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Why Obama's Plan to Help Renewable Energy May Backfire and Aid Big Coal

Obama's plan for a "national smart" grid needs closer examination. An expanded national grid would be anything but smart.

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An increasing centralization of authority over electricity planning has been slowly occurring over the last 15 years. It was speeded up with the passage of the 2005 Energy Act that requires the Department of Energy to designate "national interest electric transmission corridors." Once designated, state regulatory bodies have one year to approve an application for a new transmission line, or the federal government can step in and issue the approval.

Corridors of Power

It is instructive to see how the federal government has exercised this newly acquired authority to designate national interest transmission corridors. In late 2007, DOE released its first group of designated transmission corridors, setting off an immediate outcry by the affected states. Governments and regulatory agencies in Pennsylvania, Virginia, Delaware, Maryland and New Jersey all petitioned for a rehearing. DOE rejected their petition.

Over the last 30 years, grassroots activism has pushed state energy regulatory agencies away from their traditional focus on encouraging bigger power plants and higher-voltage transmission lines and toward a new decision-making matrix called "least cost planning." Utilities are required to examine and pursue alternatives like increasing energy efficiency or installing smaller, dispersed power plants before they can build new traditional power plants or transmission lines. Recently, states also require utilities to take into account environmental costs and to give renewable energy a priority.

The states complained that in designating transmission corridors, the DOE had refused to consider non-transmission solutions to congestion problems, something their own state laws require, as does the Federal Power Act. The FPA specifically directs the DOE to issue its report only "after considering alternatives."

The New Jersey Board of Public Utilities asked the DOE to refrain from designating corridors "until after it analyzed whether alternative means, including energy efficiency, demand response and clean local generation within the critical congestion area could relieve congestion more effectively, at lower cost, with less harm to the environment, with better assurance of the reliability and security of our electricity supply, or with less vulnerability to uncertainties such as future fuel costs, future environmental requirements and other variables."

The DOE claimed that an examination of non-transmission solutions was outside its jurisdiction. According to the DOE's perverse interpretation of the law, the federal government can pre-empt state authority but it cannot take into account the same factors states do in deciding whether to approve new transmission lines, even though almost everyone agrees that consideration of those factors results in better decisions.

The Mid-Atlantic Area National Interest Electric Transmission Corridor that the DOE designated encompasses nearly all the state of Maryland and New Jersey. New Jersey complained, arguing that the DOE's own data indicated that much of these areas are not experiencing transmission constraints or congestion. The DOE did not deny New Jersey's allegation but maintained, "(T)he statute does not appear to foreclose the possibility of national corridor designation in the absence of current congestion ... even without congestion, DOE can approve a line where it wants to encourage 'desirable generation.'"

In this case, the DOE decided that coal-fired power plants constituted desirable generation. The uncongested parts of the DOE's designated corridor were largely in areas of Ohio, Pennsylvania, Virginia and West Virginia that account for more than two-thirds of the coal produced in the Appalachian region.

'National' or 'Smart'?

This is the context for Obama's presidency. It is unclear whether he will emphasize "national" or "smart." Obama's fiscal stimulus plan calls for $11 billion for what he calls a smart grid investment program. The program specifically mentions spending on new high-voltage transmission lines, but it also encompasses investments in smart grids. Since the federal government has direct control over high-voltage transmission lines through the Federal Energy Regulatory Commission  but not over the retail subtransmission and distribution networks, it might find it easier to push money toward the former ("national") rather than the latter ("smart").

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