As a veteran public servant and twice Chairman of the Federal Energy Regulatory Commission (FERC), Neil Chatterjee is a respected advocate and progressive visionary on energy infrastructure, regulation, and security. In our latest installment of Mizuho's Sustainability Series, Neil shared actionable ideas and observations on transitioning the US energy grid and the role that government, business, investors, and individuals can play in accelerating a sustainable, low-carbon future.
David Landers:
Hello and welcome, everyone. I'm David Landers, Head of US Government Affairs for Mizuho, based in Washington, D.C. I've been with Mizuho for about nine months leading our legislative and regulatory advocacy efforts on Capitol Hill. Today is a real highlight for me, not only because I get to introduce myself, having joined relatively recently in the virtual environment, but also because I have the pleasure of welcoming our esteemed guest, Commissioner Neil Chatterjee. Commissioner Chatterjee is a veteran public servant and current commissioner for the Federal Energy Regulatory Commission or FERC, as it is commonly known, and twice served as its chairman. He is a respected advocate for shrewd energy policies and regulations that reflect the evolving energy landscape. And his priorities as a commissioner include championing strategic initiatives to bolster grid reliability and resilience, and securing the nation's energy and infrastructure from physical and cyber threats.
David Landers:
Mr. Chatterjee previously served as an adviser to Senate Majority Leader Mitch McConnell, where he played an integral role in the passage of major energy, highway, and agriculture legislation. He also worked as a principal in the government relations for the National Rural Electric Cooperative Association and as an aide to House Republican Conference Chairwoman Deborah Pryce. We've known each other for a long time and it's a great pleasure to be with him. He began his career in D.C. as a staff member for the House Committee on Ways and Means. I may be a bit biased because I consider Neil a good personal friend, but we are lucky to tap his wisdom today. He's an astute observer when it comes to all things energy policy, and in his role as commissioner, he has a unique vantage point.
David Landers:
Moderating today's discussion will be our own head of corporate development and strategy, Paul Hughes. Paul also has an internal ESG leadership group that seeks to raise awareness of Mizuho sustainability efforts within and beyond the firm. So with that, I'm very much looking forward to the discussion, and I'd like to turn it over now to Paul.
Paul Hughes:
Thanks, David. And welcome Commissioner Chatterjee. Thanks for joining us today.
Commissioner Neil Chatterjee:
Thank you for having me.
Paul Hughes:
Great. Well, we're really excited about today's conversation just given the importance of sustainability, as well as your unique perspectives given your tenure at FERC as well as your time spent on the Hill. I think a lot of the topics that we're going to cover today are actually fairly timely given a lot of the developments that are going on in D.C. in recent days, so really looking forward to hearing your perspectives and insights there. I would also say that the audience for today's sustainability speaker series is fairly broad in terms of their background and familiarity with some of the topics that we'll discuss, so the plan is it will start from the top and then work our way down through some of the more nuanced questions.
Commissioner Neil Chatterjee:
Sounds great.
Paul Hughes:
Awesome, let's jump in. So Commissioner, let's start the 30,000 foot view of background on the FERC, on its mandate, as well as your role as a commissioner.
Commissioner Neil Chatterjee:
Yes, so FERC or the Federal Energy Regulatory Commission is an independent, bipartisan agency that is really tasked, I think, primarily with overseeing the reliability of the electric grid, to make sure that when Americans hit the switch, the lights come on. In that role, we oversee the nation's competitive wholesale electric markets, we evaluate applications for energy infrastructure projects like natural gas pipelines and liquefied natural gas export facilities, we play a role in setting ROEs for investments in projects like transmission build out, and also have increasingly been pulled into the cybersecurity arena as the threats to our physical and cyber critical energy infrastructure increase.
Commissioner Neil Chatterjee:
So it's a pretty significant agency. I'm obviously a little biased having served there for the past four years. I think the Department of Energy is misnamed, I think it's actually should be the department of science because that's where their primary responsibility is. I do believe that FERC is the country's principal energy regulatory agency.
Paul Hughes:
That's helpful. So and you actually just went through my next question there in terms of some of the priorities for FERC cybersecurity, et cetera. In terms of today's conversation and weaving in sustainability, what role does sustainability have within FERC's mandate and what's been going on at the agency?
Commissioner Neil Chatterjee:
So FERC is not an environmental regulator, we are a market regulator and overseer, but increasingly, it is impossible to untangle questions regarding sustainability and decarbonisation from the commission's work. And this has a range of implications. I mentioned our oversight of the country's competitive wholesale electric markets, you're seeing a concerted effort at the state level amongst generators to move towards cleaner energy, to move towards integrating newer technologies and decarbonizing. And so, it's FERC's responsibility to ensure that, that energy transition can occur while also maintaining reliability and affordability so that Americans can get the benefits of cleaner energy and the energy transition, but also maintain a world class reliability, and we need to ensure that the delivery of electricity remains affordable in this country.
Paul Hughes:
That's great. I mean, so in terms of the recent rulings that have been made by FERC, have any of them intersected with climate change or sustainability from your standpoint?
