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"And ye shall know the truth, and the truth shall make you free." - John 8:32
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Author:  Diane M. Grassi
Bio: Diane M. Grassi
Date:  June 25, 2008
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Fallout from the U.S. Energy Policy Act of 2005 Pts. 1&2

This likely is just the beginning of struggles ahead, exemplifying a dysfunctional remedy, to “fix” the U.S. power grid’s growing national energy needs and the need for alternative power resources. EPAct 2005 will create an ultimate power grab for power both literally and figuratively, the sights of which the U.S. has never seen.

“Energy independence from foreign sources.” A mantra repeated over and over again by those responsible for establishing United States energy policy. But it remains a contradiction in terms as the topic is never broached candidly by lawmakers as to how much of the U.S. energy infrastructure and lines of transmission have been consumed by a constant stream of foreign direct investors and diversified holding companies.

Also unbeknownst to most consumers is that legislation which led to such deregulation of U.S. public utilities is hailed from Wall Street to Capitol Hill as the answer to resolving U.S. energy woes.

Now, foreign investors have been granted even greater leeway as now realized by such mandates of the Energy Policy Act of 2005 (EPAct 2005) which essentially eliminated the Public Utilities Holding Company Act (PUHCA) of 1935. Yet, EPAct 2005 has continually escaped public scrutiny and a lack of accountability in both houses of the U.S. Congress.

U.S. energy policy and the generation of power is a complex web of public policy, law, economics, infrastructure and ever-present globalization. So for purposes of this report, and in order to best comprehend current U.S. energy policy, it is helpful to take stock of the more recent evolution of such and to examine its many and varied elements which have changed post-2005.

EPAct 2005 amended Section 203 of the Federal Power Act (FPA) which mandated how future transactions in the energy industry will be handled by the U.S. federal government and will impact matters of states’ sovereignty and ultimately regulating costs to consumers.

For over 70 years, federal laws have played a vital and critical role in the operation, production, distribution and protection of the U.S. electrical power grid. Federal laws in concert with state laws and regulations have necessarily dictated that the power grid be shielded from market manipulation and criminal behavior.

Yet, the 100 year old power grid is faced with increased power demands simultaneously with deregulation by mandate. And deregulation has led to less and less necessary preventative maintenance, upgrades in technology as well as necessary investment in research and development.

The basic structure of the North American transmission system is made up of over 140 control centers and approximately 3500 utility providers covering over 200,000 miles. Utility generating plants, transmission and sub-transmission systems, distribution systems and customer loads traveling over a two-part power grid; one in the east and one in the west. Texas has its own grid.

Compounding the vast network and intricacy of the grid is the interconnectivity and delivery of power that in many cases is incompatible with widely varying levels of equipment integrity, data systems and personnel training. It is the secondary system which supplies the distribution of electricity to consumers, where most of the power failures occur, and that which require time to repair. And the network of sub-stations feeding electricity to neighborhoods, via feeders which flow to transformers, is where most problems arise during local outages, further exacerbated by ill-maintained equipment.

U.S. deregulation of the utility industry began over two decades ago, and it was the 1992 Energy Policy Act which changed the way electricity was sold to local consumers for the first time. Energy companies were permitted to install their own plants and sought customers throughout the country, but not necessarily in the same geographic region. Energy brokers then entered into the picture and utilized the open market to buy and sell power. And thus came the onset of potential unreliability of energy delivery.

Purchasing power from plants hundreds of miles away from a respective region put unprecedented burdens upon the transmission system, raising the likelihood of power failures at the local level. Most importantly, the U.S. electrical grid was not originally designed to absorb the transmission of high voltage capacity across the continent, especially in absence of comparable and upgraded systems in place.

Although Enron became the poster-child for electrical power market manipulation, which came to light after the rolling blackouts of California in 2000 and 2001, U.S. public policy and lawmakers must be held responsible for even further erosion of federal regulations and mandates now realized in EPAct 2005.

Instead of increasing the odds that such market threats would not reappear, the U.S. government has but relaxed the law, its regulations and oversight even more, with the repeal of PUHCA 1935.

