C H A P T E R S E V E N

America’s Energy
Infrastructure
A Comprehensive Delivery System

O
ne of the greatest energy chal­ The United States needs to modernize
lenges facing America is the need its energy infrastructure. One sign of a lack
to use 21st- century technology of an energy policy in recent years has been
to improve America’s aging en­ the failure to maintain the infrastructure
ergy infrastructure. Americans needed to move energy where it is needed
need a comprehensive, long-term solution most.
to deliver energy to industry and consumers
in a reliable and safe manner. Electricity
Our energy infrastructure is com­ The electricity infrastructure includes
prised of many components, such as the a nationwide power grid of long-distance
physical network of pipes for oil and natu­ transmission lines that move electricity from
ral gas, electricity transmission lines and region to region, as well as the local distribu­
other means for transporting energy to con­ tion lines that carry electricity to homes and
sumers. This infrastructure also includes fa­ businesses. Electricity originates at power
cilities that turn raw natural resources into plants, which are primarily fueled by coal,
useful energy products. The rail network, nuclear, natural gas, water and, to a lesser
truck lines, and marine transportation are extent, oil. Coal, natural gas and oil pow­
also key components of America’s energy ered plants require a dependable transporta­
infrastructure. tion infrastructure to deliver the fuels neces­
The energy industry has undergone sary for the production of electricity. A trans­
major changes in the last two decades, and portation network for waste disposal is also
more are expected. These changes affect necessary for power plants that create by­
how our energy infrastructure operates. For products.
example, while the electricity industry was
once vertically integrated, it is increasingly
Restructuring
separated into three isolated segments: gen­
The electricity industry has undergone
eration, transmission, and distribution.
considerable changes in the last two de­
Our energy infrastructure has failed to
cades. These changes affect how our elec­
keep pace with the changing requirements
tricity infrastructure operates. Major indus­
of our energy system. Domestic refining ca­
try restructuring has separated once verti­
pacity has not matched increases in de­
cally integrated electric utilities that sup­
mand, requiring the United States to import
plied generation, transmission, and distribu­
refined products. Natural gas pipelines have
tion services into distinct entities. To facili­
not expanded sufficiently to meet demand.
tate competition at the wholesale level, in
The electricity transmission system is con­
1996, the Federal Energy Regulatory Com­
strained by insufficient capacity. Rail capac­
mission (FERC) required transmission-own­
ity was significantly increased during the
ing utilities to “unbundle” their transmis­
1970s when rail facilities were improved to
sion and power marketing functions, and
U.S. DEPARTMENT OF ENERGY

move more coal. Since then, however, few

provide nondiscriminatory, open access to
additions to the coal transportation rail net­
their transmission systems by other utilities
work have been built.

7-1 NATIONAL ENERGY POLICY

FIGURE 7-1

North American

Transmission Lines

About 204,000 miles of long-distance

transmission lines move power from
region to region. The four integrated
transmission grids serving North
America are the Western Interconnec­
tion, Eastern Interconnection, Electric
Reliability Council of Texas, and Prov­
ince of Quebec.
______
Source: PA Consulting Group

7-3 NATIONAL ENERGY POLICY

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-4
 and independent power producers. At the Transmission Grid
retail level, some states have required utili­ The United States does not have a na­
ties to divest their generation assets as part tional transmission grid. Instead, there are
of restructuring. These utilities currently four integrated transmission grids serving
supply only transmission and distribution North America: the Western Interconnec­
services for customers who purchase elec­ tion, Eastern Interconnection, Electric Reli­
tricity (i.e., generation services) from other ability of Council of Texas, and the Province
firms. In addition, power marketers—who of Quebec (Figure 7-1). These regional
often do not own generation, transmission, grids themselves are international, encom­
or distribution facilities—buy and sell passing the United States, Canada, and part
power on wholesale markets and market of Mexico.
electricity directly to customers. Transactions between the four inte­
Electricity competition has led to sig­ grated transmission grids are very limited
nificant changes in the operation of the bulk because they are interconnected at only a
power grid, which are the power plants and few locations through interties, so for all
high-voltage transmission facilities that practical purposes they can be viewed as
make up the wholesale power market. More separate transmission grids. The four inte­
electricity is being shipped longer distances grated transmission grids break down into a
over a transmission system that was initially series of smaller regions, largely defined by
designed only to provide limited power and transmission constraints. Altogether,
reserve sharing among neighboring utilities. 204,000 miles of transmission lines in North
Electric utilities that were once solely re­ America move power from the point of gen­
sponsible for ensuring that adequate gen­ eration to where electricity is needed. There
eration was available to meet demand now are 157,810 miles of transmission lines in
purchase a substantial amount of the power the United States. Transmission grid expan­
they need from the wholesale market, rely­ sions are expected to be slow over the next
ing on independent power producers to ten years, with additions totaling only 7,000
build and operate plants. miles.
The transmission system is the high­
Electricity Generation way system for interstate commerce in elec­
There are roughly 5,000 power plants tricity. Transmission allows the sale of elec­
in the United States, and they have a total tricity between regions. In a particular re­
generating capacity of nearly 800,000 mega­ gion, transmission can be a substitute for
watts. Over the past few years, there has generation, allowing that region to import
been an explosion of “merchant” power power that otherwise would have to be gen­
plants proposed by independent power pro­ erated within that region. In some cases,
ducers seeking to sell into wholesale mar­ transmission expansion may be more cost­
kets. In spite of this interest, a number of re­ effective than generation additions, allow­
gions of the country are experiencing capac­ ing a region better access to lower-cost gen­
ity shortages as a result of wholesale mar­ eration.
ket design problems and barriers to siting Transmission constraints limit these
and building new power plants. power flows, and result in consumers pay­
Over the next ten years, demand for ing higher prices for electricity. The electric­
electric power is expected to increase by ity price spikes in the Midwest in the sum­
about 25 percent, and more than 200,000 mer of 1998 were caused in part by trans­
megawatts of new capacity will be required. mission constraints limiting the ability of
However, under current plans electric trans­ the region to import electricity from other
mission capacity will increase by only 4 per­ regions of the country that had available
cent. This shortage could lead to serious electricity. During the summer of 2000,
transmission congestion and reliability transmission constraints limited the ability
problems. to sell low-cost power from the Midwest to
the South during a period of peak demand,