Commissioner Neil Chatterjee:
Yes. So two of the orders that the commission undertook under my leadership as chairman, that I'm very proud of, I think when we look back 10 years from now, we may fully appreciate the landmark impacts that these orders could have. The first was FERC order 841, which removed barriers to entry to battery storage technologies. And we followed that up with something I'm extremely proud of, FERC order 2222, which removed barriers to entry for aggregated distributed energy resources. And so, these two in conjunction, I think, really have the capacity to fundamentally alter the way that Americans generate, deliver, and consume electricity.
Commissioner Neil Chatterjee:
And so, what do I mean by this? What are these resources? So, these are technologies that I think have the capacity to lead towards decarbonisation and counteracting the impacts of climate change. But we didn't approach this from a regulatory standpoint, or a subsidy standpoint, or a mandate standpoint, what we did was enable our market rules to allow for these resources to be compensated for all of their attributes, for capacity, for energy, for ancillary services. And I believe that removing these barriers and allowing these technologies to compete will lead to their accelerated deployment. And that getting these cleaner resources into our generation mix will help further reduce carbon emissions in the US power sector. But the implications actually go beyond the power sector, and this is what I'm really excited about.
Commissioner Neil Chatterjee:
So FERC order 2222, which enables aggregated DERs to compete, what are these resources? They're appliances, electric vehicles, rooftop solar. So think about it in this perspective, if you were a single electric vehicle owner, your ability to impact the electric market is nil, but if through the power of innovation and technology, we are able to aggregate the contributions of thousands and thousands of electric vehicle owners simultaneously, then suddenly you're competing against the power plant down the street. And if this power sector reform leads to further decarbonisation on the energy side, that's great. But an additional benefit could be that if this further incentivizes the deployment of electric vehicles, you could actually also see a reduction in emissions in the transportation sector as well.
Commissioner Neil Chatterjee:
And so I don't think I'm being hyperbolic when I say that it's very possible, 10 years from now, we could look back and say that these significant actions that this regulatory agency took were some of the most significant things that happened in the energy policy landscape in the US to combat climate change.
Paul Hughes:
That's interesting. And it is also worth noting that you're talking about 10 years out, right. And so, when you think about the energy infrastructure of the future, what does that look like beyond storage, beyond DERs? What else is part of that solution?
Commissioner Neil Chatterjee:
So I think transmission is going to be key, and there's a big focus on that in ensuring that we have the grid of the future, a flexible, resilient grid that is able to enable and integrate these new technologies. I think our grid is going to become more distributed, less centralized, and we need to ensure that we've got policies in place to maintain that reliability and affordability. I'm excited by the opportunities presented by the energy transition of incorporating these new technologies. We also don't know what further innovations may come to bear. One of the things we did specifically in FERC order 2222 is we left some flexibility in our definitions of what resources qualify with the understanding that there may be innovations in the future that we're not even contemplating today that could further alter the grid. And so, I think, there is no question that looking down the road, the US power sector is going to be cleaner, it's going to be more efficient, but we've also got to make sure that we maintain reliability and affordability.
Commissioner Neil Chatterjee:
We've actually done a very good job in the power sector in the US over the past couple of decades. I think that's largely been driven by markets, by the competitive markets that FERC overseas. I think we've seen dramatic reductions in carbon emissions in the US power sector. And it's being driven not by regulations, not by mandates, not by subsidies, but by market forces. And increasingly, consumers, everyone from Fortune 50 companies, to small businesses, to individual families are becoming more aware of their energy consumption, and they're demanding cleaner and cleaner sources of energy, and the markets are delivering. And I think that's an exciting thing, and I think I'm very optimistic about what the future holds in the energy arena.
Paul Hughes:
I think a lot of us share that same sentiment. And I think that's actually why, I think, so many people are focused on this Infrastructure Bill that's being discussed in D.C. right now, and I know there's some progress made over the past few days. Based on what you know to be in the bill or proposed bill, how far does that bill take us in terms of getting us to that target state, the energy infrastructure of the future?
Commissioner Neil Chatterjee:
So it depends on, I guess, what bill you're talking about. The bipartisan bill, which is more focused on hard infrastructure, that's the more traditional approach that we've taken to surface transportation reauthorizations over the years. I'm very proud, I actually played a significant role in the last bipartisan infrastructure bill to pass Congress. It was actually Senator McConnell and Senator Boxer of California who worked together on the FAST Act. And we found that infrastructure is necessary and it's politically popular. The challenge always comes in, how do you pay for it? And we were able to pass the FAST Act, make a considerable investment in our infrastructure, and we found a package of pay force to cover the costs beyond what revenue comes in through the Highway Trust Fund. But that was a challenge and I think that will similarly pose challenges here.
Commissioner Neil Chatterjee:
And so, I think, depending on the combination of pay force that the bipartisan group of senators have negotiated, they are looking to spend a great deal more money on hard infrastructure beyond what was envisioned originally in the FAST Act. So reauthorize essentially the FAST Act and then spend additionally, and make investments and things like electric vehicle technology in transmission in the grid. And I think that's exciting and that's encouraging. I think that should there be a second package that comes via reconciliation, it'll be interesting to see what can garner 50 democratic votes in the Senate.
