They applied for, and were granted, the permission to down-res locals, and they do it as needed. My KC locals don't look nearly as good as OTA, and the difference is clear on a 37" screen from 10' away. You may be in an "exceptional" market, where there's a whole spotbeam pointed at your hamlet, and it's only carrying 4 HD and 8 SD feeds. I'm not an engineer, so I don't know if they can widen the focus on a spotbeam dynamically or not, but I don't think it's possible.
A spotbeam has to cover a specific footprint on the map, and a CONUS transponder has to cover the whole or nearly the whole nation. They can't transmit CONUS feeds on a spotbeam, because they'd have to mirror that feed across multiple markets, negating the benefit of utilizing "underused" spotbeams. Even at that, which CONUS HD feeds (out of the 200 or so) would they mirror? The only way to improve PQ (not IQ) on CONUS feeds is to reduce the number of feeds per TP. And the only way to use more TPs for CONUS feeds is to reduce the number of spotbeams, which just isn't an option.
STELA recently passed a Senate committee, but is not yet in its final form for a vote by the entire Congress.
No permission was ever granted to downres HD or SD locals or LIL's, as there was never any requirement for satellite regarding LIL PQ. A few years ago NAB half-heatedly tried to change the law for force satellite to provide the then SD LIL's in a PQ about as good as the then analog OTA and to stop favoring major network stations for better PQ while more compression was applied to smaller LIL stations. In other word, all LIL's were to have equally high quality PQ's. That NAB attempt died very quickly.
However, more recently with HD, NAB was working to change the law to require cable and satellite to provide all digital LIL's in HD and for all LIL's broadcasting in HD
not be downrezed to SD at all, as satellite and cable do today for its SD subscribers. This attempt by NAB also died.
So, in other words, no change since the original SHIVA and subsequent SHIVRA regarding quality of LIL's or downrezing HD to SD. Therefore, no permission ever requested or needed. The current situation is that satellite is free to compress SD and HD LIL pretty much as it sees fit. Satellite does this because they have
always been permitted to do this.
The possible requirement, all the bills must be reconciled, for all digital OTA's in every single DMA, including those DMA's that satellite doesn't want to serve because of its high cost,
has been dropped by the US Senator who pushed it pending further study for its foreseeability. However, this is not to suggest that STELA, the new acronym for the old SHIVRA, won't, after all is said and done, require this. In fact, it is highly likely that STELA will mandate all digitals in every single DMA as Congress gets complaints about this from their rural constituents, but Dish was clear in stating that, economics aside, they could not technically achieve this until at least 2013 when more of the latest satellites will have been launched and operational. It seems Dish is willing to concede the "every single digital OTA in every single DMA" if they are permitted the time to do so. A separate clause of STELA would require satellite to provide the local PBS in HD LIL for all relevant DMA's. I don't know if that means in a DMA like Los Angeles that has 4 PBS stations if satellite is required to uplink only one of those in HD or all of them in HD.
The new STELA is confusing as the many different versions have contradictory mandates and "loopholes" that must be reconciled. Also, there are parliamentary procedures that can allow for all sorts of last-minute articles to be slipped into the STELA. However, if Congress can't get STELA passed by the end of this year, yes, barely a month from now, then the current SHIVRA expires, but if time runs out, Congress can vote to extend SHIVRA, as is, for one more year, and they must take up a new STELA next year from scratch.
Hope this helps.