by Bob Bellemare, July 1, 2005
Almost two years after the massive blackout and four years after the California debacle, an energy bill has emerged once again in the Senate.
The bill is intended to avert similar disasters in the future as well as to address rising fuel costs and the growing concern over future energy supplies. But like most federal policy debates on extremely controversial measures, the end result is usually incremental changes that create corresponding results. The bill is estimated to cost $16 billion, about double the cost of a House version of the legislation. The bill must now go back to the House where modifications are sure to be made. The magnitude of those changes will determine the ultimate fate of the bill?a quick death, which has been the track record of previous bills, or rapid approval during August, the desired timeline set by President Bush.
“This legislation is a step forward in helping our nation meet its energy challenges. It does not go as far as I would have like, or other would have liked, to reduce our dependence on foreign oil, to improve vehicle fuel efficiency or to reduce greenhouse gas emissions. But it makes a good start.” said Senator Jeff Bingaman (D-NM), ranking member of the Senate Energy and Natural Resources Committee.
The Technical Challenge
You don’t have to be a forecasting wizard to do some basic calculations concerning the daunting technical challenge before the United States. Currently we have nearly 17,000 power plants totaling over 1 million mega-watts (MW) of installed generation capacity. Our peak demand as a country is around 800,000 MW. Assuming our electric demand grows by just two percent per year over the next 20 years, we will need about 400,000 MW in new generation resources, and that doesn’t even include replacement of old generators that will be retired over the time period.
Keeping pace with such a challenge will require all available resources. Too often we debate coal or nuclear or natural gas, or renewables, or conservation, when in fact it’s really a story of how much new coal, nuclear, natural gas, renewables, AND conservation will be use to fill in the coming energy gap.
To that end, the energy bill does attempt to take steps to bolster the use of all these tools at our disposal:
Coal
Coal is by far our most plentiful fossil fuel resource. By some estimates, we have ten times the amount of coal reserves as we do natural gas and oil. Great hope is being placed on the next generation of coal plants including gasification to reduce coal’s impact on the environment. The bill provides tax incentives to encourage the construction of clean coal facilities, including a 20 percent investment tax credit for qualifying facilities. The bill also authorizes $1.8 billion in spending to fund the Clean Coal Power Initiative.
Nuclear
New nuclear plants are considered by many the key to curbing our greenhouse gas emissions, but given the uncertainty of what the next generation nuclear plant will cost to build in the U.S., companies will have a difficult time getting financing. To address that situation, the bill provides a 1.8-cent/kWh production tax credit for new “advanced” nuclear facilities.
Additionally $432 million in funding is provided over three years to carryout the Nuclear 2010 program, $420 million is provided for spending on nuclear infrastructure support, and $580 million to create a program to reprocess spent nuclear fuel. The bill also extends the Price-Anderson Act to 2025 which requires the federal government to bear the majority of costs of a nuclear reactor accident.
Natural Gas
Unfortunately, the vast reserves of this clean burning fuel are found offshore in regions such as the former Soviet Union and Iran, making it likely we will need to import more liquefied natural gas (LNG) to meet our demand. But unclear rules apply as to state versus federal authority over LNG facilities. The bill gives FERC ultimate authority over siting LNG terminals.
Renewables
Today, the U.S. receives nine percent of its generation production from renewable resources with seven of that nine percent coming from hydroelectric facilities. But this energy bill would enact a requirement that 10 percent of generation supplies come from non-hydro renewable energy resources by 2020, or five times today’s production level.
Since renewable resources vary by region, generation companies will be allowed to trade renewable credits to comply with this requirement. Additional incentives are provided such as expanding the existing business solar investment tax credit from the current 10 percent to 30 percent for the purchase of solar equipment. New clean energy bonds are also authorized for the construction of renewable facilities by governments, cooperatives, and tribes who can not take advantage of tax incentives because they are not taxed. And homeowners can get into the act as well with a 30 percent tax credit for the purchase of solar and fuel cells for use in residential applications.
Conservation
The cleanest kWh is, of course, one that is never used and this country has a tremendous opportunity to curb usage through more efficient ways of using energy. This bill takes modest steps in that direction by enacting first-time efficiency standards for 14 large appliances and raising the standards for others.
The bill offers a new tax credit for homeowners that purchase certain energy-efficient dishwashers, clothes washers, and refrigerators. And for commercial customers a tax deduction equaling the cost of energy efficient equipment installed if the equipment reduces energy consumption of a commercial building by 50 percent.
UtiliPoint has also noted the provisions for demand response incentives in a previous IssueAlert, Federal Energy Bill May Alter Energy Bills [ http://www.utilipoint.com/issuealert/article.asp?id=2499]
Other key measures for the utility industry is the bill puts teeth into electric reliability standards and PUHCA would be repealed, and in its place the FERC will be given expanded merger review authority. As passed by the committee, the bill would expand the commission’s merger review authority to include mergers of electricity and gas utilities, and the acquisition of generation facilities by FERC-jurisdictional utilities. Also, companies will be prohibited from reporting false prices and from doing round-trip trades.
The Political Challenge
Although the bill passed the Senate by a strong 85-12 vote, the politics are by no means over and the ultimate passage of a bill ready for the president’s signature remains uncertain. The 1,250 page bill will now go to the House of Representatives where its pork waistline is likely to expand. And many Republican representatives would like to tack on controversial measures such as allowing drilling in ANWR and providing greater protection to MTBE additive manufacturers.
Such challenges are not deterring Sen. Pete Domenici (R-NM) who chairs the Senate’s Energy & Natural Resources Committee. “We still have a lot of work ahead of us. I anticipate the swift naming of conferees and immediate progress to conference. The President has asked us to have a bill on his desk before August. I intend to do everything I can to meet that deadline” said Sen. Domenici in a press release.
While the Senate claims the bill will cost taxpayers $16 billion, the Taxpayers for Common Sense believes the price tag will be more like $55 billion over ten years. Keith Ashdown, the group’s Vice President, is highly critical of the measure, “America needs a comprehensive energy blueprint to move us into the future, but this bill is a hodgepodge of giveaways for the tired, old energy sources of yesterday. Instead of crafting a true energy policy, the authors of this bill simply chose to fry up heaps of pork to dish out to their friends and campaign contributors.”
Such is the nature and legacy of prior attempts to pass an energy bill. It seems the bills are never aggressive enough to truly meet the technical challenges before us head on. But the political scales on such a massive issue are nearly impossible to balance. Many people make the mistake of assuming energy issues fall neatly along party lines. Sen. Robert Bryd (D-WV), for instance, strongly supports the coal industry while Sen. John McCain (R-AZ) is looking for stronger commitments to curbing greenhouse gas emissions.
But perhaps in the end the bill creates the right balance point for now. New coal, nuclear, renewables, and some conservation measures will each be given a reasonable chance to prove their wares. The hope is that five to 10 years from now we can then better judge the right energy policy. Hopefully it won’t be a case of too little too late.
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