Announcer:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York city, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSC an indispensable institution of global growth for over 225 years.
Announcer:
Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now at the NYSC and at ISIS exchanges and clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Today. We're bringing you another of our special episodes drawn from the fascinating events we hold here almost every day at the New York Stock Exchange recorded live at the fourth annual NYSC spotlight on energy event, held before a gathered audience of our listed company executives, representatives of the Federal Energy Regulatory Commission and other leaders from across the energy sector.
Josh King:
Now, our exchange is home to over 90% of the publicly traded utilities and pipeline companies in the US that are qualified to list here. Many of them also use the many other markets of Intercontinental Exchange to trade and hedge their energy needs. The Federal Energy Regulatory Commission or FERC, is an independent government agency that regulates the interstate transmission of electricity, natural gas and oil.
Josh King:
Our spotlight on energy event is an opportunity for senior leadership from across the sector to come together, to discuss the challenges and prospects facing the market.
Josh King:
This year, the group rang the opening bell before heading into freedom hall located just above where we are here in the library for a fireside chat between ICE's co-head of government affairs, Hope Jarkowski, and FERC's chairman Neil Chatterjee, which explored the regulatory ecosystem, the future of energy infrastructure and prospects for continued growth in the US energy markets.
Josh King:
Chairman Chatterjee was nominated in May, 2017 to lead the FERC by President Trump and confirmed by the Senate in August of that year. Prior to joining the Commission, he was energy policy advisor to Mitch McConnell, the Senate majority leader. The next voice you'll hear after the break is Hope Jarkowski, her conversation with FERC Chairman Chatterjee on the cybersecurity challenges facing the energy sector, the future of LNG and preparing for the power grid of the future. That's right after this.
Announcer:
And now a word from John Van Siclen, CEO of Dynatrace, NYSC ticker, DT.
John Van Siclen:
We're a software intelligence company for the enterprise cloud. Software rules the world and we bring performance and intelligence to those who develop, operate, and drive business outcomes for the digital age. We sell our products in 70 different countries. Many of our customers trade on the NYSC. It is the enterprise class customer base that we target. And we're thrilled to be part of the family. Dynatrace is listed on the New York Stock Exchange.
Hope Jarkowski:
We want to thank you for taking the time to join us this morning.
Neil Chatterjee:
Thank you for having me.
Hope Jarkowski:
Absolutely. We want to hear about your priorities, the work that you're doing at FERC. Chairman, you spent large part of your formative years in the halls of Congress working most recently before you left for leader, Mitch McConnell, and a man who is a statesman by any measure and has a long standing history of bipartisanship, which is something increasingly rare in Washington.
Hope Jarkowski:
Tell us how your time in the Senate prepared you for leading a bipartisan commission?
Neil Chatterjee:
You and I were, of course, colleagues together in the Senate. You know, I truly believe the Senate is the world's greatest deliberative institution. And I think it really prepared me well for the opportunity to commission for a couple of reasons. One working in the Senate, working for the leader in particular, I had to take a national look at energy policy. I obviously had to square what was in Senator McConnell's interest representing the Commonwealth of Kentucky. But then in order to find the 60 votes necessary for legislation to pass the Senate, you had to reconcile what Senator McConnell needed for Kentucky with the interests of the Northeast, the Midwest, Western senators.
Neil Chatterjee:
And most of the legislation, while there's so much talk about the partisan ranker in Washington, most of the bills that I worked on in the energy transportation and agriculture space passed with 80 plus, 90 plus votes.
Neil Chatterjee:
And I think that having that national perspective, seeing energy issues from different regions of the country and understanding those complexities has helped me work at the Commission. And then also, finding consensus, working on a bipartisan basis with my colleagues. We are seeing some more divided votes at the Commission. We're seeing more two-one, and three-two votes than we perhaps have seen historically.
Neil Chatterjee:
It's still a very, very small per percentage of the work that we do that falls on partisan lines. The overwhelming majority of the work we do is on a consensus basis. And I really think the Senate and working for Senator McConnell, in particular, helped train me to work in that environment.
