All politics are local. That's what the late Speaker of the U.S. House of Representatives Thomas P. "Tip" O'Neill liked to say. Given recent energy industry events in his native Northeast, O'Neill would probably see little reason to say otherwise.
So when the Bush administration's national energy policy is released, it will face its first trial in the court of local opinion. Recent debate in the Northeast on three key issues of local and national importance—generation, transmission and the environment—may suggest how the wider discussion may unfold across the U.S.
On these three issues local politics in the Northeast are driving decisions having broad regional implications. Local politics also are evident as nascent wholesale power markets challenge the way states deal with common issues.
Political strains may soon show through if power shortages hit parts of the Northeast this summer. A relatively benign summer power outlook issued earlier this month by the Northeast Power Coordinating Council (NPCC) may mask larger issues. In its assessment, NPCC said the region - which stretches from New York City through Boston and into northern Canada - should have surplus capacity during the peak week for demand, expected around July 15.
However, the details show a less certain picture. NPCC forecasts 4,900 MW of excess capacity, but says 4,000 MW of that is locked up in Quebec and the Canadian Maritime provinces where transmission bottlenecks will block most of that extra power from reaching U.S. markets. The U.S. portion of NPCC could end up with no more than 1,000 MW of reserve capacity at a time when peak demand is expected to reach 54,000 MW.
Existing transmission lines across parts of New York state are all but maxed out and can't be relied on to deliver much additional power to New York City. Transmission constraints mean that some 80% of New York City's power needs (and 98% of Long Island's) must be met through local generation. In testimony before a legislative panel in March, New York Public Utility Commission Chair Maureen O. Helmer said that if summer temperatures reach levels hit in July 1999, demand in New York City alone could top 11,000 MW and outstrip available supplies by more than 850 MW.
Unlike California, where little generating capacity was added during the 1990s, new power plants are being built in the Northeast. But new plants are only part of the equation. Transmission line owners say they lack financial incentives to upgrade connections to help ensure that newly built, low-cost plants are dispatched. Transmission congestion in New England has risen sharply since 1999 and is expected to double in and around Boston by 2005. "If there's a bottleneck, then the cheapest power plant may not be dispatched," said Ian Davis, vice president of transmission for National Grid USA, which controls roughly 30% of New England's transmission network.
These issues and others will resonate across the U.S. and Canada as politicians, utility executives, special interest groups and consumers look for a balance among rising electric demand, environmental and lifestyle protection and the need to make a buck.
Binary world
Here's the irony: In its simplest form, today's digital economy relies on binary computer code to either turn a system "on" or "off." As demand for power grows, the options for electric power appear increasingly binary, too.
"You can build a transmission line and a power plant, or sweat in the dark," said Doug Logan, principal with RDI Consulting. "Take your pick."
Energy's current calculus values local opinion greatly when it comes to power plant and transmission line siting, and on issues related to the environment. That makes it tough for regional and national points of view to be heard. This, in turn, affects efforts to set up regional energy markets and reinforce the grid, among other things.
Local groups vowing "not in my back yard" have scuttled power plant and transmission line plans, including Cisco Systems' successful effort to block a power plant proposed for its Silicon Valley corporate park. On the environmental front, states appear willing to adopt strict measures, even if they risk part of their generating capacity. Recent rules in Massachusetts targeted six in-state power plants, whose output accounts for fully 40% of the state's electric generation.
"Siting always comes down to very local issues," said National Grid's Davis. "These projects move from bad news to worse news to slightly better news."
In late March, the Connecticut Siting Board voted 7-1 to reject TransEnergie U.S. Ltd.'s proposal to build a $125 million, 330-MW transmission cable beneath the waters of Long Island Sound to Long Island, N.Y. Though the Long Island Power Authority had identified the project as critical to improving its access to off-island power supplies, the Connecticut Board said the line would have little, if any, direct benefit to Connecticut and rejected it.
"It's hard to imagine a decision more parochial," said Ashley Brown, executive director of the Harvard Electricity Policy Group. The siting board "didn't look at the benefits to New York or the region."
In April, Massachusetts Gov. Jane Swift announced new power plant emission rules to curb nitrogen oxide, sulfur dioxide, mercury and—for the first time at the state level—carbon dioxide. One source said the rules move away from a decade of work on regional air quality solutions and toward more local assertiveness. "It's incongruous," the source said. "As we're getting larger competitive markets, we see legislatures becoming more specific" in writing emission control rules.
Also in April, a report by New York State Electric & Gas Corp. (NYSEG) criticized a statewide assessment by the New York Independent System Operator (ISO) on issues including power plant siting. The plant permitting process has not worked, NYSEG said. "Delayed in-service dates for new generation are the rule for power plants in New York," the report said. NYSEG cited flaws including lengthy project reviews and local lawsuits designed to block projects.
