Advanced Energy Perspectives

Been a Challenge in 2017, Energy Policy Has: Federal Year in Review, Star Wars Edition

Posted by Dylan Reed and Maria Robinson

Dec 19, 2017 5:00:00 PM

    

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Image by junaidrao, used under a Creative Commons license

This year was a busy one for federal energy policy. That’s not surprising, given a new President with same-party control of the White House and Congress. But the flurry of activity has not been exactly as one might have predicted on January 1. Here are some of the biggest moves in energy made by Congress and the Trump Administration in 2017, as they might have been seen from a galaxy far, far away. (With apologies to George Lucas.)

These are not the tax bills we were looking for

President Trump and Republican leaders made tax legislation the top priority in the second half of 2017. All along, AEE was supportive of Congress’s intention to lower taxes on American businesses and make it easier for companies to invest and build projects across the country. Given Congress’s commitment in 2015 to phase down tax credits for wind and solar, the industry looked to Congress to honor this legislation and fix an error that left many advanced energy technologies out of the 2015 deal – the so-called “orphaned” technologies. AEE was pleased to see the House extend this treatment to orphaned technologies such as fuel cells, distributed wind, and geothermal. But at the same time, the House went the opposite direction, gutting the value of the production tax credit (PTC) for wind, and changing eligibility requirements for commencing construction under both the PTC and the investment tax credit (ITC).

Fortunately, the Senate avoided dramatic rollback of the PTC and ITC, and several Senators indicated support for extending tax treatment to the orphaned technologies. However, the Senate bill included a provision – the Base Erosion Anti-Abuse Tax (BEAT) – that would disrupt the market for investment in advanced energy technologies. This provision was included to increase investment in the United States, but renewable energy advocates noted the change to the structure of tax equity markets perversely could make it more difficult for advanced energy developers to build projects in America.

Though the final conference committee bill avoided some of the worst features of the House- and Senate-passed bills, it was ultimately a missed opportunity to capitalize on advanced energy for the U.S. economy. The bill reduces the tax burden of businesses by lowering the corporate tax rate to 21% from the top rate of 35%. Market disruptions were avoided with no changes to the ITC or PTC, and the tax credit for electric vehicles was preserved. Republican advanced energy championsleaders worked tirelessly to lessen the blow of the BEAT, allowing renewable energy credits to offset 80% of the new tax provision, but the final impact still will likely have a negative impact on development in the short term. Despite such efforts, the conference bill did not include language to help nuclear energy or level the playing field for the orphaned technologies. Congress is working this week to pass an end-of-the-year deal to keep the government open, which provides an opportunity for legislators to make good on its two-year-old promise to these businesses.

We are one with the FERC, and the FERC is with us

While a change in administrations naturally leads to changes at appointed bodies, the turmoil at the usually staid Federal Energy Regulatory Commission (FERC) in 2017 was unusual, to say the least. Four new commissioners, and four separate people holding the title of Chair, all in the course of a single year.

The musical chairs began when President Trump took action to remove the Chairman’s title from Norman Bay soon after he took office, and gave the role to Cheryl LaFleur as the interim Chair while the Administration worked to get a Republican confirmed by the Senate. Bay responded by resigning his seat. With two seats already vacant on the five-member commission, that left FERC without a quorum, and it stayed that way for half the year.

Despite calls from industry and lawmakers, it took until August to restore a quorum, with the swearing in of commissioners Rob Powelson and Neil Chatterjee, with Chatterjee named acting chairman. Just before Thanksgiving, the Senate moved to confirm Rich Glick and Kevin McIntyre. Each was sworn into FERC in early December, with McIntyre taking the role of Chairman.

With FERC now up to full strength for the first time in over a year, the advanced energy industry looks to FERC to move quickly on numerous dockets relevant to our industry, including a rule to remove market barriers for energy storage and aggregated distributed energy resources.

I find your lack of resilience...predictable

Although it might not be Merriam-Webster’s word of the year, in the energy policy world, 2017 was all about resilience (or, as some would have it, resiliency). In April, Energy Secretary Rick Perry ordered up a report on electricity markets and grid reliability. Specifically, he asked the Department of Energy to look into how baseload generators are compensated in the markets and examine whether renewable energy impacted reliability on the grid. An early copy of the report leaked in July showed that the authors concluded there was no reliability threat to the grid from renewable energy or natural gas, reassuring advocates.

