Hoeven: Thanks for having us.
Grandoni: So, before we get started, I want to let everyone know, here in the room and online, that you too can ask questions to the senators, towards the end of this discussion, using the hashtag #202Live on Twitter. So just text your question or tweet your question to #202Live and we will try to get to that towards the end.
In March of this year the U.S. government, for the first time, blamed Russia for cyberattacks on the U.S. electric grid. They said the attacks might have happened—or the attacks started in 2016, or maybe even earlier than that. In response, Energy Secretary Rick Perry has proposed the creation of a new office to coordinate cybersecurity response from the United States. It has a long name: the Office of Cybersecurity, Energy Security, and Emergency Response. But even he says that that might not be enough; he told Congress recently, “I’m not confident that the federal government has a broad strategy in place.”
So, I want to ask you two, what does Congress need to do in order to respond to this threat from abroad?
Heinrich: I think one of the things that our government needs to do—and it’s not—you know, if the executive won’t do it, the Congress should—is create a cyber doctrine, create a stance that we project to the world and say where some of our red lines are. Where do we—you know, where are we going to draw the line when a foreign actor interferes in our infrastructure, our critical infrastructure?
You know, for years we’ve had a nuclear doctrine where Russia and the United States both understood where the other stood and where the red lines were, and what the sort of state of play was and where the places you just can’t go. We don’t have that in cyber right now, and it’s really important if you’re going to have deterrents, to project some of those things.
Grandoni: Senator Hoeven?
Hoeven: Well, you know, that certainly makes sense, but in addition, this is something we’re all going to have to keep working on, on an ongoing basis, because it’s such a dynamic area. And it’s harder to play defense than it is to play offense. And you’ve got not only Russia, China, Iran, other state actors, but you have nonstate actors that are trying to hack into our grid system—everything from energy to our other governmental systems, to private business systems.
So, it’s not just government, it’s got to be in enterprise, with the private sector. I’m also a member of the Appropriations Committee, and I chaired homeland security probes last Congress. And you know, so it’s something we looked at and worked on all the time. Homeland Security has responsibility. They certainly should continue to have that responsibility to work across all of the cabinet agencies and throughout government, as well as interface with the private sector, on an ongoing basis. Make sure that this issue is front and center.
Also, I’m on defense appropriations, and we work on it, on the military side, through the services, too. So this has to be an all-of-government issue. We want good coordination. I think largely that comes through homeland security and the military. And we’ve got to make sure we continue to coordinate with the private sector. We do that on the Energy Committee, as well.
Heinrich: Somebody does have to own it, though. I mean, this touches, as Senator Hoeven says, it touches so many different aspects—private sector and within the government. But you can’t have whole of government just be, you know, “It’s somebody else’s problem.” Somebody within the administration does need to own it.
And we need to do a better job, culturally, within the utility industry. As I grew up, my dad was a lineman. I grew up in the middle of utility culture, and usually if something is working, you just don’t mess with it—because it’s working. And we have all these programmable logic controllers, all these SCADA systems scattered all over the country, and those have to be updated, they have to be protected, and that’s a cultural change within the private sector piece of this, too. So you have to have ownership, and you have to have the cooperation that Senator Hoeven was talking about.
Grandoni: So, where should the responsibility lie, then? Should it be in Department of Homeland Security? Should it be in the Energy Department? Where?
Hoeven: I would say in an umbrella kind of way, homeland security, which is kind of how it works now. I think then, what I’m saying is, though, you can’t just say, “Oh, well, that’s homeland security, DHS’s responsibility.” Energy, everybody else has to own it, too, in their world. So I think what Rick Perry is doing is right on. Every agency has to have that kind of effort is what I’m saying. But you do have to have that overall coordination point, which now is in DHS and I think is appropriate.
Grandoni: What do you think?
Heinrich: I think there probably needs to be a cyber command component to this, as well. And there reaches a certain threshold where it’s not just meddling, it’s a hostile attack. And so you have to have someone at DOD fully capable of knowing when to engage and say, “There are going to be consequences, as well.”
Hoeven: Right. And I agree on that—like I say, DOD has its operation, too, when you get into state actors and potential defense aspect.
Grandoni: I mentioned a state actor at the beginning, Russia. Senator Heinrich, you had mentioned that the United States needs to respond when red lines are crossed. So I’ll put this to both of you. Was this recent attack in 2016 that DHS and the FBI described a few months ago, was that a crossing of a red line? And require some sort of response?
Heinrich: I’m not going to comment on the particulars of what—of that particular event. I’m not sure how much of that is classified at this point. But I would say, we should all be very concerned that a state actor who is as talented and who has the resources that Russia has, when they start messing around within critical infrastructure. Because the potential there is enormous.
And we need to figure out how we’re going to project to them—okay, what do we consider meddling and what do we consider a truly hostile act of war? And we have to decide that, and we have to project it to them. Because they need to know where those red lines are, too. And right now I don’t think they know that. And they have a very lean-forward approach to cyber work.
Grandoni: Senator Hoeven?
Hoeven: We have to push back on anyone that meddles with our elections. That’s not acceptable. So whether it’s Russia or anyone else that meddles in our elections, of course we have to push back on that.
Grandoni: Should these retaliatory measures be in kind to the cyberattack? I guess what I’m asking is should we—
Heinrich: Not necessarily. You shouldn’t box yourself into saying, “Well, if they commit a cyberattack on the United States, we’re going to commit a cyberattack.” We have a lot of tools in the toolbox. We have to show that we’re willing to have very serious consequences for them, but I don’t think we should limit ourselves to an in-kind response necessarily.
Grandoni: Do you agree, Senator Hoeven?
Hoeven: Right. All options on the table, you know, in any kind of confrontation.
Grandoni: Okay. Senator Heinrich, you had introduced a bill to add some, quote-unquote, “retro features” to the security of the energy grid, replacing some computer systems with some human or analog systems.
Heinrich: Actually, “redundant backup” is how I would characterize it. We’ve seen places where these cyberattacks have played out in a very real circumstance, like the Ukraine, where Russia has been—invaded Crimea, had this sort of little green men approach where it’s not clear whether you’re dealing with soldiers or something in between. And they utilized cyberattacks to attack the grid. And we saw how that was responded to.
One of the things that you learn is that, in addition to having this very smart grid that we need today, that is absolutely necessary, you also need to know where the physical switches are, you need to know where the backup controls are, and you need people who can go out there and do those things. And so having that knowledge, not saying, “We’re just going to run everything from an iPad in an office someplace,” is an important part of how you build resilience into the system.
Grandoni: Would you worry that introducing more human elements to it would create other types of vulnerabilities?
Heinrich: You know, most of our vulnerabilities are baked into the technology, honestly. And you want professionals who really know the system, who, in an emergency, can intervene and run physical controls if the smart controls and the electronic controls are disabled.
Grandoni: So, I wanted to turn to a different facet of energy security, and that would be the reliability of the electric grid. As more wind and solar comes online, there is some concern among many in the administration that the United States won’t be able to—or the utilities won’t be able to reliably provide power to customers if it’s only being made when the wind is blowing or the sun is shining. Rick Perry had proposed a rule last year to the Federal Energy Regulatory Commission to provide extra compensation for coal and nuclear power plants that are able to run 24/7. FERC, whose chairman is going to be speaking right after this, rejected that rule. And most recently Perry has come up with another proposal to use a 1950s Cold War era law to nationalize some nuclear and coal plants as a kind of emergency measure in the name of national security.
So, the oil and gas industry has opposed a lot of these measures. The coal industry is in favor of these measures. Senator Hoeven, these are two industries that are both important to your state. I was wondering what you think of these proposals from Perry?
