CERAWeek 2014 - Global Power Keynote Dialogue

IHS Energy Chief Power Strategist Lawrence Makovich chaired the Global Power Keynote Dialogue with Cheryl LaFleur, Acting Chairman of the Federal Energy Regulatory Commission (FERC). Dr. Makovich began by noting that the polar vortex that swept across the United States this winter put great stress on the increasingly interconnected gas and power systems. Ms. LaFleur pointed out that the system "bent, but did not break" during the cold winter, with price responses leading to increased supply. According to Acting Chairman LaFleur, system reliability under physical attack-including from weather phenomena-is something FERC has managed for several decades, but recent events have highlighted gas infrastructure needs.

Dr. Makovich then asked Acting Chairman LaFleur if the growth of renewable and gas-fired generation coupled with the earlier-than-expected retirement of coal and nuclear plants in coming years would have a negative impact on grid reliability. Acting Chairman LaFleur said that how the carbon rules for power generators will play out remains uncertain, and that a patchwork of approaches is likely, given that states establish their own targets and programs. A major challenge will be coordinating state policies, especially to ensure sufficient investment in power grids and gas pipelines that cross state boundaries. Acting Chairman LaFleur said she also expects growing investment in interstate high-voltage power transmission lines, driven by renewables and reliability requirements. FERC is focusing on this issue to ensure that the right incentives are established for grid investment.

Dr. Makovich also asked Acting Chairman LaFleur whether she thought that traders are increasingly manipulating energy prices. She explained that the recent growth in the use of regulatory fines reflects FERC's greater authority to punish market manipulation rather than an increase in the frequency of manipulation. Acting Chairman LaFleur noted that in 2005 (post-Enron), Congress awarded FERC substantial new powers to carry out civil prosecution of market manipulators. Although it has taken FERC several years to develop this capability, Acting Chairman LaFleur said that she believes the number of prosecutions will continue to grow.

Acting Chairman LaFleur also noted that FERC's permitting process for gas pipelines and liquefied natural gas export projects is currently relatively straightforward and that numerous applications are currently under review. However, she mentioned that pending legal action against FERC by interest groups opposed to hydraulic fracturing, which seeks to extend the scope of gas project assessments to the upstream, has created some uncertainty.

Acting Chairman LaFleur closed her remarks by highlighting the continued tension between cost, reliability, and the environment in energy systems. Over the next year, she expects FERC to be more focused on infrastructure needs and potential changes to market regulations to support infrastructure investment. Acting Chairman LaFleur expressed the importance of working together with industry to meet energy security and environmental goals, and noted that "a voluntary solution is always a little faster than a regulatory one."

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.