Joint Economic Committee Ranking Member: 'Keep Lights On - Fixing U.S. Power Issues Through Policy Reform'
- Oct 20, 2021 8:37 pm GMT
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An improved system of power generation and transmission in the
The Lights Go Out Too Often
The need for improvement in
Of course, few systems can be designed for a perfect record of 100 percent uptime; power has variable demand, and sometimes plants have issues and need to go offline. Building in a ton of redundant capacity to handle every possible crisis would be costly, requiring resources to construct and maintain plants that are rarely or never used.
However, outages are also tremendously costly. Power enables all sorts of other productive, valuable, or enjoyable activities, making it valuable to people, often far in excess of typical prices. This is what economists call "consumer surplus:" while people like having cheap power, they would actually still want it even if it cost a lot. Preventing outages, then, is a worthwhile goal--and judging by the
Preventing Power Disasters Can Also Lower Costs Generally
Furthermore, the same kind of power systems that prevent outages under times of strain are also likely to have lower prices under more ordinary circumstances. Much of the time, at times when demand is low and weather is not causing problems, wholesale electricity is extremely cheap. However, when demand is high or weather has caused a disruption, the price of wholesale electricity rises to a large multiple of its off-peak price, as high demand keeps raising prices in order to incentivize more marginal sources of power to come online. In extreme cases, those factors can be huge: even a hundred times the normal price.
Prices to consumers are different from wholesale prices; most customers have little variable pricing, if any, in their electricity costs. Instead, their provider tends to take a huge loss on extreme days, paying the high wholesale price while charging a lower price to consumers. In compensation, the provider earns a small profit on ordinary days. This profit can be thought of as an insurance premium against disasters. If there were fewer disasters, the premium could be reduced without driving power providers out of business. This would make power cheaper for all.
More generally, most improvements that make the supply of power more readily available have a chance to reduce power prices through competitive pressure.
Some improvements are specific to certain kinds of weather in certain kinds of geographies; for example,
However, there are two major things all areas can improve on: power generation, and power transmission. Both of these are unnecessarily held back by overregulation and a system that rewards a minority of litigious complainers over ordinary people who want to keep the lights on. Both of these deserve reform.
Power Generation Is Subject to Unnecessary Delays and Legal Abuse
Adequate power generation should be a consistently attainable goal for American cities. Power plants have existed in some form since the 19th century, when
Some of the most salient failures in
A contributing factor in this energy shortage was the shutdown of the final
This was a missed opportunity; given the high importance of power, state-level policymakers should, in general, be relatively welcoming to a competitive energy sector with many participants and ample capacity. It is better, in general, to try to expand capacity, not replace it. When it comes to a valuable service like power, it is better to build in some redundancy than to fall short.
However, state governments are not solely to blame for power problems. Even an eager state can find, despite its wishes, that it is difficult to bring new power generation online because of a bloated and easily-abused federal approval process. The Vineyard Wind project in
The problems for Vineyard Wind instead came at the federal level: because the project was on the ocean, it was subject to a federal permitting decision by the
It is important that NEPA is not binding when it comes to the decisions themselves. It does not compel a particular outcome. Instead, it compels a process, one in which the agency writes a sort of cost-benefit analysis known as an Environmental Assessment (EA) or Environmental Impact Statement (EIS) before making a decision. Cost-benefit analysis, in some form, is a good idea; it is a good method for evaluating decisions, and transparency into that evaluation process is welcome.
However, NEPA has two general flaws. The first is that these analyses are subject to legal challenges by just about anyone on the basis that the analysis was insufficient, and the second is that it is relatively easy for those challenges to halt permitting entirely until the ostensible insufficiency is corrected.
Taken together, this is ripe for abuse. While NEPA was not intended to create outcomes--just to provide analysis--the process can be manipulated to create the outcome opponents desire. If building cannot start until the review is complete, then as long as the review continues, opponents of the project actually achieve their preferred outcome. It is therefore in their interest to make the review as onerous as possible through legal challenges.