Commissioner Neil Chatterjee:
I know there's a lot of interest and bipartisan interest in incentives, in clean energy, in tax incentives. I as a Republican who supports clean energy, and the energy transition, and is concerned about climate change, would hope that, that discussion over clean energy tax incentives could take place on a bipartisan basis. But if it does go through the more partisan reconciliation process, that doesn't mean that there's not at least, in those areas, some value to those policy provisions. But I think if the bipartisan deal holds, it takes the right approach in making the investments that we need to make progress in the energy transition.
Paul Hughes:
Got it. To reference back to a point you made earlier, the relationship between FERC and the DOE, and I know there's talk about a proposed grid authority within the DOE as part of this infrastructure plan going forward. What are your thoughts on this new grid authority, and does this complicate matters more or does it simplify our transition to clean energy?
Commissioner Neil Chatterjee:
I need to see more details on it. To be honest, I've only been made aware of it based on reporting in the press, so I need to see what it looks like, what its authorities are, what is being contemplated there. I will simply state that I think FERC's structure, being a bipartisan multi-member board, being independent is really, really important, and let me explain why. When it comes to energy and investing in energy, the decisions that are being made are 10, 20, 30 year decisions, and it's really difficult to make those long term investment decisions in a volatile regulatory landscape. And I think FERC has played a critical role in being a beacon of stability in this otherwise volatile energy and environment landscape.
Commissioner Neil Chatterjee:
An example of this, you look at EPA, EPA went one direction under the Obama administration, went a completely different direction under the Trump administration, and is now reverting back in the other direction under the Biden administration. And it is really, really difficult to try and make investment decisions and peg them to the political pendulum swinging back and forth like that.
Commissioner Neil Chatterjee:
At FERC, because we're independent, because we have standard five year terms, and it's by partisan, no party can have more than three members on the commission, it provides that stability. Did the commission in a different direction under my leadership as chair than my predecessors in the Obama administration? Certainly, but it wasn't a dramatically different direction. Similarly, we've got new leadership at the commission right now, a new democratic chairman, will he go in a different direction than I went as chair? Of course, but I don't believe it will be a dramatically different direction. And I think that is why is really important. And it's not just FERC's authorities, but FERC's structure and independence that are critical. And so I'm hopeful that whatever legislation is being contemplated doesn't in any way erode or override the important role that FERC plays.
Paul Hughes:
Understood. And I think one of the points you made there, Commissioner, was around the long term impacts of some of these investments that are being made, and that obviously drives significant investment, especially around new technologies. So I think, you mentioned in the storage and the DER rulings that were made under your tenure at FERC. What other technologies are you excited about that you help see progressing the transition potentially to clean energy, specifically around wholesale electricity markets?
Commissioner Neil Chatterjee:
Yes, I'm not a futurist, right. I will leave that to others, to the engineers and the experts who work in that space. To me, my objective, my overriding ethos during my tenure at FERC has been to create a regulatory landscape that will enable new technologies to flourish. And so, well, I'm not going to make predictions or endorsements regarding what I think some of the innovative new technologies coming down the pike are. What I will continue to focus on, and what I have focused on throughout my tenure, is to ensure that when those new innovations break through, that they're able to be integrated, and compete, and be a part of the markets that FERC oversees.
Commissioner Neil Chatterjee:
And so I think my focus has been, again, in enhancing our markets, removing obstacles and barriers to entry for these new resources, and just creating that opportunity, and then I'll allow the innovators to take advantage of those market structures that we've put in place.
Paul Hughes:
And that makes a lot of sense. So shifting gears a little bit in terms of cost of clean energy. I think when a lot of folks hear the term, clean energy, they think of, it's expensive energy, it's an expensive alternative to more traditional energy sources, but that doesn't have to be the case per say. What are your thoughts around how we make clean energy more affordable and we remove the economic burdens from a lot of individuals and businesses across the country?
Commissioner Neil Chatterjee:
Look, I think the costs of clean energy have come down to such a degree that there is a legitimate business case to be made for clean energy today. There's no question, at their onset, the growth in the deployment of renewables was driven by regulations, by mandates, and by subsidies, but that is no longer the case. Look, I'm a republican from Kentucky who worked for Senator McConnell and was appointed Chairman of FERC by President Trump, I've been very clear that I believe climate change is real, that man plays a significant role in it, and that we need to aggressively take steps to decarbonize, and I've also been out there making the business case for clean energy.
Commissioner Neil Chatterjee:
I think renewable resources are at a point today, right now, that they can compete and be dispatched on par with conventional sources of generation on cost alone. And I think costs are only going to continue to decline, I think efficiency is only going to continue to be enhanced, and yes, I think the notion that clean energy is expensive and that it's only being deployed by people who are trying to virtue signal, that's an outmoded way of thinking. Similarly, I think this idea that if you are for fossil fuels, you're from the political right, and if you're for clean energy, your favor the political left, I think that is also an outdated notion. I think clean energy is widely popular all around the country, in red states, in blue states, in urban centers, in rural areas. There's real opportunities there. And I'm excited about it. And I do think that that renewable energy will continue to be more and more competitive as costs continue to come down.
