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A Low-Voltage Energy Bill

While a few provisions are worth embracing, most of its 1,724 pages represent a waste of good timber.

Fortnightly Magazine - October 2005

independent market generation and mandatory open-access transmission. Section 1221 gives FERC siting and eminent domain authority for interstate transmission projects. Under current law, transmission projects are considered, approved, and paid for at the state level even though they have benefits that cross state lines. Accordingly, there is a mismatch between the decision-making and regulatory frameworks that govern transmission investment and the real geographic impact of those improvements. 1 State decision makers understandably resist using ratepayer dollars to pay for investments that will primarily help parties outside the state.

Moreover, incumbent utilities and state politicians in today's "low-cost states" actively resist improving the grid. Vertically integrated companies in those states fear that a more robust transmission system primarily will advantage the competition-merchant generators. Politicians in those states oppose grid improvements because the benefits of cheaper generation technologies-particularly old coal-fired plants-would then flow to the highest bidder rather than flow exclusively to ratepayers within their state.

Two provisions extend the mandatory open-access regime to previously unaffected public transmission subsystems. Section 1231 requires publicly owned transmission systems like TVA and Bonneville to be subject to the same mandatory open-access regime as private utilities in restructured states. Section 1232 allows public transmission systems to participate in RTOs.

Four other provisions also seem to signal Congress's support of the new regime of independent generators. Section 1234 directs DOE to study the benefits of economic (least cost) dispatch of generators. The obvious implication is that some vertically integrated utilities would save their customers money if they used some merchant generators' output rather than their own. Section 1251 mandates net metering that would allow customers with cogeneration to sell as well as consume electricity from the grid. Section 1252 mandates that states consider real-time pricing and advanced metering. Section 1254 mandates interconnection of cogenerators to the distribution system. Section 311 gives FERC siting and permit-approval authority for LNG terminals and reduces the ability of local governments to resist their construction and expansion. More LNG gas would lower gas prices and enhance the viability of merchant generation.

Other provisions in the bill seem to favor traditional utilities. Section 1233 gives the retail customers of vertically integrated utilities first priority in the use of their transmission systems. Section 1235 protects the owners of firm transmission rights under the status quo from wealth losses they would incur if a market system were introduced in the Northwest. Section 1236 tells ISO-New England that Congress is wary of its locational installed capacity (LICAP) requirement. Finally, the tax credits for nuclear and clean coal facilities seem more like those we might find in legislation dating from 1975 than from 2005. Can the movie run backward? Those provisions suggest the answer is yes.

The Death of SMD

Provisions prohibiting FERC from implementing its standard market design (SMD) (locational marginal pricing and transmission congestion charges) were not included in the final version of the bill even though both the Senate and House versions of the bill contained such language. The absence of such language in the energy bill is not a sign that SMD has won. In