Hope Jarkowski:
I should probably take a step back for those who might not be familiar with the structure. Can you just tell us, at a high level, there are number of independent agencies in Washington. You have a five person commission structure. Kind of at a high level, how does FERC work? What is the authority that you have to regulate particular segments of the market?
Neil Chatterjee:
I think the structure of the Commission is really important. I've spoken with a number of stakeholders this morning and the folks in this room, the members of the exchange, the investment that is required in the energy space, we're talking about long term high CapEx investments. And in order for the regulated community, for stakeholders to have confidence in the long term investment decisions they're making, there really has to be stability and clarity and transparency at the Commission.
Neil Chatterjee:
And so the Commission is structured as a bipartisan board, independent agency. There's five members when we're at full strength, and no party can have more than three members, ensuring that there are divergent views at all times on the Commission. We are independent in that we serve staggered five year terms. So my term runs through June, of 2021. So regardless of what happens in the presidential election, in 2020, I can continue to serve at the Commission.
Neil Chatterjee:
And I think that's really, really important for that stability, for that clarity. I look, for example, to the EPA and I think my friend, Andrew Wheeler is doing a tremendous job at the EPA, but the reality is the policy direction and regulatory approach that the EPA is taking under the Trump Administration is the polar opposite of where it went during the Obama Administration.
Neil Chatterjee:
And it's difficult for stakeholders to make these kinds of significant investments, if they're worried about that pendulum swinging back and forth, I'm hoping that FERC will remain that beacon of stability in an otherwise volatile regulatory landscape. And I think the structure of the agency, will enable that.
Hope Jarkowski:
That makes sense. Maybe we'll jump into some of the substantive areas to cover. I think I can safely say that cybersecurity is top of mind to everybody in this room, including those who work for the New York Stock Exchange. FERC is the federal agency charged with overseeing the development and enforcement of cyber standards.
Hope Jarkowski:
What can you tell us about the work that you're doing, have done, are currently working on and foresee for the remainder of your term?
Neil Chatterjee:
So you had asked in the previous question, what are our authorities, what our responsibility at the Commission is. To me, I think my colleagues would agree, my foremost responsibility, what I would wake up thinking about every day is keeping the lights on. Ensuring that we have a reliable grid is, I think, the Commission's primary responsibility and cybersecurity is something that is unfortunately a new reality that we must all contend with.
Neil Chatterjee:
You know, the country is experiencing a tremendous transition in energy right now, which is providing great economic value, benefits to consumers, lower costs, maintaining reliable service, positive environmental benefits. But with that innovation, with that change, comes a downside risk. And that downside risk is increased vulnerability to cyber threats. And I don't think I'm being hyperbolic when I say that warfare in the 21st century has evolved to a point where now private sector companies are finding themselves on the front lines of 21st century warfare.
Neil Chatterjee:
What do I mean by that? No one can match the US militaristically, but if 20 Russian hackers can take out a pipeline or a substation in the US, that can have the same economic and security impact as an act of war. And so we must all work collectively to remain vigilant in the face of these new threats. You mentioned standards, the Commission does work with our partners at NERC on establishing standards.
Neil Chatterjee:
But I very much feel that standards are the floor, not the ceiling because our adversaries are constantly evolving and changing their approach and the way that they will try and infiltrate our networks. And so I think it's incumbent upon all government agencies, not just for DOE, the Department of Homeland Security, the Office of the Director of National Intelligence.
Neil Chatterjee:
We need to work collectively at the federal level. We need to work with our partners at the state level, and we need to work with the regulated community so we're all communicating, we're all aware of vulnerabilities, opportunities, different threat vectors.
Neil Chatterjee:
You mentioned the importance here of the stock exchange. I think what we're increasingly finding is there is a nexus between the energy sector, the telecom sector, the banking sector, we all need to work collectively together. And what I have come to discover during my time at the Commission is these massive parts of the US economy, we don't really know each other on a personal level, on a regulatory level, on a substantive level.
