The Government Should Practice What it Preaches

 | Aug 24, 2013 | 3:00 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

etr

,

duk

,

scg

,

so

Most observers would agree the nation has a frustrating energy policy. Politicians claim everything is available and is on the table. The reality from a federal perspective is nothing is on the table. The federal government cannot force utilities to build nuclear power plants, solar plants, wind plants, coal plants or plants that use natural gas. Most of those policy decisions are left to the individual states.

There is an exception. It is the Tennessee Valley Authority (TVA), which is one of the nation's largest utilities by revenue. TVA is the nation's largest municipal utility and it is owned by the federal government. Yet the energy policies the federal government promotes for other states and utilities to implement are mostly ignored at the TVA.

A case in point is regional transmission organizations (RTOs), which manage the grids for most population centers. Independent system operators (ISOs) are similar to RTOs (for convenience, I will refer to each of them as RTOs). All RTOs operating in the United States are regulated by the Federal Energy Regulatory Commission.

Under federal policy, RTOs and ISOs are clearinghouses to manage interstate commerce between and among electric utilities to trade wholesale power and manage nondiscriminatory access to transmission lines. All of these transactions are accomplished using free market principals in a transparent and nondiscriminatory manner.

As an aside, Europe has a similar system called transmission system operator (TSO). China is attempting to build a similar model.

North America has ten separate RTOs. Nine RTOs are shown in ISO/RTO Council's map. Ten RTOs, including Canada's New Brunswick system are shown in FERC's map. Notice the federal government's map differs from the industry association's map. Neither on are wrong, they are simple offer different points of view.

The federal government has been encouraging states and utilities to join an existing RTO or create a new RTO. For example, when Entergy (ETR) attracted the Justice Department's attention over wholesale power issues, it decided to accede to federal RTO pressures by selling itsr transmission lines to ITC Holding (ITC) and extending Midcontinent ISO's (MISO) footprint from the Midwest to Texas.

Another example is the GridSouth RTO. It does not exist. However, for over a decade, the FERC has been "encouraging" Duke Energy (DUK), SCANA (SCG) and Southern Company (SO) to form one or more RTOs. For more than a decade, Duke, SCANA, Southern and the states they serve have been resisting.

When Duke sought FERC's permission to merge with Progress Energy, many thought the long-awaited GridSouth RTO would take finally shape. It did not happen, at least not yet.

FERC issued several orders that will attempt to force investor-owned utilities to join or form FERC-approved RTOs. FERC Order 2000, Order 1000 and Orders 888 through 890 are the foundational regulations for compliance.

While much has been made of Entergy's expansion into MISO and Duke-SCANA-Southern's involvement in GridSouth, little has been heard about TVA.

TVA's territory is shown in their service area map. Notice TVA operates outside any RTO identified by ISO/RTO Council or FERC. That is because TVA is not operating within a RTO.

Under current law, TVA is forbidden to sell its power outside its territory. Its competitors cannot sell their electricity inside the TVA "fence."

In 1999, Sherwood L. Boehlert, chair of House of Representatives' Subcommittee on Water Resources and Environment, Committee on Transportation and Infrastructure observed that, "TVA is essentially protected from electricity competition. The TVA fence is a statutorily described geographic area beyond which TVA is prevented from selling power. The anti-cherry-picking provisions of the 1992 Energy Policy Act also prevent TVA from having to transmit power from other utilities into its service area. Removing these protections and allowing TVA to enter into a competitive electricity market would have broad implications for its many stakeholders and potentially on the environment."

Rather than breaking up TVA, it would seem equitable if the federal government would first integrate TVA. By linking TVA's 16,000 miles of transmission with MISO and PJM, power could flow efficiently throughout the east and bring competitive power to all regions, not just federally protected regions.

Technically, it would not difficult to integrate TVA's system with other RTOs. The investment would be small and the benefits would be large. The only roadblock is Congress.

It is true that individual states have piecemeal control over the nation's energy policy. However, when it comes to TVA, the federal government has absolute control over its own system. If the federal government's policy is to promote RTOs for other utilities, then a RTO is needed for TVA. 

Columnist Conversations

The prominence (and amount of) of the discounting in the malls this weekend has been very noticeable. One are...
3 insiders sold a total of 518,620 Starbucks (SBUX) shares for proceeds of $43.449 MM. 4 insiders dumped 558,1...
Yum Brands saw both insider buying and selling reported last week. One insider bought 10,000 shares for about ...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.