Hoeven: So, in the energy world North Dakota is a powerhouse. And it’s interesting because we are, in many respects, a microcosm of the country as a whole. In terms of oil, we now produce about 1.2 million barrels a day. When I started there as governor, we produced less than 100,000. Now the only state that produces more oil is Texas. They’re well ahead of us, but we’re at 1.2 million, and I think the next closest may be California, at about half a million a day—you know, about half of what we produce.
So, we produce a lot of oil and then we produce a lot of natural gas. We don’t even drill for gas; it just comes with the oil, it’s a byproduct. And so we’ve had challenges building the infrastructure to capture and prevent it from being flared. But at the same time, we’re a big agricultural state and always have been a big agricultural state, so we do ethanol, we do biodiesel. The wind blows up there a fair amount, and so we have a lot of wind, as well—solar, so on and so forth. Point being, a lot of states, you know, they either have oil and gas or they’re kind of fossil fuel—or they have the biofuel, so they’re kind of on the renewable side. We have both, which is an incredible opportunity, but then we also recognize that you have to figure out how to make all this work.
The interesting thing is, now, I see a real confluence in terms of all the industries, both traditional and renewable, having to work together because we need distribution capability. We need transmission lines. We need electric lines. We need pipelines. We need the distribution system—transmission lines, the pipelines—to move that energy from where we produce it to where it’s consumed. Okay? And we can’t just go north and south, we got to be able to go east and west, right?
So, the challenge is getting everybody to work together to make sure that that distribution system for our energy grid in this country works. And we need to update it, right? You want it safe. You don’t want spills. You want good environmental stewardship. You can’t keep relying on the old stuff; you better build some new stuff. You can’t move it all on the road; you better build some transmission. So we need to think about that as these issues come up.
And so when we go to your question, in the same way, you got to think about baseload generation, which you need to have. When the sun isn’t shining and when the wind isn’t blowing, you still want that light to come on when you flip the switch. You still want your air conditioning to work and you still want some heat when it’s cold, don’t you? So we need to figure that out. We need to figure that out, and everybody, whether you’re a variable producer, whether you’re gas, whether you’re wind, whether you’re solar, or whether you’re baseload, you have a vested interest because we share the cost of building and using that transmission. So we need to do it in a fair way, in an efficient way, right?
So, my question—that’s a long way to say, “Yeah, we need to figure it out.” We need to make sure we have enough baseload so that when the variable providers aren’t there, we still have the energy we need in the places we need it.
Grandoni: I have a sense that you might disagree with that.
Heinrich: So, baseload has become a political term. I can tell you, having grown up in a utility family, coal-fired generation plants go down, and they don’t go down when it’s planned; they go down, they go out. We need responsive energy in this country, and the way you can build that, there are places in the world today that have dramatically higher penetrations of renewables today, than what most of our states are experiencing. And they manage that in a different way than what we used to do. You know, they look at forecasting, they look at how much the wind is going to be blowing, what the cloud cover is going to be, and they stack all of their energy sources against their demand model, and then they figure out how to bridge the gap.
So, I think what’s interesting about these two efforts by Secretary Perry is they’re just not market-based. And his own state, where he was governor and created a lot of renewables, has dramatically higher penetrations of those renewables than what we’re dealing with in the places where these efforts were really designed to bail out of couple of uneconomic generators, and particularly in the coal industry and a little bit in nuclear, as well.
Hoeven: You have to be fair when you talk about market-based. There is a lot of rules, regulations, and tax impacts out there in the energy world that aren’t necessarily market-based. So, in North Dakota, we have an incredible model when we have billions invested from energy companies that produce wind: same thing, coal; same thing, these other areas. But what are their relative regulatory burden? What are their relative tax burden? And what is their relative access to transmission lines? And who paid to build those transmission lines? In other words, if I pay to build the transmission lines, then Martin comes along, and he builds a different type of energy source, and he gets access to the lines I built before I do. Is that market-based or fair? All I’m saying is everybody has got—everybody has an interest here to recognize that we have to have a grid that works for all of us, and that provides energy 24/7, 365.
Heinrich: And I think one of the places we both agree is the need for additional transmission. I mean, our grid was built at a time when the way it functioned was very different.
Heinrich: It’s hard to build transmission. It’s largely done with investors today. And we need to figure that out because our grid needs to be more resilient and more responsive to the system today, which is not what it was when I was growing up, where it was a single generator—
Heinrich: —out to a transmission line, then to distribution, then to customers, be it a business, a factory, a home. Today, it’s a multigenerational—it’s a multidirectional machine. Consumers are producing their own energy. People want responsiveness. Demand response is as big a control on making sure that you’re actually managing the grid, as whether or not you’re ramping up one form of generation or another.
So, I do think one of the places where you could really create a lot of common ground is making sure that we’re taking the steps to actually invest in the transmission that allows us to wheel electrons from one part of the country to another.
Grandoni: Now you mentioned the need to build more transmission lines. The Trump administration has a plan in order to try to do that. It’s to help streamline some of the environmental review processes for the construction of transmission lines, of the pipelines, and other infrastructure. What do you think of that, then, Senator?
Heinrich: I think more than anything we need an administration that is bought in to doing the hard work of—that planning process works when everybody is committed to it. And, you know, I have been through some 10-year, drug-out efforts trying to get transmission built, and we’re on the verge of some major transmission lines in New Mexico right now, that’ll allow us to move electrons from, you know, where the wind blows hard to where the highest demand is. But the administration has not exactly been easy.
So it’s one thing to say you’re going to have a legislative proposal that’s probably not going to go anywhere. What I’d really like for them to do is just to engage in the NEPA planning process, make agencies work with one another. When you have the DOD wanting to do one thing and Interior doing something completely different, they could be the bridge to make all of that much more smooth.
Grandoni: Senator Hoeven, what do you think of the Trump administration’s plan to help streamline some of these reviews? And I guess in addition to that, do you think that they should be providing some additional funding to help build these transmission lines, build pipelines, that sort of thing?
Hoeven: I think the investment is there and ready to go. I think the challenge is getting through the regulatory requirements. I thought Martin described it well. So yeah, I think, again, you know, we want good environmental stewardship, we want good, responsible regulation, but it needs to find ways to help make that investment happen. I think the investment is there and ready to go, if they can get permitted. So again, it’s about doing it—doing it right, doing it well, but getting it done.
Heinrich: And one of the challenges is, oftentimes with a large interstate project, you have a place where a lot of the generation is going to occur, and then you have a customer someplace else. There may be a state or two in between, making sure that they have skin in the game and a way to benefit from that, as well, as a way to sometimes bridge the opposition, where a state in between doesn’t necessarily see the generation advantages or doesn’t have the customers and says, “Well, we don’t want this because it’s just coming through here, but we don’t have enough of the benefit.”
Grandoni: I wanted to get back to this proposal to nationalize some of the coal and nuclear power plants. It’s not exactly something you would expect to hear from a Republican cabinet official. Senator Hoeven, with that plan in particular, have you looked at it closely enough to come to an opinion on it?
Hoeven: Well, I can give you some thoughts. I haven’t looked at it closely enough to really talk specifics in terms of his proposal, but in general, I don’t favor nationalizing anything. But I do think you’ve got to make sure that baseload has access to the grid in a way that works.
Now, I’m supportive of all forms of energy, but one of the concerns—and we’re seeing it in our state. I mean, we really are a microcosm of this larger problem, and that is because it is so hard to build transmission, which, as I say, Martin described very well. We have cases where baseload invested built transmission, which now they have secondary access to. So it’s an asset you built but somebody else gets access to it before you do. That’s creating a problem, based on the way they produce energy, where they’re not a variable provider. They’re not like a gas plant, where it’s easy to trigger it up and down. We need to figure something out to address this form or we’re not going to have that baseload generation.
