The Energy Policy Act of 2005 was created by the National Energy Policy Development Group, aka "Cheney's Secret Energy Task Force." Without getting all political here, this government group met with industry bigwigs to create new energy policy that helped the industry make money.
This group's "report" recommended that Congress:
This group's "report" recommended that Congress:
Grant authority to obtain rights-of way for electricity transmission lines with the goal of creating a reliable national transmission grid. Similar authority already exists for natural gas pipelines and highways.
That didn't fly with Congress, who were protective of state rights to site and permit new electric transmission. So the lobbyists came up with what they thought were several "work around" provisions on the Act that would allow the federal government to step in when states resisted new transmission.
One was Section 1221 of the EPAct, which allowed FERC to site and permit transmission if a state withheld approval for more than one year. It also authorized the Department of Energy to do transmission congestion studies and designate "National Interest Electric Transmission Corridors" to facilitate a federal role in permitting and siting new transmission. Several federal court battles later, Section 1221 ended up completely useless to the industry. But yet the federal government is still required to waste our tax money on triennial "congestion studies" that do absolutely nothing.
Another work around was Section 1222 of the EPAct. This section allows two federal power marketers (WAPA & SWPA) to accept and use third-party, private money, to build new transmission. It grants authority to the Secretary of Energy to decide whether the power marketers may "participate" in new transmission projects. On its face, it appears that the purpose of this section was to allow the feds to use private money to build new transmission, instead of taxpayer funds (although those funds are paid back by the PMAs). Most importantly, it allowed private investors to front up money and get their finger in the federal transmission pie in exchange for generous returns, which increases costs to consumers. It was an unnecessary way for industry to increase their profits, which pretty much sums up the entire purpose for the Energy Policy Act.
The industry focused all its greedy energy on Section 1221 for many years, and Section 1222 sat around untested. But with the ultimate legal failure of Section 1221, the DOE decided to begin testing Section 1222. And wouldn't you know it, one of the federal DOE employees who had a hand in the Energy Policy Act had subsequently left the department and invested in a transmission scheme that could serve as the test case for Section 1222 authority. That scheme was Clean Line Energy Partners, who wanted to build more than 2,000 miles of new transmission crossing some of the federal power marketing territory covered by Section 1222.
Early in its history, Clean Line was the first (and only) company to apply for Section 1222 authority under a conveniently issued DOE Request for Proposals. Perhaps Clean Line expected "fly over" states that would receive no benefits from its proposed projects to reject them. Or maybe Clean Line was just too eager to use Section 1222 authority. We may never know what actually took place behind closed doors. But we do know that Clean Line applied for Section 1222 well before its projects were rejected by any state public utility commission.
The first rejection came from Arkansas in 2011, who said it did not have authority to approve the project because it did not intend to serve any customers in that state. The obvious remedy for that was creation of an interconnection in Arkansas and re-application at the Arkansas PSC. But that's not what Clean Line did. Instead, it waved around its rejection and doubled down on acquiring Section 1222 authority from the DOE. It's almost like Clean Line wanted that rejection to use as a tool in its Section 1222 application, because the company did quickly add an Arkansas connection to its Plains & Eastern project. However, Clean Line never re-applied at the Arkansas PSC and instead concentrated its money and energy on a Section 1222 designation. How much differently would Plains & Eastern have turned out if Clean Line had re-applied instead of setting its sights on the long and expensive Section 1222 process?
Section 1222 cost Clean Line millions. Like double digit millions. It also cost them multiple years, because the wheels in Washington turn with excruciating slowness. But Clean Line was so intent on using the Section 1222 toy that they eschewed the quicker, cheaper, more obvious solution right in front of them. I believe that was a huge mistake.
Section 1222 required a hugely expensive multi-year federal Environmental Impact Statement process, paid for by Clean Line. And then the DOE needed to make up some other reviews before coming to its foregone conclusion that it would "participate" in the project for the express purpose of using the condemnation powers of the federal government to acquire new transmission rights-of-way for its project. Federal eminent domain is not mentioned in Section 1222, and furthermore, DOE never did a proper rulemaking to regulate its use of Section 1222. A rulemaking is necessary for a government agency to make use of a statute. The law merely states what can happen, not specifically how the agency can get there. An agency must review the law and then make sure that it designs a regulatory process that carries out the law while maintaining a fair process that protects other rights. A rulemaking process is public, and all may participate to make sure the agency gets its rules right. But DOE didn't waste its time with a rulemaking. Instead, it made up its rules as it went through the process. This provided no consideration for the due process rights of affected landowners, nor any fairness in the process. Rules were made up to suit the conclusion DOE and Clean Line wanted. What a horror show!
