08/29/03

Washington- Don't even think about messing with Veral and Lois Klein's electricity.

"We have a good reliable energy system here in the Northwest and are satisfied with the way it is," the retired farm couple in Edwall, Wash., said in a letter to federal energy regulators.

The state of Kentucky also likes the way things are - the way it can hold utilities accountable when they transmit electricity, the way it can try to keep rates low or put up a fuss when the electric company tries to erect a new tower or high-voltage line. Ditto New Mexico, Colorado - and most of the West and, for that matter, the Southeast.

But the Federal Energy Regulatory Commission, or FERC, says it has a better idea. To promote free markets and make electricity move seamlessly throughout the nation - and to resolve interstate confusion and bottlenecks that some authorities say might have played a role in the blackout of Aug. 14 - the agency has long wanted to change the way wholesale electricity is transmitted, sold and regulated across state lines.

And though protests from southern and western politicians about protecting states' rights and maintaining cheap rates threatened to derail the agency's blueprint for change, the massive blackout now has the potential to alter the debate.

FERC's proposal would make the rules for transmitting big quantities of electricity largely the same in each state. Big regional organizations and the federal government would deal with most regulatory issues and have a say in fights over wholesale transmission rates, helping to create semi-national markets that could make it easier to move electricity over the power grid.

Cut the clutter of rules and make the lines of authority clearer and, the thinking goes, you'll encourage investors to build more towers and lines to deliver electricity when and where it's needed - and at the best price.

"The problem with the grid is a lack of investment," says Bryan Lee, a FERC spokesman. "We hear from the investment community that they want to see regulatory certainty."

One example of states' red tape and its effect on the grid: an American Electric Power 765-kilovolt transmission line crossing Virginia and West Virginia. Because the high-voltage line crossed two states as well as federal land, it took the Columbus-based company 13 years to get the necessary approvals.

The more states and federal agencies involved, the more approvals it takes. "It just makes the process go longer and longer," says Craig Baker, American Electric Power's senior vice president of regulation and public policy.

In Connecticut, a transmission company last year was able to get U.S. Army Corps of Engineers approval to lay an underwater cable across the bed of Long Island Sound to help light up rapidly growing Long Island, N.Y. But the cable sat unused as Connecticut cited environmental and navigational concerns. Connecticut Attorney General Ralph Blumenthal questioned why his state should have to host the cable when it was built to power Long Island, and not Connecticut.

U.S. Energy Secretary Spencer Abraham ordered it turned on Aug. 15, returning light to Long Island after the massive blackout. But the order was temporary, and Blumenthal vowed to fight to keep the cable from ever being switched on again. The battle is still not over, though Abraham yesterday ruled that the cable could be used while the blackout investigation continues.

While blocking transmission lines is not explicitly addressed by FERC's "Standard Market Design" proposal for the power grid - but is in the pending energy bill in Congress - these actions are emblematic of the parochial issues that some say unnecessarily hold up electricity commerce.

Besides, say proponents of ending the mish-mash of rules and markets, the nature of electricity transmission has changed. Local utilities no longer control every step from power generation to delivery. The regulations, however, still have a foot in 1930s-era, local-control logic.

Larry Bruneel, vice president of federal affairs for International Transmission Co. of Michigan, cites the example of the Detroit area and its local utility, Detroit Edison. Not so long ago, it "would transact with Toledo Edison, and maybe Consumers Power on the other side of the state, and if they got real fancy, maybe AEP," or American Electric Power.

"Now, you've got Detroit Edison, you've got independent power producers, you've got large geographic markets where transactions can take place between Michigan and Arkansas, Michigan and New York, Michigan and the Dakotas, and crossing several boundaries of control-area operations."

Yet, consumers who oppose FERC's idea say that while the market might have gotten bigger, plenty of geographic differences remain.

"There's obviously some overtones of states rights here and public utilities commissioners not wanting to lose authority and that sort of thing. But there also are some quite very legitimate concerns, because there are some quite different situations in different states," says M. Granger Morgan, co-director of the Electricity Industry Center at Carnegie Mellon University in Pittsburgh.

One of the biggest concerns is price: If the inexpensive hydroelectric power from dams in Washington becomes part of a big western electricity market, and that market also brings in power from higher-priced states such as California, will everyone in the West pay the same price? While that might mean more reliable and cheaper electricity in California, some Washington residents fear it'll come at their expense.

"The concern is that this is the cheapest power available in the West," says Anjan Bose, dean of the College of Engineering and Architecture at Washington State University. "Will it, just by being thrown into an open market, suddenly be selling at much, much higher rates and competing against gas? If it becomes one large market, the prices that everybody will be paying in that market will be the same."

In the words of Joanne and O. Paul Marr of Des Moines, Wash., who sent a single-sentence postcard to FERC: "We have had enough - no more restructuring that will increase costs and risks to ratepayers."

Residents and officials in parts of the South have similar concerns about their natural gas-fueled electrical power. "It's very much an issue that's been divided on regional lines," says Charles Gray, executive director of the National Association of Regulatory Utility Commissioners.

While consumers worry about prices, governors, attorneys general and consumer advocates in cheap-energy states say they worry about losing oversight to an overreaching federal government. In a letter in late April, U.S. Sen. Richard Shelby of Alabama and nine Senate colleagues from the South and Northwest accused FERC of moving "away from a partnership with states toward federal domination of the electricity system and electricity regulation."

"States would lose a lot of jurisdiction, and it would mean that we would become just a small voice in the whole process," says Irene Leech, president of the Virginia Citizens Consumers Council and an associate professor of consumer affairs at Virginia Tech University.

The states and companies that generally like FERC's proposal tend to already be involved in regional transmission organizations that are trying to operate in common markets in the Northeast, mid-Atlantic and Midwest. They already include Ohio's wholesale electricity sellers. FERC wants to make participation mandatory.

In the end, the United States would have a handful of regional transmission organizations pooling electricity, brokering prices, running control rooms and coordinating electricity shipments.

Proponents say the Aug. 14 blackout - with still-unresolved uncertainty as to whose transmission lines were responsible - demonstrates the need for a coordinated system.

"I think this event showed electricity doesn't respect state borders," says Michael Kormos, vice president for operations of PJM Interconnection, the consortium that coordinates electricity transmission across the mid-Atlantic and parts of the Midwest. A number of authorities say that PJM, which boasts of bringing prices down and efficiency up, makes a good model for FERC's proposal.

FirstEnergy Corp., the biggest provider of electricity in Northeast Ohio, participates in a Midwest transmission consortium that is still evolving. FirstEnergy, whose operations are among the many being investigated in the search for the blackout's cause, declined to comment on FERC's proposal.

The blackout is likely to color debate on the issue when Congress returns next week. Separate proposals for limiting or alternately boosting FERC's regulatory power have been made by the House and Senate, so the differences must be worked out in a conference committee.

FERC says it has no firm deadline for its proposals - "but obviously," says spokeswoman Barbara Connors, "we want to move forward in an expeditious manner."

To reach this Plain Dealer reporter:

skoff@plaind.com, 216-999-4212