PUHCA 1935 became law after the height of the Great Depression and after the stock market crash of 1929 and was a cornerstone of President Franklin D. Roosevelt’s New Deal industry legislation. It called for the prohibition of market manipulation, specifically to curtail then super-sized utility conglomerates, and to prevent monopolies from overtaking geographic regions. And just as importantly, PUHCA 1935 made it unfeasible for non-energy corporations to purchase a public utility.

The emergence and formation of the Securities Exchange Commission (SEC) in 1934, together with PUHCA 1935 became essential in safe-guarding the public trust and in protecting consumers and investors alike, as PUHCA 1935 delegated multi-state utility ownership regulation to the SEC.

With the official repeal of PUHCA 1935, in EPAct 2005, the SEC vacated its regulatory authority over multi-state utility ownership by holding companies and only retains the ability to protect investors, not utility consumers and will carry little weight over multinational holding companies. It is the Federal Energy Regulatory Commission (FERC) that will now hold individual utilities accountable through self-policing and self-reporting policies of any irregularities such as cross-subsidization.

EPAct 2005 now allows multi-state transactions and mergers of distribution facilities, utilities merging with non-utility corporations, and including foreign ownership over domestic utilities. Oil companies may now own electricity and natural gas utilities, paving the way, yet again, for the formation of cartels. Construction and infrastructure companies, from abroad, are eager to partake in being afforded acquisition of U.S. public utility operations as well.

No individual state or federal agency will have the jurisdictional efficacy to regulate the finances of U.S. public utility assets. Required oversight of parent holding companies such as investment banks, which speculate and invest in far riskier businesses with utility rate-payer revenues, is not established nor mandated in EPAct 2005.

The cost? The reliability standards of U.S. public utilities, which could have grave ramifications on U.S. national security, the U.S. economy and the well-being and safety of the American people; all with the blessings of the U.S. Department of Energy (DOE), the U.S. Congress and the global stock market.

EPAct 2005 does set forth specific mandates, unprecedented with respect to U.S. energy law, states’ constitutional rights and sovereignty, as well as interstate commerce. Specifically, Section 1221 of EPAct 2005 updates Section 216 of the Federal Power Act (FPA) for a National Transmission Congestion Study which paved the way for the mandated National Interest Electric Transmission Corridors (NIETC). The Secretary of Energy may designate “any geographic area experiencing electric energy transmission capacity constraints or congestion that adversely affects consumers as a national interest electric transmission corridor.”

The DOE then created as a direct result of the study two transmission corridors which consist of the Mid-Atlantic Area National Corridor and the Southwest Area National Corridor and finalized in October 2007.

Many state governors, state representatives, many federally elected members of the U.S. Congress, consumer advocacy organizations, and environmental and historic preservation organizations, oppose such corridors.

The enormity of the construct of the Mid-Atlantic Area National Corridor will impact states legislatively, constitutionally, economically, environmentally and historically. The Mid-Atlantic Area National Corridor states include the entireties of New Jersey, Delaware, and Washington, D.C., most of Maryland, most of New York; most of Pennsylvania, most of West Virginia, and major areas of Ohio, and major areas of Virginia.

In contrast, the Southwest Area National Corridor includes parts of California and parts of Arizona, albeit the most heavily populated areas of these states.

The NIETC lays the groundwork for supplemental transmission siting approval in the construction of High-Voltage Direct-Current (HVDC) Transmission lines, above ground, throughout all the NIETC designated states, whether or not that particular state in fact has an electricity congestion problem itself. Additionally, the entirety of the U.S. power grid, as it presently exists, uses High-Voltage Alternating-Current (HVAC) Transmission lines.

Only 2% of the 200,000 electrical transmission line miles throughout the U.S. are HVDC. According to the Government Accountability Office Report of February 1, 2008, (GAO-08-347R) with respect to HVDC, there will be “higher costs for short-distance lines due to the cost of equipment needed to convert DC into AC electricity used by residents and a lack of electricity benefits to consumers living along these lines –unless converter stations are installed at intermediate locations – because such lines are generally not connected to local electricity lines.”

The rationale for designation corridors is not to facilitate or dictate how the states’ regions, transmission providers or electric utilities should meet their own energy challenges, according to the DOE. But the truth is quite the opposite.

“The process is geared more toward expediting the approval and siting of transmission corridors than it is geared toward respecting states’ rights about their residents’ energy future and needs…and by a heavy-handed centralized one-size fits all approach..,” according to Congressman Maurice Hinchey (D-NY). And it is precisely such sentiments that have been raised to the Secretary of Energy, Samuel Bodman, by both federal and state lawmakers on both sides of the aisle in all 10 states and Washington, D.C. that will be directly impacted by the NIETC.

