Energy policy has been compiled over the years in a vast collection of federal
and state laws that often conflict and seldom encourage additional production.
There are the Public Utilities Holding Company Act, the Federal Power Act, the
Public Utility Regulatory Policies Act, and the Energy Policy Act, not to mention
the various environmental protection laws, occupational safety laws, and who
knows what else. These laws have created three forms of electricity providers:
investor-owned utilities, rural electric coops, and municipal power companies.
All are monopolies in that they possess a government franchise to serve a specific
area and class of customers.
The law having most impact at present is the Energy Policy Act of 1992. Under
this law, power generation was split off from transmission and distribution
and was designated as a new unregulated business exempt from the Public Utilities
Holding Company Act. Regulation of interstate transmission was left under the
Federal Energy Regulatory Commission (FERC), and regulation of local area power
distribution and siting of power plants were left up to the states. A new class
of unregulated "merchant generators" was born, and many investor-owned
utilities reorganized to separate generation, transmission, and distribution
into separate subsidiaries under a new holding company.
High-volume users immediately began lobbying states for the right to select
their power supplier instead of being required to buy from the monopoly investor-owned
utilities under state-controlled prices. This seemed like a good way to obtain
theoretical benefits of competition, and 24 states passed laws "deregulating"
their power markets. States with lower-than-national median rates declined to
change their policies, fearing that consumer prices might actually rise. However,
in order to protect the utilities from expected losses due to unrecoverable
"stranded costs" of generation plants, some states induced them to
sell their plants and buy power on the new unregulated wholesale market.
States also set a price cap or "default rate" for those customers
choosing to stay with the incumbent utility. Competitors from outside must offer
lower rates to gain any market share. In most restructured states, this has
been difficult so the number of customers actually switching to new suppliers
has been small, except for large-volume users who could negotiate better deals.
Timing for removal of the rate cap varies with the states and from utility to
utility. In California, rates soared the instant the rate cap was lifted. (You
can keep up with state deregulation progress by visiting the government site
The sticking point seems to be bottlenecks in capacity of the interstate transmission
lines. FERC has yet to come up with a plan to effectively transition the regional
high-voltage power grid into a true national highway for interstate power transfers.
Policymakers seem to be unable to reconcile basic laws of economics with Kirchhoff's
laws of power distribution in closed circuits, if that is even possible. Transmission
and distribution engineers have been warning for years that the regional transmission
system interties were designed to help assure reliable delivery under emergency
conditions and never were intended to act as an interstate common carrier of
power like the federal highway system.
FERC has attempted to get utilities to create a new system of Regional Trans-mission
Organizations for operations by end of 2001, but progress has been slow. With
future control and development of a true national grid uncertain, present transmission
line owners are understandably reluctant to invest in badly needed expansion
and maintenance. Also, siting of new lines often requires passing regulatory
hurdles that take years.
On July 11, FERC issued a new order requiring owners of transmission lines
to relinquish their control to four regional transmission operators, except
for Texas and Florida that have insufficient interstate tie lines. In the Northeast,
the FERC order directed the New York Independent System Operator, the Pennsylvania,
New Jersey, Maryland Interconnection (PJM), PJM West, and the Independent System
Operator of NE to expedite their discussions on consolidation. Formation of
a Northeastern regional transmission organization was supported by NY PSC Chair
Maureen O. Helmer and PPL Corp. Its official statement: "We believe the
Northeast energy market demands a single RTO, a single market, a single operator,
a single tariff, a single transmission expansion regime, a single interconnection
regime, and a single independent monitor. PPL does not support interim steps."
It is not a giant leap of imagination to anticipate that four such regional
electricity operators could eventually supercede the socio-economic climate
of their respective member states. The public/press outcry over increasing prices
in California showed how difficult it is to allow a free market the time it
takes to adjust to supply/demand imbalance of electricity. A tendency for more
government control of the delivery infrastructure seems imminent even while
the theoretical benefits of open competition in power generation are being debated.
The Bush/Cheney proposed new national energy policy has stalled in Congress
due to the shift of leadership in the Senate from Republicans to Democrats when
Sen. James Jeffords of Vermont left the GOP. VP Cheney has lost momentum for
his emphasis on increasing drilling and production of gas and oil on federal
lands, with less emphasis on renewables and conservation. The "BANANA"
(Build Absolutely Nothing Anywhere Near Anyone) extremists pose significant
barriers to badly needed expansion of domestic energy resources. With the immediate
crisis in California abating somewhat, most states are taking a wait-and-see
approach while the politics get sorted out. Meanwhile, OPEC countries announced
a 4-percent reduction in oil output beginning this fall to boost sagging prices
on the world economy.
While the shift to control by Democrats was being initiated in the Senate,
and progress on enacting a comprehensive energy policy stalled, a passionate
speech was delivered by Rep. Donald Sherwood (R-PA) before the U.S. House of
Representatives - June 5, 2001, page E1014 Congressional Record. Quotes are
"Mr. Speaker… Throughout history, prosperity has been inextricably
linked to society's access to sources of raw energy and the technological capacity
to convert and distribute usable forms. The American economy has been built
upon an energy base especially on a cheap and abundant supply of oil. But that
is to change.
"It's time to face uncomfortable facts. Pour the world's increasing population
and demand for energy into a pot boiling with poverty, stir with resentment,
and add fanaticism and easy access to weapons of mass destruction. Where will
it lead? Japan's thirst for oil led to Pearl Harbor; Saddam's desire to dominate
the oil-rich Persian Gulf sparked the call for half a million troops to drive
him back to Baghdad.
"Given a set of stubborn facts that can't be washed away, future energy
wars no longer may be a dim possibility, but, rather, highly probable - and
sooner than we think."
There already seems to be an energy war raging within the United States on
three fronts. One pits investors against consumers, another pits energy-exporting
states against energy-importing states, and a third pits environmentalists against
producers. We can only hope that whatever forces control the universe, they
will be kind to us as the future unfolds.