Who Regulates the Regulators?

May 1, 2007

By Lewis Tagliaferre

The Code of Federal Regulations takes up more than 10 feet of library shelves. People who must live by these regulations are rarely aware of their existence until some federal action is taken to enforce them. Buried in those volumes are emerging energy regulations that will affect your bottom line. You may not have much control over them, but being forewarned is being forearmed.

You probably have heard politicians recite that we live in a nation under the rule of law. But, I described last month how the selective enforcement of laws is driven by priorities of the leaders in power from time to time. Since there is not enough money or resources to enforce all the laws all the time, priorities must be made. And, once made, laws are passed off to professional regulators for implementation. When they produce rules that harm some people, the aggrieved appeal to the courts for redress of grievances. But, higher courts have no power of enforcement except to remand the situation back to the parties for continuation of the issue. The circle is completed when the leaders use their power to implement the court decisions through new laws and regulations; so it is with energy policy that affects your bottom line, too.

Let’s take a couple of examples. In the decision I cited last month, the Supreme Court decided with the Clinton administration and against utilities on the matter of regulating emissions from power plants under the Clean Air Act, which is administered by the Environmental Protection Agency (EPA.) The issue boiled down to whether the measurement of emissions should be hourly based or based against some other timely variation. The utilities wanted measurements to be annually based and the Clinton people wanted them to be hourly based. It took less than a month after the Supreme Court said that the EPA had the right to use its judgment in regulating emissions for it to issue a new proposed ruling, under the Bush administration, based on the hourly emission rates that utilities wanted. The effect was to authorize increases in emissions over a month or year, so long as the hourly maximum was not exceeded. This means that running a plant for longer hours would have no legal impact upon its emissions, thereby increasing its pollution legally. If this proposed regulation is adopted by the EPA, as it likely will be, environmental opponents will have to recycle their whole objection through the courts again.

In a related example, the Energy Policy Act of 2005 authorized federal intervention to create rights of way for power lines across state lines when it is in the national interest. The act requires reliable operation of the grid, meaning that it has to run within thermal, voltage, and stability limits to ensure against instability, an uncontrolled separation, or cascading failures such as those experienced throughout the Northeast in 2003. This measure was adopted to help assure construction of needed lines where they may be successfully opposed by environmentalists. It is implemented through regulations issued by the Federal Energy Regulatory Commission (FERC). The agency proposed a “national interest electric transmission corridor” based on the 2005 law, giving the federal government new authority to approve line construction even if local or state officials object.

But, the states affected are crying foul and are looking for some way to thwart the federal will because they believe such authority should not be federalized. East Coast lawmakers banded together last week to attempt to short-circuit the federal law, which makes it easier for power companies to build major power lines like one planned for a new Interconnect from New York to Virginia. On May 3, a group of lawmakers said they would try to influence the annual spending bill for water and energy to specifically bar the government from going forward with the corridor plan. This is another situation that could take years to work up through the courts to reach a decision by the Supreme Court.

The same law authorized the FERC to create mandatory standards for reliability of the power-transmission grid. After serious lobbying efforts, it appointed the North American Electric Reliability Council (NERC) as the new Electric Reliability Organization (ERO). Previously, NERC was an association of participating utilities and produced only voluntary standards. Now, the current 115 standards became lawfully enforceable when they were accepted by FERC. One standard requires that utilities put computer firewall protection around all of the 140 network control centers throughout the United States. Another requires them to have enough generation online to meet all power demands in real time. Utilities with violations can be assessed heavy financial penalties, from $1,000 to $1 million per day, but many feel that is unfair and subject to capricious motives of the leaders in power so that they could appeal to courts for redress.

The EPA and FERC are but two of more than 100 independent commissions and agencies that have grown over the years to become a special branch of the federal government subject to the call of the President. Once created and funded by a line item in the federal budget, they take on a life of their own without any sunset provisions and so exist in perpetuity - forever. In the case of electricity, there must exist a constant closed loop from the generator to each and every utilization device and back again. The operations of such loops are governed by Kirchoff’s laws; apparently, they are not well-known by the regulators who are not engineers. Requirements for utility business operations required by regulators that are not based on these laws can be harmful to your bottom line through excessive costs, poor reliability, and catastrophic failures. The results now include a wide range of policies from state to state, while the “feds” want to aggregate the dozens of power grids into one seamless system: problematic at least and catastrophic at worst. (If you are inclined and have the required math background, there is an excellent electrical engineering primer posted by Bucknell University.

So, back to my original statement about emerging energy regulations and how they will affect your bottom line: How can you participate more actively and effectively in this process? What role does membership in your professional associations play toward helping your energy bottom line? If it is true that people won’t change until it hurts too much not to, what is your threshold for pain needed to take action? As someone once said, there are people who make things happen, people who watch things happen, and people who don’t know what is happening. P.T. Barnum, circus mogul, said there is a sucker born every minute. Someone is counting on it, but it does not have to be you.

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