This EPAct 2005 legislation enables eminent domain law over states by the federal government on a scale unlike the U.S. has ever seen and is historically unprecedented, and with respect to the federalization of U.S. power transmission.

As such, the law provides for the DOE to assign the FERC siting authority. In other words, the U.S. federal government shall dictate to individual states the transmission of their own energy and by extension, the loss of state price controls. For state Public Utility Commissions always represented consumers and oversaw pricing and maintenance standards.

The FERC is given authority “to issue permits for the construction or modification of transmission facilities in a National Interest Electric Transmission Corridor if FERC finds that: (1)(A) a state in which the facilities are to be constructed is without authority to approve the siting of the facilities or to consider the interstate benefits expected to be achieved by the project; (B) the applicant for a permit is a transmitting utility that does qualify for a permit federally but does not qualify for a permit under state law because it does not serve end-use customers; or (C) the state has siting authority but (i) it has withheld approval for the later of one year after the filing of an application; or (ii) conditioned approval in such a way that the proposed construction will not significantly reduce transmission congestion or is not economically feasible.”

And, “If a permit holder cannot obtain the necessary rights-of-way for the project, the permit holder can acquire the rights-of-way through an eminent domain proceeding in the federal district court where the property is located….A right-of-way acquired in an eminent domain proceeding is a taking of private property for which the landowner must receive just compensation, which is the fair market value on the date of exercise of eminent domain.”

However, any fluctuation or rise in real estate property values during the course of the proceeding and including any period of time due to litigation arising from such a proceeding to the time of completion of the project, if finally approved, would be locked in at the fair market value of the initial date of the proceeding, which could potentially take years to resolve.

Historically federal jurisdiction of the siting of transmission lines in states has been reserved solely for federal lands within respective states. Again, it is the state public utility commissions of each given state which have otherwise been the regulators of siting permits and applications.

Reasonably understood is the anger and angst that states’ governors and states’ legislators feel having recently learned of the fate of their states’ own power resources and transmission, and in such an injudicious way. In his letter to the U.S. Secretary of Energy, Samuel Bodman, in November 2007 after the NIETC was finalized, Pennsylvania Governor Ed Rendell wrote, “These transmission lines will be on our land and depreciate our property values, but they may not offer any benefit to Pennsylvania consumers. This designation and action by the federal government is a blatant abuse of states’ rights.”

Already the first official challenge to state transmission siting authority given to the FERC or federal government, as prescribed by such EPAct 2005 mandate, has been filed for appeal. A Southern California Edison (SCE) application to the Arizona Corporation Commission, (ACC) the public utility commission of Arizona, was rejected in May 2007 by the ACC. SCE merely wanted to run a 230-mile transmission line from Arizona to California at a cost of $242 million to Arizona ratepayers.

And the benefit to Arizona? None, as it would specifically serve only Californians and their growing energy needs, not the residents of Arizona. The ACC described SCE’s project as “a 230-mile extension cord” into Arizona’s generation supply.

This likely is just the beginning of struggles ahead, exemplifying a dysfunctional remedy, to “fix” the U.S. power grid’s growing national energy needs and the need for alternative power resources. EPAct 2005 will create an ultimate power grab for power both literally and figuratively, the sights of which the U.S. has never seen.

Now, the U.S. justice system, by use of its federal courts, will bear the brunt of such misguided energy policy, in which the American people had no role. Meanwhile, the infrastructure and power needs of Americans remain at risk from both corporate greed and political intimidation.

Copyright ©2008 Diane M. Grassi

Diane M. Grassi

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Biography - Diane M. Grassi

Diane M. Grassi is an investigative and research journalist, providing topical and in-depth articles and analysis on U.S. public policy and governmental affairs; key federal and state legislation and court decisions relative to the public interests of average Americans. In addition, she reports on legal and governmental affairs relative to professional and amateur sports. She sticks to the facts on myriad issues, given short shrift by the mainstream press. With a passion for holding U.S. lawmakers and government officials accountable, Ms. Grassi has a resolve to keep readers informed in that they might become advocates on their own behalf.

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