, well it’s going to hinder progress.
What’s more, opportunities exist in the ongoing energy transition, but it is important to ensure that communities are not left behind.
I hope you’ve enjoyed our conversation with Neil and will join us next month.
The peak month of wildfire season is August, when areas become increasingly dry, hot and more susceptible to a wildfire. If you live on the Gulf, it also happens to be the time when we see more landed hurricanes. We are going to hear from our electric co-ops on how they prepare their communities for these natural disasters. I hope you’ll join us then. Bye for now.
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