September 2001

Hard Green Machine

by Roger Feldman  --   Bingham, Dana L.L.P.
(originally published by PMA OnLine Magazine: 2001/10/06)

While center stage in the electric industry has been the deregulation debate about delivery system rights, the really big stakes are in the contest over what fuels will be used to produce the power delivered. That contest is what traditionally has precipitated what euphemistically has been termed "the clash between environmental policy and competition in electric supply." The Administration allegedly has another title for this phenomenon: "The Energy Crisis: Getting the Environmentalists the Hell Out of the Way." Its opponents, never known for their reserve either, also allegedly have a title for it: "Deregulation: Putting Dirty or Dangerous Power into Defenseless Consumer Markets."

The Administration’s premise in this debate is presumably that of Dr. Peter Huber, author of Hard Green: Saving the Environment from the Environmentalists; no matter what the government does, society will need more energy in total and individuals will want more power in devices. The response is clear in the Cheney Energy Crisis Report ("EC" for short): more coal, back to nukes, no more pusillanimous pussyfooting and whimpering. (One really has to wonder who was in the secret sessions crafting this EC beauty; could it have included the Peabody Coal interests, said to have donated a total of $700,000 to the Bush campaign effort?)

While the implementation of the EC may roil around in Congress for awhile, the Administration is not waiting; it is plucking at the "regulatory constraints" to its proposed policy in ways described below, and without what is delicately called "environmental sensitivity." The point is not that the Administration is right or wrong, but that in doing so it is bringing together the deregulation and the energy/environment debates – possibly with the result of debilitating public acceptance of necessary power industry reform, at least to the extent the public cares about environmental issues. Here are the cases in point on the EC triad – coal, nuclear and transmission – which may be expected to be in the Washington limelight for awhile to come.

The poster child of the Administration’s environmental policy was its pullback from campaign support for the Kyoto Treaty with respect to CO2. This little "clarification" saved coal (which is used in power plants that pump twice as much CO2 into the air as cars) from being an atrophying fuel source, as gas-fired combined cycle merchant plants of ever larger dimensions best rode the deregulating generation environment. Indeed, while attention has focused on the latest generation of clean coal research proposed by EC, the more important commercial developments are that private power developers have begun to launch a significant number of coal plant proposals (even waste coal reuse facilities are coming back to life) and some coal States like Illinois have passed significant incentive legislation.

EC also triggered a review by mid-August of the impact of the Clean Air Act regulations (including the New Source Review Standards, which were the basis of major Clinton Administration suits against ongoing operations of upgraded, dirty old grandfathered plants). What a great surprise that by late July, trial balloons of Administration plans to "streamline" the paperwork on the Clean Air Act and act in a "less intrusive" manner, ostensibly so utilities will be more willing to invest in new power plants. (Guess it wasn’t the price caps that were the big problem after all.) Plans center on using an enhanced pollutant trading system – not necessarily a bad thing once caps, pollutants and program administration are agreed to. Incidentally, however, plans are indicative of the intention to possibly end New Source Review, i.e., plant-by-plant review of utility unit modifications completely and to exclude CO2 from any overall caps. The mining industry has come to call coal "buried sunshine"; the corollary seems to be: share the pollutant wealth. Maybe it will be picked up in the Patient’s Bill of Rights . . .

The Clean Air Act is one that must be amended legislatively. Change will be been hard-fought, glacial and cross-cutting in terms of the sorting out of legislators’ interests. (In Los Angeles, for example, where the lights were kept on steadily by LADWP, the power comes from large, out-of-state coal plants that those socialist monopolists had shrewdly invested in.)

Meantime, the Administration has, of course, been forging forward as well on its nuclear initiative. Several major merchant plant owners have seized on the potential of acquiring and operating low energy cost facilities in the deregulated environment. The issue here, besides the hoary one of nuclear plant safety – perhaps spurious and perhaps responded to by efficient new small reactor designs – is that of long-term waste disposal as well as related, not insubstantial, transportation issues. The battle of Yucca Flats, Nevada – already 12 years behind schedule – involves nothing less than where the only place (other than outer space, on which Mr. Rumsfeld has yet to weigh in) to put what even advocates of further study would acknowledge are the potentially dangerous remains of the generation process. (Does it tell us anything that the DOE spent $2 million to hire some professors of semiotics to come up with signage that would last 10,000 years, warning our descendants to stay away from marked nuclear waste depositories?) The news from Las Vegas is that, after spending 14 years and $4.5 billion to figure out whether Yucca Mountain could entomb radioactive waste for that long, the debate at DOE has now morphed into whether protective storage materials can survive the natural environment at Yucca. Something about the Mountain being wetter and the geology being more complex than proponents thought.

Not to worry, there’s nothing in EC but thinking makes it so. An interesting item on the Administration’s overall attitude – which also could actually legally and legislatively impair its EC initiative – came out recently. It seems that the same law firm, which has been advising the DOE’s contractor on the agency’s application for an NRC license for Yucca as a disposal site, also was lobbying the NRC on behalf of the industry’s trade association as to the maximum radiation dose people living near the site could be exposed to. The DOE publicly stated that it found no conflict of interest. . .

The nuclear disposal debate will be one of the most important of upcoming Congressional sessions.

The third leg of the EC stool was the need for new electricity transmission, Federally imposed through eminent domain, to achieve currently unobtainable results and presumably better planning consistency – certainly a necessary and commendable goal necessary for power deregulation to work fairly, but one plagued in the past by the rogue dwarf tribes called the NIMBY, which generally seem to congregate along potential corridors of high voltage lines. Whether their grievances regarding the potential effect of electromagnetic fields (EMF) exposures has merit is a scientific one, as to which studies over the past 20 years have trended toward rejected. This has not deterred guerilla resistance by packs of NIMBYs in Minnesota, Colorado, and Florida. Most recently, however, their voodoo ecology received support from a report authored by the California Department of Health Services, which noted a much stronger correlation between miscarriages and EMF exposure than previously thought: 40% of the estimated 60,000 miscarriages might be attributable to exposure to maximum EMF fields.

Now correlation is not the same thing as the causation. And it is just a little curious that the report was released just prior to the last-minute push by the forces of Gray Davis to buy the utility’s transmission system and thereby save SCE from bankruptcy by socializing the system. But it is pause-inducing to note that the entire DOE budget to research EMF effects has been eliminated at a time when clearly much existing transmission is aging, a substantial amount of seam-bridging new transmission is necessary, and scientific uncertainty seems likely to crop up in law suits. Maybe it’s not an environmental problem to exercise Federal eminent domain whenever deemed necessary; or to vote for, in effect, State rights over real property. But this also is the Congress that’s very steamed over all other facets of family values.

A normally very astute energy observer suggested that the main implication of deregulation for environmentalists and suppliers of environmental energy was that now, instead of having to convince the government of their views and have it impose its will on utilities serving captive customers, all environmentalists had to do was sell their wares to consumers. An easier task than when they had to rely on government-pressed, hostile utilities as the implementers of green policy. That, however, is Pollyanna pap when the Hard Green Machine is out to crunch your concerns. Not their problem, may chortle the EC folks. But there is one possibility that they may have forgotten: when EC calls home, the folks may not like what they’re beginning to hear about what must be done in the second crusade for energy independence – and that could burn their affinity for the power deregulation agenda as well.

ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.