Neil Chatterjee:
Folks in the energy sector aren't that familiar with the telecom sector and the banking sector. And I think breaking down some of those silos and getting more cross sector engagement is going to be really important. And I'm proud of the role that DOE and the Commission are playing in that process.
Hope Jarkowski:
What are some specific examples, if you're able to give them, of ways you've worked with the Department of Homeland security? I mean, it's one thing to talk about it, but how does that actually work in practice in your experience?
Neil Chatterjee:
So something as basic as gaining access to classified information. So at FERC, we're a domestic energy regulator and something as mundane... It seems mundane. We don't even have a skiff, a space in our building where we can get the highest level TSSCI level of classified information. So working with our partners in the federal government who are a part of the intelligence community has better enabled us to be informed about the decisions that we need to make as we're overseeing the energy transition.
Neil Chatterjee:
Similarly, we're having to help stakeholders. I had a CEO of a pipeline company complain to me that he received a low level security classified briefing from the Director of National Intelligence, basically hair on fire saying that his system was vulnerable, but he couldn't even get access of the TSSCI level briefing to know where to even invest in protecting his system, which was purportedly vulnerable.
Neil Chatterjee:
And so that's an example of, this is a new reality that we're having to deal with in the energy space. And so by forming these alliances and gaining an appreciation from our colleagues in the defense and intelligence community, they take very seriously the role that energy plays in security, in this new era, and have been very good about working to ensure that information is being disseminated to the proper channels.
Hope Jarkowski:
And when it comes to engaging stakeholders, the thing that we are very expert here at the Exchange is, systems testing for trading operations and new developments and implementation, and the like. What kind of industry outreach and testing does FERC do? And how do you work with your fellow regulators?
Neil Chatterjee:
So there's a group called the Electric Sub-sector Coordinating Council that meets quarterly, and it's being run by the Department of Energy. And it brings all of the stakeholders that I mentioned across the federal government, state government and different sectors to the table. And that has enabled conversations about and led to information-sharing. And then we do exercises.
Neil Chatterjee:
A number of energy CEOs recently participated in a table top exercise called Grid X, where we kind of gamed out different scenarios. And it was very beneficial to me, because what I saw was the Commission had a significant role we potentially would need to play in the event of a black sky scenario. And rather than be reactive, we now have an understanding of situationally, what types of actions would the Commission need to take? What sort of orders would we need to produce, whether it would come to waivers of certain regulations or cost recovery?
Neil Chatterjee:
These are all serious issues that I would rather approach now, so that we're ready. Hopefully, knock on wood, we don't ever have to go down this course, but if we did, I want to be maximally prepared. And these types of exercises, this type of engagement, helps ensure that all of us collectively are ready for that black sky day should ever unfortunately come to pass.
Hope Jarkowski:
Let's comforting to know you're thinking ahead. Well, let's switch gears. One additional topic that we're hearing a lot about are LNG export terminal reviews, and FERC has done, I think, 11 in the last 10 months, which seems like a lot. Is that unprecedented? I think more importantly, what does that mean going forward for global trade policy and the future debate,
Neil Chatterjee:
It's pretty remarkable. And it's very exciting. You mentioned at the onset that up to this point, I'd spent the bulk of my career working in the legislative branch of government. When I first came to Washington and was working in the House of Representatives, we were looking at siting LNG import terminals in the US. And the fact that in a very short period of time, the shale revolution has led to such an abundant affordable supply of gas in this country that in 2018, the US for the first time in 60 years became a net exporter of energy.
Neil Chatterjee:
And it's very exciting for economic reasons. You know, there's job growth and job creation that comes from the role the US can play here. There's positive geopolitical implications. Having a diverse fuel supply our allies, Western Europe, and Asia would like a diversity of fuel supply, not be so dependent on Russian gas. Definitely want to do business with the US for that positive geopolitical benefit.
Neil Chatterjee:
And then there's also positive environmental benefits. As we're undergoing this energy transition, clean US LNG, displacing more carbon intense sources of fuel in other parts of the world, will have a positive benefit in reducing global power sector carbon emissions. And so I think those positive benefits, economic, geopolitical, environmental, are significant. And we should be proud of it.
