STATES’ ABILITY TO PASS POWER COSTS ONTO NEIGHBORS

Using the Commerce Clause to Short-Circuit States’ Ability to Pass Power Costs onto Neighbors

Vance Little*

(WORK IN PROGRESS – LAST UPDATED 01/14/08)

I. Introduction

On the afternoon of August 14, 2003, the electric power grid across the northeastern U.S. collapsed resulting in comprehensive loss of power across the Northeast and Midwest.[1] Though a summer day, the temperature was not abnormally high. The region’s massive use of air conditioners was drawing high demand on the system, but this demand was within a reasonable range.[2] Network operators at Ohio’s FirstEnergy were monitoring the behavior of Cleveland’s electric power grid.[3] A series of problems were about to develop, including loss of diagnostic meters, misinformation, and ultimately human error which would result in an uncontrollable cascade of power and a catastrophic system failure.[4] This failure caused a domino effect, rapidly spreading to states across the Mid-west and the Northeast.[5] The result: billions of dollars in damage and tens of millions of people stranded in the dark.[6]

We are all connected. There is no better way to appreciate the broad interconnectedness of modern society than to consider the electric power grid in the United States. We have created a system where now more than ever, the most minor event – such as a tree falling on a transmission line in Wyoming – can result in power failure as far away as California, even diverting aircraft landing at San Francisco International Airport.[7] Our world has become one where seemingly insignificant and isolated events can shut down an entire region of the country.[8]

A morass of problems looms on the horizon as the power grid balances ever so precariously, straining to meet the growing demands of modern civilization. Crises have already hit the nation. The massive power failures across the Northeast in 2003 and perhaps more spectacularly in California in 2001 should be shocking examples of a massive utility on the brink of failure.[9] Obvious security considerations aside, repercussions of such failures risk the health, safety, and welfare of potentially hundreds of millions of Americans.

As power grids became more and more interconnected, they grew into modern mega-networks spanning across states and regions.[10] As the size of these networks increased, their management and design became more critical.[11] Decisions relating to the power grids no longer affect a single city limited to thousands of people but now reach millions across regions of the U.S.[12] The power of regulating these networks has remained with the state and local authorities and has not evolved relative to the growth of these networks.[13] Previously, due to the limited scope of the issues, state and local decision-makers had the capacity to make adequate decisions regarding the appropriate management of the utilities.[14] State and local governments cannot, however, be expected to make decisions considering the interests of all who are affected by the extensive networks. Provincial management now drives many critical decisions relating to the siting and construction of grid infrastructure, inappropriately burdening residents of other areas of the state and, more importantly, other states.[15]

This is of great concern because, within a state, citizens are able to participate in the legislative process, sorting out inequities and enacting legislation by consensus. However, when one state burdens the residents of a neighboring state through decisions affecting the common power system, the residents’ representation and rights are impeded.

The evolution of the electricity network which has resulted in the hyper-connected electric power system in the U.S. should prompt policy makers to reconsider the implications of what previously were strictly intrastate decisions. Decisions regarding maintenance, construction, or upgrades to the electric power system have become inherently interstate in the twenty-first century. In light of the ever-increasing consumption demands,[16] we must question whether state regulatory bodies have the right, morally or legally, to forego necessary infrastructure, thereby threatening the delicate balance of an entire region of the country. In other words, can one state force those burdens on other states?

An innovative framework is needed which permits enforcement of states’ responsibilities with respect to other states. Using the dormant Commerce Clause, courts can play a role in preventive intervention by invalidating decisions which endanger the regional power grid when state regulators veto proposals for needed power plants and transmission lines.

This article will begin by exploring why the modern electric power network is so delicate and how its spidery web is able to reach so wide and far. Section II presents a basic introduction to the physical and technological nature of the modern electricity grid, including how electricity is generated and transmitted to the user. This section also shows how the electric grid has grown to a point where everything is interconnected, where one small event can have serious consequences literally thousands of miles away. The history and the current state of energy regulation at both the state and federal level are explored, including a brief history of the Commerce Clause jurisprudence. Section III explains the need for a comprehensive federal regulatory structure but why solutions do not appear to be likely through either state or federal regulatory measures. This being so, Section IV proposes how the courts can use the Commerce Clause to hold state regulators accountable for decisions they make. Pros and cons of implementing the standard balancing test associated with the dormant Commerce Clause are described, and improvements on the test are suggested to more adequately handle these difficult issues.

II. Background

A. Power Transmission

There is hardly an aspect of modern society which does not depend on the use of electricity.[17] Electricity is available in every home and building, and is accessible at the flick of a switch. It is a commodity upon which modern society relies, not only for comfort but for survival.[18] When the flow of electricity fails, there can be disastrous consequences, as has been shown on a number of occasions over the last decade.[19] One dramatic example occurred in 2003, when the entire northeastern region of the U.S. experienced a major electrical system failure, forcing 261 plants offline,[20] and affecting eight states in the Northeast and Midwest plus the Canadian province of Ontario.[21] The complete blackout resulted in an estimated damage of between four and ten billion dollars in the U.S. alone.[22] Canadians estimated an additional 2.3 billion dollar loss.[23] These estimates account only for the monetary damages. Consider the human factors: limited back-up power in hospitals and nursing homes (where patients and residents rely on electric powered life-support instruments);[24] safety and security issues relating to loss of street lamps, traffic signals and communications systems; people trapped in subway tunnels; and health threats relating to loss of heating or air conditioning systems.[25]