7-5 NATIONAL ENERGY POLICY

resulting in higher prices for consumers. Figure 7-2
Transmission capacity limits could result in Current Electric Power Bottlenecks
price pressures and reliability problems this
summer in California, Long Island, the
Great Lakes, the Southeast, and New En­
gland (Figure 7-2).
Regional shortages of generating ca­
pacity and transmission constraints com­
bine to reduce the overall reliability of elec­
tric supply in the country and are reducing
the quality of power delivered to end users.
Power quality is becoming an increasingly
important issue as our digital economy con­
tinues to grow.
One factor limiting reliability is the
lack of enforceable reliability standards.
Since 1968, the reliability of the U.S. trans­
mission grid has depended entirely on vol­
untary compliance with reliability stan­ Transmission capacity limits could result in price pressures and reliability problems this summer in
dards. There is a broad recognition that vol­ California, Long Island, the Great Lakes, the Southeast, and New England. The arrows in this figure de­
pict the locations and directions of current transmission congestion.
untary adherence with reliability standards _____
Source: North American Electric Reliability Council.
is no longer a viable approach in an increas­
ingly competitive electricity market. There from southern California’s Path 15 transmis­
is a need to provide for enforcement of sion route. Path 15 does not have sufficient
mandatory reliability standards. Broad sup­
capacity to provide all of the power needed
port has emerged for development of these in northern California.
standards by a self-regulating organization
overseen by FERC. Recommendation:

★ The NEPD Group recommends that

Recommendations:

the President direct the Secretary of

★ The NEPD Group recommends that

Energy to authorize the Western Area

the President direct the Secretary of

Power Administration to explore

Energy to work with FERC to improve

relieving the “Path 15” bottleneck

the reliability of the interstate trans­

through transmission expansion

mission system and to develop legisla­

financed by nonfederal contributions.

tion providing for enforcement by a

self-regulatory organization subject to

Transmission constraints have been a

FERC oversight.
persistent cause of price spikes in New York
City in recent years. The New York Indepen­
★ The NEPD Group recommends
dent System Operator (the grid operator in
that the President direct the Secretary
that state) estimates that the city will be
of Energy to expand the Department’s

short about 400 MW below their desired re­

research and development on trans­
serve margin of power during the summer
mission reliability and superconduc­
peak. To fill this gap, the New York Power
tivity.

Authority is trying to install additional gen­

eration capacity in the city. Market-oriented
Transmission constraints were also a
approaches could also be used to create ad­
primary factor in blackouts in northern ditional capacity and alleviate some of the
California, which imports power from both potential problems.
the Northwest and southern California.
If transmission constraints are not re­
When resources are not available in the moved, the result can be higher prices and
Northwest, electricity supply must come

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-6

 lower reliability. There are various reasons state, and there was virtually no interstate
why transmission constraints exist. One is commerce in electricity. Congress did not
the lack of sufficient investment in trans­ anticipate the development of an interstate
mission. Transmission investment has and international transmission system.
lagged dramatically over the past decade State decisions on where to locate
(Figure 7-3). There is a need to ensure that transmission lines often do not recognize
transmission rates create incentives for ad­ the importance of proposed transmission fa­
equate investment in the transmission sys­ cilities to the interstate grid. For example, a
tem, especially as restructuring leads to the recent decision by regulators in Connecticut
creation of transmission companies whose to block a proposed transmission line to
only business is operation of transmission Long Island did not recognize the need for
facilities. FERC recognizes this need and electricity on Long Island. Some state siting
has expressed a willingness to consider in­ laws require that the benefits of a proposed
novative transmission pricing proposals. transmission facility accrue to the indi­
Another cause of transmission con­ vidual state, resulting in the rejection of
straints is the siting process. Under current transmission proposals that benefit an en­
law, siting of transmission facilities is a re­ tire region, rather than a single state.
sponsibility of state governments, not the Much has changed since 1935. The
federal government, even though the trans­ transmission system is the highway for in­
mission system is not only interstate but terstate commerce in electricity. Transmis­
also international, extending into both sion constraints are resulting in higher
Canada and Mexico. This stands in stark prices for consumers and lower reliability.
contrast to siting of other interstate facili­ The siting process must be changed to re­
ties, such as natural gas pipelines, oil pipe­ flect the interstate nature of the transmis­
lines, railroads, and interstate highways. sion system.
Federal law governing the responsibil­
ity for siting transmission facilities was Recommendations:

written in 1935, nearly 80 years ago. At the ★ The NEPD Group recommends that

time, transmission facilities were not inter- the President direct the appropriate

federal agencies to take actions to re­

Figure 7-3 move constraints on the interstate

U.S. Investment in New Electric Power Transmission transmission grid and allow our

(Millions of 1990 Dollars) nation’s electricity supply to meet the

1,400 310 growing needs of our economy.