Paul Hughes:
And I think, dovetail off that last question in terms of there's the cost element to renewables or clean energy, but then there's also the idea around the liability, right. And so, I think, a lot of folks look down to winter storm Yuri down in Texas last year as a sign where reliability and cost intersect in a way that didn't really work out that well. Are there any takeaways or observations that you have when you look at this situation that happened in Texas, and how we could apply lessons learned in terms of reliability around renewables on a national stage?
Commissioner Neil Chatterjee:
Yes, that's a great question. And I actually, I got a lot of traction for being a little colorful. I used an expletive in the interview with a reporter in which I encouraged everyone in a polite way, but I incorporated said expletive to say, everyone calm down, and let's let the experts figure out what went on here. What I was frustrated about in the immediate aftermath of the cold snap in Texas, which was a genuine humanitarian crisis, people lost their lives, people lost their homes, I was irritated that people immediately tried to view the crisis via their own partisan resource lens.
Commissioner Neil Chatterjee:
And so if you were pro-fossil fuel, you said, the renewables didn't deliver, wind and solar didn't come through. If you were pro-renewables, you say, well, the gas pipelines froze and the coal piles froze, and even a nuclear plant was tripped off for safety reasons. If you are for Texas' independence or against it, you're saying, well, Texas should be interconnected and be subject to FERC oversight, and that could have caused a different outcome. Texas doesn't have or Orka doesn't have a capacity market. So there's some who were saying, it's time for an examination of Orka's market design in whether they should incorporate a capacity market.
Commissioner Neil Chatterjee:
The experience in Texas I think is one that we need to take writ large. And one of the things that has occurred over my time in Washington, is politics have really intruded in the energy space. When I first came to Washington, the chair and ranking member of the Senate Energy and Natural Resources Committee, one Republican, one Democrat, were both from New Mexico, Bingaman and Domenici. And as power in the Senate would flip back and forth, they would hand the gavel back and forth to each other, but the committee's agenda and mandate didn't really change, because in that era, people voted what was underneath their feet and over their heads. And you had a time where Republicans in the northeast had much more in common with Democrats in the West than they did with Republicans in the south and in the Midwest. Energy wasn't political, it was based on your state's resource mix.
Commissioner Neil Chatterjee:
It got really, really political and now has gotten so charged that we can't even have a conversation about reliability, and affordability, and the energy transition without politics intervening. So people ask me, what do we do about that? How do we address that? And I'm not saying this to be funny, I think the key is to make energy policy boring again. When energy policy is boring and you allow the engineers and the economists to design markets, what you find is that you're able to transition to a cleaner grid while maintaining reliability and affordability. That reality that there is going to be an accelerated deployment of renewables, no question, that's coming and that's very exciting. But in order to maintain reliability and affordability, we are still going to need fossil fuels for the foreseeable future, particularly natural gas.
Commissioner Neil Chatterjee:
And that's sometimes a delicate thing to talk about, but if you take the politics out of it and just focus on the engineering, we can come up with constructive solutions to decarbonize in an effective, efficient way, while maintaining affordability and reliability. And I'm certainly going to do my part to try and foster that conversation, to not just sweep things under the rug because they don't conveniently fit a political narrative one way or the other.
Paul Hughes:
I think that's pretty interesting, the make energy boring again, I think there's probably a pretty long way from that happening. I think one of the questions I would have there would be in terms of the state and federal level in terms of, where do you see third place in terms of promoting renewable generation? I know you've long been a proponent of a market based approach, how does that all weave together, boring energy, a market based approach, yet understanding the realities of federal and state government?
Commissioner Neil Chatterjee:
Yes, look, it's been really tricky. As I mentioned a few minutes ago, I'm conservative, I believe in states' rights, I believe that states ought to be able to make decisions about their own energy futures, but those have come into collision in recent years with efficient market functioning and accurate price signals. So we've had to make a couple of really difficult choices during my tenure at the commission that were very controversial. I didn't think they ought to have been as controversial as they wound up being, but again, as I mentioned, politics intervened and, I think, fed a lot of the tension around the issue.
Commissioner Neil Chatterjee:
Essentially, what happened was certain states were subsidizing certain resources that they wanted to see dispatched, and that's all well and good, that's absolutely within their rights to do so, but what's happening in these multi-state regions is state A was subsidizing resources that inhibited state D's resources from being dispatched and compensated in these multi-state auctions. And stay D might not have necessarily supported the public policy goals that state A was pursuing via their subsidies. And I just felt that, that situation was untenable, and that the Federal Commission had to weigh in and alter market rules to ensure that accurate price signals would be sent and that markets can remain efficient in the face of these state policies.
Commissioner Neil Chatterjee:
Look, it's a delicate balance, there was certainly a lot of frustration, there was a lot of sky is falling rhetoric around the market design changes we made particularly in PJM, which is the largest market that FERC overseas that encompasses 13 states in the Mid Atlantic. PJM just had an auction last month and a lot of the hyperbolic rhetoric about the impact it would have on costs, costs were at their lowest point in 10 years, 64% reduction. That it would inhibit the deployment of renewables, there was an increase in the deployment of renewables. That it would favor coal and that would be a lifeline to coal, coal dispatch actually declined in PJM.