Electricity is distributed to consumers using a combination of transmission and distribution lines which form the electric power grid.[26] These lines supply constant and dependable electricity to millions of users. Energy stored in fuels, such as coal, oil or natural gas, is converted into electricity by means of combustion,[27] generally at a thermal generating plant.[28] These plants burn fuels to create heat,[29] and use the heat to boil enormous amounts of water to generate pressurized steam.[30] The steam then drives the turbine blades on large electric generators.[31] Engineers have also found ways of driving turbine generator blades by harnessing the tremendous energy of falling water or the steam pressure from a thermal spring.[32] Because the electric power grid is massive, thousands of generators across the country are required to supply enough power to meet consumers’ needs.[33]

Electricity is distributed to consumers using a combination of transmission and distribution lines which form the electric power grid. The backbone of this system is formed by the transmission lines, which are designed to serve vast numbers of consumers a significant distance away.[34] Electricity is consumed at a relatively low voltage,[35] but it is impractical for long distance transmission due to significant voltage losses.[36] At these low levels, voltage is lost just from electricity moving across wires.[37] At higher voltages, the transmission loss is greatly reduced.[38] In order to be able to move power around the country without such loss, the voltage is “stepped-up” to a very high level at the electric power plant.[39] This makes it possible to deliver the electricity over thousands of miles with negligible voltage loss.[40] At the destination, the electrical voltage from the transmission lines is “stepped-down” and distributed throughout the local distribution networks which crisscross our cities.[41] Distribution lines deliver power to each home and office – each of these becomes an electrical load on the system.[42]

One of the great technical challenges of supplying electricity across such an extensive network is that, generally, electricity cannot be stored.[43] The rate at which electricity is used must be the rate at which electricity is generated.[44] Therefore, in order to maintain a stable electrical grid, network engineers must actively manage the constant delicate balance between generation and demand.[45] Network managers schedule power plant generation during a specific window of time depending on the expected demand.[46] Though somewhat predictable, there is often considerable variation in the demand on the electric power grid throughout any given day,[47] and it is the manager’s responsibility to keep the network within a very narrow range of limits.[48] To accomplish this, sophisticated computer systems employ mathematical models to monitor and schedule power generation.[49] At any given time, there are numerous power generation stations operating simultaneously, adjusting the power available in direct relationship with the demand of users.[50] Load levels on the transmission lines are continually monitored by devices which give critical feedback to the system operator about the health of the system.[51] This equipment along with standard operating procedures can, under certain conditions, automatically start up and shut down generators or help the operator do so manually, based on system behavior.[52]

Theoretical models used to monitor the system consider both variable and constant load on the system.[53] Engineers recognize that across a city or region, a constant demand exists for a certain amount of electricity regardless of external factors.[54] This constant demand, for example in the form of street lights and household refrigerators, is referred to as the base load.[55] Network designers have recognized that generating plants, such as nuclear and coal-burning facilities, operate most efficiently at a constant rate.[56] Costs associated with starting and stopping a nuclear generation plant can quickly make its operation prohibitively expensive.[57] Hence, these power stations operate very inexpensively when they are supplying electricity for the “base load” for months on end.[58] In contrast, network designers have come to rely on smaller natural gas or diesel plants for shorter peaks in load at various times throughout the day, because the power production of these plants is much easier to ramp up at a moment’s notice to meet the fluctuating demand throughout the day.[59]

Because electricity generally cannot be stored, balancing the system is absolutely critical.[60] Even a slight imbalance in the power grid can lead to system abnormalities which have the potential to damage generator turbines or transmission lines if the input to the power grid is too small or too great.[61] To protect this valuable infrastructure, network fail safes are in place to automatically cut off sections of the grid if a power over-load or under-load develops.[62] If the load deviates drastically, then the system risks a total collapse of the network.[63]

In addition to maintaining the supply-versus-demand balance, network engineers must constantly be concerned about the flow of electricity over the transmission lines.[64] High voltage transmission lines are designed to carry an enormous amount of electric power,[65] but there is a limit to the amount of flow that can travel through the line at one time.[66] Electric power flowing through the lines must be closely regulated to prevent overheating and damage to the lines.[67] Since the network is a system of loops and branches, regulating power transmission becomes very complicated.[68]

B. Hyper-Connectedness

Historically, electric power grids grew in isolated population centers.[69] As the networks expanded to include rural areas and neighboring towns, incentives were created to connect previously separate electricity transmission networks.[70] Today, almost all electric power grids reach across state boundaries.[71] Though it would be technologically feasible, the U.S. does not have a single electric power grid.[72] There are three separate regional transmission networks in the U.S.: the Eastern Interconnection, the Western Systems Coordinating Council, and the Texas Interconnection.[73] The regional grids have expanded to cover the entire country, and the industry estimates that the system contains more than 200,000 miles of transmission lines and is worth more than one trillion dollars.[74]

A regional grid connecting the western states began developing as early as the 1920s; however, it was not until the construction of the Pacific Northwest-Southwest Intertie in 1968 that regions along the West coast could enjoy significant power-sharing.[75] The benefits of joining the power infrastructure across multiple states are significant.[76] When demand exceeds capacity in the system, the regionalized network allows managers to turn to out-of-state suppliers to fill short-falls.[77]