• Direct the Secretary of Energy, by

300
December 31, 2001, to examine the
1,200
Transmission Investment benefits of establishing a national
290
grid, identify transmission bottle­
1,000 necks, and identify measures to re­
280
move transmission bottlenecks.
• Direct the Secretary of Energy to
800
270 work with FERC to relieve trans­
System Peak Demand mission constraints by encouraging
600
260 the use of incentive rate-making
0
proposals.
0
• Direct the federal utilities to deter­
1990 91 92 93 94 95 96 97 98
mine whether transmission expan-
Growth in peak demand for electricity has far outstripped in­
vestment in transmission capacity. As a result, transmission
sions are necessary to remove con-
constraints could aggravate already limited supplies of straints. The Administration should
power and could result in high prices in some areas of the review the Bonneville Power
country.
________ Administration’s (BPA’s) capital and
Source: PA Consulting Group, based on data from the UDI data base.

7-7 NATIONAL ENERGY POLICY

 ginia to Virginia. Five years ago, the Depart­ The electric power infrastruc­
financing requirements in the con­ ment of Energy identified that line as criti­ ture includes a nationwide
text of its membership in a regional cal to the reliability of the transmission sys­ “power grid” of long-distance
RTO, and if additional Treasury fi­ transmission lines that move
tem on the East Coast. Five years later, the electricity from the point of
nancing appears warranted or nec­ line is still not complete. Improved access to generation to where the
essary in the future, the Adminis­ federal land can help remove transmission electricity is needed. Over the
tration should seek an increase in constraints. next ten years, U.S. demand
BPA’s borrowing authority at that for electric power is expected
time. to increase by 25 percent,
Rights-of-Way on Federal Lands while transmission capacity
• Direct the Secretary of Energy, in
The Bureau of Land Management is expected to increase by
consultation with appropriate fed­ only 4 percent.
(BLM) estimates that 90 percent of the oil
eral agencies and state and local
and natural gas pipeline and electric trans­
government officials, to develop
mission rights-of-way in the western United
legislation to grant authority to ob­
States cross federal lands. These lands are
tain rights-of-way for electricity
principally lands managed by either the
transmission lines, with the goal of
BLM or the U.S. Forest Service. Rights-of­
creating a reliable national trans­
way are authorized through an approval pro­
mission grid. Similar authority al­
cess that allows the public to comment on
ready exists for natural gas pipe­
proposals to locate infrastructure items, like
lines in recognition of their role in
utility poles, on these rights-of way. As part
interstate commerce.
of this process, proposals are examined for
resource and other use conflicts, and a na­
Another cause of transmission con­
tional interest test is applied prior to ap­
straints is limited access to federal lands.
proval.
The federal government is the largest land­
The BLM administers 85,000 rights-of­
owner in the United States and owns most
way, including 23,000 for oil and gas pipe­
of the land in some western states. Limited
lines and 12,000 for electric transmission
access to federal lands can block needed
lines. It processes over 1,200 pipeline and
transmission expansion. A case in point is a
electric system right-of-way applications a
transmission line being built from West Vir­
year, with an increase in applications of

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-8

 and local distribution lines to its final desti­
nation. These pipeline systems involve a
complex infrastructure of their own, includ­
ing pump stations or compressor stations,
and control systems that open and close
valves and switch product flow through
pipes, often with the use of computer tech­
nology.

Oil Pipelines
The two million miles of oil pipelines
in the United States are the principal mode
for transporting oil and petroleum products
such as gasoline. They account for about 66
Virtually all natural gas in over 10 percent a year in recent years. The percent of domestic product movements
the United States is moved via demand for additional energy and electric­
pipeline. The current domestic
(Figure 7-4). Increases in the demand for oil
ity is expected to increase the need for and changes in where it is supplied will lead
natural gas transmission
capacity of approximately 23 rights-of-way across federal lands. to the need for more pipeline capacity.
trillion cubic feet (tcf) will be Other federal entities also deal with Pipelines are less flexible than other
insufficient to meet the rights-of-way, each approaching the issue forms of oil transport, because they are
projected 50 percent increase from a unique perspective. The National fixed assets that cannot be easily adjusted
in U.S. consumption projected Park Service is authorized to grant leases
for 2020. to changes in supply and demand. Once
and permits, but discourages rights-of-way built, they are an efficient way to move pe­
corridors unless there are no practical alter­ troleum and petroleum products. A modest­
natives. The U.S. Fish and Wildlife Service sized pipeline carries the equivalent of 750
manages National Wildlife Refuge lands for tanker truckloads a day—the equivalent of a
wildlife and habitat values, and allows corri­ truckload leaving every two minutes, 24
dors where they were pre-existing or are de­ hours a day, 7 days a week. Replacing the
termined to be compatible with the pur­ same pipeline with a railroad train of tank
poses for which a refuge was established. cars, carrying 2,000 barrels each, would re­
The Bureau of Reclamation is authorized to quire a 75-car train to arrive and be un­
grant rights-of-way over lands acquired or loaded every day. Pipelines are relatively in­
withdrawn for reclamation purposes, if expensive to operate and are generally quiet
compatible with authorized project pur­ and safe. Ensuring pipeline safety requires
poses. The Bureau of Indian Affairs and careful management, as multiple products
tribal governments are authorized to grant move through a single pipeline system at
rights-of-way across both tribal and indi­ the same time.
vidually owned Indian lands. Insufficient domestic pipeline capacity
has caused peak-load problems in moving
Pipelines oil and petroleum products such as gasoline
After being pumped from the ground from one region of the country to another.
in domestic oil fields, oil travels through For example, many energy analysts fore­
gathering lines to pipelines, which bring it casted the possibility of a shortage last win­
to refineries, where it is transformed into ter in the upper Midwest of liquefied petro­
petroleum products like gasoline, diesel leum gas used for heating and for drying
fuel, or heating oil. These products then crops. Others were concerned about pos­
travel through pipelines and tanker trucks sible shortages of heating oil in New En­
to distribution outlets for purchase by con­ gland.
sumers. Natural gas must similarly travel Energy supply shortages can create
from gas fields through gathering lines to operational difficulties for the pipelines
processing facilities, and then into pipelines themselves. The complex interrelationship