Grandoni: Senator Heinrich, you mentioned that you don’t think this proposal to streamline NEPA is going to go through any time soon, but you two have actually worked together on some bipartisan energy policy back in 2015. You’re part of a group of senators that came up with a compromise between Republicans and Democrats, where the United States lifted its ban on oil exports in exchange for the renewal of renewable energy tax credits that were due to expire. So I wanted to ask for this Congress, is there any chance of any kind of bipartisan legislation on energy?
Heinrich: Our committee has—works pretty well. The question I think will be once again whether we can get the energy package that is already passed the Senate, and with large numbers from both parties, through the House of Representatives.
Hoeven: Which we supported more than one Congress.
Heinrich: Yeah, that’s right.
Grandoni: What does it take to get the House to pass this bill? This bipartisan energy bill that’s been out there for four years now.
Heinrich: You know, it’s the world of doable, right? Like this is something we can get done, or we can, you know, have both sides wait for the perfect somewhere down the road. I think what 2015 really represented is we looked at where we could compromise, how we could create some certainty, and didn’t let, you know, dogma get in our way.
Hoeven: I think we’ll get it. And Martin and I have worked on other stuff—Indian affairs. There’s a variety of things he and I have worked together on, and some we’ve passed and some we haven’t. Sometimes you just got to keep working it. I think we’ll get there on the energy bill, and we have other bipartisan energy legislation that we’ll move.
You know, we all have some different ideas in this area, but the idea of trying to drive the investment and the technology forward in terms of the energy world, both to get more energy and better environmental stewardship, we agree on that as a baseline—some of the hows. In terms of, you know, what we do, we differ on. So I think he’s right. Our Energy Committee works in a pretty bipartisan way, on most issues, and I think we’ll continue to advance legislation this Congress.
Grandoni: I think, unfortunately, that’s all the time we have today with the two senators. I wanted to thank both of you for coming out, and I wanted to let everyone in the audience know to please stick around because my colleague, Steve Mufson, is going to be interviewing the chairman of FERC, Kevin McIntyre. And thank you all for listening.
One-on-One with the FERC chairman:
Mufson: Hello. I’m Steve Mufson, an energy and financial reporter at The Washington Post. I would like to introduce my guest today, Kevin McIntyre, the chairman of the Federal Energy Regulatory Commission. Before we get started, I want to remind our audience here in the room and those watching online that you can tweet questions for Chairman McIntyre using hashtag #202Live. And I’ll pose a few of those questions later on in our discussion. Well, welcome here to The Washington Post Live.
McIntyre: Thank you, Steve. Great to be here with you.
Mufson: Usually you wouldn’t juxtapose the phrase “lively time” and the Federal Energy Regulatory Commission, but it’s been a pretty lively time I think for you already. And I thought we’d start by talking about one of the more controversial things, the Energy Department’s initial effort to try to get the FERC to approve increased compensation for coal and nuclear plants in the name of resilience and reliability. And so I’d like to hear you talk a little bit more about that. But, also, as you know, you’ve sort of left the door ajar a bit by saying, “Let’s take a look at this issue of resilience.” So I thought we could start by talking a bit about what you mean by this holistic approach and what is resilience and is there any connection between resilience and the issue of cost and competition, or are those separate items?
McIntyre: Okay, sure. Yeah, let’s cover a few of those bases. First, yes, at the time I arrived at the FERC—I was sworn in on December 7th, yes, my first day, a date which will live in infamy—at that time already pending before the FERC and thus awaiting my attention, was this notice of proposed rulemaking that had been sent to the FERC by the secretary of energy, under rarely used authority under Section 403 of the Department of Energy Organization Act. The fact that it was rarely used doesn’t, in my view particularly as a lawyer, make it any less valid. It was validly proffered to us for our consideration. And, yes, as you have said, it was premised on the idea of the security of our bulk power system, the resilience of our bulk power system. And although under the legal standards that apply to the FERC’s processing of such a proposal, we were unable to accept it in the form that it was given to us.
And our actions, our official action on it reflected that view. All five of us commissioners at the FERC voted that we could not accept it in its form, but we did acknowledge and in fact embrace the concept of resilience as something that really does cry out for attention. And so we initiated our own proceeding to address that, and that proceeding is underway now. We have invited comment from all of industry and other stakeholders as to whether there are attributes to resilience that we should recognize among different types of electric resources. And, if so, what should be the treatment of those resources for purposes of providing compensation to them.
Mufson: Well, what are the key attributes, do you think, that go along with resilience? And does that have something to do with what you pay for the power generated by those facilities?
McIntyre: Well, we’re trying to figure that out now, but certainly in my view as a conceptual matter we’re not doing it right if we don’t recognize what the attributes are, define them sufficiently to justify action upon them, and ensure that we get the compensational aspect of it right. And this is not unique to resilience attributes. We already have certain types of functions that are performed by different types of electric generating resources in different ways. For example, providing voltage support to our transmission grid, providing frequency response. I mean, these are highly technical concepts. But certain types of electric generating facilities are recognized as being able to provide these types of supportive measures.
We call them ancillary services, the service that are not pure transmission and they’re not pure generation in the customary sense but do help to keep our grid functioning well. And those attributes are recognized in official FERC policy and are compensated accordingly. So it wouldn’t be beyond the pale to think that if we could identify with sufficient specificity what are the resilient attributes that merit compensation then we could move to that compensation-calculation stage.
Mufson: But they wouldn’t necessarily be, say, you know, 90 days fuel supply on the site?
McIntyre: They would not necessarily be; that’s right.
Mufson: Because I think a lot of people, especially people who are skeptical about the future of coal plants, think that this is sort of a solution in search of a problem. And I was wondering whether you share that view.
McIntyre: I wouldn’t describe it as a solution in search of a problem. I do think that the spate of extreme weather events we’ve had over the past several years have given us a lot of data and ability to study exactly how our grid performed with a particular eye towards seeing whether there are certain types of generating resources that did better than others, that were more reliable than others during those very challenging operational circumstances. So we are going through that now. This has started with the polar vortex a couple of years ago and then the more recent so-called bomb cyclone weather events of 2017 into 2018.
Mufson: So, you know, now FirstEnergy has come back and the Department of Energy has come back trying to invoke the idea that there’s an emergency that involves perhaps above all FirstEnergy’s nuclear and coal plants but perhaps a bit more broadly or perhaps not. But maybe you could talk a bit about whether you think we have an emergency on our hands or not.
McIntyre: I don’t think we have an emergency on our hands right now in these sense of our ability of our grid to perform today and in coming weeks and months. I don’t think we have that sort of situation. However, that’s not my call. Section 202(c) of the Federal Power Act, which was the basis on which FirstEnergy has made its submittal to the Department of Energy, has its own standards spelled out there. And I trust the secretary of energy and his team at DOE to kind of perform their own valid analysis of that and to determine whether or not any further action is necessary.
Mufson: I mean, it does seem like an odd thing to invoke. I mean, these are old statutes that were created in a different context, one of them for Truman to use against the steel industry. It just doesn’t seem like this is that kind of comparable situation.
McIntyre: Yeah, it’s perhaps not the most obvious fit. Even section 202(c) of the Federal Power Act tees off of the concept of continuance of a war in which the United States is involved as being kind of the baseline circumstance that would justify a DOE order to certain types of facilities to either begin operating or continue operation. The statute does go on to encompass in a more generic fashion some sort of ongoing emergency of similar import. So I agree with the suggestion of your question that the fit is perhaps not the most obvious one. But I’m certain that DOE has a handle on that issue and will analyze that in making its decision.