Neil Chatterjee:
Now, you mentioned we've done 11 in the last 10 months. And how did that come to be? Part of it was look, I was very worried in the summer of 2018 that the US could miss this incredible opportunity, miss this historic moment. And I was deeply concerned that FERC might be the weak link that caused us to miss this. So why did I feel that way? Why did I have that concern? One, I think we underestimated the volume of a quality applications that would come into the Commission.
Neil Chatterjee:
I didn't think we'd get so many. I think the staff wasn't prepared. But we also at the Commission are responsible not just for evaluating new project applications, but for overseeing projects that had been approved prior by the Commission and we're doing that with the same number of staff and our staff was really being worked down to the bone to not just oversee the projects we've approved, but to handle this volume and influx of applications.
Neil Chatterjee:
And when I'm talking applications, I'm not talking like a two page form. These are 40, 50, 60,000 page applications. And there's another element to it. The workforce, the lawyers, the engineers, the environmental analysts, the experts who are needed to process these complex applications. We sometimes have a hard time attracting and retaining the talent, because these people are sought out and they have expertise that is very valuable.
Neil Chatterjee:
And so culmination of factors put us in a place where I was deeply concerned in the summer of '18. We really moved heaven and earth to be in a position to approve the orders that we've done. We streamlined our own process, cut through some red tape and streamlined, eliminated duplicative regulation. We entered into a memorandum of understanding with PHMSA our counterparts, who do the safety piece again, to better align and streamline our process.
Hope Jarkowski:
What does PHMSA stand for?
Neil Chatterjee:
It's the Pipeline and Hazardous Materials Safety Administration. And so working with our partners there, we were able to better align and streamline the process. We also hired the best people we could, wherever we could find them. One of the things that I am proud of is we are in the process now of opening a new office in Houston. You know, Houston's the energy capital of the universe. That's where the schools are training people to work in this space. And so we thought we could tap into that talent pool.
Neil Chatterjee:
And then the most important part, back to what we originally talked about, was good, old-fashioned, rolling up our sleeves and cutting a bipartisan agreement. In February of this past year, the Commission was deadlocked two-two. Unfortunately the prior chairman of the Commission, a dear friend and mentor to me, the late Kevin J. McIntyre, passed away in January.
Neil Chatterjee:
And we found ourselves in a two-two deadlock on the Commission. And the Commission has been divided over the question of greenhouse gas emissions and what our role and responsibility is in evaluating the greenhouse gas impacts of the energy infrastructure projects that we evaluate. And so myself and my Republican colleague entered an agreement with my Democratic colleague at the time that really enabled this breakthrough.
Neil Chatterjee:
And we were able to put a framework in place in which we would assess the direct GHG impacts of the facilities that we were evaluating. That was a significant step for the Commission. What I appreciated was that my colleagues, one conservative, one progressive, both were willing to take half a loaf.
Neil Chatterjee:
And my democratic colleague has since departed the Commission, but we haven't changed course, because I do think again, consistency, transparency, clarity, regulatory certainty is so important. And so even though we've got the votes now that we could go back to doing things the way we did prior to reaching this bipartisan accord, we're not going to do that because we think it's so important to stakeholders to provide that clarity.
Hope Jarkowski:
That's great. So you touched on security as kind of one big pillar of what FERC is focused on the moment, and another would be resiliency. And we understand that FERC is in the process of doing a pretty comprehensive review of grid transmission infrastructure. What can you tell us about the resiliency focus areas that you have in mind right now?
Neil Chatterjee:
So I mentioned the energy transition that the country is currently undergoing and it's very exciting. And I mentioned the tremendous benefits that are being realized by consumers, by the environment. And the transition is really being driven by the increased deployment of affordable, abundant, natural gas, coupled with the falling cost of renewables.
Neil Chatterjee:
I think there's a real business case to be made for renewable energy today. And you are seeing, not just based on consumer demand or government policies, but a genuine economic case for renewables, that you're seeing an accelerated deployment of renewables. That accelerated deployment of renewables coupled with the deployment of gas is putting pressure on traditional forms of base load generation, mainly coal and nuclear.