However, there is a problem with the growing reliance on out-of-state suppliers of electricity. The problem is that the transmission infrastructure is not robust enough to handle such an enormous volume of electricity.[78] When too many communities turn to distant generators to supply their needs, long-distance transmission lines easily become bottlenecked.[79] An example of such a bottleneck is Path 15, California’s main intrastate North-South transmission highway.[80] Along this corridor, long-distance transmission lines narrowed from three to two.[81] When it was built, it was sufficient for its use,[82] but over a period of two decades California’s demand for electricity has significantly expanded.[83] During the summer months, northern California exports massive amounts of hydroelectric generated electricity to help meet the southern California air conditioning demands.[84] In the winter, northern California’s hydroelectric power production decreases and southern California repays the favor by sending power north to help with the demands in the Bay Area.[85] As early as the 1980s the capacity of the two Path 15 lines was predicted by network engineers to be insufficient for long-term demand projections.[86] As seasonal demands on the system shifted, managers fought to balance pockets of congestion which built up on these lines.[87]

Despite electricity transmission reliability being a national objective,[88] it was not until the western energy crisis of 2001 and resulting rolling blackouts that the Department of Energy was forced to act to relieve the “severe” congestion by building a third transmission line.[89] The line was completed in 2004 and is currently under the joint ownership of the federal government and a private concern.[90] Though Path 15 marks a grave failure of the state political system to cope with the dynamics of a regional electric network, California is not the only state with congestion problems. The Department of Energy estimates that congestion along the East coast Corridor will cost consumers as much as eight billion dollars.[91]

The fragile balance of the regional systems is difficult to overstate. Even relatively minor happenings in one place can have a catastrophic effect across an entire region, the entire nation, or multiple nations. An example of a blackout with international ramifications is the Northeast Blackout of 2003.[92] An in-depth joint U.S.-Canadian investigation attributed the blackout to mistakes made by electric power managers in Ohio who failed to isolate local network problems and thereby allowed the entire region to crash.[93]

Officials now link a major 1996 blackout that affected parts of eight western states, plus parts of Canada and Mexico, to a single tree which fell on a power line in Idaho.[94] The loss of power caused air transport flights to be diverted at San Francisco International Airport and caused brownouts and surges as far away as Arizona.[95] This incident illustrates why infrastructure shortfalls like Path 15 are such critical issues: the vulnerability of a wholly intrastate transmission line, such as the one severed by the tree in Idaho, can have enormous effects not only on the state in which it is situated but an entire region or country.

The interconnection of the electric power systems will only grow. Aggressive research is currently being conducted to find ways to increase even further the efficiency of transmission lines and thereby to increase line capacity.[96] Superconducting technology promises virtually perfect transmission efficiency, allowing electricity to be carried over unlimited distances with no losses.[97] Conceivably, generators in Arizona could supply power to states in New England as efficiently as they would to the local community. Electric energy demand will only grow, therefore interstate effects will continue to grow in the future, as will the need for interstate regulation.[98]

C. The Commerce Clause and the Regulation of Electric Power

Article I Section 8 of the U.S. Constitution establishes the Federal Commerce Power,[99] and allows Congress to regulate commerce among the states.[100] There are two types of Commerce Clause power: positive and dormant.[101] The positive Commerce Clause refers to Congress’ express constitutional authority to regulate areas of commerce affecting more than one state.[102] States have the power to regulate commerce in the absence of federal regulation when the matter is not discriminatory and is so local as not require uniform federal regulation.[103] The original scope of states’ power under the positive Commerce Clause allowed each state to regulate “commerce which is completely internal . . . and which does not extend to or affect other states.”[104] However, over the years this window of exclusive jurisdiction has been widened considerably. In Cooley, the U.S. Supreme Court upheld nondiscriminatory state law regulating ship pilots even though federal law also regulated the matter.[105] The Court reasoned in part that this constituted a localized issue overriding federal regulation.[106]

Congress’ power to regulate “all things commercial” expanded until the Court changed direction in United States v. Lopez, invalidating the Federal Gun Free Zone Act because gun possession was not a commercial activity that substantially affected interstate commerce.[107] Under the modern interpretation of the Commerce and Supremacy Clauses, Congress has a positive power to regulate 1) channels of interstate commerce, 2) instrumentalities of interstate commerce, and 3) single-state activities that substantially affect interstate commerce.[108]

The dormant Commerce Clause is essentially a restriction on states’ ability to discriminate against, or unduly burden, interstate commerce.[109] Many aspects of interstate commerce are so local in nature that Congress does not attempt to regulate them.[110] When Congress has not preempted state regulation, two different tests – the heightened scrutiny test and the Pike Balancing test – are used to determine if a state is allowed to regulate.[111]

