"Energy independence from foreign
sources.Ē A mantra repeated over and over again by Al Gore, by the
Hollywood elite and by candidates running for the 2008 Presidential
nomination. But rarely is it ever pointed out how this phrase is but an
oxymoron with respect to United States energy policy, which becomes ever
more vulnerable, not just as the result of its failing infrastructure,
but from misguided public policy decisions.
And never is the topic broached publicly
in how much of the US energy infrastructure and lines of transmission
have been consumed by a constant stream of foreign direct investors and
diversified holding companies. Also unbeknownst to most consumers is
that such activity was hailed from Wall Street to Capitol Hill as the
answer to resolving US energy woes.
And now those very foreign investors have
been granted even greater leeway as now realized by such mandates of the
Energy Policy Act of 2005 (EPAct) which essentially eliminated the
Public Utilities Holding Company Act (PUHCA) of 1935.
And in 2007, barely after the ink dried
from EPAct 2005, the Energy Independence and Security Act (EISA) of 2007
was passed by federal lawmakers and signed into law. EISA conveniently
serves to obfuscate critical issues that continue to stress the US
electrical power grid, its energy generation and transmission capacity.
Yet, EPAct 2005 has continually escaped public scrutiny and a lack of
accountability in both houses of the US Congress.
But US energy policy and the generation of
power is a complex web of public policy, law, economics, infrastructure
and ever-present globalization. So for purposes of this report, and in
order to best comprehend current US energy policy, it will be helpful to
take stock of the more recent evolution of such and to examine its many
and varied elements which have changed again post-2005.
In addition to the repeal of PUHCA 1935,
EPAct 2005 amended Section 203 of the Federal Power Act (FPA) which will
have an unprecedented and profound impact of its own on how future
transactions in the energy industry will be handled by the federal
government, impact matters of statesí sovereignty and regulating costs
For over 70 years, federal laws have
played a vital and critical role in the operation, production,
distribution and protection of the US electrical power grid. Federal
laws in concert with state laws and regulations have necessarily
dictated that the power grid be shielded from market manipulation and
But as the nearly 100 year old power grid
has aged, facing a growing population and higher load demands for power,
the industry has simultaneously become more and more deregulated by
mandate. And deregulation has led to less and less necessary
preventative maintenance, upgrades in technology as well as necessary
investment in research and development. And the poorly maintained grid
in many of the areas of the country, predominantly the mid-Atlantic and
northeast states, has but put even more stress upon its transmission
The basic structure of the North American
transmission system is made up of over 140 control centers and
approximately 3500 utility providers covering over 200,000 miles.
Utility generating plants, transmission and sub-transmission systems,
distribution systems and customer loads travel over a two-part power
grid; one in the east and one in the west. Texas has its own grid.
Compounding the vast network and intricacy
of the grid is the interconnectivity and delivery of power that in many
cases is incompatible with widely varying levels of equipment integrity,
data systems and personnel training. It is the secondary system which
supplies the distribution of electricity to consumers, where most of the
power failures occur, and that which require time to repair. And the
network of sub-stations feeding electricity to neighborhoods, via
feeders which flow to transformers, is where supposed problems arise
during local outages, further exacerbated by non-maintained equipment.
But although deregulation of the utility
industry began over two decades ago, it was the 1992 Energy Policy Act
which changed the way electricity was sold to local consumers for the
first time. Energy companies were permitted to install their own plants
and sought customers throughout the country, but not necessarily in the
same geographic region. Energy brokers then entered into the picture and
utilized the open market to buy and sell power. And thus began the
potential unreliability of energy delivery.
Purchasing power from plants hundreds of
miles away from a respective region put unprecedented burdens upon the
transmission system, raising the likelihood of power failures at the
local level. Most importantly, the electrical grid, as it was originally
envisioned, was never designed to absorb the transmission of high
voltage capacity across the continent, and especially in absence of
comparable and upgraded systems in place.
Although Enron became the poster child for
electrical power market manipulation, which came to light after the
rolling blackouts of California in 2000 and 2001, US public policy and
lawmakers must be held responsible for even further erosion of federal
regulations and mandates now realized in EPAct 2005.
The initial most striking change that
EPAct 2005 provides is the repeal of PUHCA 1935, now amended as PUHCA
2005, and now administered by the Federal Energy Regulatory Commission
(FERC). PUHCA 1935 became law after the height of the Great Depression
and after the stock market crash of 1929 and was a cornerstone of
President Franklin D. Rooseveltís New Deal industry legislation.
It called for the prohibition of market
manipulation, specifically to prevent then super-sized utility
conglomerates, to prevent mega-mergers and to prevent monopolies from
overtaking geographic regions. And just as importantly, PUHCA 1935 made
it unfeasible for non-energy corporations to purchase a public utility.
Such abuses led to severe problems in the
electric and gas industry in the 1920ís and in the 1930ís when three
utility holding companies owned one-half of the electric utilities in
the entire US Thus, the emergence and formation of the Securities
Exchange Commission (SEC) in 1934, which preceded PUHCA1935, and
together became essential in safe-guarding the public trust and in
protecting consumers and investors alike, as PUHCA 1935 delegated
multi-state utility ownership regulation to the SEC.
Fast-forward to February 8, 2006, six
months to the day of the enactment of EPAct 2005, when the official
repeal of PUHCA 1935 was realized. As a direct result, the SEC vacated
its regulatory authority over multi-state utility ownership by holding
companies and only retains the ability to protect investors, not utility
consumers or to prevent mega-mergers from consolidating. And now the
FERC will assume cursory merger authority over generating plants and
The repeal of PUHCA 1935 will not only
allow multi-state transactions but also mergers of distribution
facilities, utilities merging with non-utility corporations, and
including foreign ownership over domestic utilities. Furthermore, oil
companies may now own electricity and natural gas utilities, paving the
way, yet again, for the formation of cartels. In addition, construction
and infrastructure companies, especially those from abroad, are eager to
partake in being afforded carte blanche in the acquisition of US public
In the post-PUHCA 1935 era, no individual
state or federal agency will have the jurisdictional teeth to
effectively regulate the finances of US public utility assets totaling
more than one trillion US dollars. Nor will there be required oversight
of such holding or parent companies such as investment banks from
speculating and investing in far riskier businesses, with utility
rate-payer revenues. We have already seen evidence of such with the
current sub-prime mortgage loan crisis.
At cost? The reliability standards of US
public utilities, which could have grave ramifications on US national
security, the US economy and the well-being and safety of the American
people; all with the blessings of the US Department of Energy, the US
Congress and the global stock market.