Neil Chatterjee:
And in the fall of 2017, the Energy Secretary, Rick Perry, submitted a notice of proposed rulemaking to the Commission, essentially saying that the markets were not properly valuing all of the attributes that the traditional base load resources offered, namely having onsite fuel.
Neil Chatterjee:
And so the secretary wanted the Commission to take action, essentially to compensate these resources for the attribute of having onsite fuel. I have to tell you, this is something that I personally wrestled with. So I was confirmed by the Senate in August, of 2017. We got this proposal in early fall. You know, I had spent the last decade of my career as a partisan legislative aide working for Mitch McConnell, whose constituency in Kentucky is heavily dependent on coal, coal mining and coal fire generation.
Neil Chatterjee:
And so here I was, confronted with this rule making that would've thrown a lifeline to the declining coal industry. And my initial instinct was, of course, I want to do something to help the people that I've been working on behalf of, for the totality of my career. But what I understood immediately was that I had to make that transition from partisan legislative aide to independent regulator.
Neil Chatterjee:
And that it's so important that once I took my oath to the Commission, that I adhere to the statutes that govern the Commission and make the calls that we need to make, based on the record, based on the evidence, based on the law. And so despite my deep concern for the plight of coal communities in Kentucky and throughout Appalachia, despite my deep concern that even a slight uptick in the retirement of nuclear plants could further exacerbate climate change.
Neil Chatterjee:
Despite those concerns, there wasn't sufficient evidence in the record before us to approve the action that DOE was asking us to take. And so we unanimously rejected it, but simultaneously opened up a process to look at grid resilience, which I hope that we'll be able to act on soon. And I hope we'll be able to act on a consensus basis, because I think it is important that we achieve consensus on what resilience is. We need to define it. We need to clearly lay out what attributes of resilience that we need to focus on.
Neil Chatterjee:
Once we make that determination, we then need to evaluate, is there a threat to the resilience of the grid, either in the short term or long term? And then if so, what measures would be needed to ward off those potential threats to resilience? And I think my colleagues and I would all agree that if we were to take any action, it would have to be a market-based action.
Neil Chatterjee:
It's entirely possible that we do and complete our resilience analysis and find that there is not a threat to resilience, close the proceeding and move on. It's something that we're taking very, very seriously, and I've tried my best to assure all stakeholders, this is going to be a process that will not be influenced by politics.
Neil Chatterjee:
There will be no putting the thumb on the scale for one's preferred fuel source over another. This will be a total science-based, evidence-based approach. And we'll see where it takes us.
Neil Chatterjee:
The one thing I will say, as opposed to the fall of 2017, I really want to credit Secretary Perry, the deputy secretary who I think will become the secretary today, Dan Brouillette, they raised an important issue. I think resilience is an important issue. It's a serious issue. And even though we could not legally adopt the proposal they submitted, it is their leadership on this issue which has put us in a position now to do this serious analysis.
Hope Jarkowski:
All of what we've discussed, ties into a big theme of climate change. You've said that phrase a number of times in our brief discussion. It sounds like you're wrestling at the moment with some states asserting, pushing back on FERC, asserting their own jurisdiction, pushing back on FERC that maybe all these decisions about state climate change regulation should be left at the state and local level, not at the federal level.
Hope Jarkowski:
You recently received a letter from 11 state attorney generals on that topic. And I know it ties into a larger matter that you're considering at the moment. So to the extent you can't comment on that, we understand, but how are you looking at this interesting question of state versus federal regulation of climate change?
Neil Chatterjee:
Yeah. This is a really, really difficult situation that we're finding because two things that I care deeply about, properly functioning markets and accurate price signals and states' rights are essentially colliding. I'm a big believer in states' rights. I think states absolutely ought to be able to make decisions about their resource mix and their local energy futures. But I also really believe in these markets and the benefits that we've seen with our experience with competitive wholesale markets.