7-9 NATIONAL ENERGY POLICY

of our energy infrastructure is evident,
since pipelines have been shut down for Recommendation:

varying time periods due to regional elec­

★ The NEPD Group recommends that

tricity shortages. the President direct the Secretary of

For example, fuel supplies to Las Ve­ the Interior to work with Congress and

the State of Alaska to put in place the

gas and Phoenix became dangerously low

when blackouts in California shut down the most expeditious process for renewal

of the Trans-Alaskan Pipeline System

main pipeline serving those areas. The Cali­

fornia Public Utilities Commission (CPUC) rights-of-way to ensure that Alaskan

has granted a waiver of penalties to oil oil continues to flow uninterrupted to

the West Coast of the United States.

pipelines that have interruptible contracts

for electricity to help ensure the uninter­
The Trans-Alaska Pipeline System is
rupted flow of motor fuel supplies to Cali­
fornia. The California Energy Commission the single most important crude oil pipeline
asked the CPUC to grant the waiver in or­ in the United States, and is perhaps the
most regulated oil pipeline in the world. The
der to minimize the threat to public health
due to disruptions of fossil fuel supplies. pipeline system has carried nearly one-fifth
While the waiver of penalties does not guar­ of all domestically produced oil for the last
two decades. Since beginning operations in
antee that disruptions of power to petro­
leum product pipelines will not occur, it di­ 1977, it has transported more than 13 billion
barrels of oil from Alaska’s North Slope
minishes the threat by allowing disruptions
to occur only when they are coordinated across 800 miles to the Port of Valdez. Since
with the entire petroleum product delivery the pipeline began operation, only 0.00014
percent of the total amount of oil trans­
system, from refiner to pipeline to termi­
nals. Both Phoenix and Las Vegas would ported through it has been spilled.
The pipeline’s federal grant and state
benefit from this decision because refiner­
ies and pipelines from California supply the lease for right-of-way expires in 2004 and
two cities. will require renewal. That process will in-
Much of the existing oil pipeline infra­
structure is old, requiring regular safety and Figure 7-4
environmental reviews to ensure its reliabil­ U.S. Oil Pipelines
ity. The potential risk of pipeline accidents
to human health and safety is of grave con­
cern. In June 1999, a petroleum product
pipeline ruptured and caught fire in
Bellingham, Washington. In addition to
tragic loss of life, the pipeline’s 18-month
shutdown caused an economic hardship to
the Seattle–Tacoma Airport and other local
businesses that relied on the pipeline for
aviation and diesel fuels. To avoid similar
crises, the Department of Transportation,
which has responsibility for pipeline safety,
has adopted regulations and other risk man­
agement approaches to ensure safety in
pipeline design, construction, testing,
operation, maintenance, and emergency
response.

The two million miles of oil pipelines in the United States are the principal mode for transporting crude
oil and refined products. They account for about 66 percent of domestic product movements.

_______

Source: U.S. Department of Transportation, Office of Pipeline Safety.

