Daily on Energy: A coal-state Republican energy regulator tells the fossil fuel industry it will need to adapt

Chatterjee, a Republican Kentuckian from coal country who used to advise Mitch McConnell on energy policy, is tackling the issue of helping fossil fuel workers despite it not being in the direct purview of FERC, an independent agency that oversees interstate power markets and approves pipelines and liquified natural gas export terminals.

“As market force drives this transition, communities will have to adapt,” Chatterjee told Josh in an interview this week.

Chatterjee has a particular sympathy for the struggles of coal, which he acknowledges he has had to set aside in his FERC role, given the agency cannot consider factors like potential job losses in its decisions.

In October, he hosted a conference in his home town of Lexington called EnVision, which brought together coal industry representatives, utility regulators, consumer advocates, clean energy groups, and more to discuss challenges to workers caused by the transition of the energy system away from fossil fuels.

“I wanted people to understand we don’t cling to coal as Kentuckians because we cling to the past or because we are dismissive of environmental concerns,” Chatterjee said. “It is part of our cultural economy and lifeblood. I wanted to bring together leaders from the clean energy space so Kentuckians can see opportunities for themselves in the clean energy transition and to present options for what they can be offered.”

Chatterjee said coal could still have a role on the future power grid in certain parts of the country, noting Kentucky still generates three-fourths of its electricity from coal.

While his comments focused on coal, Chatterjee’s recognition of the need to expand opportunities for fossil fuel workers is a striking contrast from industry groups that have dismissed the concept.

Mike Sommers, president and CEO of the American Petroleum Institute, recently said it’s “pretty insulting” for Democrats to suggest oil and gas workers harmed by policies to reduce fossil fuel use could receive assistance to transition to other jobs in clean energy, noting the high pay of fossil fuel employees.

“We can’t take these issues into consideration in overseeing power markets at FERC, but that doesn’t mean we can’t have a broader conversation as society on what happens in these communities,” Chatterjee said.

Read more of Josh’s conversation with Chatterjee below.

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FERC ORDERS COMBATING STATE CLEAN ENERGY POLICIES ‘NOT POLITICAL’: Chatterjee dismissed critics who say FERC’s recent proposed orders targeting state-issued clean energy subsidies are intended to boost the fortune of fossil fuels.

“This was not political,” Chatterjee said. “This was not about favoring one fuel source over another. This was about subsidies and trying to ensure appropriate price signals in our markets that are being dictated by state policy actions.”

FERC’s Republicans have approved price floors in New York, New England, and in PJM — the nation’s largest power market — that aim to combat below-cost bids from subsidized renewable and nuclear.

Clean energy advocates have said the orders would result in higher payments to fossil fuel plants that will encourage companies to build more gas and to keep online coal, undermining state policies to combat climate change.

Chatterjee, however, said it’s too early to “speculate” on whether the orders would harm the progress of wind and solar, and further damage nuclear power. He argued clean energy is “at a point where it can compete without subsidies, mandates, and regulations.”

“Let’s see how the process plays out,” he said. “Let’s run the auctions and see what happens.”

ACTION TO BOOST STORAGE COULD HELP ENABLE 100% RENEWABLES: Chatterjee said that FERC’s order in 2018 to remove barriers for energy storage to participate in power markets could be a major factor in enabling a 100% renewable electricity future.

“We could look back 10 years from now and I dont think it’s hyperbolic to say [it] could be the single most significant government action taken to move forward the deployment of clean energy,” Chatterjee said. “We need that technology breakthrough to achieve 100% renewables.”

Chatterjee also cited the importance of building more transmission to deliver wind and solar from rural producing areas to population centers.

Though FERC does not have authority to directly site transmission projects, the commission is reviewing its incentives policy to encourage companies to build them.

“Transmission is essential to the grid of the future,” Chatterjee said. “For us to have that flexible, reliable grid of the future, we need the right transmission policies in place.”

MORE LNG EXPORTS WILL REDUCE GLOBAL EMISSIONS: FERC’s progress in clearing a backlog of applications for LNG export projects will allow developing countries to replace dirtier fuels, Chatterjee claimed.