When the final report was released,  the focus was less on reliability than on “resiliency.” The term was never defined, but seemed to take on characteristics that went beyond the traditional (and well understood) standard of reliability. This resilience focus came through in the new conclusion section, with its eight recommendations. Among the recommendations was an examination of price formation in the wholesale markets, which we see happening from PJM to ERCOT. In this new world of resilience, RTOs/ISOs may increasingly look to price formation as a solution to questions surrounding grid resilience. Another was for FERC to examine compensation for what DOE termed essential reliability attributes, including on-site fuel storage – this recommendation popped up again shortly thereafter.

Return of the Reliability (and Resilience) Rule

In September, Secretary Perry sent a letter to the three sitting FERC Commissioners proposing a grid resilience rule that would allow generators that maintain 90 days’ worth of on-site fuel to move to a cost-of-service rate. Since only coal and nuclear plants could qualify, many in the industry viewed this as a direct bailout of plants that would otherwise retire due to being too expensive in the wholesale markets. In proposing the rule (the “DOE NOPR”), the Secretary set an expedited deadline of 60 days for the Commission to take action. Even with this small window for feedback, the Commission received over 1,500 comments on the rule, almost all of it negative. AEE provided its own comments and comments with other major energy industry players from oil, gas, and renewables arguing that there was no emergency that needed to be solved and the rule was drive up costs for no public benefit. (See also the AEE backgrounder Bailout Without Benefit.) The Advanced Energy Buyers Group also submitted comments on how the rule would negatively impact its business interests. Entities from the New York Times’ editorial board to industrial customers to consumer interests publicly rebuked the rule, to the point where then-Chairman Chatterjee floated the possibility of an interim action in lieu of the DOE NOPR in a public interview. At the same time, evidence of coal interests, including major Trump donor Robert Murray, influencing the rule mounted.

Although the Commission was supposed to publish final action by December 11, newly sworn-in Chair McIntyre asked Secretary Perry for a 30-day extension under the auspices that two of the five commissioners had been installed in the two weeks before the deadline. Secretary Perry begrudgingly issued the extension, although he strongly reiterated his concerns that the grid is facing immediate reliability and resilience concerns that need to be addressed. AEE plans to remain actively involved in whatever final order is issued, and we anticipate the push on resilience from the Administration to continue in 2018.

In a White House not far away, a trade case is pending

In May of this year, two solar manufacturers applied for import relief under Section 201 of the Trade Act of 1974, which allows temporary import relief to U.S. industry in the form of tariffs, quotas, minimum prices, etc. It applies to specific products, domestic manufacturers of which are found to have suffered “serious injury” due to imports, even where there is no charge of unfair trade practices, claims of which are adjudicated under a different section of the Trade Act. The case in question was brought by Suniva, a Chinese-owned solar manufacturer with operations in Georgia and Michigan, and was quickly joined by German-owned SolarWorld—both companies now in bankruptcy proceedings. In September, the U.S. International Trade Commission found that imports had harmed U.S. manufacturers of solar panels, and in mid-November the ITC sent a range of recommendations to President Trump. The Administration now has until January 26 to decide how to proceed.

This case has garnered widespread attention due to its potential impact on the fast-growing solar industry. The Solar Energy Industries Association (SEIA) estimated that the tariffs originally requested by Suniva and SolarWorld would result in the loss of 88,000 U.S. jobs; and while the remedies recommended by the ITC are less stringent, the industry would still be affected. Because downstream solar customers would also be harmed by the increased cost of solar projects, the Advanced Energy Buyers Group weighed in throughout the remedy phase of this case, arguing against actions that would drive up the cost of renewable energy investments needed to meet their corporate commitments. AEE will be watching closely as the President prepares to issue his final decision early next year.

Do CPP. Or do not CPP. There is no try.