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-10

 tors have applied for permits to increase
their delivery of natural gas to California,
but right-of-way issues and local permitting
delays have constrained the ability to trans­
port natural gas to California, contributing
to high prices. In addition, the natural gas
pipeline connections from Canada are near
capacity, so any greater U.S. reliance on
Canadian natural gas will require increased
pipeline capacity.
One of the largest known reserves of
natural gas in the United States has been
found in the Arctic, associated with the de­
velopment of oil at Alaska’s Prudhoe Bay.
These known gas reserves, over 35 tcf,
would make a significant long-term contri­
bution to the nation’s energy supplies if de­
livered to the lower 48 states. It is estimated
there may be an additional 100 tcf on the
North Slope of Alaska. Recently, as the en­
ergy supply situation has changed, interest
has renewed in tapping into Alaska’s natural
gas supplies. Over the past year, the Alaska
North Slope gas producers have been re­
viewing whether projected market condi­
tions will make transportation of this natu­
Several federal agencies are volve a thorough review of compliance with ral gas economically feasible. The North
authorized to grant rights-of­ federal laws and regulations, including Slope gas producers are scheduled to com­
way for oil and gas pipeline
and electric transmission
those related to safety and environmental plete that review by the end of 2001.
systems on federal lands, and impacts. Because nearly 50 percent of the
each approaches the issue right-of-way is owned by the State of Recommendation:
from a unique perspective. Alaska, they must also renew the applicable ★ The NEPD Group recommends that
Authorizing agencies include state permits. To commence the formal por­ the President direct the Secretaries of
the Bureau of Land Manage­
tion of the federal renewal process, regula­ Energy and State, coordinating with
ment, the U.S. Forest Service
the National Park Service, the tions require a renewal application to be the Secretary of the Interior and the
U.S. Fish and Wildlife filed with the Alaska Office of the BLM of Federal Energy Regulatory Commis­
Service, the Bureau of the Department of the Interior. To the ex­ sion, to work closely with Canada, the
Reclamation, and the Bureau tent possible, a single, joint federal/state ap­ State of Alaska, and all other inter­
of Indian Affairs. proach should be considered. ested parties to expedite the construc­
tion of a pipeline to deliver natural gas
Natural Gas Pipelines to the lower 48 states. This should in­
Virtually all natural gas in the United clude proposing to Congress any
States is moved via pipeline (Figure 7-5). changes or waivers of law pursuant to
The current domestic natural gas transmis­ the Alaska Natural Gas Transportation
sion capacity of approximately 23 trillion Act of 1976 that may be required.
cubic feet (tcf) will be insufficient to meet
the projected 50 percent increase in U.S. America needs the energy that
consumption projected for 2020. Alaska’s North Slope natural gas can pro­
Some parts of the country, such as vide. The Administration seeks to expedite
California and New England, already face the construction of a pipeline to deliver this
capacity shortages. Several pipeline opera­ natural gas to the lower 48 states.

7-11 NATIONAL ENERGY POLICY

 In addition to shortfalls in capacity, Figure 7-5
U.S. Natural Gas Transmission Pipelines
sources of natural gas have shifted from the
Southwest to the deep water of the Gulf of
Mexico, the Rocky Mountains, western
Canada, and the Canadian Atlantic. At the
same time, demand has shifted from the in­
dustrial Midwest to the growing population
centers in the South and the West. An addi­
tional 263,000 miles of distribution pipe­
lines and 38,000 miles of new transmission
pipelines will be necessary to meet in­
creased consumption and the new geo­
graphic realities of supply and demand.
Several factors complicate efforts to
meet the need for increased pipeline capac­
ity, including encroachment on existing
rights-of-way and heightened community
resistance to pipeline construction. Cur­
rently it takes an average of four years to
obtain approvals to construct a new natural
gas pipeline. In some cases it can take
Virtually all natural gas in the United States is moved via pipeline. The forecast of a doubling in the
much longer. number of new natural gas wells drilled annually and an 80 percent increase in the number of active
The projected growth in energy de­ drilling rigs will require new pipelines.
mand has called into question whether _____

regulatory actions and permitting processes Source: U.S. Department of Transportation, Office of Pipeline Safety.

can keep pace with the necessary construc­

tion of new facilities for storage and deliv­ planning, extend the serviceability and life of
ery. Consistent federal, state, and local gov­ the national natural gas transmission and dis­
ernment policies, and faster, more predict­ tribution network, provide safer transport of
able regulatory decisions on permitting for energy products, and lessen the impacts of
oil and natural gas pipelines are needed to the energy infrastructure on the environ­
enable timely and cost-effective infrastruc­ ment.
ture development. The permitting process
has a positive role in protecting the environ­ Recommendations:

ment, public health, and safety by allowing ★ The NEPD Group recommends that

all interested parties an opportunity to par­ the President support legislation to im­

ticipate effectively and fully in the delibera­ prove the safety of natural gas pipelines,

tions prior to the permit issuance. protect the environment, strengthen

Recent pipeline ruptures involving a emergency preparedness and inspec­

natural gas pipeline near Carlsbad, New tions and bolster enforcement.

Mexico, and an underground natural gas

storage facility near Hutchinson, Kansas, ★ The NEPD Group recommends that

highlight the need to develop technologies the President direct agencies to con­

and policies that protect people, environ­ tinue their interagency efforts to im­

ment, and the safety of the nation’s energy prove pipeline safety and expedite pipe­

infrastructure. The federal government has line permitting in an environmentally

an important role in ensuring and improv­ sound manner and encourage the Fed­

ing the safety of these gas pipelines. New eral Energy Regulatory Commission to

technologies need to be developed to im­ consider improvements in the regulatory

prove monitoring and assessment of system process governing approval of interstate

integrity, improve data quality for system natural gas pipeline projects.