Commissioner Neil Chatterjee:
So I actually think that we took the right approach and struck the right balance between enabling the energy transition, enabling states to influence their resource mix, while also maintaining the integrity, the markets that the commission oversees. It wasn't easy, and as I mentioned, it was very controversial. I actually think the auction results belie that controversy and I feel vindicated in some ways that we took the right approach.
Paul Hughes:
Well, I mean, subsidies are certainly a very charged topic for sure, especially as it relates to energy markets. I guess, that nice transition to carbon tax credits. Where do you think they stand in the wholesale market? And I guess, also, what are your thoughts on additional tax credits for other sources of generation, ie. nuclear?
Commissioner Neil Chatterjee:
So again, I believe in markets, and that has been the through line throughout the initiatives that the commission took under my tenure. The market rule changes we made in PJM to counteract the impact of state subsidies, that was a market protective action. Removing barriers to entry for DERs and storage, that was a market based action. Modernizing PURPA, a 70s era energy regulation to bring it in line with the markets of the 21st century, that was a market protective action. And ultimately, the matter that led to my being fired by the Trump administration as chair was my embrace of FERC's legal authority to examine a price on carbon within FERC's markets. And I was pilloried on all sides by this, conservatives decried it as a carbon tax and folks on the political left thought it was a baby step and didn't go far enough.
Commissioner Neil Chatterjee:
I actually felt like it was the right approach to take. And I think, again, you mentioned subsidies are challenging. I for one, as I stated earlier, a Republican who believes that climate change is real, and believes we need to take steps to mitigate emissions, a market based approach is the best way to go about decarbonizing our grid while maintaining reliability and affordability. And to me, given a choice between pricing carbon within FERC jurisdictional markets or allowing states to subsidize resources, putting a price on the externality is a far more effective and efficient way than subsidies. And that was really the choice that we were facing, was we took steps with the MOPR, minimum offer price rule, which is the market design I keep describing to push back on state subsidies. But understanding that there was a desire to decarbonize, how do you harmonize these policies?
Commissioner Neil Chatterjee:
I really do think that if an RTO or an ISO were to come to FERC with a proposal that incorporated a price on carbon, I believe the commission has the legal authority to evaluate such a proposal. And I'm optimistic that it could be found to be just unreasonable. And if that were to happen in the near term future, that could be the catalyst for carbon pricing being adopted in other regions, which could have a positive market based impact on decarbonisation while maintaining reliability and affordability. And so I think now's the time to have that conversation. Since I was demoted as chairman for embracing this approach, you've seen entities from the Natural Gas Supply Association, EPSA, which represents gas generators, the American Petroleum Institute, the US Chamber of Commerce, all expressed some openness to this as a policy approach. And so, I think it's a sign of a real progress in this area and I'm hopeful that we can continue to have this conversation.
Paul Hughes:
You mentioned MOPR, Commissioner, do you might spending a few minutes just walking through MOPR and how the whole interaction with capacity auctions work, for those that are not as familiar with the topic, because I think it's one that's really important as it relates to wholesale electricity markets in the country?
Commissioner Neil Chatterjee:
It's the situation that I've been describing, this collision between state policy and FERC jurisdictional markets. So certain states in different regions around the country have taken to pushing policies that support their preferred resources. This has taken the form of nuclear subsidies or renewable portfolio standards and the like, and in some instances, there were states that took steps to prop up coal fired generation or self schedule generation. And so, this was causing a price suppression effect in the markets that FERC overseas, and so what we did, and it took different forms in different regions, it was called biocide mitigation in the New York ISO, we passed a program called Casper in New England, and then had a minimum offer price rule in PJM. In which this is a gross simplification of it, but basically what it was, was a market design change that indicated that resources had to bid in their true costs into the market.
Commissioner Neil Chatterjee:
And so that you couldn't take into account the impact of a subsidy in bidding into these competitive auctions, because what was happening was some subsidized resources were negative bidding and were bidding below because they had the benefit of the subsidy, and that was causing a price suppressive effect for non-subsidized resources. And so, that was the tough decision that we made to essentially state that entities had to bid in their true costs in these auctions.
Commissioner Neil Chatterjee:
There was real concern that states and consumers will be paying twice, and that there'll be huge cost impacts on consumers, that this would have environmental concerns because it would prolong the life of polluting plants that otherwise were non-competitive and should be shut down. And at least the last auction results in PJM, I think, were a clear example that those concerns were not legitimized. As I mentioned, renewables were not inhibited by these new market rules, coal actually declined in its dispatch in this last auction, and costs were at 10 year lows. But that's the argument around the MOPR or minimum offer price rule, is a FERC effort in PJM, in the Mid Atlantic to find ways to ensure we had accurate price signals when certain states were taking steps to subsidize their preferred resources.
Paul Hughes:
I guess my next question would be around generation resources. The environmental benefits of natural gas are relative, depending on whether it's being compared to coal or other renewables. What do you think is natural gas' long term role as part of our energy infrastructure?