Neil Chatterjee:
And what is happening now is different states are pursuing, in the absence of federal law legislation, different states are pursuing their own policies for various reasons. Some states are trying to promote the accelerated deployment of certain resources. Some states are trying to preserve existing resources. In certain states, you have actions that are being taken to support nuclear plants. Ohio recently passed a bill that would support their coal fleet.
Neil Chatterjee:
And so different states are taking actions and unfortunately it is distorting the price signals in the markets that FERC oversees. And where it becomes difficult is if state A, takes an action that inhibits state D's resources' ability to compete in the competitive wholesale markets, but state D doesn't necessarily support the public policy objectives of state A, they're turning to the Commission to intervene.
Neil Chatterjee:
And so look, I understand and fully respect the attorney generals who wrote to the Commission on this complex matter. And it's something that we are wrestling with, but I really want these markets to function properly and succeed, but the combination of the energy transition and the absence of federal legislation has led the states to take these actions that is having this distort-ive effect on markets.
Hope Jarkowski:
Yeah. On all these topics. What is your advice, given your past experience, working in the legislature, meeting with people, stakeholders of all shapes, sizes and backgrounds, and where you sit now, what's your advice on how to engage on these issues if you're one of the folks in this room?
Neil Chatterjee:
Yeah. So this has been something that has been very revelatory to me in making that transition from the legislative branch to an independent quasi-judicial agency. So when you and I worked in the Senate, you could engage and interact with stakeholders up until the moment a bill was voted on, get feedback, constantly amend it and edit it and change it.
Neil Chatterjee:
Because of the quasi-judicial nature of the work that FERC does, we have very stringent ex parte rules that limits our ability to communicate with stakeholders once issue has been filed with the Commission. And I mentioned earlier in our consideration of the notice of proposed rule making on grid resilience from the Department of Energy, we make decisions based on the record.
Neil Chatterjee:
And so what I have come to learn is not everyone is perhaps as familiar with FERC's processes. And so I encourage folks, engage with the Commission, engage with the staff, ensure that you're making contributions to the record that we ultimately will make our decision based on, prior to filing. So working in pre-filing and really working with the staff, the Commission.
Neil Chatterjee:
Some of this extends to sectors of the economy that don't historically work closely with the Commission. One of my biggest regrets by far during my tenure, in April, of 2018, we made a decision that those of us in the building thought was a logical step to take regarding the tax treatment of MLPs. And we put it, issued that we were going to take action on MLP tax structures at our open meeting. We have an open meeting the third Thursday of every month. And we publish a sunshine notice a week before.
Neil Chatterjee:
Those of us in the building, because we've been working on this so closely, we assumed that people following this would know that the only action we could take, because our hands were tied by the DC circuit, was the one that we ultimately would take.
Neil Chatterjee:
We thought by putting it on the sunshine act notice we'd give plenty of heads up so that market observers would know that this is where we were going. We got it completely wrong, and the market tanked that day, directly based on an action that we took. And what I recognized in the aftermath and doing the autopsy of how we got to that point is, there are a lot of tax experts in the MLP space who don't know FERC. And there are a lot of FERC experts who don't know tax.
Neil Chatterjee:
And so to avoid that kind of thing going forward, I, my colleagues, the staff, have been working really hard to reach out to not just our traditional base of stakeholders, but to ensure that all interested parties to the work of the Commission have a voice and have greater familiarity with our rules, with our processes, with our procedures, so that we can have a robust record. So that stakeholders are not caught off guard as to what happened in April, of 2018.
Hope Jarkowski:
So a few things that I'm finding in everything that you're saying, transparency, collaboration, communication, thank you for the way that you're approaching your role and the work of the Commission. I'm-
Josh King:
Thanks for joining us Inside the ICE House. Our episode this week with FERC chairman, Neil Chatterjee was recorded live at the fourth annual New York Stock Exchange Spotlight on Energy.
Josh King:
If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @ICEHousePodcast.
Josh King:
Our show is produced by Pete Ash with production assistance from Steven Romanchik and Ken Abel. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Announcer:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE, nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purposes of length or clarity.