Mufson: So there is another request from an ISO in New England about keeping some facilities open in order to bolster the economic health of an LNG import facility. Does that seem like a more reasonable request? And how do you view that?
McIntyre: I don’t know. As you know, I am but one of five voices/votes on the commission, and I don’t like to get ahead of my colleagues on matters such as that. So I won’t hit that one directly. But, you know, I think that considerations like that are completely valid.
Mufson: I wanted to also ask you a bit about FERC’s relationship with the states. You know, I don’t need to tell you; you’re part of a patchwork of organizations and agencies that deal with the electric grid and gas pipelines. And so I was wondering how you see your priorities fitting together with those in the states, especially in areas where we have renewable portfolio standards that are envisioning a much higher level of renewables, for example. How does that all fit together with your goals, and is there some sort of conflict there that you might have to resolve at some point?
McIntyre: There is an inherent tension. I wouldn’t say it rises to the level of a conflict. But there’s an inherent tension there between the state roles and the federal role. Let’s face it; we have a federal system of law and government. We at FERC have our statutorily spelled out role. And the states have somewhat broad license to make their own policy decisions about what sorts of resources mixes they prefer for the satisfaction of energy needs within their respective footprints. And we at FERC must take whatever power comes onto the grid. And our role is kind of the economic ensurer of justness and reasonableness of rates and terms and conditions of service. So a given state may say, “We want X percent of the electric generation in this state to come from renewable resources.” That power is generated, does make its way onto the grid whose markets we regulate, and our obligation is to ensure that all of that takes place under terms and conditions that are just and reasonable and not unduly discriminatory.
The tension comes in where someone can look at the resource mix that comes out of a given state or a group of states or a region and say, “Well, doesn’t this amount to a thumb on the scale in favor of this type of resource and against that type of resource?” And the question is not a crazy one, and it’s one that we have to make some policy sense out of, hence the tension.
Mufson: Right. I mean, to what extend to do you feel that some innovations both in renewable energy and as well as in storage may be changing the nature of this calculation?
McIntyre: They unquestionably are changing it. I personally view that as a good thing. I think all of the various technological advancements that we have seen in the last couple of decades have been nothing but helpful to our electricity sector, our energy sector in general. Every public official in America says in answer to the question, “How should we satisfy our nation’s energy needs?” “All of the above.” And I don’t think you can really legitimately be an all-of-the-above person unless you recognize the roles of all of these various types of not only pure electric-generating resources but some of the technology that has advanced even without being pure generation. You referenced storage; that’s increasingly important. Demand response, the agreement in advance to reduce consumption of electricity under certain operational circumstances, and other such steps.
Mufson: Storage must be increasingly part of that whole picture. Do you have a vision as to what the grid is going to look like, say, 10 or 15 years from now? I remember some years ago hearing Jon Wellinghoff paint his vision of cars that would be part of the storage for the grid. And we face a situation where perhaps more and more cars will be plugging into the grid. So how do you see your ability to accommodate all those things going down the road a bit?
McIntyre: There’s no question in my mind that storage will become increasingly a part of our grid and the reality of the operation of our grid. And God bless the electrical engineers who have to keep it all functioning, because it’s changing in real-time. And much of it involves power that’s being put onto our grid at the distribution-voltage level, that is to say the lower voltage levels not the big spine of interstate transmission that we think of when we even use the term grid. And so all of that has to be accommodated operationally in addition to policy-wise. It’s going on right now. It’s a good thing, in my view.
We recently took action at the FERC to direct the operators of our nation’s wholesale electricity markets to remove any undue barriers that they can identify to the full participation in our energy markets of storage resources. In other words, to treat storage as if it were what we call bulk power transactions, the same as a sale of a chunk of wholesale power from one entity to another or into an organized market. So the ball is currently in the court of the operators of the nation’s wholesale energy markets to come back to us and tell us exactly how they’re going to do that to really open the door wider for storage as a valid resource that may participate in our markets.
Mufson: Do you think it’s a legitimate goal for those who want to de-carbonize the grid and to make it a greener thing? That would be, of course, the whole idea of having electric cars. There’s not as much point if there isn’t a greener grid.
McIntyre: Well, FERC itself is not an environmental regulatory agency. So that’s not really a matter for our decision. It certainly is something we’re seeing in state decision-making. And, as I’ve noted, that’s something we must accommodate in our own FERC role.
Mufson: So I also want to ask you a bit about cyber security. There have been warnings about Russian campaigns to insert malware onto the energy infrastructure. And I was wondering what you’ve seen in this area and what sort of strategy you might have for combatting that kind of intrusion.
McIntyre: I think in your prior segment Senators Hoeven and Heinrich did a real nice job of laying out some of the basic concepts on this topic. And I agree with something that was said by Senator Heinrich, that the day is not going to come when we may declare victory, at least in our lifetimes, over cyber problems. It is a matter that commands constant vigilance. We at FERC are constantly vigilant on the matter. We are in increasingly close coordination with other federal governmental counterparts including most importantly the Department of Energy itself. And we monitor this stuff all the time because the threats are real and involve highly sophisticated players, state actors, and other entities that mean us harm as a nation, as an economy, mean to harm our national security and mean to harm our populace. So we have to pay constant attention to it.
In 2005 Congress gave to the FERC oversight over our nation’s electric reliability and empowered us to identify an organization that would be in charge of promulgating regulations for the assurance of reliability. That organization is the North American Electric Reliability Council, or NERC. And today we have a robust and widespread system of reliability standards in place that include within their scope cyber protection. So this is something that gives us an official function in monitoring and asking ourselves constantly whether that suite of regulations, reliability standards, is doing what is intended to do in terms of the protection of our grid from a cyber standpoint.
Mufson: I mean, do you see a conflict between these defensive measures and the openness and accessibility of the grid? Because it seems as though the increasing number of ways you can connect with the grid could potentially all offer areas of vulnerability.
McIntyre: That is a real concern. In fact, we talk about a lot of technological advancements in energy leading to what we often hear referred to as the smart grid. It’s possible that in certain respects our smart grid is a little too smart and that it’s a little too electronically accessible. There might be certain areas where we need to dumb down our grid a little bit for cyber protection reasons.
Mufson: I also wanted to ask you about pipelines a bit because that also falls in your bailiwick. And I particularly wanted to ask about your attitude toward efforts to obstruct some pipelines but also about some of the efforts to build them. Particularly I’m interested in the conflict in Ohio at the moment with the Rover Pipeline. Energy Transfer Partners has had a lot of accidents, I guess you could say, in Ohio. And the Ohio EPA has actually tried to block the completion of the pipeline in order to address some of these issues. And FERC has come in, I believe, and helped push it forward. Maybe you could comment about that conflict in particular.
McIntyre: Sure. Well, where there are matters that are pending before us pertaining to a particular company or project, I refrain from comment. However, I will say as a general matter that what we do when we have such matters before us, which is to say a matter that is awaiting an official FERC approval for infrastructure, whether it be a natural gas pipeline or a hydroelectric project or otherwise, our Office of Energy Projects works very closely with the developer in ensuring that the developer is taking all appropriate steps to safeguard the environment and to adhere to best practices in the construction and siting and so on. So that process is well underway.
And on the overall category of infrastructure, I would say that one of the things I committed to in taking this job was to looking for ways to streamline the process of approving or, if the circumstances call for it, declining to approve a particular project and try to streamline that, eliminate any undue delays in our processing of the applications and to enhance transparency and predictability of the process. So I’m hoping that we will continue to make progress in that regard.
