Court Slashes FERC's Approval of New England's Winter Reliability Program // EIA: Expect New Oil and Gas Fields in the Gulf of Mexico // US Refining Capacity Plummets to Lowest Point in 8 Years
June 22, 2022
Court Slashes FERC's Approval of New England's Winter Reliability Program
A federal court just struck down part of the Federal Energy Regulatory Commission's approval of New England's winter reliability plan, which involved paying some power plant owners to keep three days of fuel on-site for harsh winter conditions.
"In a 3-1 vote, FERC in 2020 approved ISO-NE’s IEP, a program designed to steer about $150 million a year to certain types of power plants in New England during the winters of 2023-24 and 2024-25," reports Utility Dive. The program was meant to act as a stop-gap to maintain reliability for the next two winters until ISO-NE figured out a market solution for reliability issues.
"FERC Chairman Glick dissented in the decision over IEP payments to nuclear, coal, and hydropower generators without evidence they would change the way they operate," Utility Dive continues.
“Handing out money for nothing is a windfall, not a just and reasonable rate,” Glick said at the time.
"FERC’s decision was appealed by a group of municipal utilities; the New Hampshire Office of the Consumer Advocate, the New Hampshire Public Utilities Commission, and the Massachusetts attorney general; and, the Sierra Club and Union of Concerned Scientists."
The federal court agrees with Glick and the rest. Rod Adams said that the decision was like "ruling that football teams cannot pay stars more money than practice squad players because extra money would not change star behavior or work patterns."
In a 2019 interview, the doyens of energy deregulation said that one of the biggest challenges electricity restructuring was going to pose was capacity investment. That's still true. Here's what one of them, Paul Joskow, warned:
"I think some of these challenges have been hidden by the fact that there is this large stock of existing dispatchable fossil generation. Basically wind and solar could free ride on them, in a sense. They provided the backup services. They were getting paid enough to cover their operating costs, but not much in the way of covering what would have been their ongoing capital costs. They’re exiting the market slowly. At some point, enough will exit the market where this issue is going to have to be confronted. How are we going to incent storage backup generation to come into the market given the current structure that we have? The current structure is unlikely to work."
Perhaps we should ask ourselves not whether paying for reliability makes for an unfair windfall but whether or not paying for unreliability is a cost too high. Who pays when the lights go out?
EIA: Expect New Oil and Gas Fields in the Gulf of Mexico
The Energy Information Administration expects that 9 new oil and gas fields will be added to the Gulf of Mexicon this year. The EIA forecasts "that new fields coming online in 2022 will account for 5% of natural gas production and 14% of crude oil production in the U.S. Federal Offshore Gulf of Mexico (GOM) by the end of 2023."
But we shouldn't get too excited. The news comes with caveats:
- The EIA does not expect the additional capacity to "sustain crude oil production levels similar to the end of 2021."
- The new capacity won't even lift the needle on production in the Gulf of Mexico
- The EIA expects Gulf of Mexico "natural gas production to continue its three-year decline; annual GOM production last rose in 2019."
- Declining production from existing Gulf of Mexico fields is greater than the increase in production from new fields for natural gas and is equal for crude oil.
They expect the larger fields like Argos, King’s Quay, and Vito to start production in 2022. "Each has a peak production capacity of 100,000 barrels of oil equivalent per day (MBOE/d) or more, and each is the result of a focused effort to lower the costs of field developments."
US Refining Capacity Plummets to Lowest Point in 8 Years
Two days before Energy Secretary Jennifer Granholm sits down with America's oil refining execs, refining has hit an 8-year low.
SPG reports the following reasons for the closures that have produced this dip:
- hurricane damage
- Covid's economic impact
- high cost of operations
- "the inability to complete sales"
- weak demand forecasts
- "from conversions to produce more renewable fuels"
America hasn't built a major refinery since the late 1970s. Granholm's meeting with the industry comes at moments of extreme vulnerability for both sides--the Biden administration is in a tight spot with rising energy costs and high inflation moving into the mid-terms, and, on the whole, the fossil fuel industry feels beleaguered, undervalued on, and pushed to its limits.
Like what you're reading? Click the button below to get Grid Brief right in your inbox!
- Roger Pielke Jr. has some good climate news. Good news is a rarity these days, so it's worth reading for that alone. In his most recent Substack, he sums up his talk at the International Institute for Applied Systems Analysis.
- BlackRock is launching an energy security and transition program. The program is focused on "energy security and helping polluting companies to become greener as the world’s largest money manager adjusts to new demands on climate change."
- The third unit at Barakh Nuclear Power Plant in the United Arab Emirates is ready for fuel loading.
Word of the Day
A measure of the efficiency of converting a fuel to energy and useful work; useful work and energy output divided by higher heating value of input fuel times 100 (for percent). (source)
Frank Zane's famous vacuum pose.