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FERC's Spitzer Says Energy Markets Working

September 21, 2009
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The quick turnaround in U.S. natural gas supplies is another example of energy markets working as has been the case in the regional transmission area for electricity, FERC Commissioner Marc Spitzer said last Tuesday at an energy conference in San Francisco, "Energy in California." Technology advances and the right government policies have made it easier for the gas industry to respond quickly to price signals in recent years, Spitzer said.

"It is a case of markets working. If you look at when prices for gas went up, sending signals to the market, and the use of technological innovations of horizontal drilling and fracing, it has all allowed nonconventional gas that wasn't thought to exist in 2002 to put us in a position where we are now awash in gas supplies," Spitzer said.

Regarding climate change and renewables and their continuing impact from traditional fossil fuels, the three-year member of the Federal Energy Regulatory Commission (FERC) also said Congress needs to take action on carbon pricing to establish more parity between renewables and fossil fuels that historically have enjoyed generous tax code subsidies.

A former tax attorney and Arizona state legislator and regulator, Spitzer told the Law Seminars International energy meeting participants that unlike natural gas and electric infrastructure siting where federal regulators have received increased authority to grant incentives, the carbon cap-and-trade question needs to be addressed by Congress.

The 2005 and 2007 federal energy laws and government's response to them has further helped the natural gas markets work, he said, noting the same thing can happen with carbon legislation. Spitzer thinks that FERC incentives have created a lot more merchant-priced gas storage. "Europe has no storage capacity so when the prices go up, they are hurt by having no ability to put $2 gas in the ground and pull it out when prices are $6."

Repeating his assertion that FERC has approved more miles of interstate gas pipelines in the last three years while he has been on the Commission than it did in the previous 15 years, Spitzer said that thanks to the 2005 Energy Policy Act the federal regulators also have sited a lot of new storage.

"This is the perfect convergence of changes in law creating market signals and infrastructure being approved and getting built. With this storage, liquefied natural gas (LNG) becomes very valuable in the United States because we have the capacity to take supplies when prices are low. At those times, this is the only place that global LNG can go," Spitzer said. "We have the most liquid, transparent and consumer-friendly natural gas markets in the world."

Ultimately, Spitzer said, the market works even though at times in recent years people have "lost faith in the gas markets." Since natural gas was deregulated in the United States in 1982, he said American consumers have "saved billions of dollars."

The regional electric transmission markets are developing the same consumer savings as the markets mature, Spitzer said. "They are another example of markets working." But he still thinks additional energy legislation is needed, starting with the carbon emissions issue.

"I'm one of those Republicans who supports legislation regarding carbon," said Spitzer, qualifying his stance to emphasize that he doesn't "want to put the coal industry out of business," but at the same time, he feels "coal has had a free ride in terms of externalities.

"I have my own opinions on how I'd craft that bill, but I'll leave it to Congress. I think that there should be action at the federal level. Eventually FERC should have the authority to police the physical carbon markets and the CFTC [Commodity Futures Trading Commission] should have the authority for the derivative markets, which is the same breakdown we have for physical electricity and natural gas markets. I think that is an appropriate demarcation line."

Noting that people can debate how Congress crafts the bill from various perspectives, Spitzer said that when energy CEOs come to his office they are looking for more certainty even though they might have coal-fired generation in Midwest and Southeast companies, they still can't do planning right now.

He said California utilities for the most part have "cleaned up their acts," but in other areas where there is what Spitzer called "an overallocation to coal," those ratepayers in the coal-dominant areas are being subsidized by the ratepayers in places like California.

"So I think the ultimate answer is through Congress, and unfortunately we seem to have lost a lot of priority to debate over health care, and I would like to see energy legislation reactivated."

Spitzer said there is a need for "more concrete rules" on pricing products, harking back to his earlier career as a tax lawyer and how the oil and gas industry has received major subsidies through the tax code going back to the 1920s.

"I would like to see a law that created a symmetrical approach to the tax benefits where carbon pays for carbon -- no more, no less," Spitzer said.

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