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-12

U.S. demand for refined Oil Refineries Ongoing industry consolidation, in an effort
petroleum products currently U.S. demand for refined petroleum to improve profitability, inevitably leads to
exceeds its domestic capacity the sale or closure of redundant facilities by
to produce them. The refinery
products, such as gasoline and heating oil,
currently exceeds our domestic capacity to the new combined ownership. This has
industry is now running at
nearly 100 percent of produce them. The refinery industry is now been particularly true of terminal facilities,
capacity during the peak running at nearly 100 percent of capacity which can lead to reductions in inventory
gasoline consumption season. during the peak gasoline consumption sea­ and system flexibility. While excess capac­
son and is producing record levels of ity may have deterred some new capacity
needed products at other times. The excess investments in the past, more recently,
demand has recently been met by increased other factors, such as regulations, have de­
imports. terred investments.
The U.S. refining industry has experi­ Refiners are subject to significant en­
enced a decade of low profitability and vironmental regulation and face several new
rates of return on investment. This has dis­ clean air requirements over the next de­
couraged investment in new refineries. In cade. Refiners will face many clean fuel pro­
fact, almost 50 U.S. refineries closed over duction standards, which require the pro­
the last ten years, and no major refineries duction of many different kinds of gasoline
have been built in the last twenty-five years. and diesel fuel for different parts of the
During the last ten years, overall refin­ country. New Environmental Protection
ing capacity grew by about 1 to 2 percent a Agency rules will require refiners to pro­
year as a result of expansion in the capacity duce gasoline and diesel fuel with signifi­
of existing, larger refineries. Although there cantly lower sulfur content. New clean air
was a significant, sustained improvement in requirements will benefit the environment,
margins during 2000, those gains arose out of but will also require substantial capital in­
a very tight supply situation and high, vola­ vestments and additional government per­
tile prices. Industry consolidation has been a mits. The proliferation of distinct regional
key response to this poor profitability. and state gasoline and diesel product stan­
The U.S. refining industry is also fac­ dards, the significant permitting needed,
ing major infrastructure problems. While and the downtime to make the needed
the industry expanded steadily through the physical and operational changes will chal­
1970s, it went through a period of consoli­ lenge refiners and governments to effec­
dation after the oil shocks of 1973 and 1978. tively coordinate in order to reduce the like­
lihood of supply shortfalls and price spikes.

7-13 NATIONAL ENERGY POLICY

 Recommendation: (covering more than one pollutant and
★ The NEPD Group recommends that requirement) and consider the rules’
the President direct the Administrator cumulative impacts and benefits.
of the EPA to study opportunities to
maintain or improve the environmen­ ★ The NEPD Group recommends that
tal benefits of state and local “bou­ the President to direct the Administra­
tique” clean fuel programs while ex­ tor of the Environmental Protection
ploring ways to increase the flexibility Agency, in consultation with the Secre­
of the fuels distribution infrastructure, tary of Energy and other relevant
improve fungibility, and provide added agencies, to review New Source Re­
gasoline market liquidity. In conclud­ view regulations, including administra­
ing this study, the Administrator shall tive interpretation and implementa­
consult with the Departments of En­ tion, and report to the President within
ergy and Agriculture, and other agen­ 90 days on the impact of the regula­
cies as needed. tions on investment in new utility and
refinery generation capacity, energy ef­
Since 1990, refiners have met growing ficiency, and environmental protec­
demand by increasing the use of existing tion.
equipment and increasing the efficiency and • The NEPD Group recommends that
capacity of existing plants. Even with these the President direct the Attorney
efforts, however, refining capacity has be­ General to review existing enforce­
gun to lag behind peak summer demand. ment actions regarding New Source
Price volatility and the cyclical nature of oil Review to ensure that the enforce­
markets inhibit investment in supply infra­ ment actions are consistent with
structure. While investors can withstand the Clean Air Act and its regula­
market fluctuations for some commodities, tions.
large investments in oil exploration and de­
velopment—such as for drilling required to
maintain a steady supply and the pipelines Energy Transportation Infrastructure
needed to bring supply to market—are of­ The infrastructure used to transport
ten curtailed during times of low oil prices. energy products includes ocean tankers; in­
The outcome of this lack of steady invest­ land barges; specialized trucks for oil and
ment is less supply, higher prices, and the refined products, such as gasoline and heat­
abandonment of marginal oil resources that ing oil; railroad tank cars and coal cars; and
may never be recovered. the waterways, highways, and railroads
upon which they travel. There is also a sub­
Recommendations:
stantial inventory of river and oceanside
★ The NEPD Group recommends that
port facilities that are used for moving en­
the President direct the Administrator
ergy materials.
of the Environmental Protection

Agency and the Secretary of Energy to

Marine Transportation
take steps to ensure America has ad­

Marine transportation of oil and re­

equate refining capacity to meet the

fined products accounts for nearly one-third

needs of consumers.

of domestic shipments. Approximately 3.3

• Provide more regulatory certainty
billion barrels of oil and petroleum products Double-hulled tank barges
to refinery owners and streamline
and 229 million short tons of coal move provide distribution of
the permitting process where pos­ petroleum products.
through the nation’s ports and waterways
sible to ensure that regulatory over­
every year. NICOLE LEIGH REINAUER AND RTC 135
lap is limited.
There are three kinds of ship trans­
• Adopt comprehensive regulations
ports of domestic energy products. Tankers

