The Environmental Responsibility of the Regionalizing Electric Utility Industry

Article excerpt

Power transactions trading at lowest cost will eliminate certain environmental and renewable resources, which trade above the market clearing power price, unless otherwise protected by government policy. (1)

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The invitation to this symposium prompted me to do some serious head scratching. Would I discuss whether "environmental regulations currently act as a barrier to entry in energy markets and whether the current regime strikes the right balance between environmental protection and efficiency"? (2) In this time of massive uncertainty over the future of "energy markets," could environmental laws be the roadblock to progress?

In my view and those of numerous others, (3) progress toward wholesale and retail markets ("restructuring") has slowed through poor design of the regulatory and technical infrastructure and the combination of California, Enron, (4) the uncertain future of FERC's Standard Market Design ("SMD") (5) and Wholesale Power Market Platform ("WPMP") (6) proposals, states grappling with "stranded costs" and other transition issues, and complex problems of market structure and operation. Indeed, some of the same luminaries in the field who are participants in this Symposium will be contributing papers to a symposium early next year on "Realizing the Promise of Electric Deregulation." (7)

Even those who haven't yet given up on restructuring don't put much blame on environmental laws. (8) But that hardly means that there aren't important environmental considerations in restructuring. In this Article, I will address environmental issues in the context of our rapidly evolving understanding of "restructuring." The market for electricity is fast becoming a series of regional marketplaces for wholesale transactions, operating on bid-based systems that move power at the lowest cost. (9) There are plenty of states where power is still delivered as it has been for decades: by "bundled" service provided by vertically integrated utilities. (10) However, the trend is toward regionalization, where independent entities control the transmission grid and play a major role in determining how power is delivered. These market participants, confusingly, have been known by a number of names and acronyms, though the most recent one is "regional transmission organizations" ("RTOs"). (11) The trend toward regional marketplaces continues unabated, even in the face of uncertainty about FERC regulatory efforts. (12)

Environmental laws are not nearly as important as other business considerations in their impact on utilities' decisions to pool their assets. That discussion centers largely on considerations that don't have much to do with environmental laws: whether the profit motive is enough of an incentive for transmission firms to manage the grid properly, ensure reliability, or build new capacity. There is an important set of environmental concerns in the transmission area involving the ongoing controversy over the siting of new transmission lines. As Professors Rossi and Pierce explain in depth in their articles, opponents of new projects can use state and local laws to delay or even stop new transmission lines. (13) So for the moment I will focus on a different intersection of environmental laws and a regionalizing industry: the impacts on generation of electricity.

I. ENVIRONMENTAL LAWS' INFLUENCE ON GENERATION

The electricity system has three parts: generation, transmission and distribution, (14) though the delineations among the three are becoming less clear. (15) Would there be more generators pouring their power into the new regional markets but for environmental regulators and their insistence that pollution be controlled?

Undeniably, the environmental laws make it difficult for some potential entrants in the generation business. A nuclear power plant can take more than a decade to get from the drawing board to operation, and much of that time would be spent in mandated environmental reviews. …