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New Challenges Coming in Era of U.S. Energy Exports, Says Experts

As the United States heads toward an era of net energy exports, regulators and lawmakers will face a new set of challenges and should consider making certain reforms, experts in the energy sector told the Senate Energy and Natural Resources Committee on Tuesday.

Energy Information (EIA) Administrator Linda Capuano reaffirmed a forecast that the United States will become a net energy exporter in 2020. She also told the panel of EIA's projections that dry natural gas production is expected to initially grow 7%/year after reaching an all-time high of 30 Tcf in 2018, but that the rate is expected to slow to less than 1% annually after 2020.

"This is an exciting and transformational time for the United States energy industry as world energy markets adjust to the United States becoming a major global supplier and exporter for years to come," Capuano said in her testimony.

That transformation won't come without a new set of challenges, warned ClearView Energy Partners LLC managing director Kevin Book. Instead of retooling laws enacted when energy was scarce, Book said regulators will now be tasked with reinterpreting "old laws for new circumstances.

"The resulting rulemakings and decisions have faced legal challenges that created investment delays and project uncertainties, especially for energy transportation infrastructure. Securing the economic and security benefits of expanded exports may require further substantive policy renovations that, among other things, alleviate these delays and uncertainties."

R Street Institute director Travis Kavulla told the panel that the nation's electricity markets needed reform, and that "there are places where congressional intervention, whether through legislation or oversight, would be useful." Chief among them would be changes to the Public Utility Regulatory Policies Act of 1978 (PURPA), a law that he said "has not aged especially well in light of all the changes we have seen in the electricity market...

"The fundamental problem of PURPA is not the requirement that utilities purchase energy from independent developers, provided it is as or more affordable than if the utility built a project itself," Kavulla said. "Instead, the problem is the fact that the administrative price forecasting on which PURPA's implementation relies is a suboptimal way to engage in what economists call 'price discovery.'"

According to Kavulla, PURPA's requirement that utilities buy energy and capacity from suppliers, aka qualified facilities (QF), at a nondiscriminatory rate is flawed because it is nearly impossible to predict the cost of energy in the future and can lead to litigation.

Kavulla encouraged FERC to adopt a proposal by the National Association of Regulatory Utility Commissioners to waive PURPA's mandatory purchase obligations "for those states that have competitive frameworks for the procurement of energy and capacity.

The move would allow the Federal Energy Regulatory Commission “to establish regulations that ensure that the state frameworks are genuinely competitive and open to QF technologies. And it would allow states to avoid the sure-to-be-wrong rigmarole of decreeing prices through regulatory forecasts."

Kavulla also took aim at states and the federal government granting subsidies to resources "that would not otherwise be economical to enter the market." He said some states are adopting policies to keep uneconomic sources of electricity running, using nuclear subsidies in Illinois, New York and New Jersey as examples.

"Policymakers are subsidizing certain resources to enter the market and policymakers are also subsidizing other resources to prevent them from leaving," Kavulla said. "Moreover, while these policy interventions were at one point relatively limited in nature, they have grown in number and in scale over the last few years...

"The inevitable result of these subsidy policies is that consumers, in one form or another, are paying for power plants that they do not need."

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