Surprise, surprise, the Secretary of Energy decided to participate in the Plains & Eastern project 6 years after the initial RFP was issued. Clean Line got what it wanted, but it cost them dearly. Not only was it a huge money suck for investor funds, but it came with conditions that must be satisfied before the DOE would take any action to condemn properties. One of the conditions required Clean Line to have hard contracts with customers before proceeding. Of course, that condition would have asserted itself even without the requirement of the DOE because as a merchant project, Clean Line must secure a revenue stream before it can finance the construction of its project. No bank is going to loan money to a company to build something that produces no revenue with which to repay the loan. But there was a timing issue here... DOE required a revenue stream before it took action to condemn land, to make sure the project was commercially viable before it paved a road to nowhere. Why condemn land for a transmission project that won't be built? Why spend the time and money before a project is viable?
That ended up being Clean Line's albatross... build it and they will come doesn't work if you can't build it in the first place. Need (and revenue) must come before a transmission project is built, and without need and revenue there's no point in dumping money into an idea that may or may not happen. Clean Line never had a viable idea in the first place, but somehow the company managed to sucker a bunch of investors into pouring money into its harebrained scheme.
With its 1222 authorization in hand, Clean Line redoubled its efforts to find customers. Proof that the project was "approved" and would be built failed to convince anyone that the project was viable. At this point, Clean Line was trying to convince a bunch of experienced and knowledgeable utility companies to put the cart before the horse, instead of a bunch of rube investors who didn't understand electric transmission. Utilities weren't buying Clean Line's rainbow farts about how wonderful service on a Clean Line would be.
And after two years of efforts that yielded no results, the DOE finally bowed out. The Section 1222 experiment had failed.
And how lucky are the DOE and Clean Line that they ended this farce before the legal process examining this partnership from hell had barely even begun? Thinking that the first court decision on the legality of Section 1222 prevented future challenge is a fool's paradise. Any faith in the decision of the U.S. District Court in Arkansas should be dashed once the decision is read. It's crap! I've read a whole bunch of court opinions over the years and this one had to be the worst. None of the conclusions were supported by evidence or law -- it's just like the judge made his decisions unconnected to any reality. Chances of that decision standing upon further judicial review? Slim to none.
Clean Line reached a fork in the road early in its saga -- to take the long and winding Section 1222 path that must surely have a pot of gold and cover multiple states; or to take the obvious and well worn path to the Arkansas PSC which dead ends there.
One was Section 1221 of the EPAct, which allowed FERC to site and permit transmission if a state withheld approval for more than one year. It also authorized the Department of Energy to do transmission congestion studies and designate "National Interest Electric Transmission Corridors" to facilitate a federal role in permitting and siting new transmission. Several federal court battles later, Section 1221 ended up completely useless to the industry. But yet the federal government is still required to waste our tax money on triennial "congestion studies" that do absolutely nothing.
Another work around was Section 1222 of the EPAct. This section allows two federal power marketers (WAPA & SWPA) to accept and use third-party, private money, to build new transmission. It grants authority to the Secretary of Energy to decide whether the power marketers may "participate" in new transmission projects. On its face, it appears that the purpose of this section was to allow the feds to use private money to build new transmission, instead of taxpayer funds (although those funds are paid back by the PMAs). Most importantly, it allowed private investors to front up money and get their finger in the federal transmission pie in exchange for generous returns, which increases costs to consumers. It was an unnecessary way for industry to increase their profits, which pretty much sums up the entire purpose for the Energy Policy Act.
The industry focused all its greedy energy on Section 1221 for many years, and Section 1222 sat around untested. But with the ultimate legal failure of Section 1221, the DOE decided to begin testing Section 1222. And wouldn't you know it, one of the federal DOE employees who had a hand in the Energy Policy Act had subsequently left the department and invested in a transmission scheme that could serve as the test case for Section 1222 authority. That scheme was Clean Line Energy Partners, who wanted to build more than 2,000 miles of new transmission crossing some of the federal power marketing territory covered by Section 1222.
Early in its history, Clean Line was the first (and only) company to apply for Section 1222 authority under a conveniently issued DOE Request for Proposals. Perhaps Clean Line expected "fly over" states that would receive no benefits from its proposed projects to reject them. Or maybe Clean Line was just too eager to use Section 1222 authority. We may never know what actually took place behind closed doors. But we do know that Clean Line applied for Section 1222 well before its projects were rejected by any state public utility commission.