“The reason U.S. LNG exports will have a net carbon reduction benefit is based on evidence in our own country,” Chatterjee said, noting FERC has approved 11 LNG terminals in the past year. “We have seen firsthand the effect of moving to a mix in the power sector led by gas and increasingly more affordable renewables. Exporting that model with clean U.S. LNG displacing more carbon intensive sources of fuel in Asia in particular will have a positive global carbon reduction impact.”

INTERIOR GULF LEASE SALE TAKES ‘TOUGH HIT’ FROM OIL PRICE CRASH: The Interior Department moved ahead with a large offshore oil and gas lease sale in the Gulf of Mexico Wednesday despite the oil price crash, and bidding took a “tough hit” as a result.

Just 22 oil companies submitted bids to buy drilling rights in the Bureau of Ocean Energy Management’s lease sale this morning, which offered more than 78 million acres across Texas, Louisiana, Mississippi, Alabama and Florida. The sale generated $93 million in high bids, the lowest total for any U.S. offshore auction since 2016.

“While bidding did take a tough hit, it could have been substantially worse,” said Erik Milito, president of the National Ocean Industries Association.

Mike Celata, director of BOEM’s Gulf of Mexico office, told reporters on a press call that the price drop “may have had an effect on the number of leases.”

But he stressed that companies make decisions with the long-term outlook in mind. He noted the $251 bid per acre for deep water drilling in the Gulf was the highest level since August of 2017. “From that aspect, we did fairly well,” Celata said.

HOUSE REPUBLICANS PLOT ‘NATIONAL RESPONSE’ TO OIL PRICE CRASH: Rep. Garret Graves of Louisiana is calling on the Trump administration to implement a suite of “market-based” measures to help the oil industry recover from the historic price crash.

“It is in the national interest to sustain the oil and gas industry to fend off this economic warfare coming from nation-states and a decrease in demand globally because of coronavirus,” Graves told Josh in an interview Tuesday. “There needs to be a national response. We can’t just dump this all on the lap of industry.”

Graves said he planned, with other Republican Gulf Coast allies, to ask the Interior Department to use its authority to issue a short-term reduction in the royalty rates that oil and gas companies pay for drilling on federal lands and waters.

More help, but no ‘bailout’: Graves is also pushing Congress to appropriate money to implement President Trump’s order for the Energy Department to buy low-priced oil to restock the nation’s emergency Strategic Petroleum Reserve. Graves is calling for Congress to authorize the agency to suspend planned sales of oil from the SPR beyond this fiscal year, which expires Sept. 30. And he is advocating for Congress to authorize the creation of an emergency reserve stock of gas, in addition to oil.

Combined, the measures stop short of a wholesale “bailout” to help oil and gas companies, in contrast to what Republicans have envisioned for other industries such as airlines and hotels to limit damages from the coronavirus.

“No one wants to give away the farm,” Graves said. “I hope some of the market-based proposals we throw out are sufficient. But it would be a mistake for us to take anything off the table.”

US OIL GIANT CONOCOPHILLIPS TO CUT SPENDING 10%: Another U.S. oil and gas major, ConocoPhillips, is cutting spending due to the price crash.

ConocoPhillips announced Wednesday it is cutting $700 million from its planned capital spending this year, a 10% decrease.

The company is also reducing its share buyback program to a quarterly run rate of $250 million beginning in the second quarter, from the previous rate of $750 million.

“Our industry is clearly experiencing an unprecedented event brought about by simultaneous supply and demand shocks,” said Ryan Lance, CEO of ConocoPhillips. “The actions we are now taking reflect an acknowledgement of current events as well as uncertainty around the timing and path of a recovery.”

ConocoPhillips follows fellow U.S. oil and gas giant Exxon Mobil which announced Monday it will make “significant” spending cuts.

U.S. oil service company Halliburton also said Wednesday it plans to furlough about 3,500 employees in Houston for 60 days, Reuters reported

OIL PLUNGES TO 18-YEAR LOW: The U.S. West Texas Intermediate crude price dropped below $25 per barrel Wednesday morning for the first time in almost 18 years.

Oil is now cheaper than anytime during the global financial crisis, Bloomberg reported

CALIFORNIA COMPANY PROPOSES FIRST ADVANCED NUCLEAR REACTOR: California-based company Oklo submitted a license application for an advanced micro-sized nuclear reactor to federal regulators on Tuesday.