Mufson: I guess just to stick with this for another moment, the reason why this one sort of jumped out at me as opposed to all the many pipelines is that there was a FERC agreement with FERC that specifically barred the destruction of certain historic sites, which was done, and there have been quite a lot of spilling of drilling mud in the construction of the line that Ohio EPA said was extremely unusual.
McIntyre: Well, now here too we see the interplay between federal and state roles. Another instance I would point to is efforts to build pipelines to New England where you won’t find a person in the industry who can say that New England doesn’t need new natural gas pipeline capacity. And yet because of the state role in approving Clean Water Act approvals and granting Clean Water Act approvals, whereas the case may be in New York—
Mufson: Right. With New York especially.
McIntyre: —declining to grant Clean Water Act approvals, we have a situation that has emerged that amounts to the exercise of a veto power over federally administered projects. And is that appropriate? Who can say? I mean, these are valid questions. But we’re just trying to do our upmost to, as I say, kind of streamline and be efficient in our own role.
Mufson: So how do you deal with the situation in New York, if you think it’s extremely important to get a pipeline up to New England?
McIntyre: Any real change in that area would require action by Congress, because we at FERC are the lead agency for these approvals. That goes only so far.
Mufson: Let’s see. Well, maybe we want to—oh, I know. So LNG plants.
Mufson: This is another area where you are involved in approvals. I’ve heard, oddly enough, some people criticize FERC, the current FERC as opposed to the Obama FERC for possibly being even slower in giving approvals for some LNG export facilities. What’s happening in that area now?
McIntyre: There’s a couple of things going on. First, in LNG the federal government approvals involved are basically bifurcated between FERC and the Department of Energy. DOE approves the actual export of the energy commodity, liquefied natural gas. And FERC is in charge of giving thumbs up or thumbs down on the proposed facility, the LNG terminal that would be involved in the export. As to a comparison between where we at FERC are now versus the prior presidential administration, it’s largely a matter of the numbers. There are today a lot more proposals before us awaiting our action than was the case some years ago.
During kind of the core of the Obama administration I think it was roughly a half dozen or so that were being processed for approval or not approval, and right now I think we have something like 15 or 16 awaiting our action. So that presents a large workload for our Office of Energy Project staff. They’re doing a great job of working through it, working very closely with the project sponsors. Generally speaking, the project sponsors are very responsive to the need for information and analysis. So these are highly complex, resource intensive projects, and so determine whether or not to approve them is not a simple overnight process.
Mufson: And is there a point where you think that there would be too many of these facilities, given the resource here and the demand for natural gas here in the states?
McIntyre: Not necessarily, particularly if we move as we appear to be doing evermore toward a global market for LNG. We have this enormous resource of natural gas occasioned by the revolution in shale production. And so just natural market forces would suggest that that production is going to seek out a market. And given the inherent limitations on the domestic market for consumption of natural gas, which in and of itself is a robust market—but the global market for LNG, I think, is just significantly larger in magnitude. And so I don’t naturally find myself thinking that there is a limit on the number of LNG facilities or LNG export capacity that would be an issue for us.
Mufson: I wanted to come back to the states for a minute, because part of what’s happening, I think, during this administration is that some states are going their own way a little bit in terms of electricity policy, whether it’s asking for homes to put solar in California or setting certain statewide targets. And then of course some of these states are all joining together with California. Do you see some sort of other regional transmission organization basically taking shape for decision-making purposes in a lot of areas that overlap with what FERC does?
McIntyre: For purposes of electric transmission projects, you mean?
Mufson: Transmission but also the type of—
McIntyre: The resource mix?
Mufson: —resource mix. Exactly.
McIntyre: Well, over half of U.S. states and the District of Columbia already have renewable portfolio standards that spell out those jurisdictions’ preferences and indeed mandates for what the resource mix should look like. I don’t see that changing anytime soon. I think that they are, as you suggest, getting more ambitious with regard to their goals. And so I believe that trend will continue. Yes, that does increase the tension I referenced earlier with our need at FERC to ensure that the markets operate in a way that’s just and reasonable and not unduly discriminatory, but I think the trend is established and will continue.
Mufson: And just I’ll also go back a bit to the first question. I mean, I think one of the things that struck people at the decision that FERC took in January was the independence at that time of a commission that four of whose members were appointed by the president. I was wondering if you could just talk a bit about how you think of that and whether or not you feel under any pressure to accommodate some of the goals of this administration.
McIntyre: I don’t feel under any pressure, and certainly no one has taken steps to try to pressure me. I do believe strongly in the independence of the FERC. FERC is an independent agency by statutory design and by proud tradition. And as long as I am there that will continue.
Mufson: Okay. Well, I think this has been helpful. I appreciate your coming here today. If there’s anyone who has any questions right here we could do that; otherwise I’ll say thank you very much.
McIntyre: Thank you, Mr. Mufson. I enjoyed it very much. Thank you.
Content from Pepco, an Exelon Company:
Tierney: Good morning.
Velazquez: Good morning.
Tierney: Thank you for that. My name is Sue Tierney. I have the great pleasure to interview Dave Velazquez today. Dave is the president and CEO of Pepco Holdings. Pepco is part of the Exelon family of companies. Exelon is one of the biggest electric companies in the country and you guys keep the juice on here in the district. So for Pepco, which is great. We don’t have a lot of time, so I’m going to get on with the program really fast. And the first question I want to ask you—I’m struck here as a visitor to the district at the incredible building boom. We had a picture here a minute ago of the skyline of the district and it didn’t have all of the cranes that are up because you’ve got a lot of activity going on. So how do you think about what the infrastructure needs are? Not only of this growth that’s underway but also your rank and file customers and homes and offices and shops all over the district. So how does it look to you from your vantage point?
Velazquez: Yeah, well, first, it’s very exciting to be here. It’s also very exciting to be able to serve the nation’s capital and as you point out, thankfully, we’re seeing a great building boom going on that we have the infrastructure in place to be able to serve. But as we’re talking in general about the energy grid, one of the things that we’ve seen play out in our industry is that you need a healthy grid to have a healthy economy, have healthy communities. It is absolutely critical and we invest—have invested and continue to invest significant amounts to provide that basic service that all of our customers expect. We often characterize our mission very simply, saying, “Our job is to provide safe, reliable, affordable, sustainable energy to all of our customers.”
Tierney: How easy?
Velazquez: That alone is a challenge. [LAUGHS] But as we think about investing in our grids, some of it is to continue to provide that basic reliability and we have seen tremendous improvements in the reliability in our grid and the service we provide our customers. Not just day-to-day, but even with the recent nor’easters that came through. We’ve seen how much better our grid performs. But in addition to those investments, we also recognize that the grid is essential as we continue, I’ll say, to move to a new grid, a smarter grid. Kind of the new age of the grid, if you will. I was reading a recent study that was talking about energy storage and it posited that some 75% of the energy storage that will come on in the next several years will actually be on the grid side of the customer’s meter—not actually on the customer’s meter.
So when we think about the value of the grid that it provides the customers, how are they going to be able to access that storage that they have. The grid also provides all of our customers that reliable, instantaneous backup. So even if you have solar on your roof or you’re buying wind power, the grid allows that backup should the wind stop blowing, sun stop shining. So as we look to the future, we look to the fact that we’re going to continue to have to make those investments to make the grid not just reliable day-to-day against weather events and things like that, but also to make it more and more flexible to accommodate the grid as it changes in our customers—what they want changes as well.
Tierney: Well, there’s a lot that goes on behind the scenes. You’ve just kind of indicated that when somebody is relying on solar and something happens to the system or the sun, they’ve got to dip back into the grid. So there’s a lot that goes on behind the scenes. So from where you sit, what are some of the kind of challenging things going on in the industry and how is Exelon and how is Pepco responding to those changes?