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-14

 primarily carry Alaskan oil to the West Unlike pipelines, water transportation
Coast. Product tankers transport refined requires the positioning of vessels to where
products from the Gulf of Mexico to the At­ cargoes are located. For example, it can
lantic Coast, from the Gulf to the West take three weeks to move a tanker from the
Coast, and between ports within the West Gulf of Mexico to the West Coast. Conse­
Coast. Tank barges provide coastwise distri­ quently, tanker markets do not respond
bution of refined product imports, distribu­ quickly to temporary surges in demand,
tion from pipeline terminals, and inland dis­ which typically result in price spikes.
tribution. In addition, 477 foreign tankers
and 64 U.S. flag tankers deliver oil and pe­ Safety
troleum products to the United States. They In accordance with the Oil Pollution
deliver approximately 2.1 million barrels a Act of 1990, a timeline has been established
day, for a total of 770 million barrels a year. to replace all single-hulled vessels with
Ships are also used to import liquefied double-hulled vessels. Many have already
Winter storms, extended
darkness, and ice formation
natural gas (LNG). With increasing demand been replaced. Modern navigation and port
disrupt barge and tanker for natural gas for electricity generation, services also help to prevent maritime oil
movements. The U.S. Coast there is a potential for substantial growth in spills. Spill-response technologies and coor­
Guard’s fleet of ice breakers the demand for LNG imports. From 1998 to dinated response plans are key to minimiz­
has become an important 1999, the number of LNG carrier arrivals in
component of the energy
ing damage to property and the environ­
Boston increased by 350 percent. In addi-
ment. Oil spill technology has improved dur­
infrastructure for the New
England, Mid-Atlantic, and tion, mothballed terminals at Elba Island,
ing the last decade and will continue to do
Great Lakes regions. Georgia, and Cove Point, Maryland, may
so. Risk assessments, preparedness drills,
U.S. COAST GUARD reinitiate LNG imports by 2002.
and cleanup strategies are all necessary
safeguards for transporting energy goods.
As maritime transportation grows, port and
waterway infrastructure, as well as the
availability of accurate and timely naviga­
tion information, will continue to be impor­
tant for the safe, efficient delivery of energy.

New England’s Dependence on

Marine Transportation
New England has no refineries, and its
small oil pipeline system is not connected to
the interstate pipeline system. As a result,
New England must rely on tanker and barge
shipments of petroleum products from the
south as well as direct imports from over­
seas. There is some question as to whether
this distribution system is sufficient to meet
the future needs of the region and, if not,
what steps need to be taken to ensure fu­
ture economical, reliable energy supplies.
In recent years, lower national inven­
tories, market forces, and other factors have
combined to create much lower inventories
for petroleum products such as heating oil
in the Northeast. A supply system with less
capacity in reserve is more vulnerable to
variations in product delivery, and is less ca­
pable of absorbing the disruptions in barge
and tanker movements that inevitably come

7-15 NATIONAL ENERGY POLICY

with winter storms, extended darkness, and low-sulfur coal reserves are located in Mon­
ice formation. A rapid change to colder tana and Wyoming. Demand for clean coal
weather affects both supply and demand: from Wyoming’s Powder River Basin is ex­
households need more fuel at the same time pected to increase because of its environ­
that harbors and rivers experience severe mental benefits. However, rail capacity
ice conditions. problems in the Powder River Basin have
For the New England and Mid-Atlantic created a bottleneck in the coal transporta­
seaboards, U.S. Coast Guard icebreakers tion system.
have become an important component of With little excess capacity in the rail
the infrastructure necessary to provide en­ lines supporting the Powder River Basin, ex­
ergy to the region. pected increases in demand could result in
The Department of Energy established capacity shortfalls and delays in providing
the Northeast Heating Oil Reserve to ensure coal to power plants that are relying in­
heating oil supplies in the region. This emer­ creasingly on “just-in-time” shipments to re­
gency buffer can support a shortage for ap­ duce inventory costs. Additionally, delays in
proximately ten days, which is the time re­ other parts of the rail network, such as at
quired for ships to carry heating oil from the key rail facilities, can undermine the effi­
Gulf of Mexico to New York Harbor. ciency and reliability of the system. There is
Even with the Reserve in place, ma­ a need to eliminate bottlenecks in the coal
rine transportation remains the only source transportation system.
of heating oil for the New England’s winter
months. Infrastructure Security
The energy infrastructure is vulnerable
Recommendation:
to physical and cyber disruption that could
★ The NEPD Group supports the
threaten its integrity and safety. Disruptions
President’s budget proposal to provide
could come from natural events, like geo­
$8 million to maintain the two-million­
magnetic storms and earthquakes, or could
barrel Northeast Heating Oil Reserve.
come from accidents, equipment failures, or
Operated by the private sector, the
deliberate sabotage. In addition, the nation’s
Reserve helps ensure adequate sup­
transportation and power infrastructures
plies of heating oil in the event that
have grown increasingly complex and inter­
colder than normal winters occur in
dependent. Consequently, any disruption
the Northeast United States.
can have extensive consequences.
Transportation facilities have weath­
ered relatively short interruptions in power
Rail Transportation as a result of natural disasters and accidents,
Coal, which provides about 52 percent with varying degrees of impact. In a few in­
of America’s electricity, is the most impor­ stances, they have experienced intermittent,
tant single commodity carried by rail. Over lengthy outages that have affected not only
the past ten years, the rail share of coal primary systems, but integrated services as
transportation has increased, primarily as a well, such as voice, data, Internet, and wire­
result of increases in low-sulfur western less networks that may be used to transmit
coal, which moves long distances over rail. control information. The growing reliance on
In 1999, domestic railroads carried 68 per­ computer technologies, automated monitor­
cent of the nation’s coal, and in 2000, they ing and control systems, and electronic com­
transported an average of 14.4 million tons merce makes the system more efficient and
of coal a week. vibrant, but also requires a greater level of
Transportation costs account for 30 to diligence and use of safeguards.
50 percent of the final delivered price of Accurate weather and climate fore­
coal to utilities. About 74 percent of U.S. casting can prevent millions of dollars in

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-16

 damage to U.S. energy infrastructure. For Improvements in forecasting can fur­
example, the interaction of geomagnetic ther assist in the management of energy re­
storms with the Earth’s magnetic field can sources and materials, can prevent power
cause additional current to enter transmis­ outages in many cases, and can accelerate
sion lines, which at times has caused re­ restoration of power after outages that do
gional grid collapse and has destroyed occur. Also, data from extreme weather
power plant electrical transformers. Given events can be used to design and build infra­
sufficient warning, the industry can initiate structure, such as transmission lines, pipe­
protective countermeasures, such as when lines, and hydropower dams.
several northeastern power plants shed 20
percent of their load during a July 2000 geo­
magnetic storm.

