The Role of the Regulator
The role of the environmental regulator
is simply to assess whether rules are being followed and whether companies are in
compliance. If not, then violations are given. If problems are not fixed in a
certain amount of time, then fines or other penalties are applied. Individuals
who regulate would ideally offer some level of third-party separation and
strive to be unbiased. Individuals vary in their political orientations and in
their personal assessments of the industries they regulate. Some regulators
have previously worked in the industry they regulate. Others may support
environmental organizations that are firmly opposed to regulated
industries. Often those who have worked in an industry they regulate know quite
a bit about processes and points of possible problems. They know where
violations are likely to occur or even how they might be hidden. They may be
familiar with people in the industry from conferences and other events. Those who
have never worked in the industry they regulate are at a disadvantage when it
comes to being well-informed. Some regulators may adopt an adversarial
approach. On one occasion I witnessed an irate and armed official from the U.S.
Fish and Wildlife Service threatening to arrest people at a well site because
of a leaking drilling mud pit after days of heavy rains. After the incident the
company operating the well went to a closed-loop drilling system which
eliminates pits for drilling mud, using metal tanks instead. On another
occasion, I witnessed a local official complaining that the septic systems on a
well site were not in county compliance and threatening citations. I’m not sure
how that was resolved but surely it was a case of the well operator being
unaware that it was not in compliance with the county and possibly it was a
situation where the official sought to exert statutory authority over something
they did not support.
The role of the regulator is
to check for violations but that does not mean there should be any kind of ill
will between parties. Integrity of all parties should be strongly encouraged. Corruption
among regulators has not been uncommon enough in the past. Corruption in
general is a huge problem around the world, so much so that it is
institutionalized in some places. Nevertheless, it should be rooted out and
penalized in favor of basic rule of law and compliance. In the past, it was well-known that some state oil and gas inspectors could be bribed to approve
permits. This is of course unacceptable and should never be tolerated. There
was a water testing company that routinely faked water tests for coal companies
for many years in West Virginia before getting caught. Those are criminal
violations that should be penalized. Corrupt regulators should not be
tolerated.
Regulation by Commission
Several types of energy and utility
regulators make rules by vote in commissions. The Nuclear Regulatory
Commission, the Federal Energy Regulatory Commission (FERC), and various state
Public Utility Commissions (PUCs) are examples. The FERC is required to have
five members on the commission appointed by the president but consisting of
three members of the ruling party and two members of the non-ruling party,
after the current terms end. Sometimes there are less than five due to terms
and appointments. Commissioners must first serve out their remaining terms
before new ones are appointed. The FERC will switch to a Democratic party
majority in June 2021 when the term of Republican-appointed Neal Chatterji ends.
These commissions are involved in lots of rulemaking and there is likely to be
much more activity in response to pushes to decarbonize. Accelerated
decarbonization especially will lead to disruptions via jurisdictional disputes.
The need to vastly increase in a short time period US energy transmission via
new power lines and associated equipment will increase commission disputes as
well as NIMBY complaints. An example of how the FERC works and their jurisdiction
from Wikipedia:
“The
Federal Energy Regulatory Commission (FERC) is the United States federal agency
that regulates the transmission and wholesale sale of electricity and natural
gas in interstate commerce and regulates the transportation of oil by pipeline
in interstate commerce. FERC also reviews proposals to build interstate natural
gas pipelines, natural gas storage projects, and liquefied natural gas (LNG)
terminals, in addition to licensing non-federal hydropower projects.”
