Going Off the Record

Deck: 

Lawyers say what they really think about changing policies.

Fortnightly Magazine - November 2009

Lawyers get a bad rap in this country, and in some cases it’s well earned. However, during the month of October I enjoyed the distinct privilege of interviewing nearly a dozen of the industry’s most insightful, informed and hard-working people—all of them law-firm lawyers serving energy companies, regulatory agencies and customer groups. These conversations covered an immense amount of territory, from cyber-security standards to national energy strategy, and in every case these attorneys’ comments were thought-provoking and well-reasoned (see “Policy Shift). Unfortunately, with nearly 10 hours of interview material at my disposal, I couldn’t possibly publish every thought-provoking and well-reasoned statement—in some cases because my sources made those statements off the record.

As any experienced journalist knows, sometimes what a person says anonymously is more important than what that person will say for attribution. In this case it’s a tough call, because attorneys usually are more than willing to tell me what they really think—and they don’t mind generating a bit of controversy as long as it serves the interests of their clients. However, in a few cases what a lawyer really thinks might not benefit his or her clients, and that’s when off-the-record comments get really interesting.

Such comments show, in no uncertain terms, the industry’s ambivalence about the policy shift that’s happening today. No matter what the government does (or doesn’t do), there will be winners and losers, and sometimes people who think they’re in one group won’t realize until much later that the tables have turned.

Lawyers understand this ambivalence better than most people do. They’re trained to see unintended consequences and on-the-other-hand arguments. The following unattributed quotes from lawyers interviewed for this month’s cover story provide a sample of such arguments—and a hint about how legal battles will ensue in the months and years ahead.

On FERC Policy

FERC Knows Best? “FERC seems to be focused on expanding its jurisdiction and [extending its enforcement authority] deeper into the grid. On issues like reliability and transmission planning, FERC’s attitude seems to be that if it’s not done by them, it won’t be done right. I’m certainly skeptical that having FERC regulate everything is the way to do it.”

The Reliability Police: “There’s a basic problem with FERC’s enforcement of NERC reliability standards. These standards have been developed by engineers, but lawyers are enforcing them—and lawyers read standards differently from the way engineers read them. The NERC regime was never intended to be legally enforced, and the standards aren’t clear enough. What it means is that utilities really don’t know what’s expected. But where FERC and NERC are coming from is this: ‘Where there is an outage, we will find violations.’”

Think Globally, Act Locally: “A national RPS [renewable portfolio standard] and climate change regulation undoubtedly will give FERC more reasons to assert its authority. Maybe that’s necessary, but I’m not sure it’s a good thing. The climate is a global concern, but the states have been on the forefront of developing new ways to address these questions. The states are innovators.”

Hedging for Dollars: “I worry about the new markets. Even the FTR [financial transmission rights] markets, which are intended to provide a hedge for load-serving entities, tend to allow players to siphon off big bucks. That’s an issue.”

On Climate Change

Carbon is the New Black: “Federal climate regulation is almost irrelevant. The states started addressing the issue years ago, and on a strategic level companies already have been forced to deal with it. So what will change? We’ll get some clarity around what to do with coal, and probably some coal projects now will be able to go forward, knowing how much the carbon tax will cost them. But if you think about it, it will be great for lawyers because it will take a while for the regulations to shake out.”

Green Greed: “Obviously climate regulation creates tremendous legal opportunities, everything from intellectual property protection for newly developed technologies to project financing for major investments.”

No Safe Harbor: “Plaintiffs that bring climate change nuisance lawsuits mostly want to send a political message, to put pressure on Congress and the EPA. We might assume that once federal carbon regulations take effect, most of those complaints will be withdrawn or be displaced by statute. But with the federal district court decision in North Carolina v. TVA, [in which the judge ordered TVA to install scrubbers at plants that already were compliant with the Clean Air Act,] plaintiffs might continue bringing nuisance lawsuits, alleging injury from emissions even if they don’t violate EPA regulations.”

Spittin’ in the Wind: “If we can’t persuade China and India to build cleaner generation even though it’s more expensive, then we’re just putting off the inevitable.”

On Energy Strategy

Policy By Piecemeal: “Ironically, the Bush administration through inaction allowed states to step into the void and set America’s national energy policy, via RPS. There never was a national debate about that policy, and it was based on a lot of misinformation and ignorance. Yet now as a nation we’re following this energy policy, by default, as opposed to doing concerted thinking to develop our national strategy.”

Choking on Green: “I’m personally worried about some of the efforts to restrict development to only green infrastructure. Green-only efforts seem to be gaining strength, and the idea is very, very bad. Given the cost increases ratepayers already are facing, it’s irrational to limit the industry’s options. Also it ignores the laws of physics. Among other things, you need not-green power to back up green power.”

Manhattan Project 2.0: “When America decides it needs something for its national defense, it doesn’t look to the private sector to pick up risks. Now, it couldn’t be clearer that the present regime is inadequate to build new transmission, because we need it and we’re not doing it. I’m not a socialist, but if our national policy is that we need transmission, and if private investors can’t bear the risk, then why don’t we just do it directly the way we do with national defense or the interstate highway system? We could say the same thing about nuclear power infrastructure; private investors can’t afford the regulatory risk, so why can’t the federal government just do it?”

No Place Like Home: “We’re losing sight of the fact that we just fought a very dirty and bloody war over oil. If we’re sending people to die in foreign countries over our energy security, then I’m not sure we have the right energy policy. Forget about whether the climate is getting warmer; it’s not the most important issue. What’s important is that we need to focus on expanding sources of North American energy, whether it’s nuclear, coal, renewables or whatever. It’s fantastic if we’re moving to electric cars, but it means we’d better start getting domestic sources of electricity online.”