Federalism At Work
The Geopolitics of the Grid
Is it really so important to preserve regional differences?
The July 11, 2006, edition of the Wall Street Journal contained an excellent opinion piece by Daniel Yergin, chairman of Cambridge Energy Research Associates, in which he posed the question: “What does ‘energy security’ really mean?”
What is so striking about his article is that his analysis easily could describe power industry politics between low-cost states (suppliers) and high-cost states (consumers).
“Consuming countries declare they want ‘security of supply’—that is, reliability and availability of energy at reasonable prices,” Yergin writes. Does this not sound like the statements often made by high-cost states?
He continues: “Exporting countries, whether Russia or the Middle East, turn around and talk of ‘security of demand’—sufficient access to markets and consumers to justify future investment (and protect their national revenues).” Thus, in the western U.S., state representatives often have questioned whether the benefits of selling their low-cost energy into an energy market would offset the resulting higher cost to their own constituents.
Perhaps the electric industry—including state regulators and politicians—might stand to learn a thing or two from Big Oil.
For one, the oil industry has begun to realize that lack of cooperation can undermine the entire global energy market. Similarly, a lack of cooperation among the 50 states could threaten the entire U.S. energy system.
Whatever one might say about state’s rights and their energy independence, the truth is that there remains only one U.S. energy market. Energy security does not reside in your neighborhood or mine, but is part of the larger pattern of relations among states. How those relations go will do much to determine how secure we are when it comes to energy.
If you had read the report that the Federal Energy Regulatory Commission (FERC) sent to Congress recently on security constrained economic dispatch (SCED), as required under last year’s EPACT law, you would see how regional rivalries still stand in the way of progress in the U.S. electric industry. That is disappointing.
Significant efficiencies and economies of scale can be had by broadening the geographic scope of SCED through consolidation of areas or reduction of seams between areas. Furthermore, greater efficiency can be achieved through transparency in the dispatch of pricing information and the independence of the dispatcher, including demand response and other factors. Of course, many of the existing regional transmission organizations are already exploring each and every one of these issues. Yet, as the report shows, regulators in the West and South who served on regional joint boards to advise FERC on SCED policy are still reluctant to embrace these ideas.
A representative of the West Joint Board at FERC’s July meeting tried to explain:
“First, the Joint Board members generally believe that there should not be a one-size-fits-all approach,” said the representative.
“Differences in the resources and load conditions among the areas in the West, and often differences in state or local conditions within each area, are believed to be too large to warrant recommending a single