“FERC
is composed of five commissioners who are nominated by the U.S. President and
confirmed by the U.S. Senate. There may be no more than three commissioners of
one political party serving on the commission at any given time.”[1]
Federalism, Cooperative Federalism,
the Commerce Clause, and State Regulation
Former Trump advisor Steve
Bannon often talked about the “deconstruction of the administrative state.” That
was probably a statement of the common conservative goal of reducing the size
of government, popular since Ronald Reagan first championed the idea. Regulatory
agencies are administrative agencies. Trump’s first controversial EPA chief
Scott Pruitt was dedicated to limiting the reach and scope of the
administrative agency he headed. Their goal was obviously to decrease the power
of the EPA and the federal regulatory apparatus in general, presumably in favor
of state rules. Pruitt also touted the regulatory style of cooperative
federalism which simply refers to how state and federal governments share regulatory
authority. Democratic Senator and environmental hawk Sheldon Whitehouse called
Pruitt’s style more like ‘cooperative corporatism.” Federalism refers to a
principle whereby legal sovereignty is shared between federal and state
governments. Local matters are delegated to local authorities, ie. states.
State rule is usually the default, except where federal law is established by
the Constitution. Federal law may preempt state law. This often occurs in cases
involving interstate commerce and is known as the commerce clause. Disputes
over jurisdiction may go to the Supreme Court where they may rule in favor of
the federal government or the state(s). Cooperative federalism is not aligned
to political parties, conservatives or liberals, at all, although liberals tend
to favor more federal control in many cases and conservatives tend to favor
state control in many cases. Cooperative federalism is simply regulatory
cooperation among state and federal governments. Typically, states must meet
minimum federal requirements on most regulations if there are federal
requirements. It can be a useful way to divide regulatory power and can work
well in some cases, and poorer in others. Federal agencies are often not deployed
in states and further away from where activities to be regulated are located.
Federal agencies are also understaffed as regards people devoted to specific
regulatory activities. States are often much better prepared to regulate
activities in their vicinity that may or may not happen in adjacent states.[2] [3]
Examples of the common sense
of the commerce clause include interstate pipelines which are mostly regulated
at the federal level. States do get to review, sign off, and make
recommendations before construction. After a few oil train accidents with fires
and explosions and one with several fatalities, a federal rule was made for rail
car specifications, particularly to accommodate higher vapor pressures common
to Bakken oil from North Dakota. Such a rule only makes sense as a federal rule
since it involves interstate commerce and would be highly impractical as separate
state rules. Trucking solid waste from one state to be disposed of in landfills in
another state brought about many cases. In most cases courts including the U.S.
Supreme Court upheld the commerce clause, saying denying waste from other
states is a form of protectionism. In a few cases, courts sided with local
ordinances so some specific localities were able to keep out waste. A recent
case where the commerce clause may come into play involves legal challenges to
the Millennium Bulk Terminals coal export project which seeks to export coal
from Wyoming and Montana through a proposed export terminal in the state of
Washington. They claim blocking the project impedes their ability to sell coal
to Asia. Washington state invoked the Clean Water Act which was their reason
for not issuing needed water permits. The case is being referred to the Supreme
Court and could be an early case with a conservative majority court with three
Trump appointees. A ruling could affect other interstate projects where individual
states have denied permits such as pipelines.[4]
In the case of oil and gas
activities, states are far better prepared to regulate and typically are given
jurisdictions. States with oil and gas resources have their own oil and gas
divisions, sometimes as part of their Department of natural resources and
sometimes as a part of their Department of Environmental Protection. The state
of Texas is unique in that its oil and gas regulator is folded into the Texas
Railroad Commission. Though the regulatory structures of the states are
different, their functions are similar.