No doubt, introducing competition, establishing new political orders and restructuring markets are proving to be tough. And the process still has a long way to go.
Frontier politics
But if power politics in the Northeast appears confused and unsettled, consider that the region's history of cooperation on energy issues is unique in the U.S., a legacy of its tight power pool structure. On this score the region may stand a better chance than elsewhere of working out compromises. In Mississippi and Wisconsin, one source said, transmission lines march to the state line and stop, their step across the frontier blocked by political decisions on the other side.
One sticking point in the Northeast, and elsewhere, has been the slow pace at which competitive markets appear to be evolving, particularly in terms of adopting new approaches to help markets operate smoothly.
For example, transmission systems were designed to move power from one utility's power plants to its load center, a straightforward and largely local function. The rise of wholesale power markets strains this model by adding expectations that the lines will also carry power from independent power producers to more distant load centers.
This new use taxes existing lines and complicates the issue of who gets transmission access when. It also raises local bugaboos over sacrificing Farmer Jones' cornfield for a new transmission line, which may have little if any tangible local benefit. Just this sort of local environmental issue sank TransEnergie's Long Island Sound proposal in March when environmentalists pointed to potential risks to local shellfish beds.
"A significant need exists to reinforce the grid to keep up with wholesale sales as well as local load growth," said Joseph S. Graves, a member of Washington, D.C.-based PA Consulting's management group. In a paper published earlier this year, the company concluded transmission is the industry's weakest link, having changed the least relative to the rest of the industry. The report also called for a series of investment incentives to encourage more investment in transmission infrastructure.
"Until the health of the transmission sector is improved, the entire electric power industry will underperform," the report said.
Underperformance could extend to generating assets, which should have ranked among the Northeast's shining accomplishments. After all, the region is one of the few places building toward a capacity surplus, and surplus is viewed by many as the key to achieving workable wholesale power markets.
Incremental change
But transmission constraints and a lack of incentives to expand the grid may hurt power plant developers' efforts to provide new, low-cost, environmentally friendly capacity.
"Our strategy is to find financial incentives to deliver additional value to customers and our shareholders," said National Grid's Davis. "Competitive markets mean greater uncertainty. The incentives encourage us to look for incremental changes that deliver value quickly, rather than build grand schemes that rely on paybacks over 40 years."
Since wholesale markets opened in 1999, Davis has seen high levels of transmission congestion in New England, which he says deter efforts to get the most economical power to customers. Congestion affects Boston and northeastern Massachusetts in particular. There, incumbent power generators have a competitive advantage as a result, and perhaps an unwillingness to see competitors enter the constrained market, Davis said. Even so, getting new capacity sited can be a problem, whether in Massachusetts or elsewhere.
Choke point
In its report last month complaining about local permitting regulations based on a recent market assessment by the New York ISO, NYSEG said the ISO "unrealistically" assumed 8,600 MW of new generation could be built in the state by 2005. "Actual experience has shown it can take this long to work through the ineffective and inefficient licensing process."
The siting problem may not be entirely local. A power developer active in the region said federal agencies present more of a choke point. In proposing the now hotly contested 1,080-MW Athens generating station near the Hudson River in New York state, PG&E National Energy Group needed approval from the state's siting board, as well as from the Federal Energy Regulatory Commission, the U.S. Environmental Protection Agency, the Army Corps of Engineers, the Federal Aviation Administration, the U.S. Fish & Wildlife Service and the Coast Guard.
"There's no one-stop shopping" and time limitations do not exist at the federal level, said Dan Whyte, director of permitting for the Bethesda, Md.-based developer. The developer applied for a permit from the Corps of Engineers in February 1999 and, as of early May, was still waiting. "That could not happen at the state level" where permits were issued a year ago, Whyte said.
Indeed, New York state's system gives its siting board 12 months to reach a yea or nay decision; 18 months if circumstances warrant more deliberation. Plus, the New York system has strict rules of evidence and tight requirements to determine who can intervene, standards that don't exist at the federal level.
"We have 31 plants in 19 states and each of those states has a defined process for power plant siting," Whyte said. The federal government "does not have a coordinated process."
That may change under the Bush administration's proposed energy policy. Part of the proposed policy may include legislation extending federal eminent domain powers to transmission lines as well as natural gas pipelines. Whether a coordinated approach results from the administration's energy policy remains to be seen. What is clear, however, is that state governments and local ad hoc groups feel little need to wait before acting.
All politics are local, Tip O'Neill used to say. Energy only proves his point.