When a state overtly discriminates against out-of-state interests in the form of a tariff or trade barrier, the regulation must be absolutely necessary to promote a legitimate interest.[112] The most famous case of overt interstate discrimination is Dean Milk v. County of Madison, where the U.S. Supreme Court struck down a Wisconsin ordinance forbidding the sale of pasteurized milk outside of Madison unless inspected by local officials.[113] Other cases involving discrimination against state imports include Hunt v. Washington State Apple Advertising Commission, where the Court found that a North Carolina law forbidding the import of Washington apples without a USDA marking violated the U.S. Constitution because the practical effect of the law was to protect the local apple industry in the state.[114] In addition, in City of Philadelphia v. New Jersey, the Court struck down a New Jersey statute due to its discriminatory intent. The statute had banned most out-of-state solid and liquid waste for the purpose of preventing in-state landfills from filling up.[115] In a seven to two opinion, the Justices pointed out that the state had other means of deterring waste, such as creating a uniform tax or paying a state subsidy.[116] To all of these cases, the Court has applied the heightened scrutiny test.[117] Key to the Court’s decisions was promoting an economic union between the states by preventing economic protectionism.[118]

When a non-discriminatory state law poses a burden on interstate commerce, the Court has applied a balancing test rather than the virtual per se rule of the heightened scrutiny test should not apply.[119] The Court applied such a balancing test in Pike v. Bruce Church,[120] where it struck down an Arizona statute that prohibited a commercial farming operation from transporting uncrated cantaloupes to packing and processing facilities located across the border in California.[121] The state claimed that the purpose of the statute was to protect the reputation of local growers by prohibiting the shipment of poor quality and deceptively labeled produce.[122] The impact of the statute was to require the grower to build a $200,000 packaging facility in Arizona, thereby delaying the shipment of the produce for months, potentially costing the grower the entire crop of cantaloupes for the year -- an estimated loss of $700,000.[123]

When a statute regulates even-handedly with the objective of accomplishing local interests that affect interstate commerce, the constitutionality of the statute is determined by weighing the legitimate local interests against the burden on interstate commerce.[124] Under the Pike balancing test, the plaintiff must show that the burden on commerce is “clearly excessive.”[125] State laws of this type are presumptively valid, meaning that the state is likely to win if it can provide facts supporting a legitimate state interest.[126] This showing of evidence constitutes the rational basis standard.[127] Despite this low evidentiary standard, the state is still required to show that the means employed under the regulation present the least burden on commerce.[128] Requiring the grower to construct a new and unneeded facility in Pike was clearly excessive in relation to the benefits of avoiding poor quality produce, misleading packaging, and enhanced local industry reputation.[129]

The Court also found that a state rule burdened interstate commerce in Southern Pacific Co. v. Arizona, holding that an Arizona law forbidding long railroad trains was unconstitutional because it greatly disrupted interstate train schedules without significantly enhancing safety.[130] In addition, in Kassel v. Consolidated Freightways, the Court found that an Iowa regulation prohibiting double semi-trucks on Iowa roads created a clearly excessive burden on commerce because it had the practical effect of banning out-of-state trucks in favor of local trucking.[131]

D. The Energy Regulatory Environment

The nineteenth century saw the introduction of electric illumination,[132] and with the growth of the new industry came the beginning of a need for regulation. The first pieces of legislation regulating utilities came from states at the end of the nineteenth and first years of the twentieth century.[133] As the industrial revolution took its first steps, scientists endeavored to create incandescent illumination as one of the ways to use the power of electricity to transform life and society in a new era. Beyond simple convenience, electric illumination allowed for the lengthening of the work day and dramatically increased the efficiency of commercial manufacturing.[134] As a result, electricity became an absolute necessity in modern life.

It was apparent early in the development of broad commercial electrification that governmental regulation would be necessary.[135] In the absence of comprehensive regulation, the industry providing electricity to users grew into an incoherent patchwork of companies.[136] The company supplying power to street lamps was invariably different from that supplying power for household or industrial needs.[137] Lack of standards resulted in poor reliability, duplication of lines and incompatibility between voltage and type of electrical current delivered.[138] These problems prompted the government’s decision to regulate the industry from a very early stage.[139]

As the electric power industry evolved, business interests, including economies of scale and centralized control of operations, led the diverse field of independent producers and distributors to begin to coalesce into single “Power and Light” corporate holding companies.[140] These new conglomerates, using the business structures of the railroads and oil companies as models, began supplying large pockets of users and, in some cases, even entire cities.[141]

i. Federal Regulation

From previous experience with the railroad and petroleum industries, the federal and state governments recognized the potential for problems in emerging corporate conglomerates.[142] The railroad and oil trusts had forced governments to create regulatory bodies to help prevent shady business practices.[143] State public utility commissions generally possess exclusive licensing authority over a wide range of utilities. Industries including telecommunications, natural gas, water service, motor carriers, railroads, electric power, and even consumer protection and safety generally fall under the jurisdiction of these state commissions.[144] The U.S. Supreme Court has given the green light to state government regulation of a business enterprise if the business is “affected with a public interest.”[145]

In contrast, the scope of the federal government’s regulation of the electric power industry has been much narrower; regulation occurs only in very specific circumstances. The Federal Power Commission (FPC) was created in 1920 to regulate wholesale electricity prices and interstate electric transmission.[146] In recognition of the special environmental and safety concerns inherent in the generation of electric power by means of nuclear energy and hydroelectric dams, Congress took steps to create agencies granting the authority to regulate in these particular areas.[147] To this end, the Atomic Energy Act of 1954 requires permits from the Nuclear Regulatory Commission (NRC) for both the construction and operation of a nuclear-fueled power generation facility.[148]