Cooperation between the federal government and state governments in
regulation occurs and can be useful. For example, the EPA regulates class II wastewater
injection wells for brine and wastewater from the oil and gas industry in some
states. Other states come up with their own criteria which is basically reviewed
and approved by the EPA if it meets their minimum standards, and if so, the states
oversee all regulation of the injection wells. Wastewater injection wells in the
state of Ohio are regulated by the state while those in nearby Pennsylvania are
regulated by the EPA. Ohio also has very significant geological advantages for
these wells compared to Pennsylvania. Ohio has many porous and under-pressured
reservoirs that will accept large amounts of liquids. Pennsylvania’s reservoirs
are typically over-pressured so cannot accept large amounts of water. There are
some depleted gas reservoirs there that can be converted to wastewater storage but
there has been much opposition fed by environmentalists. The EPA also has a
much slower timeline for approving or denying projects. Thus, there are very few
injection wells in Pennsylvania compared to Ohio and that is why many
Pennsylvania well operators dispose in Ohio. It is not that they are “dumping”
their waste in Ohio to save money as environmentalists often claim. It should
also be noted that well operators in the Marcellus shale play in Pennsylvania
have the highest rates of frac water recycling and reuse in the country. Broad
analyses of future wastewater injection into Ohio’s injection reservoirs suggest
that Ohio can easily accept the volumes of wastewater predicted from the
industry far into the future with just a small addition of new injection wells.
A related issue of importance
that requires prudence is induced seismicity. Oklahoma was the epicenter of
induced seismicity due to wastewater injection wells. This occurs in Oklahoma,
Texas, and Ohio due to injections into deeper reservoirs of Cambrian or
Ordovician age that may intersect basement faults. Oklahoma is unique in that
many conventional wells also produce lots of water along with hydrocarbons. The
wells injecting into the deeper formations need to be more closely monitored
and shut down if seismicity occurs. This has happened. The issue of induced
seismicity has come to be much better understood in recent years. Ohio and
several other states have developed seismicity networks across the states to detect
induced seismicity events quickly and accurately. Injection volumes and
injection pressures are also required to be closely monitored. Other ways to
monitor how far fluids go in certain time periods can be done by using existing
nearby oil and/or gas wells in the same reservoir to monitor chemical changes
in the water in those wells, indicating that water from the injection wells has
gotten that far. Wells in the Clinton/Medina formation of Ohio from a study by research
firm Battelle showed that water typically reached out horizontally up to about 1500
ft from the injection source over a few decades. Better monitoring of pressures
and shutting down certain wells has resulted in a huge drop in induced seismicity
events.
More Current Issues in State vs.
Federal Regulation
There are many current regulatory
issues pitting states against the federal government. This is quite common.
Here I will just give some examples of current issues. New York State’s recent
final permit denial of the Williams’ Northeast Supply Enhancement pipeline,
citing climate change in part, is a situation where the federal government could
step in. The EPA, under Trump chief Andrew Wheeler, revealed a rule to limit
the ability of states to block pipelines and other energy projects under the
Clean Water Act. The rule would limit the scope of state reviews and issue a
one-year deadline for states to certify whether a project meets federal and
state water quality standards so that projects can’t be delayed indefinitely. States
do have the right under the Clean Water Act to certify that water quality
standards are being met but the new rule would allow the federal government to
overturn those findings. The long delays, literally 10-20 years in a few cases,
also affect hydroelectric projects. One reason for the rule change is to reduce
the regulatory uncertainty such long delays cause.[5]
Another issue is the ongoing
rollback of the federal methane emissions rule enacted by the Obama administration.
