Stateline Story

States Vary in Addressing Power Plant Construction

Putting an addition on your home can bring more regulatory hassles than building a power plant in many states. At least that's the opinion of consumer activists in Indiana who pushed lawmakers this spring to pass a bill to give the state more control over the siting and operation of privately-owned electricity generating facilities.

Their effort failed, and now Indiana - along with several other mid-western and northeastern states - may be facing unprecedented growth in so-called merchant plants that peddle their electricity on the wholesale market and have no dedicated in-state customer base.

Such plants are beginning to spring up all over the Midwest. Except for having to meet environmental standards, their operators face few, if any, government restrictions. In some cases, they aren't even required to notify local officials of where they plan to build, a lapse most homeowners can't get away with when they expand their square footage.

"That perception (of few restrictions) seems to be justified since they're really overbuilding these plants," says Grant Smith, who heads the Indiana Citizens Action Coalition.

Smith was instrumental in drafting a bill this spring to give state utility regulators specific authority to control the siting and operation of merchant plants. The bill passed the House by a wide margin but was killed in the Senate by Republican leaders under heavy lobbying from independent electricity interests.

Nonetheless, the effort was one of the first by a handful of state consumer and citizen groups seeking to slow down the current boom in independent plant building, which was unleashed in 1996 with deregulation of the wholesale electricity market.

Kentucky, following the lead of Indiana activists and under pressure from its own citizenry, has imposed a moratorium on building for the time being in order to determine whether merchant plants that intend to sell their electricity out of state will provide any benefits at all to Kentucky.

Other states are also taking steps to create new energy policies that address generation needs and new plant construction. Minnesota is one of them. The state legislature, for example, authorized the Minnesota Department of Commerce this spring to study what should be done to meet the state's future electric needs and whether to impose tougher restrictions on plant building.

At the moment anyone interested in constructing new generating facilities in Minnesota must meet a state needs test. The rule poses a significant hurdle for operators that might want to use Minnesota as a base from which to sell electricity on the open market via transmission lines routed through Illinois and on to other states.In order to receive a "certificate of need" from the state, an operator must show the planned facility will satisfy certain energy requirements of the state.

"The political climate here is that there is a significant concern about not putting Minnesota in a position of being an incubator for generators that send their electricity somewhere else," says Burl Haar, executive secretary of the Minnesota Public Utilities Commission. "So (the certificate of need) is a hurdle that any developer will have to deal with."

Legislation has also been proposed in Minnesota (and rejected up to this point) that would give the state near total control over the location and number of plants built. It would also impose a bidding process on plant developers interested in building in Minnesota. The public would have a say on siting through a public hearings process.

"It's a good idea if you have a limited number of sites where plants can be built," says Bob Burns, a senior research specialist on electricity at the National Regulatory Research Institute at Ohio State University. "One of the goals in Minnesota is to get the most financially stable companies in there - the best who are in the business for the long-term and want to build where they're welcome."

What's happening in Minnesota is "the best approach we've seen" to dealing with new power plant construction," adds Smith, who believes that states have to consider new ways "to clarify their regulatory jurisdictions" in the aftermath of deregulation.

"States have historically had control over siting, but those regulations only address public utilities," says Smith. "This is a new hybrid, a new generation of power plants built by private, independent interests."

Energy Department figures illustrate just how sudden the shift from public-controlled utilities to independent electricity providers has been. Before deregulation, most of the nation's power plants were owned by publicly-regulated companies or cooperatives. But by the end of last year, 2,496 plants had been sold off or merged with private interests not subject to government control. Energy Department officials say only 870 publicly-regulated plants remain, and that number is getting smaller everyday.

Indeed, most of the new power plants in the country are owned by private interests, according to Dr. Arnold Leitner, an energy analyst with RDI Consulting in Boulder, Colo.

RDI data show that 84 percent of the plants built this year will be privately-owned. By 2004, private operators will account for 92 percent of the nation's power plants.

Many states are making it easier for plants to go up by streamlining their permitting process, depending on what their needs are, says Burns.

"Some of the states are deliberately trying to speed up their (approval) process. Ohio, for example, is trying to get permits through in six-months' time. Texas is the same way," adds Burns.

New York and Illinois are other examples where state legislatures have fast-tracked the permitting process to speed up construction of both plants that will have a dedicated in-state customer base and merchant facilities that will sell electricity on the wholesale market.

The reason Ohio, Indiana, Illinois and Kentucky "are being inundated or targeted with these (merchant plant applications) is because those states provide easy access" to the wholesale market in the northeast and elsewhere, Burns observes. "Chicago transmission lines, for example, carry a huge load...for Minnesota and Wisconsin, and the near West."

Unlike Minnesota, most of the "targeted" states do not impose a needs test on plant developers, a situation that frustrates a lot of local communities that suddenly find themselves on the receiving end of a facility with very little state oversight.

"There isn't in many of these states any meaningful oversight of these new plants, which breeds a mentality among local communities that they are on their own," says Patricio Silva, a utility deregulation expert with the Natural Resources Defense Council.