Hydroelectric generating plants, on the other hand, have long been regulated differently. The Federal Power Act of 1920 gives exclusive licensing to plants constructed on navigable streams, thereby preempting state authority to license on these waterways.[149] The justification given for Congress to regulate this narrow sector of the electricity market was the interstate riparian effects that result when one state dams a part of an interstate river.[150] Some argue that Congress’ real motivation in regulating this narrow (and insignificant) slice of energy commerce was more to counteract, or at least to limit, the evils of major electric companies in the early part of last century, in the absence of the political will to take on broad regulatory responsibility.[151]

Since the 1960s, electric transmission has concerned the federal government only to the extent that transmission lines are associated with a generation plant over which the federal government has exercised jurisdiction.[152] Congress has specifically limited its authority to regulate power to matters which are not subject to state legislation.[153] In 1992 Congress passed the Energy Policy Act, which gave the Federal Energy Regulatory Commission (FERC) the authority to force transmission line owners to accommodate the movement of electricity to the extent that it is in the “public interest.”[154] This includes the authority to force transmission companies to expand capacity to meet the need. The only limit in the Act was that it not “unreasonably impair” the reliability of the network (i.e. dependability and security) according to national reliability standards.[155]

By referring to national reliability standards, Congress was indirectly sanctioning the procedures and technical expertise of the North American Electric Reliability Council (NERC) and the nine regional reliability councils which essentially acted as self-regulating bodies of the electric power industry.[156] The NERC is an accredited developer of standards under the American National Standards Institute (ANSI), which is responsible for setting the standard transmission voltage levels in the U.S.[157] These bodies have played a central role in the evolution and development of the industry over the last three decades, but their effectiveness has been questionable. Recently, officials at the NERC have complained about the organization’s ineffectiveness due to its lack of enforcement power:

Recent changes in the electric industry have altered many of the

traditional mechanisms, incentives and responsibilities of the

entities involved in ensuring reliability, to the point that the

voluntary system of compliance with reliability standards is

generally recognized as not adequate to meet current needs.[158]

Federal jurisdiction over the electrical grid is based on its direct effect on interstate commerce. The U.S. Supreme Court cited the Commerce Clause in upholding the FPC’s jurisdiction over wholesale electric power involved in interstate commerce in 1964.[159] The decision emphasized that when the supplier of the power is located in a neighboring state, federal jurisdiction is triggered.[160] In a subsequent case, the Court expanded FPC jurisdiction over a Florida electric company engaged solely in commerce in a single state.[161] The decision highlighted the fact that the company involved was tied to the interstate electricity grid.[162] If electricity reaches another state, regardless of how small the amount, it is considered to flow in interstate commerce.[163] The Court rested its holding on the nature of electricity, precluding the differentiation between interstate and solely intrastate electricity once the electricity enters the network flow.[164]

ii. State Regulation

Beyond the above detailed sector regulation preempted by Congress, states are generally proactive in exercising their authority to control the construction, modification and operation of electric power facilities within their boundaries.[165] Every state has passed an enabling act authorizing that state’s public utility commission to license both the construction and siting of power generation stations and power lines.[166] This includes the authority to inspect, enforce and license public utilities.[167] Though the federal government has preempted states in the area of regulating the wholesale electricity prices, states have authority to control the retail rates for sales to end customers.[168]

The California Energy Commission (CEC) is an example of a state regulatory commission that plays an active paternal role in overseeing the state’s electric power industry. In California, the Commission has exclusive jurisdiction over licensing power generation facilities under the California Environmental Quality Act of 1970.[169] California Public Resources Code §25500 provides:

[T]he [C]ommission shall have the exclusive power to certify all sites

and related facilities in the state, whether a new site and related

facility or a change or addition to an existing facility. The issuance

of a certificate by the commission shall be in lieu of any permit,

certificate, or similar document required by any state, local or

regional agency, or federal agency to the extent permitted by

federal law, for such use of the site and related facilities, and shall supersede any applicable statute, ordinance, or regulation of any

state, local, or regional agency, or federal agency to the extent

permitted by federal law . . . . No construction of any facility or modification of any existing facility shall be commenced without

first obtaining certification for any such site and related facility by

the [C]ommission, as prescribed in this division.[170]

The CEC is the lead agency in California for certifying facilities and stipulating conditions of construction, operation and retirement.[171]

In California, a developer is required to submit a proposal to the state regulatory body to construct a new generator or to install new transmission lines.[172] The application process imposes a substantial burden on the electric company to demonstrate the need for the proposed infrastructure and that the facilities will not pose undue harm to the environment.[173] Construction application requirements are relatively standard compared with those of other states across the nation.[174] The company must present detailed design drawings and building plans, including blueprints of the facility.[175] Specifications relating to the electrical hardware, construction materials of transmission towers and the building foundation, and total estimated capital costs are also required.[176] A developer must also show analysis of the current local electric power service in order to justify the need for additional facilities.[177]

In most states, local or regional air pollution control districts and the regional water quality control board must approve all power generation facilities prior to construction.[178] Consultation with local city or country land use planning boards is also required.[179] These agencies and councils direct the developer on how to follow the various local ordinances and standards that relate to the project.[180] Some states have acted to consolidate this application process, resulting in a streamlined review which includes the appropriate lower authorities in a single application procedure.[181]