EPA head Andrew Wheeler wants to eliminate the federal rule and let the states
regulate methane from oil and gas wells, facilities, and pipelines. Big oil
companies like BP, Shell, and ExxonMobil have actually supported regulating
methane leakage at the federal level. But either way, the federal and state rules
are likely to be close to the same requirements.[6]
Federal control of net
metering by FERC rule, or paying rooftop solar and other distributed generation
customers for generation into the grid without charging them transportation
costs, has been proposed. A group called the New England Ratepayers Association
(NERA) asked FERC to “declare that there is exclusive federal jurisdiction
over wholesale energy sales from generation sources located on the customer
side of the retail meter.” 38 states have net metering rules and 45 states
have rules about distributed energy compensation. The main argument by
ratepayers is that compensating rooftop solar generators costs non-solar
generating ratepayers money. A federal rule could negatively affect rooftop
solar across the country. The American Public Power Association supports
keeping control at the local level. The Edison Electrical Institute has long
derided net metering as unfair to ratepayers. Proposals for a solution include one
from Arkansas regulators for keeping compensation high for low-volume producers
(less than 1 MW) which includes most rooftop solar generation and more or less
pro-rating bigger generation and storage. Otherwise, for rooftop solar owners
and those who would like to add rooftop solar, a federal rule would make it
less economical to do so. FERC ruled on the case that they would not consider a
federal rule and so net metering survives the threat, which is maybe a good
decision, especially since there are some benefits to utilities of distributed
energy generation such as avoided costs.[7]
Even so, some states are considering changes to net metering as utilities are
challenging increases in rooftop solar and the real value of the distributed
resources compared to their costs of integrating the new resources. Illinois
apparently has a state law that if rooftop solar or other distributed energy
equals 5% or more of a utility’s total demand or load then it can reduce
payments for that power. The company Ameren with 3000 home solar customers
argues that it is required by state law to reduce payments considerably to
those producers beyond that point of 5% which is approaching. At issue is how
the company arrived at the percentage and how they interpreted the law. Solar
installation companies are not happy about the situation since it makes home
solar less affordable.[8] At
issue in these net metering disputes which have been happening in many states
for a long time is simply the issue of charging all ratepayers for grid
integration costs of wealthier customers who can afford home solar. That is not
fair to all. I think the calculation of avoided costs is difficult and varies
considerably depending on local and regional supply and demand needs. Net
metering disputes are likely to continue especially as more rooftop solar
becomes integrated into utility portfolios. In essence, it is an acknowledgment
that utilities share the costs with rooftop solar owners and at some point,
must pass those costs on to ratepayers. Basically, utilities are compelled to
subsidize rooftop solar, even though they may get some grid-balancing perks. At
a deeper level it is ratepayers that are compelled to subsidize rooftop solar. Another
question is do we financially discourage rooftop solar in a world where
decarbonization is valued? Federal rules or support to utilities may yet be
required.
Another issue involving
utilities is known as self-committing of coal generation. Start-up of
coal generation is expensive and has operational risks, so coal generation is
often self-committed to run on a pre-defined schedule regardless of economics.
Thus, some of the self-committed coal generation is uneconomic compared to
other generation available at the time and costs ratepayers. In some areas, the
costs to ratepayers are quite significant. A complaint against self-committing
of coal generation was lodged by the Union of Concerned Scientists (UCS) and
the Sierra Club. Defenders of self-committing argue that coal generation
provides reliability services such as voltage support, frequency control, and
ramping. Others dispute that reliability would be affected at all if
self-committing was abandoned. UCS found that 88% of dispatched coal generation
was economic and so focused on the 12% that was not economic. They charge that
in those cases the utilities are losing money with those coal plants and
charging ratepayers for the loss. The problem is most common in the Midwest
with regional operator (MISO) where member states have kept the vertically-integrated
utility model where utilities can recover costs through ratepayers. MISO has a
high percentage of coal generation. The practice of self-committing was not
problematic when coal was the cheapest resource but with cheaper natural gas
and renewables it is often a loss. Utilities want to continue to pay off their
past huge investment in coal generation, even at a loss, but they pass that
loss on to ratepayers, say detractors. It is a kind of ratepayer-funded
bailout of stranded coal assets. Some say the issue needs to be addressed at
the state level with support from FERC and the system operators, but others
think FERC alone should provide a rule. Some operators have shifted
self-committed generation into seasonally committed generation which is a
partial solution. With motivation to pay off investments being a factor, one
might consider it basically a stranded asset issue, as changing markets like
cheaper gas and renewables can have a similar effect on investments. The assets
are stranded in that they have been rendered uneconomic by cheaper sources. It
is the same with some nuclear plants. It’s perhaps a bit like keeping the
Blockbuster Video open with the utility company renting DVDs and charging the
former customers.[9] MISO’s
Independent Market Monitor (IMM) notes that uneconomic coal dispatching resulted
in hundreds of millions in losses by vertically integrated regulated utilities.
