FERC Nominee Ronald Binz: Another Anti-Energy Czar?

On June 27, 2013, President Obama nominated renewable energy advocate Ronald Binz to head the Federal Energy Regulatory Commission. This article discusses the agency’s role, its recent history, and the implications of a Binz chairmanship. The Senate has yet to confirm the nomination.

Authorities of the Federal Energy Regulatory Commission (FERC)

By its own description, the Federal Energy Regulatory Commission (FERC) is an “an independent agency that regulates the interstate transmission of electricity, natural gas, and oil. FERC also reviews proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines as well as licensing hydropower projects.”

FERC is a medium-sized agency (by government standards) with 1,500+ employees and a $300+ million budget, and it tends to stay out of the headlines. Its relative obscurity could be due to its technical nature, general lack of infighting (as opposed to, say, the Nuclear Regulatory Commission), and bipartisan structure (of the five acting commissioners, only three can belong to the same political party). As an agency, it is also independent of the administration in the sense that it does not report to the president; rather, FERC receives external checks and balances from all three legs of government.

The executive’s control over FERC is limited to the president’s ability to nominate new commissioners and designate a chairman. Congress can pass a new law repealing FERC’s jurisdiction altogether or, more likely, give it significantly more authority (as the Energy Policy Act of 2005 did). The most immediate check on FERC’s power is through the courts, however, where individual FERC orders can be remanded back to the commission in cases where the agency oversteps its authority, or if it reaches an unreasonable decision.

Within FERC, the chairman has some leeway in establishing new policies – he not only has the bully pulpit but also establishes a set of top initiatives to be addressed by new “rulemakings.” Proposed rules stemming from the FERC rulemaking process can and frequently do turn into mandatory FERC orders. In the case of electricity, a new mandatory FERC order directly affects over 70 percent of the electricity used in the US.[1]

President Obama’s nomination of Ronald Binz of Colorado as the next FERC chairman thus deserves some scrutiny as the Senate starts the confirmation process.

FERC In the Obama Era

The departing FERC chairman, Jon Wellinghoff, had been a commissioner since 2006 and was designated chairman by President Obama in 2009. In terms of policy, Wellinghoff reached the high water mark on energy central planning, rehashing Carter-era demand-side management strategies and pushing through costly renewable-friendly rules. To this point, instead of advancing initiatives such as affordable electricity and equal treatment of renewable power versus other sources of electricity generation, Wellinghoff’s top priorities were “smart grid,” demand response, integration of renewables, and Order No. 1000 – transmission planning and cost allocation.

Of these top initiatives, transmission planning is noteworthy in that it can be pro-energy and pro-consumer if done correctly. The goal of efficient, effective transmission planning should be to reduce the cost of operating the electrical grid, and to provide a level playing field where power sources can compete freely.  Unfortunately, FERC’s transmission planning Order No. 1000 will not reduce costs or provide a level playing field, but instead will socialize the transmission costs of distant and intermittent energy sources.

Essentially, Order No. 1000 hides the true cost of renewable energy mandates by requiring that regional and interregional transmission plans (1) include new projects driven by “public policy,” and (2) do away with “participant funding,” which means that transmission costs must be “allocated” or socialized over a broad region.

To make the above point more concrete, the Edison Electric Institute’s March 2013 report Transmission Projects: At A Glance found that, of the $51.1 billion of transmission projects they identified, “projects supporting the integration of renewable resources represent approximately $38.7 billion (76 percent).” The Brattle Group estimated that the total cost of electricity transmission investments needed to meet state-level renewable energy mandates was between $50 billion and $100 billion. Hence the excitement from renewable energy advocates over Order No. 1000 – a large portion of these multi-billion-dollar investments will now be quietly socialized in the transmission planning process.

There is more to this story, however, than the substantial costs. Order No. 1000 may also highlight FERC’s lack of independence under Wellinghoff’s chairmanship. As the New York Times wrote in 2009, “Wellinghoff’s chances were boosted by the fact that one of the most powerful men in D.C. backed him. Fellow Nevadan and Senate Majority Leader Harry Reid (D) recommended Wellinghoff both to become a commissioner and then to be chairman.”

This prior relationship may explain how Order No. 1000 came to be one of FERC’s policies. Order No. 1000 suspiciously mirrors Senate Majority Leader Harry Reid’s Clean Renewable Energy and Economic Development Act. Reid’s bill, which was aimed at socializing the cost of transmission lines for renewables—the building of which has surged in Reid’s state of Nevada—died in committee in 2009. However, the following year, Wellinghoff initiated the Order No. 1000 rulemaking, one that would ultimately accomplish Reid’s goal of advancing renewables without the burden of the legislative process.

Ronald Binz: More of the Same?

Some renewable energy advocates and perhaps Ronald Binz himself may see Wellinghoff’s close relationship with influential policymakers as a very successful blueprint for future FERC leadership. Yet, it is this neglect for transparency and willingness to circumvent the legislative process that is precisely why the public should be skeptical about Ron Binz. FERC was intended to be an independent agency; if Binz follows Wellinghoff’s lead and uses the rulemaking process to implement partisan policy, FERC may lose the ability to make decisions that are truly in the best interests of everyone who pays a utility bill.

