Increases in electricity demand have strained the nation's
transmission system. The recent blackouts - leaving millions in the
Midwest, Northeast, and Canada without power - underscore the need
for capital investments in transmission lines.
Regrettably, current policies actually discourage the necessary
investment. However, Congress has the opportunity - with the energy
bill in conference - to implement short-term solutions and begin
debate over longer-term electricity policy issues.
Demand Outpacing Capacity
While the exact cause of the recent electricity blackouts
is not yet know, most agree that the nation's transmission system
is strained and needs "fixing". Transmission capacity has been
insufficient to support the increased demand and the infrastructure
that transports the electricity is inadequate and antiquated. In
fact, data shows that:
- Demand for power has risen 30 percent in the last decade, but
transmission capacity has only grown by 15 percent;
- Energy Information Administration (EIA) projects that consumer
demand for electricity is going to increase by about 50% over the
next two decades.
Short-Term Policy Recommendations
Grant FERC Limited Backstop Siting Authority.
Getting transmission projects approved by the states is a difficult
and cumbersome task and has delayed the building of new and
critically needed transmission lines. In fact, many state siting
laws prohibit consideration of regional benefits of new
transmission lines-even if the regional benefits are substantial.
As competitive wholesale electricity markets continue to develop,
however, an improved and upgraded transmission infrastructure will
be needed to support regional wholesale electricity markets. To
help assure that sufficient transmission capacity is developed,
FERC (Federal Energy Regulatory Commission) should be given limited
backstop transmission siting authority. This authority would apply
only in specially designated "interstate congestion areas" and only
if the state lacks authority, or the state has withheld approval,
or placed conditions on approval that would not reduce transmission
congestion, or, the state has delayed final approval for more than
a year. Unlike the authority that FERC already has to site
interstate natural gas pipelines, this authority would be narrowly
restricted. Given that without adequate transmission capacity the
system will not work-leaving consumers without electricity--a
policy to allow FERC limited backstop authority to develop a
sufficient transmission infrastructure represents sensible and
practical public policy.
Reform Federal Lands Permitting Process. In
addition to siting delays, an unnecessarily complicated,
time-consuming and difficult multi-jurisdictional federal
permitting process, including authorizations for siting across
federal lands, represents another disincentive to building new
transmission. The conference committee can streamline this process
by designating the Department of Energy (DOE) as the lead agency to
coordinate and set deadlines for the federal environmental and
permitting process.
Repeal PUHCA. Repeal of the Public Utility
Holding Company Act (PUHCA) is long overdue. PUHCA is a New
Deal-era statute that makes it difficult for firms to acquire and
divest power assets and interferes with the ability of firms to
enter new markets. In fact, the SEC, which administers PUHCA, has
been recommending its repeal since the 1980's. Repeal of this
antiquated law would help attract new investment capital to the
industry.
Reform FERC Transmission Rate Policies. Owners
of the transmission "wires" are unable to recover their costs. This
drives capital to other areas of the economy. To attract the
capital necessary to fund needed investment in transmission, FERC
should utilize innovative transmission pricing incentives,
including performance-based rates and higher rates of return.
Revise the Tax Code. Under existing law, transmission assets
receive less favorable tax treatment than other critical
infrastructure and technologies. The House version of the energy
bill "levels the playing field" for major capital assets by giving
electric transmission assets tax treatment similar to other major
capital assets. Specifically, the House bill amends the tax code to
provide enhanced accelerated depreciation (from 20 years to 15
years) for electric transmission assets. By following the House's
principled lead the conferees can increase investment in the
nation's transmission infrastructure.
Long-Term Considerations
Reliability Standards. The North American
Electric Reliability Council (NERC) has set voluntary reliability
rules and standards for over thirty years. During this time,
however, the number of market participants has increased, as have
the number and complexity of electricity transactions being
transmitted. Given the recent blackout, Congress needs to examine
whether today's voluntary rules and standards are adequate. If not,
why? Depending upon the answer to that question, then Congress and
policymakers should assiduously examine what measures are needed to
assure reliability. A thorough review of options should be
scrutinized and debated, however, before hastily replacing the
current voluntary structure with mandatory and enforceable
standards.
Transmission. Transmission and distribution
remain "natural" monopolies because economically it would be
difficult to provide competing service and because all competitors
require open and nondiscriminatory access to them. Some
policymakers are calling for deregulation of transmission. Given
that transmission is an "essential" facility, however, Congress
needs to first review and vigorously debate the consequences -
intended as well as unintended-under such a policy before taking a
firm position on deregulating transmission.
Regional Transmission Organizations (RTOs).
Given that electricity market boundaries transcend franchise
territories and state boundaries, and trading across control areas
is much more complicated than trading within a certain area, in
1999 FERC issued Order No. 2000 directing investor-owned utilities
IOUs) to join RTOs and place their transmission facilities under
the control of RTOs. Technically, Order No. 2000 calls for
voluntary compliance. Some are calling for mandatory RTOs. Similar
to transmission, the pros and cons of such a policy need to be
debated before taking a firm position on this issue.
Dilatory tactics. Even if regulatory barriers
are removed, opponents of new facilities can needlessly delay the
building of additional transmission lines by tying up the process
in court. Given the economic and national security importance of
assuring sufficient and reliable supplies of electricity throughout
the country, the public interest must be weighed against the need
to seek a legal remedy. Congress and policymakers need to examine
and adopt policies that adequately balance these interests.
Federal ownership of power production/municipal and
cooperative power. While the House bill brings federal
power, municipally owned utilities and cooperatives utilities
partially under FERC jurisdiction by subjecting them to open access
requirements similar to those that apply to IOUs, it fails to
otherwise reduce the subsidies and preferences they receive.
Measures to privatize federal power and to eliminate the
preferences they and munis and coops enjoy should be adopted.
Towards A Brighter Future
The recent blackout was inconvenient and disruptive to
millions of consumers. Congress could make matters worse by passing
an energy bill -- any bill -- for political favor. If Congress
truly wants to assure consumers that there will be no more massive
blackouts, it needs to pass a balanced bill that promotes sound
market based policies -- not legislation that simply adds layers
upon layers of mandates on an already overly regulated energy
sector.