Energy Policy Act

Adopting an interoperable framework for the smart grid isn’t just a question of technology standardization. It’s also about navigating the legal, regulatory, and business factors that affect technology implementation. Making the smart grid work will require utilities and regulators to assert leadership.

When a capital-intensive industry enters an asset-building cycle, many companies will operate in the red for a few years or more. That’s not necessarily a bad thing, as cap-ex investments represent growth for shareholders. The devil is in the details, however, and companies facing a large slug of environmental compliance investments might produce disappointing returns over the next few years.

In the aftermath of the March 11 earthquake and tsunami, questions are arising about the safety and survivability of reactors located in geologically active areas. Major changes might be required, and as a result the U.S. nuclear industry might face an existential challenge on the order of the Three Mile Island accident.

Regulators across the country are relying on conservation-potential assessments to guide their policy decisions. Models based on macroeconomic analysis, end-use forecasting and accounting measurements provide different ways to assess the achievability of conservation and efficiency goals.

The Federal Energy Regulatory Commission (FERC) recently authorized its Office of Enforcement to begin revealing publicly the names of subjects under investigation, as well as summaries of allegations against them, earlier than the commission ever had before. In fact, FERC now may disclose allegations before finding any wrongdoing. This new practice raises the specter of damaging reputations without following what normally would be considered due process.

As Google says, “the wind cries for transmission.” But the opposite is true as well: without new wind and solar energy projects, we would not need to build so many new transmission lines. Each side needs the other, yet neither dares declare too soon, and risk weakening its bargaining position. That is, until one utility in California found a way to break the impasse, with each side scratching the other’s back — thus putting to rest the age-old question, “Which came first, the . . . ?”

The California ISO is going its own way with its proposal for transmission planning, virtually ignoring FERC’s proposed rules on transmission planning and cost allocation. California wants to bring method to the madness of developing transmission projects, and its approach has raised hackles in the industry. The dispute defines the battle over America’s most attractive market for rate-regulated investment.

In some states, transmission projects have slowed to a halt as regulators attempt to substitute their own need determinations for those of RTOs. The federal framework encourages cooperation, but Congress and the courts have given FERC clear authority over interstate transmission systems.

FERC’s revised policy provides greater predictability and transparency in the commission’s approach to determining civil and criminal penalties under its statutory authority. Despite a more systematic framework, however, FERC retains discretion to assess penalties based on the facts of individual cases.

FERC’s final rule authorizing new natural gas storage facilities seems to presume market power for pipelines and new storage. FERC should consider changing that presumption to more accurately reflect Congress’s intent in EPAct 2005.