In the case of California’s CEC, a staff of specialists works to independently examine the environmental, health and safety, and engineering aspects of proposed projects.[182] Their analysis culminates in a determination of whether a proposed project may proceed or whether changes must be made by the developer.[183] The report issued by the Commission is not an environmental impact survey, but its purpose is similar in that it identifies potential problems and directs mitigation procedures.[184]

III. Discussion

A. The Unlikely Prospect of a State Regulatory Solution

State governments delegate their police power to regulate land use to local growth management bodies.[185] These management bodies have a wide variety of tools to shape and control the development in the local area.[186] Controls such as zoning and building codes are among the powers authorized by states to assure adequate infrastructure to support community development.[187] Permits are routinely conditioned upon the building of adequate roads, schools, parks, and drainage, and can come in the form of impact fees or, in certain circumstances, required dedication of easements of property.[188]

Under the States’ police power, local governments have authority over land use issues and already condition land development permits on finding solutions to a myriad of infrastructure issues.[189] Local growth management bodies could take a more active role in mandating solutions at the subdivision level to meet the increased electric demand caused by proposed developments. Regardless of whether communities are able to appropriately manage development in their area, their focus will tend to be local, not taking into account state and regional interests.

i. Community Veto Power

Compliance with state impact requirements can be a challenge, but heated opposition to new projects by local residents can present even tougher barriers for electric power companies. Despite the recent rapid growth in population in many areas, communities do not want the associated infrastructure.[190] Campaigns against the installation of new power plants and transmission lines have already seen notable success.[191]

The local community’s campaign and subsequent defeat of the Southgate California electric power facility proposal is a good example of community opposition to new power generation facilities. In 1999, construction of a power generation plant was planned on the site of an existing diesel truck depot.[192] Critics conceded that the new power plant would actually reduce pollution emission.[193] This improvement, along with a range of financial incentives for the municipality and local schools, was not enough to appease community opposition.[194]

Not only are generation plant construction projects unpopular, siting new transmission lines is another target for community opposition.[195] California-based Pacific Gas and Electric Company proposed a vital transmission line upgrade and associated construction of new power substations to meet the rapid growth of approximately 50,000 new households in one northern California community.[196] The company originally offered to bury the new transmission lines for the residents, an option of significantly greater expense as compared to standard over-head lines.[197] With seemingly no basis, opponents feared that the proposed underground cables “might generate an electromagnetic field that could cause cancer or send chunks of street crashing through living-room windows if the underground line explode[d].”[198]

Local communities have tremendous veto power over new construction projects. The local civic groups wield their muscle by threatening to tie up proposed projects with months or years of hearings and litigation; this frustrates utility managers who scramble to find solutions to the technical problems of accommodating the enormous residential growth over the last ten years.[199] The mere prospect of delaying a project can be enough to cause a developer to scrap a project because of the inordinate costs involved.[200] The dilemma of utility providers is how to safely give people the power they need without stringing new lines or constructing new power plants that the people do not want. As the California rolling blackouts of 2001 demonstrated, the network cannot support communities having it both ways.

ii. Problem with Community Veto Power

The problem with allowing local authorities to have so much veto power over the planning and regulation of local electric power networks lies in the impact local decisions have on the broader network. When local decisions adversely affect citizens as far away as other states, the “inner political check” has failed.[201]

The production and consumption of electricity is an economic transaction. The costs to the company supplying the electricity are generally reflected in the price paid by consumers.[202] However, there are additional costs not reflected in the price paid by consumers.[203] These costs are referred to as economic externalities.[204] Generally, these costs should be paid by those creating the costs – in this case, electricity consumers.[205] However, the value of externalities is difficult to measure, and therefore, it is seen as more acceptable if these costs are borne by an entire population. When borne by a community, citizens affected are represented, and local governments are able to make decisions about how to deal with the costs in a structured environment.[206] Externalities are much more acceptable, when there is some form of representative democracy in place to represent the parties affected.[207] Local and state political bodies can better bargain for how these externalities are going to be borne.[208]

Now that the electric networks have expanded, externalities associated with electric generation and transmission have shifted to residents outside of not just the local community, but the state as well. Being able to make such a shift unfairly favors local residents at the expense of out-of-state citizens who are not represented in the state democratic system. When states opt to purchase out-of-state electricity, the citizens who are consuming the electricity are no longer required to bear the entire cost of its production.

Regulatory commissions are only accountable to the legislative and executive branches of their respective states.[209] Considerable problems result when decisions have just as much impact on the network outside of the state borders as on the network within its boundaries. Commissions are candid about their dedication to serve the citizens of their state[210] and have no incentive to protect the interests of people outside of their jurisdiction.[211]

Growing populations and industrial demands have put pressure on state’s electricity infrastructure.[212] Technology has provided the ability to import massive amounts of power from neighboring states. This phenomenon has allowed many state officials to sidestep tough energy decisions. A number of states have knowingly allowed their state’s production capacity to be eclipsed by energy consumption within their state.[213] Faced with the need to expand capacity, officials have been able to avoid politically unsavory electricity development projects, relying on importation of power from other states.[214] When local constituents block efforts to site needed generation facilities to meet the local demand from the community, authorities turn to out-of-state generators to supply the shortfall, often placating local community opposition.[215]

Failure to construct vital electricity generation capacity, particularly when supplemental power can be imported from out of state, results in a shift of negative externalities.[216] This produces harm that is not represented in the marketplace and results in costs that are not paid by neither producers nor consumers.[217]