Commissioner Neil Chatterjee:
I think natural gas is there's no question is going to play a critical role in maintaining reliability for years to come. And I don't think we should overlook the fact that natural gas and renewables have really come together to lead to the decarbonisation that's taken place in the US power sector. The accelerated deployment of renewables is taking place on the backs of natural gas. And we're at a point right now that I think last year there were 180 million Americans that were served by natural gas, that's more than the number of people who voted in the last election. Natural gas is and will continue to play a significant role in the US generation mix to maintain reliability and affordability. And what's interesting also is, I think there's an opportunity globally here as well.
Commissioner Neil Chatterjee:
Under my tenure at the commission, I think FERC approved, I believe it was 12 applications for liquefied natural gas export facilities. And I really believe in the potential for US natural gas to play a positive role globally, not just economically here in the US, not just geopolitically, our allies would love an alternative to Russian gas, in particular, and would love to be aligned with the US because of the certainty around our regulatory processes and having that counterweight to Russia. But there's also a positive environmental impact. If clean US LNG can displace more carbon intense sources of fuel, particularly in Asia, that's going to have a positive impact on reducing global carbon emissions.
Commissioner Neil Chatterjee:
And I think our allies have looked to the experience in the US power market where gas and renewables have enabled us to bring down costs, maintain reliability, and squeeze out carbon, and our allies want to learn from us on how to design their markets to pursue a similar approach. So not only do I believe natural gas will continue to play an important role here in the US, I think it'll play a key role globally as our allies move to decarbonize their grids in an affordable and reliable way as well.
Paul Hughes:
You can make a good point that this transition to clean energy is not one just in the US, it's a global story. So to the extent that we can export out not just resources themselves, but also our experience and best practices, hopefully that helps the whole transition globally. I guess that's actually a good segue into another generation resource, which is nuclear. That's one that's obviously ... there's different perspectives depending on where you are in the world and also depending on the time. What are your thoughts around the future of the US nuclear fleet?
Commissioner Neil Chatterjee:
I'm very concerned. Look, I'm a big believer in nuclear power. Nuclear power is our single greatest form of carbon-free base load generation. I was working in Congress at a time when there was real discussion about a nuclear renaissance in the US. As the focus shifted towards decarbonisation, we had 100 some odd nuclear plants in the US, and I remember Senator Lamar Alexander of Tennessee at the time, a close ally of Senator McConnell, so we worked very closely with him, he was pushing an effort to get to 200 nuclear plants in the US, so that we can continue to provide that clean, carbon-free base load power. And just a host of factors came together in a perfect storm, if you will, that have put tremendous pressure on nuclear power in the US.
Commissioner Neil Chatterjee:
One was the Fukushima disaster in Japan, brought into focus globally nuclear safety, and that led to some safety requirements and regulations that put cost pressure on nuclear plants. But also the declining cost of renewables and cheap, available, affordable natural gas have just put tremendous pressure on nuclear power to where it is very difficult for nuclear to compete in our competitive markets against these cheaper sources of fuel.
Commissioner Neil Chatterjee:
And so as we look to the future, there have been studies that have come out that have said, even a slight uptick in the retirement of nuclear plants in the US could have catastrophic impacts in terms of our ability to meet our carbon reduction goals. I'm worried about what the future of nuclear will be. I've looked at everything from the possibility of deploying small modular reactors, to next generation reactors, but at the end of the day, they're still costly and therein lies the challenge. And I hope that policymakers take a whole of government approach to see what we can do about the future of nuclear power, because I think it is essential, but there's no doubt about it that the nuclear industry is under tremendous pressure right now within markets.
Paul Hughes:
So shifting a little bit from the supply side to the demand side of the market, US electricity demand has been fairly flat for the better part of, what, the past two decades or so. Curious what your thoughts are on how you see that trending in the future. And also, what are some of the incremental opportunities for efficiencies as we looked at become less demanding in our electricity utilization?
Commissioner Neil Chatterjee:
Look, the fact that demand has remained flat, I think, is a sign that we've done an effective job maintaining reliability and affordability moving towards greater efficiency, and it's part of the reason behind the successful squeezing of carbon out of the US power sector. It'll be interesting to see how the demand curve is impacted going forward as there's a greater push towards electrification. I think there's a lot of excitement and interest right now around electric vehicles and what impact that could have on electricity demand. I think it's a lot more complicated when you get into questions around building electrification, but there's an interest in having these conversations right now, and I'm curious to see how those go and what impact those could have on future demand.
Commissioner Neil Chatterjee:
We actually had a technical conference on this issue at the commission a couple of months ago, and it was really interesting. And we were able to build a pretty robust record of examining these areas and finding greater efficiencies. One example that really stood out to me was school buses. That you have these resources that are used basically in the morning and in the afternoon, and then they're idle during the day, if we can electrify our school bus fleet and those buses can contribute power back to the grid during the time that they're not being utilized, not only will that help the economy by decarbonizing both the electricity sector and contributing to a reduction in emissions in the transportation sector, it could also help municipalities fill their budget gaps.