This further creates the incentive to write an EIS as defensively and exhaustively as possible, making sure that it covers every possible objection under the sun; while this is individually rational to avoid lawsuits, it also creates the expectation that other EIS will reach that same level of detail. The average EIS for a BOEM project is 480 pages.
Vineyard Wind is a particularly egregious example. Its EIS contains four separate volumes, the shortest of which is 352 pages and the longest of which is 794 pages. The production of statements in that level of detail is impossible on any sort of reasonable project timeline. In the case of Vineyard Wind, for example, it took until 2021 for BOEM to approve Vineyard Wind, even though the state of
Even after final approval, though, lawsuits can still be filed to derail projects. For example, the
There are problems with this process worth considering. The excesses of NEPA legal abuse themselves fail a sort of cost-benefit analysis. Delay is a cost, and often, the larger the decision, the more costly delay is. Furthermore, cost-benefit analysis has costs in itself. The production of these reports takes the time and energy of well-educated and well-paid people. Additional months and additional pages are not free. Delays and reports are desirable only to the extent that they help decisions by more than they cost in terms of time and effort.
Time and effort can add to the quality of analysis, but this is subject to diminishing marginal returns. As the staff of the BOEM or other federal agency write their EIS, they are likely to analyze the most important considerations in a decision-making process early on, even in a fairly brief statement.
It is relatively unlikely that a crucial or persuasive argument would go uncovered in a thousand-page document, but would instead only clear the bar and warrant a mention if the document were given an additional hundred pages. It is also unlikely that an agency would change its entire permitting decision based on information it thought insignificant enough to omit from a thousand-page tome.
Rather than a good-faith effort to improve the quality of government analysis, it is far more likely that many NEPA lawsuits are a deliberate effort to increase costs.
Another problem is in accountability. The project, like any project, has upsides and downsides. One benefit of a republic, in theory, is that arguments are weighed and decisions are made by representatives who are accountable. Voters can also weigh the decision, and, if it is important to them, consider it when they decide which lawmakers to vote for.
That connection to accountability is almost entirely severed in many NEPA cases, including Vineyard Wind. The government of
Power Transmission Needs Faster Permitting
Power transmission, including long-range power transmission, is also subject to a too-onerous legal environment in need of reform.
Transmission is important for several reasons. The first is that many of our power sources often require specific natural features to work well, and these natural features are often not located near the end users. Solar, wind, geothermal, and hydroelectric power make use of naturally-occurring energy sources. Nuclear power does not derive its power directly from a natural source, but it does require large amounts of water--ideally, relatively cold water--to convey heat from the reactor core to its turbines, or to cool excess heat generated. It is often efficient to locate power plants in an ideal physical environment for them, and then transmit the power from that ideal location to consumers.
Transmission also facilitates competition between different power sources. The more interconnected the power grid is, the more the discipline of competitive pressure can be used to reduce energy prices and make life more affordable for families. This is especially important at peak times, when wholesale energy prices are especially high. In those times, it becomes relatively more economical to transmit power in from neighboring areas, which can help relieve the worst of the pressure.
At the state level, there was far less incentive to approve, since many of the greatest beneficiaries of the project laid outside of
Power transmission suffers from a relatively simple problem: because it goes through several jurisdictions, it may require the approval of many different regulators, and even a single failure at any point can scuttle an entire project. As a result, the
Energy policy is a difficult topic: markets are not always competitive, and many important pieces of energy infrastructure are subject to approval of multiple agencies or jurisdictions. No single reform will solve every problem.
However, there are some clear lessons from the case studies above. The first is that state governments should generally create a policy environment that is welcoming, not hostile, to power generation. Electricity creates deep consumer surplus, and is a prerequisite to many other economic or social activities. It is worthwhile to keep the lights on, and ideally with relatively cheap and competitive markets.
The second is that NEPA is overdue for reform. One proposed suite of reforms to NEPA is the UNSHACKLE Act, a bill jointly sponsored by Senators
The third is that long-range power transmission regulation may need streamlining.
These policy recommendations are only a start, but they could make the
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