Failing to building capacity and thereby turning to the importation of electricity is only a temporary solution. As demand continues to grow, it will ultimately out-stretch the limits of existing transmission and distribution lines.[218] The Path 15 bottleneck is emblematic, merely foreshadowing the potential widespread, over-stretched condition of the network. The most concerning threat is of a system-wide collapse. The damage to a single overloaded line can cost a few millions dollars, but a blackout of the regional network on the scale seen in the Northeast in 2003 resulted in billions of dollars in damages, not to mention the threats to human safety.[219] Further, due to the size of these regional electric networks, the lion’s share of the damages are borne by out-of-state victims whose voices cannot be heard in the local democratic process.[220]

Costs which are also unrepresented in the price of transactions include additional harm imposed on the environment of neighboring states that export electricity. Environmental pollution produced by electric power plants is essentially a zero-sum game.[221] Fossil fuel powered generation plants will emit a certain amount of pollution into the environment.[222] State residents require a certain amount of electricity for consumption. Whether or not a state chooses to prohibit the siting of such plants within their boundaries, meeting the demands of consumers results in pollution. When a state avoids construction of local electricity generating plants, and then turns to generators outside of the state for needed electricity, the pollution is still created – the only difference is that the pollution is created where the users do not feel its adverse effects. States are essentially pushing off the environmental burden on other states, creating a significant unfair burden on other states – a burden that could be discouraged by use of the dormant Commerce Clause.[223]

Certainly, heightening state emissions standards has beneficial effects for the air, land, and water enjoyed by local constituents, and curbing pollution can be instrumental in protecting local natural resources.[224] However, problems occur when states enact environmental laws that inhibit the development of adequate electrical generation capacity. When states do nothing to compensate for the electricity shortfall with alternative renewable sources or fail to reduce local consumption, pollution is shifted onto residents in another state. Though residents would be forced to pay higher prices to import electricity over great distances, electricity prices only reflect the added transmission charges. These increased prices will not reflect the avoided pollution costs which would be paid by out-of-state residents.[225] Residents thereby enjoy the benefits of clean air and water along with as much power as they can purchase. Should not Nevada have a say in how much pollution it is willing to tolerate in order for Californians to have clean air and beautiful views of San Francisco?

B. The Unlikely Prospect of a Federal Regulatory Solution

There are two roles which the federal government could play in increasing the reliability of the electric grid. The first role is that of regulator. The number one recommendation given by the U.S. - Canada Power System Outage Task Force formed to investigate the August 2003 blackout was to “[m]ake reliability standards mandatory and enforceable, with penalties for noncompliance.”[226] Currently, there is nothing requiring states to hold to industry standards. As discussed previously, the self-regulatory model implemented by the NERC falls short in inducing adherence to their standards.[227] Under Cooley v. Board of Wardens, the federal government is legally capable of asserting its authority in this area.[228]

The second role is that of facilitator, who engaged in finding solutions to foreseeable network challenges. When the National Energy Policy Report of 2001 was published, it specifically identified Path 15 as a major California bottleneck.[229] The report went so far as to recommend that the federal government, through the Department of Energy’s Western Area Power Administration (WAPA), sponsor and act as co-owner of an additional transmission line in order to ease the congestion.[230] The project was completed in 2004, and WAPA remains a primary owner.[231] As compared with the individual state governments, the federal government has greater resources and objectivity to develop the network from a broad, national perspective.[232]

There is generally no question that Congress can regulate the electric power industry because it is an area of commerce with substantial interstate ties.[233] Regulating the implementation of individual power plants and transmission lines at the federal level would provide valuable benefits in being able to strategically plan the overall system. In light of the problems that have arisen from inadequate infrastructure implementation, it would be natural for Congress to authorize the Department of Energy to take regulatory control over the national power network. A federal regulatory structure would lend itself to decision making focused on benefiting the nation as a whole. Conceivably, a federal agency would be more removed that a state authority from local political pressures and would be able to compel infrastructure where objectively needed.

However, after almost a decade of with the issue’s prominence in the national spotlight, Congress has yet to move in the direction of enacting a federal regulatory system on the electric power industry. After so much time, it seems clear that Congress does not intend to make any major changes in the electric power regulatory structure in the near future.

Since states have no incentive to take into account national or regional objectives and since Congress has failed to lead in any meaningful way, perhaps it is time to turn to the courts to protect the electric power grids.

IV. Recommendation

The nature of the current dormant Commerce Clause doctrine allows states to avoid responsibility for their growing energy consumption. This doctrine fails to account for externalities inherent in the transmission of electricity in interstate commerce. Many years have gone by since the Court has updated its method of analyzing burdens on interstate commerce. Since that time, the electric power network, in particular, has grown to a massive size. With this growth, externalities that may have been originally overlooked due to their negligible scale have now grown to a point where they can no longer be ignored.

The Court has a long history of analyzing burdens on interstate commerce.[234] Recognition of externalities as costs that pose real burdens on interstate commerce would be an important move forward in creating incentives for states to make responsible decisions while still into account what is best for their respective region as a whole.[235] The current Commerce Clause doctrine must be revised to capture these burdens and assign them to the users who should ultimately pay these costs.