The first rejection came from Arkansas in 2011, who said it did not have authority to approve the project because it did not intend to serve any customers in that state. The obvious remedy for that was creation of an interconnection in Arkansas and re-application at the Arkansas PSC. But that's not what Clean Line did. Instead, it waved around its rejection and doubled down on acquiring Section 1222 authority from the DOE. It's almost like Clean Line wanted that rejection to use as a tool in its Section 1222 application, because the company did quickly add an Arkansas connection to its Plains & Eastern project. However, Clean Line never re-applied at the Arkansas PSC and instead concentrated its money and energy on a Section 1222 designation. How much differently would Plains & Eastern have turned out if Clean Line had re-applied instead of setting its sights on the long and expensive Section 1222 process?
Section 1222 cost Clean Line millions. Like double digit millions. It also cost them multiple years, because the wheels in Washington turn with excruciating slowness. But Clean Line was so intent on using the Section 1222 toy that they eschewed the quicker, cheaper, more obvious solution right in front of them. I believe that was a huge mistake.
Section 1222 required a hugely expensive multi-year federal Environmental Impact Statement process, paid for by Clean Line. And then the DOE needed to make up some other reviews before coming to its foregone conclusion that it would "participate" in the project for the express purpose of using the condemnation powers of the federal government to acquire new transmission rights-of-way for its project. Federal eminent domain is not mentioned in Section 1222, and furthermore, DOE never did a proper rulemaking to regulate its use of Section 1222. A rulemaking is necessary for a government agency to make use of a statute. The law merely states what can happen, not specifically how the agency can get there. An agency must review the law and then make sure that it designs a regulatory process that carries out the law while maintaining a fair process that protects other rights. A rulemaking process is public, and all may participate to make sure the agency gets its rules right. But DOE didn't waste its time with a rulemaking. Instead, it made up its rules as it went through the process. This provided no consideration for the due process rights of affected landowners, nor any fairness in the process. Rules were made up to suit the conclusion DOE and Clean Line wanted. What a horror show!
Surprise, surprise, the Secretary of Energy decided to participate in the Plains & Eastern project 6 years after the initial RFP was issued. Clean Line got what it wanted, but it cost them dearly. Not only was it a huge money suck for investor funds, but it came with conditions that must be satisfied before the DOE would take any action to condemn properties. One of the conditions required Clean Line to have hard contracts with customers before proceeding. Of course, that condition would have asserted itself even without the requirement of the DOE because as a merchant project, Clean Line must secure a revenue stream before it can finance the construction of its project. No bank is going to loan money to a company to build something that produces no revenue with which to repay the loan. But there was a timing issue here... DOE required a revenue stream before it took action to condemn land, to make sure the project was commercially viable before it paved a road to nowhere. Why condemn land for a transmission project that won't be built? Why spend the time and money before a project is viable?
That ended up being Clean Line's albatross... build it and they will come doesn't work if you can't build it in the first place. Need (and revenue) must come before a transmission project is built, and without need and revenue there's no point in dumping money into an idea that may or may not happen. Clean Line never had a viable idea in the first place, but somehow the company managed to sucker a bunch of investors into pouring money into its harebrained scheme.
With its 1222 authorization in hand, Clean Line redoubled its efforts to find customers. Proof that the project was "approved" and would be built failed to convince anyone that the project was viable. At this point, Clean Line was trying to convince a bunch of experienced and knowledgeable utility companies to put the cart before the horse, instead of a bunch of rube investors who didn't understand electric transmission. Utilities weren't buying Clean Line's rainbow farts about how wonderful service on a Clean Line would be.
And after two years of efforts that yielded no results, the DOE finally bowed out. The Section 1222 experiment had failed.
And how lucky are the DOE and Clean Line that they ended this farce before the legal process examining this partnership from hell had barely even begun? Thinking that the first court decision on the legality of Section 1222 prevented future challenge is a fool's paradise. Any faith in the decision of the U.S. District Court in Arkansas should be dashed once the decision is read. It's crap! I've read a whole bunch of court opinions over the years and this one had to be the worst. None of the conclusions were supported by evidence or law -- it's just like the judge made his decisions unconnected to any reality. Chances of that decision standing upon further judicial review? Slim to none.
Clean Line reached a fork in the road early in its saga -- to take the long and winding Section 1222 path that must surely have a pot of gold and cover multiple states; or to take the obvious and well worn path to the Arkansas PSC which dead ends there.
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference.
It sure has. Nice work, knuckleheads!
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