Velazquez: There’s a number of challenges we face as the grid changes. Thinking about the conversation we’re having here today, it’s probably important that we talk about the security of the grid, physical and cybersecurity. And that certainly is very, very high on our list. Probably the highest thing on our list is to ensure both the physical and cybersecurity of our grid. And I think as was alluded to earlier as well, that is something that requires both continuous vigilance and also continuous investment. It is not something that is ever going to change, it’s not something that—it’s a journey, it’s not a destination we’re going to reach and we’re going to continue to have to make those investments. I think it’s part of that. It’s important also that we work not just as an industry, but also with our government partners. There’s a view that our government has, both to the adversaries, the threats. Also, to what we can use, the tools we can use to protect our grid that’s important that we’re leveraging and we do exercise that close coordination with the government. There’s a lot of things we do as an industry as well. I think one of the key examples that I could give is every other year, we participate in something called “GridX,” which is nationwide and involves literally thousands of people. Government, private, industry partners, working together through an exercise that simulates what would happen, not just for a severe weather event necessarily, but also under physical and cyberattacks.
So that’s also an important way that we help prepare ourselves, if you will, for security. I think one of the other challenges we face as technology changes, the way customers use our grid is also changing and we need to make the investments to make our grid—I’ll say more flexible and, in some ways, I’ll say more customer-friendly in the sense that as customers want to use more renewable energy, etc.
We are believers that climate change is both real. We also believe climate change is a pressing problem that we need to face. It’s interesting, we often I think about solar occurring in Arizona or Nevada or California. But here at Pepco, just in D.C. and the surrounding counties that we serve, five years ago, we probably had less than 2,000 customers who had solar. Today, we have over 20,000 customers that have solar. The amount of applications that we as Pepco Holdings get here in the Mid-Atlantic area, here and in Delaware and New Jersey is over 2,000 a month. So you think about what’s happening there. On a broader sense, as we look at Exelon, Exelon is also continuing to invest in zero-carbon generation, including our nuclear fleet.
And one statistic that’s always struck me is that if you look over a period of seven years, the zero-carbon fleet we have will have avoided over 600 million tons of emissions. And when you start talking about hundreds of millions, I can’t put that in perspective. But what that would equate to is taking one-half of all of the cars in the United States off the road for a year. So all of those are important things that I think we need to be focused on.
Tierney: Well, speaking of cars, we’re seeing a lot of places where in the evolving energy industry and the evolving economy, there’s electricity in cars these days. How do you think about the role of the utility and the grid operator in terms of this changing economy, changing technologies, and what you need to do to lead that effort?
Velazquez: I think the electrification of transportation is a tremendous opportunity. Not just because we sell electricity, but because of the potential impacts it has or will have both on the environment and it goes well-beyond people owning electric vehicles. I think there’s a lot of opportunities in our cities around electrifying. Whether it’s the bus fleets. We’ve heard there’s some interesting concepts around electrifying school buses and if you think about the use of school buses, typically nine months a year, not used during the summer. Now think about electrified school buses plugged in in the summer, aren’t being used to drive somewhere can be used as storage. Often, we talk about battery storage and think about it as kind of a monolithic unit that’s set somewhere. Either behind in the customer’s premise, or out on the grid. But here’s an opportunity where it’s actually mobile and can be used in the summertime to help provide storage capacity and also, peak shaving to the grid.
We see the same thing and have done some experiments with actually doing that with private personal vehicles and home charges. How can you use them to help supplement the grid and use that resource? Across all our territory, we’ve been trying to work and have been working with our commissions in the government agencies to figure out ways and how we can help jumpstart that process. Whether it’s our installing charging systems, providing and talking with customers about what different rate structures we could use that both match our costs, but also match their needs of when they need to charge and how we can just start that, I’ll say industry going forward even faster.
Tierney: That’s great. I am a hopeless geek on this stuff so what you just described to me is really interesting. I think that one of the challenging and opportunistic things that exist in the industry right now is that customers are so much driving some of these changes themselves. Electric cars are pretty cool. So as you think about that, customers are actually engaging quite differently with the electric grid. Not just plugging something in but trying to figure out how they can be their own driver of their energy supply. So has that affected the relationships that you have with customers?
Velazquez: Yeah, it’s actually a very exciting time to be in this industry. I’ve been in this industry for over 30 years and it’s probably the most exciting time. One of the things as I’ve looked just in general across industries. Two things drive—I won’t say evolutionary, but revolutionary change. And I think we’re experiencing it right now and I put it in two buckets. One is choice for customers, the more choices customers have and two is the flow of information. And if you think about our industry right now—first of all, around information with the advent of the smart grid, the internet of things, all that’s happening, whether you’re residential or a business, the amount of information you have available has just exploded. And number two is the choices are exploding. As opposed to just having a central power plant being the only way you can generate electricity, now the options are expanding: solar, wind, small microgrids, other distributed energy resources, battery storage beginning to come to the forefront.
And I will tell you, I think the challenge we face is how do we stay on the forefront of that and how do we as an industry, how do we as a company continue to be innovative, continue to be leaning forward into that? And we have a number of different demonstration projects that are underway at the moment.
Tierney: Maybe we should hear about them another time.
Tierney: I have a feeling that we are running out of this time. I said it was going to be short, and darn it, it was short. So thank you, Dave. This was great.
Velazquez: Sue, thank you.
Tierney: Thank you, and we’re going to turn this back to The Post now. Thank you.
Velazquez: Great, thank you. [APPLAUSE]
Experts discuss energy challenges facing America
Sorcher: Hi, everyone. I’m Sara Sorcher. I’m the deputy editor of Power Post. I’d like to introduce my guests with me today. We have Vice Admiral Dennis McGinn, who served as the former assistant secretary of the Navy for Energy, Installations, & Environment, and he’s now an advisory board member at the Center for Climate and Security. We have Samantha Gross. She’s a fellow at the Cross-Brookings Initiative on Energy and Climate at the Brookings Institution, and we have Rauf Mammadov, a resident scholar at the Middle East Institute.
But before we get started, I want to remind you all one more time that you can tweet questions for our panelists using the #202Live. And I’ll ask a few of them later on in the discussion. So I do want to kick off with cybersecurity and take it maybe where Dino, my colleague, and the senators left off. As they talked about, in March, it was the first time that the U.S. government has ever publicly accused Russia of hacking into American energy infrastructure. So Admiral McGinn, what do you think?
McGinn: I always start with the proposition that our energy security, our economic security, and environmental security are all inextricably linked and they underpin our very national security and our quality of life. So anything like a cyberattack that threatens our energy security in the electrical or gas infrastructure is a national security threat. We have to take it very, very seriously. There is a lot of good effort that is underway both in government and in the private sector but make no mistake, the cyber hacking of our utility systems is a national security threat.
Sorcher: And so what do you think? Is the grid safe?
McGinn: It is. For the most part, it is. There are some nightmarish scenarios that have been discussed and written about in various places. But the grid is a lot more resilient than some folks would think. One of the things that’s happening is distributed energy resources. This is microgrids, if you will, or alternative sources. We’re not just dependent upon centralized fossil fuel generating plants that if they go down or the transmission lines go down, everybody’s out of electricity. We’re getting more diverse. We have a long way to go. I’m not trying to trivialize and just be happy and don’t worry. I think that we do have a lot of work to do, but I don’t see it as a catastrophic threat right now. It is a serious and growing threat. In fact, one way of thinking about cybersecurity is like—it’s the weather. It’s always there. Sometimes it’s hot, sometimes it’s cold. Too much rain, not enough rain.
And we need to be always vigilant about the fact that cyberattacks are going to be prevalent and we need to share the information we learn in discovering and thwarting every one of them.