So-called Merchant resources, they found, were much more likely to offer economic
and efficient resources in the day-ahead market. The use of these uneconomic
coal resources can become a net operating revenue loss exceeding $50 million
per year in some recent years. The UCS found that uneconomic coal dispatches
cost utilities in the MISO region $350 million in 2018, about $60 per customer.
The IMM does not think the losses are that high. The Sierra Club found
uneconomic commitments cost a whopping $3.5 billion from 2015-2017 which was
obviously way off. Although the IMM and UCS costs differ they agree that uneconomic
coal dispatch is an issue with monopoly-regulated vertically integrated
utilities only.[10]
Safety and OSHA
The Occupational Safety and Hazard
Association (OSHA), part of the U.S. Dept. of Labor, regulates workplace safety
in the U.S. and all companies are required to comply. Safety training and
certification are commonplace, especially for employees and contractors who work
in the field. OSHA may also perform inspections of work sites to verify
compliance. The Occupational Safety and Health Act of 1970 created OSHA. Federal
law dictates that we all have a right to a safe workplace and that we also have
the right to speak out about potential workplace safety hazards without fear of
retaliation. We also have the right to research company safety histories, to be
provided by the company with proper required safety equipment, and the right to
request an OSHA inspection.[11] I
recall an OSHA inspection at a well site early in the fracking revolution,
although I am not sure how it came about.
Science Advisory Boards and Councils
Several medical and scientific
agencies like the NOAA have science advisory boards. Here we will focus on EPA.
The U.S. EPA has a science advisory board (SAB) that was established in 1978 to
review pending EPA rules and to advise on science and technology. They are also
tasked with critiquing EPA studies and papers to address what risks were not
addressed adequately. It is also basically a peer review board. The board
consists of 30 members (now 45) from academia, industry, and federal agencies. There
are other advisory committees and advisory councils under the EPA SAB addressing
specific topics like clean air. In 2016, the EPA SAB questioned a 2015 EPA
finding that while fracking can impact drinking water sources it has not led to
widespread water contamination. Basically, what the SAB was saying is that
there was not enough information to make such a conclusion, especially since the EPA did not have much baseline pre-drill water test data. However, other water
studies with pre-drill water tests have supported the initial EPA conclusion of
no widespread impacts. At issue were two areas: Dimock, Pennsylvania and
Pavilion, Wyoming where there may have been legitimate contamination. These both
occurred early in the fracking revolution before better cementing and other
improvements were implemented. There have been no known comparable significant
issues since then.[12] The
EPA SAB can be appointed by whatever administration is current so many Obama
appointees were replaced by Trump appointees. Several board members quit in the
first year of the Trump administration and many were fired and replaced, some
calling it a purge. Past advisors have suggested that Trump’s picks were more
industry-friendly. Thus, the scientific advisory boards can and have been
politicized by both parties. This is not wholly unexpected and highlights the
difficulty in putting unbiased third-party advisory oversight in place. Even
with the Trump picks the SAB has opposed some of the Trump EPA environmental
rollbacks, particularly rollbacks of the Waters of the US rule and the CAFÉ
vehicle emissions standards.[13]
Basically, the SABs were a
barrier for Trump administration rollbacks and much was done to remove that
barrier including removing members from the boards for various reasons. Banning
those who ever received EPA grants from serving on SABs due to conflict of
interest was one method put forth by Pruitt. Three federal courts called Pruitt’s
directive illegal. One reason was that there was no comparable conflict of
interest designation for industry consultants. By law, the reports of SABs are
accessible to the public which confounded the Trump EPA as they disagreed with
several EPA decisions even after the membership shakeups. It seems likely that
commitments to science over political considerations are why that was the case.[14]
Other scientific advisory
groups have been around for a very long time. The National Academy of Sciences
was founded in 1863 during the Civil War. The National Research Council was
founded in 1916 during World War I as an offshoot of the National Academy of
Sciences. The resolution called for:
“[A] National Research Council, the purpose of which shall be to bring
into cooperation government, educational, industrial, and other research
organizations with the object of encouraging the investigation of natural
phenomena, and increased use of scientific research in the development of
American industries, the employment of scientific methods in strengthening the
national defense, and such other applications of science as will promote the
national security and welfare.”
