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Deregulation efforts run into problems

Energy industry anxiously awaits details on Bush plan

With the changing of the guard in the White House, energy talks in Congress have been somewhat stymied. Even though several bills are milling about in the House and Senate, none address the granddaddy issue: federal deregulation.

The difference in approach to the nation’s energy policy between the Clinton administration and the Bush administration is vast, and bridging the gap will take some time, and with lobbyist dollars floating around, there’s little incentive to expedite the process.

Even if Congress mandates deregulation, many questions remain. For example, some regulation of a deregulated industry would be required via FERC’s (Federal Energy Regulatory Commission) control of the transmission grid. And FERC’s push for Regional Transmission Organizations (RTOs) would play a key role.

Beginning in 1993, the Clinton administration set out to make natural gas the fuel of choice for all energy production. The Environmental Protection Agency (EPA) launched a broad-based assault on coal-burning power plants utilizing both strict regulations and litigation. The U.S. Department of Energy also denied financial incentives to utilities that wanted to build more nuclear and hydroelectric power plants. These policies forced the widespread use of natural gas over coal — a cheaper, more accessible resource.

While the Clinton administration sought to make natural gas the fuel of choice for energy production, it also restricted oil and gas drilling in the Rockies, Alaska and the Gulf of Mexico for environmental protection purposes. Low prices discouraged oil and gas exploration, drilling and production, which drastically cut natural gas supplies, and in many instances forced independent producers to cap wells.

Because of the last three extraordinarily mild winters in the U.S., reduced supplies have not surfaced as a problem. However, this year’s hard-hitting winter pushed demand through the roof while supplies remained low, resulting in higher oil and gas prices.

U.S. Rep. Chip Pickering, a Republican who represents Mississippi’s Third District, called the Clinton administration’s energy policy “a sporadic accumulation of ideas and policies that have resulted in the current energy crisis.”

“If we look for the ‘trigger’ of the current problems, I believe it lies with the Clinton administration’s decision to lock up, shut down and shut out our nation’s natural resources — whether it’s along the coastline or in Alaska,” he said.

“The first objective for our nation’s energy policy must be to find ways to unlock our nation’s natural resources so we can decrease our nation’s dependence on foreign energy supplies and reduce prices that consumers are seeing,” Pickering said. “Second, we must ensure that our nation’s energy portfolio is diverse. Third, the federal government must act to remove federal barriers to increased siting of electric transmission lines and new power plants.”

The Bush administration and the Republican Congress are poised to take action to address the nation’s energy crisis, with Vice President Dick Cheney currently conducting a top-to-bottom review of U.S. energy needs. A comprehensive plan will be submitted to Congress in the coming months, Pickering said.

“I believe that President Bush will seek to have a cohesive energy policy that will unlock our natural resources in an environmentally safe manner while also taking appropriate steps to encourage a diverse energy portfolio that will be comprised of coal, oil, natural gas, nuclear, hydro, as well as solar, wind and biomass,” he said. “It is crucial that we increase the production of energy supplies in the U.S.”

Annually, the U.S. produces 70 quads (quadrillion BTUs) of energy while more than 100 quads are consumed.

“This means we must import 30 quads of energy every year, and the price for that energy will be dictated by the global marketplace,” he said. “Energy and Commerce Subcommittee Chairman Joe Barton (R-Texas) has named me to chair a Member’s Working Group that will be working with President Bush to develop the comprehensive energy policy that will guide our nation into the 21st century.”

Even if Congress mandates deregulation, utility companies will continue to be regulated to some degree.

“Except for the generation of electricity, there will always be some form of regulation,” said Mississippi Public Service Commissioner Nielsen Cochran. “Once you open your system area for competition, you have to unbundle the vertical services that make up your electric bill, just like the telephone bill. Once that bill is unbundled, FERC takes total jurisdiction over transmission because it becomes an interstate commerce issue. FERC then sets a transportation price for moving electricity, and a price for the power pool administration that administers the collection of the pooling of energy. Transmission will still be regulated but the price of transmission will go sky high versus what you’re paying now.”

For now, FERC Commissioner Linda K. Breathitt said the commission’s work to develop and improve markets continues on several fronts, but its players are focusing on two key areas: the challenges being presented by Western bulk power markets and the commission’s continuing efforts to form RTOs through the country.

“My colleagues and I believe that RTOs hold the key to unlocking competitive bulk power markets, which will reduce barriers to access to the transmission grid, and will address many of the remaining impediments to full wholesale competitive markets,” she said. “RTOs may eliminate undue discrimination in transmission services that can occur when the operation of the transmission system remains in the control of vertically integrated utilities.”

In December 1999, FERC issued an order that established specific functions and characteristics that all RTOs must perform, particularly Interregional Coordination. FERC found that coordination of activities among regions is a significant element in maintaining a reliable bulk transmission system and for the development of competitive markets, Breathitt said.

“The creation of seamless, physical markets that operate over large, geographic areas is a crucial key to ensuring that power flows efficiently,” she said. “Coordination of RTO activities across regions has the potential to increase competition, reliability and efficiency.”

Within the last year, FERC has been moving to take over all transmission in the U.S., Cochran said.

“They already regulate wholesale electricity, not by setting prices but by setting the cost of transporting over the transmission systems,” he said. “FERC is in the process of pushing to open up RTOs or power pools. Those would be unregulated, except by FERC. Mike Callahan, the southern district commissioner, is on a committee in Washington to try to save us from the federal government completely taking it over.”

If the federal government regulates RTOs, it would be in total control of improvements to be made, where they will be made, who would pay for them, and what the cost would be, and “we would have no jurisdiction over RTOs,” Cochran said.

“That’s going to increase electric bills because RTOs would be run by a for-profit third party,” he said. “They would need employees, computer systems, grids and everything for a whole new company to run the transmission systems. Once again, the increased generation coming on line over the next few years will require large amounts of power to be moved from region to region and there’s not the capability now. That was part of California’s problem. They had power in the southern part of the state but couldn’t get it to the northern part because the
system was bogged down.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.


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