Commissioner Neil Chatterjee:
And so, as we move towards greater electrification of our economy, it'll be interesting to see whether that leads to an uptick in demand. Couple that with continued gains in demand response and energy efficiency, as we see more innovation and advancement in those areas, I'll be curious to see how those balance out against greater electrification.
Paul Hughes:
Understood. A second ago, Commissioner, you mentioned the importance around nuclear and how it contributes to our baseline capacity. What are your thoughts around baseline or base load capacity and renewables? I know we've talked a little bit about how storage is a technology of the future, but do you think there's potentially a disconnect between renewable generation and base load demand?
Commissioner Neil Chatterjee:
Yes. So this is a real issue, it's a serious issue, and it's one that I take almost full blame for screwing up. What do I mean by that? When I first was confirmed by the Senate to serve at FERC, I thought it was going to serve as a commissioner, but I was temporarily tapped to serve as chairman. And as during that time that I was serving temporarily as chairman, Secretary Perry was the Secretary of Energy, and he had proposed a notice of proposed rulemaking to FERC on this very issue of the future of base load generation. Secretary Perry was legitimately concerned that some of these market dynamics that I've described were putting pressure on traditional forms of base load power, ie. coal and nuclear, and that the premature retirement of those resources were going to lead to questions around resource adequacy, reliability, and affordability. And so he proposed a rule that would compensate these base load plants for some of their attributes, namely, the attribute of having on site fuel.
Commissioner Neil Chatterjee:
And this was really, really controversial. And where I screwed it up is I had just spent the last decade of my career working for Leader McConnell on behalf of his constituency in coal country, and I was legitimately worried about the future of these communities and how they would be impacted by the energy transition. And it was hard for me to make that transition from partisan legislative aide to independent regulator. And ultimately, I voted with my other four colleagues to reject Secretary Perry's proposal and to embark on a new examination of this question. But in doing so, in some of my rhetoric, and some of the ways that I approached that rulemaking, I injected a bunch of politics into this, and I'm 100% admit my culpability in this regard.
Commissioner Neil Chatterjee:
And what's unfortunate now is because of the manner in which I handled this rule, discussions around this have become politicized. And these are very real, real conversations. I was out in Hawaii in May, and there's a situation out there where there's a pretty substantial coal plant responsible for 180 megawatts that is scheduled to be shut down, I believe, in 2022, and the balancing resources needed to replace that lost generation haven't yet come online, yet the Hawaii legislature has a law in place that the PPA for that coal plant can't be extended.
Commissioner Neil Chatterjee:
So if even in Hawaii they're having challenges with maintaining reliability and resource adequacy in the face of retiring these base load plants, that just shows you it's an engineering issue, it's an economist issue, it shouldn't be a political issue. And I'm hopeful that after I leave the commission, that maybe my departure will enable folks to take a fresh look at these issues. And as I look back at my tenure, that's one of my absolute biggest regrets, is I handled the DOE NOPR like a politician would handle it, not the way a regulator should handle it. In my rhetoric, I was almost seemingly fighting for a constituency instead of evaluating the record that was before us and making a decision based on the law and the docket and not political influence. And I really screwed the pooch on that, and I think it has had a negative impact on having a responsible conversation around what is a really complicated and serious issue.
Paul Hughes:
I appreciate that candid response, not often does everyone admit to their own mistakes. But I guess, more importantly, right, you hinted at the solution going forward, who needs to drive that solution in addition to FERC?
Commissioner Neil Chatterjee:
I think, again, nationwide, it's got to be, if possible, and in the short term it's going to be a challenge, we've got to get politicians out of this and allow the energy regulators, and the engineers, and economists to sort out these tough questions. I think the more that politicians put their thumbs on the scale for their preferred constituencies and resources, the more we're going to have these challenges. I think we need the engineers to figure out how we can transition to a cleaner economy and decarbonize without compromising reliability and affordability. I'm sorry I keep coming back to this and beating this drum, but it is the core element of our future energy policy discourse.
Paul Hughes:
Understood. Well, one of the pillars that are the focus areas for FERC that we haven't talked about yet was cyber. Obviously, the Colonial Pipeline hack caught headlines over the past few months and brought up challenges around resiliency of our country's energy infrastructure. Talk to us about cyber threats, talk to us about how you think the government or public and private side have to address this to make us more resilient and protected from future attacks.
Commissioner Neil Chatterjee:
Look, it is the new reality of what we have to deal with in the energy sphere. The fact that while we have benefited greatly from innovation in the energy space, that benefit of innovation comes from the downside risk of increased vulnerability to cyber and physical attacks. And I've been pretty vocal on this throughout my tenure at the commission. And I think initially people thought I was being hyperbolic when I said that warfare in the 21st century had evolved to a point where now private sector companies find themselves on the front lines. And what do I mean by that? The Colonial hack showcased it. No country can match the United States of America militaristically. But in 21st century warfare, if a bunch of ransomware hackers in Russia can take down a pipeline, you saw the devastating impact that, that had in the US, it caused absolute chaos, and our adversaries noted that and acknowledged that. And so, it is incumbent upon all of us in the energy landscape to think through how to stay ahead of these ever evolving threats.