Sorcher: So Rauf, can you tell us a little bit about the landscape of digital threats facing the energy sector? Because it isn’t just Russia that is looking at this.
Mammadov: Well, yeah. It all started with Iran, the Stuxnet cyberattack and after that, Russia has decided to first attack Ukrainian grid in order to show the world—first of all, to show the United States that it can attack. And also, to use it as an active deterrence against possible attacks to its security, to the national grid. But overall, you have to look at it from the general Russian strategy of using proactive and disruptive tactics to undermine the global energy security. It’s not just attacking American grid. It’s not just attacking the Ukrainian grid. It’s their comprehensive, very situational, but at the same time, proactive approach to energy diplomacy.
Sorcher: And unlike in a lot of countries, the energy sector here is privately owned. So how does this factor into the plans for securing the grid? What’s the collaboration like between the government and the private sector here?
McGinn: There’s an outfit called the “Electricity Subsector Coordinating Council.” It is participated in at a co-chair level at the Department of Homeland Security and Department of Energy and is represented by CEOs of members of the private sector from all types of utilities: rural electric co-ops, investor-owned utilities, public utilities. And it is a venue in which there’s a lot of dialogue. In fact, some of the members of the private sector, senior executives have pretty high-security clearances to be able to have the kind of targeted and really, really serious conversations about defining what kinds of threats are there.
Sorcher: So on the innovation front—shifting over to that for a few minutes, there has been an energy boom in America in recent years thanks to fracking and other technologies. So Samantha, can you tell us about the implications of this here at home?
Gross: Yeah, absolutely. I feel like I’m being a bit of the sunshine on this panel and focusing on more of the positive aspects of energy security right now rather than sort of the cyber issues with the grid. The U.S. is now the world’s largest oil and gas producer and the world’s largest oil producer, for sure. Sort of take that in. We’ve surpassed Russia and Saudi Arabia. It’s just a really difficult thing to take in because it’s such a different mindset for us. We have been a source of reliable, non-political supply to the global markets, which is really important. If you think about how companies here in the U.S. make decisions, they make them based on a profit motive and an individual profit motive. Because if you look at some of the other suppliers out there, national companies, they have a very different set of motivations.
So this has been really important to our markets. I’ll also add that the fastest growing production here has a very different shape and flavor than large sources that we see in other places. It’s very responsive to changes in price. Production comes online much more quickly. It also declines much more quickly, so producers can ramp up or ramp down drilling quickly in response to price. This has actually taken some power away from OPEC. You’ve seen OPEC push oil prices up over about the last year-and-a-half of supply decreases. But on the other hand, they had to bring Russia into the fold to do it. And so I feel like what the U.S. has done in terms of innovating and increasing the oil and gas production has been incredibly helpful to global energy security. Not just for the U.S.
Sorcher: And Rauf, did you want to add to that?
Mammadov: Yeah, Samantha mentioned about the change of the power of balance in terms of the supply from OPEC to non-OPEC. But that also brought implications for the energy security of the United States. Since Saudi Arabia was obliged to reverse its position from protecting its market share to actually interfering to the market, it had to align with Russia and that kind of raised eyebrows in Washington, D.C. because Saudi Arabia is a traditional ally of the United States. One of the most important allies in the Gulf and Russia is an unfriendly adversary in this case. And these are the two other oil exporters in the world and oil producers in the world. Seeing them being on the same both and interfering to the market, it kind of reminds us of what happened in 1973, the oil embargo. So that kind of concern still are valid and, unfortunately, we don’t see a comprehensive and consistent U.S. policy, energy policy towards diminishing that threat.
Sorcher: Did you have anything to add, Admiral?
McGinn: In 1974, I was a young Navy pilot and found myself after a couple of combat deployments back in the United States happy to be home. But sitting in gas lines. We had gas rationing for the first time since World War II and it really was the catalyst for getting me so interested in this intersection of our economy, our energy security, and then later on, our environmental security as key components of our national security and quality of life. So we need to be ever mindful and I think that Rauf and Samantha point out these key factors. There’s always a threat, but on the other positive side, we have a very, very wonderful nation and a wonderful portfolio of energy from all sources.
Sorcher: Is there anything more that the U.S. can do, whether it’s diplomatically or any other way to get out in front of some of these challenges as they have ripple effects overseas?
McGinn: I think that it doesn’t take any Navy carrier battlegroups or Army divisions to protect the sun or to protect the wind and I think that the deployment of renewable energy distributed energy resources on the energy efficiency side, demand response, demand management, and of course, technology and prices of battery and all kinds of storage technology, including hydro storage, are going to revolutionize over the next 10 to 20 years our energy portfolio and make us much more resilient, much cleaner, and much more affordable.
Gross: I’ll add a note on the rhetoric that we put out into the world. I feel like we’ve heard this idea of energy dominance coming out of this administration and to my mind, that kind of reminds me of what happened in 1973 that my colleagues are talking about. Whereas, when you look at the effect that the U.S. is actually having in global energy markets, it’s been overwhelmingly positive. We’ve provided non-political, reliable, and in the case of natural gas, quite flexible supply options to the world. And so I feel like we need to, in some ways, match our rhetoric with reality and point out that we’ve actually been very positive with our contributions to the energy world. We’re not trying to dominate anyone. Our energy sector is not set up to do that. That’s not how it works.
Sorcher: So let me ask that question a different way. I mean, circling back to the Trump Administration’s energy strategy and the use of that phrase, “energy dominance.” What do you make of the strategy overall and is there a holistic energy strategy that’s emerging after these documents have come out and what you’ve seen so far?
Mammadov: Well, I’ll give one example to show the inconsistency of the U.S. policy, especially in the Middle East. We have changed our position on Iran twice in the last five years. And that the implications are there. We’ll face those repercussions regardless of how Trump looks at it as a deal, as a strategic move. I think we lack the comprehensive and consistent policy, foreign policy, that will counter Russian energy diplomacy, which has been very precise and specific in the region and globally. And we hope that confusion over energy dominance versus energy abundance will be clear in the minds of this administration.
McGinn: One of the things that we need to remind ourselves is that the fossil fuel industry—coal, gas, oil—made this country the economic powerhouse, the military powerhouse that it is, and we enjoy an unbelievable economy and quality of life because of it. But it’s time to change. It is time to accelerate the transition and you have factors like if you want to put people to work, get them to go under the renewable energy value chain. We’re creating five or six times more jobs every year in the renewable energy value chain than in the whole fossil fuel energy industry. Fossil fuels have been very, very good to us, but it’s time to manage and accelerate as smooth a transition as we can into more and more clean fuel and affordable fuel.
Sorcher: Samantha, you look like you had something you wanted to say.
Gross: Yeah, I’ll add a note to that just on the inconsistency of our energy policy. This came up in the first panel with the senators, where you look at our energy policy and we love free markets, except when we don’t. And you look at things like the NOPER [ph] and the idea of nationalizing coal and nuclear plants to keep them open. We definitely need to think about market solutions to these, whether we pay for additional ancillary services, whether we say, do a carbon price that might advantage nuclear in a way that would be helpful for decarbonizing our economy. So we need to think about market solutions to this and we talk a good game about markets, except when it’s not in certain interests.
Sorcher: That’s interesting. So let’s circle back to the Iran deal and talk a little bit more specifically about that. Because very timely, Trump pulled out—for those who somehow missed it here in Washington, pulled the U.S. out of the nuclear deal. What are the implications of this for you as energy security and where do you see this going?