Nevertheless, proving causation when dealing with externalities in the form of environmental pollution can be difficult.[236] However, calculating the costs related to a regional blackout, system technicians have precision tools to determine the cause of the disruption after the fact. After all substantial power disruptions, the NERC independently investigates and publishes reports on their findings.[237] The nature of the system makes it possible for engineers and system operators to autopsy and model the physical characteristics of the power flowing through the network at all points in time prior to the collapse.[238] Using this data, causal links can be identified, allowing courts to determine culpability in most cases. Further, damages resulting from a collapse of the regional electric grid, the effects are fairly easy to quantify. For example, a supermarket can easily calculate the amount of inventory lost as a result of loss of electricity needed to maintain a cold storage facility.

In the event of damage caused by a power failure originating in a particular state, the issue would be whether the incidental effects of the decisions made by state agencies caused excessive harm (that is, damages caused by power system collapse) to interstate commerce. Private parties who can show causal links can generally obtain standing.[239] States can also be able to bring suit against other states in federal court.

When courts look at state legislation which gave rise to the faulty planning which caused the power failure, states generally will not have exhibited discriminatory behavior against an import of a good or service. States typically act evenhandedly by requiring all electric companies that operate power plants in the state to abide by emissions and siting standards.[240] Because the damages caused by the faulty planning are incidental, the courts would likely apply the Pike balancing test, thereby relaxing the per se rule and weighing the legitimate local interests against the burden on interstate commerce.

The Pike balancing test requires a determination of the state’s legitimate interest in regulating a particular area. State interests are typically those which are justified under the state’s police power – actions which seek to protect the health, safety and welfare of the citizens.[241] In Huron Portland Cement Co. v. City of Detroit, the U.S. Supreme Court recognized that “[l]egislation designed to free from pollution the very air that people breathe clearly falls within the exercise of even the most traditional concept of what is compendiously known as the police power.”[242] Environmental statutes that reasonably seek to protect residents from the ill effects of noxious emissions will likely be accepted by the court as pursuant to the legitimate objective of state governments.[243]

In contrast to the per se rule under the heightened scrutiny test, the balancing test grants significant deference to the states.[244] Under the Pike test, the state’s interests are considered justified unless the regulation causes an excessive burden on interstate commerce.[245]

Demonstrating excessive burden is a very high standard. However, it will be even more difficult in cases that involve shifting externalities with environmental effects. Establishing causal connections in environmental cases has traditionally been problematic.[246] The nature of air and water pollution does not always lend itself easily to assigning responsibility for damage.[247] Further, proving damages can be even more elusive, and speculative damages have very little weight in court.[248]

State agencies already have the authority to plan and approve power infrastructure construction proposals that reflect beneficial, long-term, regional and national policy objectives.[249] Nevertheless, further incentive is necessary for states to take responsibility for current and future electric power infrastructure planning. By reducing the high standard of “excessive burden” on interstate commerce to a standard that recognizes the burden that short-sighted, locally-interested state regulations pose, the Court would create an incentive for state regulators to consider the ramifications their legislation have on their neighbors.

V. Conclusion

Serious threats to the integrity of the entire regional electric power grid exist today because states have failed to meet the growing local demands on the system with adequate electricity infrastructure. The past decade has seen a rash of catastrophic system failures in regions across the country. For a society reliant on electric power, the U.S. is dangerously close to continued episodes of crisis. When the power goes out, it can have destructive consequences. In the absence of a national regulatory system, incentives are needed to force states to be accountable for their energy policies. These incentives should come through a slight broadening of the Court’s interpretation of the Commerce Clause, by recognizing the damage one state can cause to another state through its energy policies. When states fail to make responsible choices for the system as a whole, and choose instead to pass the hazardous effects of their own energy consumption onto other states, they must be held accountable for the unfair burden on neighboring states.

[1] U.S.-Canada Power Sys. Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations 1 (2004).

[4] Id. at 46. Richard Perez-Pena, Utility Could Have Halted ’03 Blackout, Panel Says, N.Y. Times, Apr. 6, 2004, at A16. See also, Eric Slater and Ricardo Alonso-Zaldivar, Millions of Paths to Blackout; To Find the Cause of the Power Outage, Experts Must Study Innumerable Bits of Data from Many Local Systems – From Ohio to New York, L.A. Times, Aug. 19, 2003, at 8.

[6] U.S.-Canada Power Sys. Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations 1 (2004).

[7] Tim Golden, Second Power Failure in Six Weeks Creates Havoc for the West, N.Y. Times, Aug. 12, 1996, at A13. (Article discussing the first of the two major blackouts effecting the western region in less than six weeks). See also, Associated Press, Blackout Inquiry Looks at Wyoming Plant, N.Y. Times, July 5, 1996, at A18. Falling tree limbs are among the top three contributors to electricity service interruptions in the U.S. Animals and lightning are the other two main contributors. Richard Brown, Electric Power Distribution Reliability 104 (Marcel Dekker 2002).

[8] Richard Perez-Pena, Utility Could Have Halted ’03 Blackout, Panel Says, N.Y. Times, Apr. 6, 2004, at A16. Robert Hamilton, A Battle Over Larger Power Lines, N.Y. Times, July 28, 2002, at § 14CN.

[9] U.S.-Canada Power Sys. Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations 1 (2004). Tim Golden, Second Power Failure in Six Weeks Creates Havoc for the West, N.Y. Times, Aug. 12, 1996, at A13.