Commissioner Neil Chatterjee:
So there are regulatory gaps that I think have been identified that we need to work aggressively to fix. One of the things that I've been calling for, for some time now that I thought was odd, we at FERC have the authority and responsibility of evaluating applications for natural gas pipelines, but we do not have the authority over their security, that falls to TSA. Yes, the same TSA that's responsible for aviation safety, highway safety, rail safety, is also responsible for the safety of our network of pipelines. And TSA admitted that as recently as 2018, they only had six full time employees responsible for overseeing our entire network of pipelines. And I had called, along with then Commissioner, now Chairman, Rich Glick, for that authority to be moved to a sector specific agency with expertise. We call for it to go to DOE because we didn't want to make it seem as if we were making a jurisdictional power grab for FERC. And sadly, the Colonial incident highlighted the need for this focus in this area.
Commissioner Neil Chatterjee:
We at FERC, working with our counterparts at NERC are responsible for setting standards for the electricity grid, there isn't a similar type of approach on the pipeline side, and that leads to increased cyber and physical vulnerability. There are other gaps that have come about. I had the CEO of a pipeline company complaining to me that he was briefed at a high level by ODNI that his system was vulnerable, but he didn't have anyone within his company that had a high enough security clearance to even get briefed on where they needed to make investments to protect their system, that's because this is new to us in the energy space.
Commissioner Neil Chatterjee:
FERC has historically been a receiver of classified information, but we haven't had a seat at the table in the IC. We didn't even have a secure facility at the commission to house classified information. So we've made some progress in that area, we now have the ability to do one day readings for industry so that they can be briefed on the threats that we are being briefed on. We're working close conjunction with DOE, with DHS, with the Coast Guard, with the Defense Department, and it's going to take a whole of government approach to stay ahead of these threats.
Commissioner Neil Chatterjee:
We got to be nimble. I mentioned on the electricity side, we work with NERC to set standards, I think standards are the floor. I think that our adversaries are constantly evolving and we have to evolve to stay ahead of them, and that's just going to take a continued focus in this area. And so, sadly, soberly, this is going to be a huge focus for the energy sector going forward as this becomes part of our new reality.
Paul Hughes:
I'm a bit concerned but encouraged at the same time by your answer there. So I guess time will only tell in terms of how well prepared we are for future attacks. I think we have time for one more question, and this next question is actually very relevant for today's audience. Commissioner, how do you see the banking industry's role in terms of the transition to a low carbon future?
Commissioner Neil Chatterjee:
It's going to be really interesting. One of the things that my FERC experience has borne out is that these huge industries in this country, energy, telecom, banking, are all interwoven, our interests are all interwoven, but there's not a lot of familiarity across these sectors. Folks who are responsible for the reliability of our electric grid, we can't keep the grid operating without telecommunications, telecommunications can't operate without electricity. Yet, telecom and utilities are siloed and there's a lack of familiarity and understanding, not just substantively, but in terms of relationships, we don't even know who to pick up and call.
Commissioner Neil Chatterjee:
And I think over the past few years, there's a group called the Electricity Subsector Coordinating Council that's been run out of DOE, that's done a good job of breaking down some of those barriers. And they've also started to bring the banking sector and the financial services sector to the table, so we can increase that familiarity. And I think there's a critical role for the banking industry to play going forward. This gets a little bit outside of my area of expertise, but in terms of financing energy projects going forward, I mentioned we at FERC set ROEs transmission projects. I have a keen understanding that building out our energy infrastructure will require a lot of capital, and I think providing regulatory certainty is an area where the energy sector and the banking sector ... hopefully if we do our part here, that helps you all in terms of deployment of capital and making investments.
Commissioner Neil Chatterjee:
I'm going to get way over my skis here, but increasingly, there's a lot of focus about cryptocurrency, and data mining, and the energy intensive nature of these activities and what role that might play on electricity demand and decarbonisation. Again, I am not familiar enough with the financial services policies undergirding these issues, but we're starting to see it creep up in the energy sector.
Commissioner Neil Chatterjee:
One of the reasons quite frankly that when you all invited me to do this, why I was so eager to do it, is because I do think it is important for folks in the banking sector who don't have the bandwidth and shouldn't have the bandwidth to track what FERC is doing, to have some exposure to start to build those connections, to start to build those relationships. Just the language, I don't even pretend to understand the terminology in utilizing the banking and financial services policy space. Similarly, I'm sitting here and I'm just recognizing, reflecting over our discussion the past hour, I'm using terms like MOPR, and NOPR, and these energy specific, FERC specific terms, and it's rolls right off my tongue, but I understand that someone who doesn't follow the agency might not understand what I'm talking about. And I want to make a concerted effort through forums like this, during my remaining tenure at FERC and beyond, to help continue to build the relationships and the familiarity between the banking sector and the energy sector, not just amongst regulators, but amongst industry entities as well.
Paul Hughes:
Great. Well, Commissioner, I'm going to close it out there. Thanks again for your time today. It's been a real pleasure.
Commissioner Neil Chatterjee:
I've enjoyed it. It's been a great discussion. Thank you for the opportunity.
Paul Hughes:
Thank you.