Energy: What's Up Now?

Sept. 6, 2001
Part 2: Where We Are Headed

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 edited.

"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.

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