On March 28, President Trump issued an executive order requiring a review of any “existing regulations that potentially burden the development or use of domestically produced energy resources,” including EPA’s Clean Power Plan, which had been finalized in October 2015. The CPP was held up in the D.C. Circuit Court at the time of the President’s order, following an en banc hearing in September 2016; the Court subsequently granted a motion to hold the case in abeyance, and has since extended this abeyance several times.

In October, following a review of the CPP, EPA released a proposal to repeal the rule. The primary reasoning for EPA’s decision is the Agency’s revised interpretation of the standards used to set the required emission reductions. In the finalized CPP, EPA’s calculations to set the standard for emission reductions included an assumption that power plants could reduce emissions through generation shifting to lower- or non-emitting sources. Under Administrator Pruitt, EPA argues that power plants can only be required to reduce emissions to a level that can be achieved through measures implemented onsite. Comments on EPA’s proposed repeal are due January 16, 2018. EPA’s proposed repeal also indicates that the Agency may introduce a replacement for the CPP, and on December 18, EPA released a notice requesting input on a potential replacement. Once the notice is published in the Federal Register, the public will have 60 days to submit comments.

May efficiency be with you

Energy efficiency is sometimes referred to as the “first fuel,” since the cheapest electron is the one you do not use. On top of being an affordable energy resource, energy efficiency represents the largest employment segment in the advanced energy industry, with  2.2 million jobs supported by efficiency.

Despite the huge benefits of efficiency, numerous actions this year that give pause to the sector, and raise questions about how the Administration and Congress will treat efficiency moving forward. The Administration’s proposed 2018 budget called for deep cuts to key efficiency programs, such as EnergyStar, though Congress did not enact this proposal. Just last month, the Department of Energy began a process to overhaul energy efficiency standards. And key congressmen have called for reform efforts on the EnergyStar program.

While we at AEE see this as a potential threat to energy efficiency, we also believe there are opportunities to work with Congress and the Administration on new policies that continue to value efficiency as a key energy resource that helps to keep lights on and power affordable for all Americans.

That energy bill is our last hope (well…not really)

Despite both the House and Senate passing their own versions, 2016 ended with no passage of comprehensive energy legislation. Congressional leaders, particularly Senators Murkowski (R-AK) and Cantwell (D-WA), worked to create a bipartisan package to update various federal energy policies. While these bills had some positive and negative aspects for advanced energy, it likely would not have been a major market driver for the industry. Nonetheless, the bills still represented the biggest reform to federal energy law since the 2005 energy bill. This year began with the hope that Congress might be able to move forward with a second iteration of an energy bill. Despite some individual provisions of the 2016 legislation passing the House in January, no movement has occurred on the major substantive issues addressed in these bills.

For its part, the House Energy and Commerce Subcommittee on Energy – under the leadership of Representatives Greg Walden (R-OR) and Fred Upton (R-MI) – began the Powering America series to learn about the energy transformation occurring in the United States due to technological innovation and market competition. AEE testified in September as a part of this hearing series, arguing that technology-neutral markets bring grid and consumer benefits.

AEE looks forward to continuing its work with the Committee and Congress as a whole on proactive reforms to allow for advanced energy businesses to provide more affordable and reliable power to all Americans.

Energy dominance…It’s a trap!

While past discussion of energy production in the U.S. has referred to “energy independence,” President Trump coined the term “energy dominance” this year to define his Administration’s energy ambitions. President Trump’s America First Energy Plan, posted on the White House website on Inauguration Day, provides a window into this agenda. The Plan calls for boosting production of the nation’s oil and gas resources but makes no mention of the advanced energy products and services that are pumping $200 billion into the economy annually and supporting over 3 million U.S. jobs. For an “America First” approach to energy, we found this to be a glaring omission.

AEE fully supports the premise of an America first strategy to increase the use of homegrown energy resources, but after one year, neither the Administration nor Congress have expressed interest in moving policy that captures the benefits of advanced energy, whether consumer savings, economic investment, or a more reliable and resilient grid. Leaders in D.C. should use 2018 and beyond to draw on the benefits of advanced energy, and not be trapped by outdated views on what energy technologies power the economy.

Download 'Bailout Without Benefit'

Topics: Federal Policy Update, Year in Review

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