As can be seen above the goal
was to bring the public and private sector into better collaboration.
Originally, the membership on the council was drawn from the government, the
military, universities, and private research labs.[15]
[1] Wikipedia entry ‘Federal Energy Regulatory
Commission,’ accessed Oct. 2020. https://en.wikipedia.org/wiki/Federal_Energy_Regulatory_Commission
[2]
Kubasek, Nancy K. and Silverman, Gary S., 2005. Environmental Law (Fifth
Edition). Pearson Prentice Hall.
[3]
Salzman, James and Thompson, Barton S. Jr., 2003. Environmental Law and Policy.
Foundation Press.
[4] Farah, Niina, H. October 20, 2020. Commerce Clause
Could Swing Energy Cases. E&E News.
https://county17.com/2020/10/20/commerce-clause-could-swing-energy-cases/
[5]
Northey, Hannah, June 1, 2020. EPA Limit State Efforts to Halt Energy Projects.
E&E News. https://www.eenews.net/stories/1063291923
[6]
Watson, Matt, June 1, 2020. EPA Move Again to Roll Back Methane Emissions
Limits. Environmental Defense Fund. https://www.edf.org/media/epa-moves-again-roll-back-methane-emissions-limits
[7]
Morehouse, Catherine, June 4, 2020. Utilities Stay Silent on Proposal to
Federalize Net Metering as States Call it a ‘Threat’ to Solar Policy. Utility
Dive. https://www.utilitydive.com/news/utilities-stay-silent-on-proposal-to-federalize-net-metering-as-states-call/579171/
[8] Funk, John, October 9, 2020. Illinois Commerce
Commission launces new probe to resolve questions about Ameren’s net metering
claims. https://www.utilitydive.com/news/illinois-regulators-launch-new-probe-to-resolve-Ameren-net-metering-solar-questions/586728/
[9]
Morehouse, Catherine, June 1, 2020. Ex-FERC Commissioners Debate Solutions to
Coal Self-Commitments Said to Cost Millions. Utility Dive. https://www.utilitydive.com/news/ex-ferc-commissioners-debate-solutions-to-coal-self-committment-said-to-cos/578935/
[10] Morehouse, Catherine, October 9, 2020. MISO
integrated utilities lost $492M from 2016-2019 via uneconomic coal dispatch:
market monitor. Utility Dive. https://www.utilitydive.com/news/miso-integrated-utilities-lost-492m-from-2016-2019-via-uneconomic-coal-dis/586714/
[11]
United States Department of Labor: OSHA. www.OSHA.gov
[12]
Banerjee, Neela, August 12, 2016. EPA’s Fracking Finding Misled on Threat to
Drinking Water, Scientists Conclude. Inside Climate News. https://insideclimatenews.org/news/12082016/epa-mislead-public-fracking-water-conclusion-its-own-scientists-conclude
[13]
Davenport, Carol and Friedman, Lisa, Dec. 31, 2019, updated Jan. 2, 2020.
Science Panel Staffed with Trump Appointees Says E.P.A. Rollbacks Lack
Scientific Vigor. New York Times. https://www.nytimes.com/2019/12/31/climate/epa-science-panel-trump.html
[14] Lavelle, Marianne, December 27, 2020. The Resistance:
In the President’s Relentless War on Climate Science, They Fought Back. Inside
Climate News. https://insideclimatenews.org/news/27122020/trump-climate-science-epa-wheeler-biden/
[15] National Academy of Sciences. History: The
Organization of the National Research Council. http://nasonline.org/about-nas/history/archives/milestones-in-NAS-history/organization-of-the-nrc.html
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