Can new federal laws succeed in helping the nation build a modern grid in tune with a digital society? The Energy Policy Act of 2005 is now being put to the test.

Transmission planning has long been an onerous process. Intellectually, everyone understands the need to carry electrons from one point to another in the most physically and economically efficient manner possible. But, disagreements abound over where to put the poles and wires that will facilitate that process. Problems therefore persist, namely tightly constrained grids that may cause transmission operators to curtail service.

The Energy Policy Act gives the Federal Energy Regulatory Commission backstop permitting authority as a way to get important transmission built. Specifically, the U.S. Secretary of Energy can designate national interest electric corridors in those areas that have capacity constraints or congestion. The states still have first crack at the process. But, the feds will step in if state law precludes consideration of interstate benefits and if the state takes longer than one year to act after an application is filed.

"It is important to note that our regulations are intended to supplement the traditional state siting process," says FERC Chairman Joseph Kelliher. "I would expect that most transmission projects would continue to be sited by states under state law. Our jurisdiction to issue a construction permit applies only under limited circumstances, and our proposed rules respect those limits."

The commission does not have a blank check. A proposal to build or expand electric transmission facilities brought before it must be used for interstate commerce, be consistent with the public interest, significantly reduce transmission congestion in interstate commerce and maximize the use of existing towers and structures. Under all circumstances, the review process is to be extensive and the public is to remain involved.

Power purchasers need unfettered access to the nation's grid so that they can supply electricity when and wherever they need it. But transmission constraints limit the amount of energy that can be transferred to a load center. Grid operators must then find alternative routes that oftentimes demand more costly forms of generation. Congestion therefore has its price.

Where to build? In August, the Energy Department labeled the area from New York City down to Washington, D.C. as well as all of Southern California as "critical." That is, new lines are definitely needed. It said that New England, the Phoenix-Tucson area, the Seattle-Portland region and San Francisco were "areas of concern."

The New York State Public Service Commission has weighed in, saying that FERC should adopt a "clear economic measure of congestion" that considers national concerns and one in which projects are paid for by the beneficiaries. Such an "objective" view would narrow down the list of sites that might be viewed as vital to the national interests.

Breaking Ties

Transmission investment has declined in real terms -- adjusted for inflation -- from 1975 to 1998. While there have been increases since 1998, FERC says that the level is still less than what was invested in 1975. Over the same time period, however, the demand for electricity has doubled. That's resulted in a significant decrease in transmission capacity, requiring new lines get built.

The Energy Department also continues to assert that Regional Transmission Organizations -- independent operators that schedule power deliveries -- should take a leadership role. As such, PJM Interconnection has asked the department to designate two electrical paths as vital -- authority granted to it by the Energy Policy Act. They are the Allegheny Mountain path that extends from West Virginia and serves the Baltimore-Washington region and the Delaware River Path that serves the areas around Philadelphia, New Jersey and Delaware.

The corridor designations address needs that result from continuing growth in electricity use, closing of local generating plants, limited construction of new generating facilities and aging transmission infrastructure, PJM says. In 2005, lost potential revenue due to transmission congestion on the Allegheny Mountain path totaled $747 million. It totaled $464 million on the Delaware River path in 2005.

"Expansion of the electric transmission grid and the consideration of alternatives are needed in these key areas to ensure reliability and lower electricity costs," says Phillip Harris, CEO of PJM, noting that "large metropolitan areas make them the very type of national interest concerns to which Congress was referring."

ISO New England, meanwhile, says that about $900 million is needed for upgrades to maintain reliability and efficiency. Southwest Connecticut in particular has one of the most severely constrained transmission systems in New England. All told, more than 30 transmission projects have been planned or proposed for the Northeast, although FERC says that it still won't be enough to relieve the expected congestion.

The energy law stipulates that FERC does have the authority to act, although it cannot take final action and issue a construction permit until one year has passed. While FERC expects the states to make the vast majority of determinations, there will be cases in which agreement cannot be reached and it will be called upon to break the tie -- no guarantee that the process would still not be consumed by legal wrangling and regulatory battles.

Everyone wants the lights to turn on at the flip of a switch. But, no one wants the transmission wires to enable that reality to be located close to them. The permitting process is democratic and all interested stakeholders have the right and obligation to weigh in. The Energy Policy Act does not want to circumvent the procedure. It does, however, seek to create a sound and modern-day grid.

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