McGinn: One of the effects that’s been talked about fairly recently in the past few days has been the upward pressure on oil and gasoline prices and I think that really will happen to the extent that supply goes down by taking some Iranian oil off the market. It’s likely that the prices will go up. The thing that I think is a serious concern is that if you’ve got a very, very complex, multi-party, international agreement and you have flaws with it, you try to fix it. You don’t just blow it up and try to start over again. You need to be very deliberate and careful in trying to bring together a coalition of like-minded nations, as we have with our European, as well as Russia and China, in putting together that deal. And let’s fix it, but let’s not blow it up and walk away from it and leave a trail of dust and destruction behind us.
Sorcher: Tell us how you really feel. [LAUGHTER]
McGinn: Other than that, it’s great. [LAUGHTER]
Gross: I absolutely, completely agree with you on the impacts of torching the agreement. I will say that I think it will have some impacts on all markets, but there’s actually oil out there to replace the amount of Iranian oil that we’re likely to lose. Particularly, because OPEC has been cutting back production for about a year-and-a-half by more than we’re likely to lose from Iran. So I see a lot of problems with blowing up the agreement. I think it’s horrendous for the U.S. reputation abroad. Why would everyone ever cut a deal with us, given what we’ve done? Not just on the Iran deal, but on the Paris Agreement and we’ve shown this real distaste for multilateralism that is very frustrating. But I actually think the impact on energy markets is low on my list of concerns.
Mammadov: Yeah, I agree with Samantha. I think it would be harder for the United States government to bring other partners and allies to the table and to have a unilateral impact on sanctions as we did before 2015. Back then, the United States achieved almost one million barrels—the reduction of Iranian export to one million barrels, which impacted the global markets. I don’t think the United States will be as successful this time. I think the more imminent danger is the escalation in the Middle East. The escalation of the military conflicts in the Middle East, that’s a bigger concern for the oil markets at this time. There is an ongoing Syria and Yemen conflict. Just today, Iran attacked Golan Heights. Israel air bombed Damascus. So this kind of escalation and transformation of this kind of escalation to military conflicts can cause imminent danger for the national energy security of the United States by means of disruption and other.
McGinn: I completely agree with Rauf. We are less secure as Americans, here at home, as well as in the Middle East as a result of walking away from this Iranian deal. That is something that is very, very serious. And we need to figure out how we’re going to deal with it. The other thing that Rauf mentioned as well, the credibility of the United States leadership depends on the commitment and on following through, do what you say you’re going to do and it has to be that way regardless of the administration. There are key aspects of the U.S. leadership that rely on us keeping our word and in the case of Paris, in the case of this Iran deal, and Lord knows what else, we needed to get more serious about speaking the truth and keeping our word.
Sorcher: And as a former military person, what do you think is going on within the Pentagon now and just in the agencies in terms of planning for the fallout from the pullout of this deal?
McGinn: The national security community generally is always thinking ahead, trying to stay ahead of potential threats. The Secretary of Defense, Jim Mattis, is doing an absolutely superb job—all of the uniform military, General Joe Dunford as the chairman, all of the service chiefs, all of the combatant commanders—unbelievably great Americans and right down to every private first class and petty officer third class that is out there defending our nation every day. So they are on it. But there are things that are political decisions that make life harder for them and increase their mission creep and I think this is one of them.
Sorcher: Interesting. So I know that there is upward pressure on oil prices right now, but more broadly, the price of oil has been low in recent years and you’ve seen it take a toll on countries like Russia and Venezuela and other states that rely on their oil sectors. So is this the new normal and are petrostates more broadly in trouble?
McGinn: I’d defer to Samantha on that one.
Sorcher: Take it away.
Gross: No, I’m happy to go there. In the very long-term, yes. But what may happen between here and there, it might get interesting. I don’t think we’ve eliminated oil price cycles and we’ll continue to see that and I think countries will continue to have challenges during those low parts of the oil price cycles. But we’re seeing countries, particularly in the Middle East who are doing a lot to diversify their economies right now because they see the writing on the wall. I’m not that old and during my career, we’ve gone from talking about peak oil supply to peak oil demand and that’s a completely different world from them and really changes how they think about how they produce their resources and manage their economies. And so long-term, yes. I think they have to think about this. But I think countries that are forward-looking, are thinking about how to diversify their economies and move forward.
The Saudis, the Emiratis, in particular, have more concrete programs.
Mammadov: Yeah, Saudi Arabia just recently signed a 200-gigawatt solar farm, which is, just to put into context, the previous largest project was 2-gigawatt. That’s how ambitious their plans are. But at the same time, in order to implement these ambitious and assertive plans, Vision 2030 by Mohammad bin Salman, they need the high oil prices to reap the maximum benefit from it. So in order to get to that, they will have to keep the prices high and they have made a statement that their desirable price is around 70 to 80. It’s not only to Saudi Arabia and Russia to impact the prices. There are geopolitical factors. Part of the rolling cut in today’s market is due to involuntary cuts in Venezuela due to the mentioned reasons and in Libya, Nigeria, and Angola as well. But certainly, the reliance between Saudi Arabia and Russia and statements to institutionalize this alliance for the next 10 to 20 years shows the intention and the plans of this country is to rely on oil and gas for at least the next 10 to 20 years.
McGinn: An oft-quoted former Saudi oil minister once said, “We must remember that the Stone Age didn’t end because we ran out of stones. [LAUGHTER] It ended because we had better solutions to do the things that we had been doing with stones.” And I think that’s a good metaphor for where we are today in this 21st-century energy portfolio. We need to rely less on stones and more on other forms of energy.
Sorcher: Just saying, I think that’s a good transition to some of the resilience questions that the previous panels were talking about. What type of things should the Trump Administration be doing to prepare for disruptions to service? And I know that Energy Secretary Rick Perry said yesterday that he’s even looking at the Defense Production Act, a 1950 law to save struggling coal and nuclear plants.
McGinn: I think the Defense Production Act can be a very good tool in the government’s toolbox. But how are we going to use that tool? It can be misused and not produce the kind of energy, security, and energy resilience. So I’ll wait and see what they propose to do with that Defense Production Act. I think that anytime you can diversify your supply of energy nationally, regionally, and locally, that tends to be a good thing. I think it’s really important for us to get on with rebuilding the infrastructure far beyond just roads and bridges. As important as those are and we need to do that, we need to have a new set of eyes looking at our utility and our energy distribution transmission infrastructure.
Sorcher: So is coal a national security imperative?
McGinn: No, it’s not.
Sorcher: Okay. [LAUGHTER] Samantha?
Gross: I completely agree. I completely agree with everything the admiral has said. I would add that market solutions tend to work best in bringing out solutions and what we have to do is make sure that we have the right markets in place. It’s been really fascinating to me that through the DPA and through the NOPER process that coal and nuclear have sort of banded together to say, “You need us to be reliable.” They both provide baseload power, but one makes a ton of carbon and the other, zone. And so it’s interesting that they’ve become strange bedfellows. I’m a big fan of a carbon price as a way to sort of separate these out and understand what we need from an environmental and a supply perspective. But I completely agree that coal is not a national security issue and I also agree that we need to rebuild our infrastructure, particularly because infrastructure to support a lower carbon economy will have a different shape than the infrastructure that we have now. So we need investments.
McGinn: So I said very clearly and abruptly that coal wasn’t a national security issue because it isn’t, but we need to consider the economic impact on people in the coal value chain, recognizing the good things that I mentioned earlier that coal has done for this country over the century, really. And make that transition to clean energy as smooth as we possibly can.
Sorcher: Great, well, unfortunately, that’s all the time that we have for today. And if you’d like to watch video clips and other highlights from today’s program, please visit Washingtonpostlive.com, and thanks to everyone here in the audience and everyone who watched online for joining us. Thanks.