Oklo’s proposal represents the nation’s first application for a non-light water reactor to the Nuclear Energy Regulatory Commission. The U.S.’s current fleet of reactors are larger light water units.

Oklo’s Aurora advanced fission reactor would be able to produce 1.5 megawatts of power without needing to refuel, and also has the ability to turn nuclear waste into zero-carbon energy. This small amount of electricity could be deployed to remote areas dependent on fossil fuels, advocates say.

“This totally changes the paradigm for advanced nuclear,” said Rich Powell, executive director of the conservative clean energy group ClearPath. “Oklo is paving a way for how small modular reactors and microreactors get built and begin producing clean energy.”

NOW’S NOT THE TIME FOR A HANDOUT TO OIL, DEMOCRATS TELL TRUMP: Public investment should instead focus on wind and solar energy, which aren’t susceptible to “commodity price swings” like the oil industry, a group of 20 House Democrats told Trump in a letter Tuesday.

In the letter, led by California Congresswoman Nanette Diaz Barragán, Democrats say the oil industry has been gathering debt for years as they expanded drilling. Dramatic drops in oil prices, driven by a price war between Russia and Saudi Arabia and amid fallout from the coronavirus spread, have exposed the industry’s “risky investments,” they write.

BONUS ON BAILOUTS: Eight Democratic senators led by Rhode Island’s Sheldon Whitehouse urged Trump in a letter Wednesday that any assistance for airlines or other travel industries like cruise ships hurt by the coronavirus be paired with requirements that those companies reduce their environmental footprint. Not doing so “would miss a major opportunity to combat climate change and ocean dumping,” the senators write.

It isn’t clear exactly what those obligations would look like, but the senators suggest carbon emissions reduction requirements for airlines and cruise ships. Whitehouse, in a tweet Tuesday, also floated carbon offset requirements.

Any trade-off involving emissions reductions could echo the 2009 bailout of the U.S. auto industry. As part of that $80 billion bailout, automakers made a deal with the Obama administration that they would sign onto stricter fuel economy standards, which environmental advocates say have been one of the most consequential emissions-cutting policies to date.

PARSING THE EFFECTS OF A MODEST CARBON FEE: It would reduce emissions in the near term, but the Energy Information Administration found only one of three scenarios they analyzed — a $35 per ton fee — kept emissions from rising again down the road.

And in all of the scenarios, which also included $15 per ton and $25 per ton fees, all of which increased 5% per year through 2050, energy-sector emissions generally leveled off in the late 2030s, according to a note Tuesday from EIA, synthesizing results from its latest Annual Energy Outlook.

That’s because while a carbon fee would dramatically reduce U.S. coal-fired power, it wouldn’t have as substantial or as immediate of an impact on natural gas, which would increase in the near term under a carbon fee as utilities swap it for coal. A carbon price would have even less of an impact on petroleum, which EIA says is “least responsive” to such fees and currently has few substitutes in the transportation and industrial sectors.

US BANKS ARE BIGGEST FOSSIL FUEL FUNDERS: Out of the private banks that have spent the most on fossil fuels since the Paris Agreement was inked, major U.S. banks fill the top four spots, according to a new report from several environmental groups.

JPMorgan Chase has by far invested the most in fossil fuels in the last four years (more than $268 billion), 36% more than the second biggest funder, Wells Fargo, finds the report released Wednesday by Rainforest Action Network, Oil Change International, Sierra Club, and others. Citi and Bank of America closely follow in the third and fourth spots. U.S. banks are also the biggest investors in fracking, per the report.

Overall, the 35 private banks tracked by the environmental groups poured $2.7 trillion into fossil fuels from 2016 to 2019, a massive number the advocates say proves the climate and sustainability policies banks have begun to put in place aren’t doing nearly enough.

The Rundown

Wall Street Journal Gasoline is cheap. Americans can’t take advantage.

Bloomberg The Saudis have a high-stakes plan to win the global oil war

New York Times Watch the footprint of coronavirus spread across countries

Washington Post Oil and gas companies want to drill within a half-mile of Utah’s best-known national parks

Reuters EU should scrap emissions trading scheme, Polish official says

Calendar

THURSDAY | MARCH 18

House is out. Senate is considering coronavirus legislation.