Moreover, there is enough in Binz’s background in the utility sector to cast doubt on his impartiality as a regulator. Appointed by Colorado Governor Bill Ritter, Binz was chairman of the Colorado Public Utilities Commission from 2007 to 2011. On his consulting website, Binz touts his leadership in the Colorado PUC in “implementing the many policy changes championed by the Governor and the legislature to bring forward Colorado’s “New Energy Economy.” According to the Independent Institute, however, Binz left a legacy of flouting due process and enforcing a costly anti-energy agenda. In 2010, seven Colorado State Senators, along with the Colorado Mining Association, sent a letter to Governor Ritter demanding that Binz be removed from deliberations on implementing the Clean Air Clean Jobs Act, as records show that he helped write the law. The Colorado Consumer Coalition had this to say upon Binz’s departure from the Colorado PUC:

“Binz of course was the controversial PUC chair whose tenure included approval of two Xcel Energy rate increases totaling $240 million for the utility’s 1.4 million Colorado ratepayers. During Binz’s time at the helm, the PUC also was accused by a number of state lawmakers of placing the energy agenda of former Gov. Bill Ritter—including mandated conversion of some power-generation facilities to costlier energy sources—above the interests of ratepayers. Binz drew fire for actually helping draft the 2010 legislation that implemented the fuel-switching policy despite the fact that, as PUC chair, he also would be the one who enforced it. Critics cried foul at the apparent conflict.”

An op-ed in the Denver Post also noted that, because of his frequent travel and appearances at symposia, it was “difficult for division staff to meet with him and ensure his preparedness for meetings and hearings.” Controversial, anti-consumer, aloof—what does President Obama see in him? Perhaps it is loyalty to the mission.

Fitting into Obama’s Climate Plan

Like the Reid bill and FERC Order No. 1000, the Obama Climate Action Plan stresses the need for new electricity transmission to accommodate remotely-sited renewable energy. Under a section titled Expanding and Modernizing the Electric Grid, the report states, “upgrading the country’s electric grid is critical to our efforts to make electricity more reliable, save consumers money on their energy bills, and promote clean energy sources.”

Binz has a terrible track record when it comes to making electricity more reliable and less expensive, but there is no second-guessing his commitment to renewable energy—an aspect of Binz’s resume that clearly appealed to the president. The Obama administration has openly declared its commitment to bringing large amounts of intermittent power like wind and solar to the grid, and FERC policy is an essential component to ensuring that this costly integration will take place.  Unfortunately, as these modifications force more intermittent power onto the grid, they will also make electricity less reliable and more expensive. And while FERC pays lip service to the concept of a “level playing field,” under Wellinghoff it has made rules like Order No. 1000 that unduly benefit intermittent renewable sources at the expense of both reliable sources and consumers. Indeed, the term “level playing field” has become Orwellian doublespeak. The FERC website even mentions “all resources” and then singles out renewables:

“The Commission will continue to pursue market reforms to allow all resources, including renewable energy resources, to compete in jurisdictional markets on a level playing field.”

Binz seems poised to deliver on the FERC-related portions of the Obama Climate Action Plan by continuing to implement FERC rules that favor transmission-dependent renewable energy at everyone else’s expense. And as discussed above, new FERC initiatives can accomplish just as much as new legislation without all the fuss, which is a perfect fit for the most transparent administration in history.

What Direction from Binz as FERC Chairman?

Mr. Binz’ current position is Senior Policy Advisor for the Center for the New Energy Economy (CNEE), a program at Colorado State University. CNEE’s central mission, which is to advance the clean energy economy,[2] appears to align with Obama’s statement that “a low-carbon, clean energy economy can be an engine of growth for decades to come.”

Energy economists may find such language troubling, however, because the growth of the “clean” (read “expensive” or “unreliable”) energy economy adds no real value. Rather, it comes as a result of the administration’s intentional destruction of coal power. And, unfortunately for every American with a power bill, Obama nominated an “anti-coal crusader” to head FERC, which means he likely cares more about advancing the renewable energy industry than keeping electricity costs reasonable.

It remains to be seen what Binz’s top initiatives will be, but based on his time in Colorado we can expect them to be pro-renewable and expensive. If he follows Wellinghoff’s example, he may even pick up his supporters’ failed legislation and run with it. He may also try to turn the whole country into a large-scale version of Boulder, Colorado’s useless and expensive SmartGridCity. In an ominous remark, the CEO of Xcel Energy, the utility behind SmartGridCity, said Binz is “uniquely qualified to address the diverse set of issues facing utilities in the US, from grid modernization to carbon regulation.”

If Binz was nominated to the FERC chairmanship to raise electricity rates and advocate for one-sided, pro-renewable policies, then yes, he does appear to be uniquely qualified to do that.

Conclusion

As we observed with the Wellinghoff chairmanship, FERC is not immune to partisan politics despite its bipartisan structure. When Obama selected renewable energy advocate Ronald Binz as the next FERC chairman, he prioritized the interests of the renewables industry above those of the American people. Under Binz, FERC will likely continue its slide into partisan politics and costly support of renewables.