Summary of Recommendations
America’s Energy Infrastructure: A Comprehensive Delivery System

★ The NEPD Group recommends that the President direct the Secretary of Energy
to work with the Federal Energy Regulatory Commission (FERC) to improve the
reliability of the interstate transmission system and to develop legislation provid­
ing for enforcement by a self-regulatory organization subject to FERC oversight.

★ The NEPD Group recommends that the President direct the Secretary of
Energy to expand the Department’s research and development on transmission re­
liability and superconductivity.

★ The NEPD Group recommends that the President direct the Secretary of Energy to
authorize the Western Area Power Administration to explore relieving the “Path 15”
bottleneck through transmission expansion financed by nonfederal contributions.

★ The NEPD Group recommends that the President direct the appropriate federal
agencies to take actions to remove constraints on the interstate transmission grid
and allow our nation’s electricity supply to meet the growing needs of our
economy.
• Direct the Secretary of Energy, by December 31, 2001, to examine the benefits of
establishing a national grid, identify transmission bottlenecks, and identify mea­
sures to remove transmission bottlenecks.
• Direct the Secretary of Energy to work with FERC to relieve transmission con­
straints by encouraging the use of incentive rate-making proposals.
• Direct the federal utilities to determine whether transmission expansions are
necessary to remove constraints. The Administration should review the
Bonneville Power Administration’s (BPA’s) capital and financing requirements in
the context of its membership in a regional RTO, and if additional Treasury fi­
nancing appears warranted or necessary in the future, the Administration
should seek an increase in BPA’s borrowing authority at that time.
• Direct the Secretary of Energy, in consultation with appropriate federal agencies
and state and local government officials, to develop legislation to grant author­
ity to obtain rights-of-way for electricity transmission lines, with the goal of cre­
ating a reliable national transmission grid. Similar authority already exists for
natural gas pipelines in recognition of their role in interstate commerce.

7-17 NATIONAL ENERGY POLICY

★ The NEPD Group recommends that the President direct the Secretary of the Inte­
rior to work with Congress and the State of Alaska to put in place the most expeditious
process for renewal of the Trans-Alaskan Pipeline System rights-of-way to ensure that
Alaskan oil continues to flow uninterrupted to the West Coast of the United States.

★ The NEPD Group recommends that the President direct the Secretaries of Energy
and State, coordinating with the Secretary of the Interior and the Federal Energy
Regulatory Commission, to work closely with Canada, the State of Alaska, and all
other interested parties to expedite the construction of a pipeline to deliver natural
gas to the lower 48 states. This should include proposing to Congress any changes or
waivers of law pursuant to the Alaska Natural Gas Transportation Act of 1976 that may
be required.

★ The NEPD Group recommends that the President support legislation to improve
the safety of natural gas pipelines, protect the environment, strengthen emergency
preparedness and inspections and bolster enforcement.

★ The NEPD Group recommends that the President direct agencies to continue their
interagency efforts to improve pipeline safety and expedite pipeline permitting in an
environmentally sound manner and encourage FERC to consider improvements in the
regulatory process governing approval of interstate natural gas pipeline projects.

★ The NEPD Group recommends that the President direct the Administrator of the
EPA to study opportunities to maintain or improve the environmental benefits of state
and local “boutique” clean fuel programs while exploring ways to increase the flexibil­
ity of the fuels distribution infrastructure, improve fungibility, and provide added gaso­
line market liquidity. In concluding this study, the Administrator shall consult with the
Departments of Energy and Agriculture, and other agencies as needed.

★ The NEPD Group recommends that the President direct the Administrator of the
Environmental Protection Agency and the Secretary of Energy to take steps to ensure
America has adequate refining capacity to meet the needs of consumers.
• Provide more regulatory certainty to refinery owners and streamline the permitting
process where possible to ensure that regulatory overlap is limited.
• Adopt comprehensive regulations (covering more than one pollutant and require­
ment) and consider the rules’ cumulative impacts and benefits.

★ The NEPD Group recommends that the President direct the Administrator of the
Environmental Protection Agency, in consultation with the Secretary of Energy and
other relevant agencies, to review New Source Review regulations, including adminis­
trative interpretation and implementation, and report to the President within 90 days
on the impact of the regulations on investment in new utility and refinery generation
capacity, energy efficiency, and environmental protection.

★ The NEPD Group recommends that the President direct the Attorney General to
review existing enforcement actions regarding New Source Review to ensure that the
enforcement actions are consistent with the Clean Air Act and its regulations.

★ The NEPD Group supports the President’s budget proposal to provide $8 million to
maintain the two-million-barrel Northeast Heating Oil Reserve. Operated by the pri­
vate sector, the Reserve helps ensure adequate supplies of heating oil in the event that
colder than normal winters occur in the Northeast United States.

Chapter 7 • America’s Energy Infrastructure: A Comprehensive Delivery System 7-18