April 1, 2003

April 1, 2003 | WebMemo on Energy and Environment

The Barton Energy Bill: Weighing the Good and Bad

Any energy bill that fails to enhance U.S. energy and national security should be soundly rejected. No bill is better than one that restricts energy production, unnecessarily raises the cost of energy for consumers, and jeopardizes national security.

 

The House Energy and Commerce Committee will mark-up a comprehensive energy bill this week (Energy Policy Act of 2003). The Senate Energy and Natural Resources Committee plans to mark-up a separate version of a long-term energy policy next week.

 

The energy bill recently passed by the Energy and Air Quality Subcommittee -- referred to as the "Barton bill," named after the primary author of the legislation Rep. Joe Barton -- is a mixed bag. While it contains a number of energy enhancing measures, it also includes measures that meddle in energy markets and prolong the nation's gap between supply and demand. The full committee needs to correct these deficiencies and reject efforts to add energy-suppressing measures to the bill in the name of "energy security."

 

The Energy Information Agency projects that by 2020, energy consumption will increase by about 32 percent increasing the nation's gap between energy supply and demand. Contributing to this growing gap are limited access to known resources; statutory and regulatory constraints; uncertainty in the energy industry that inhibits investment; and failure of past federal efforts to coordinate energy, environment, and trade policies.

 

Given the essential role that energy plays in the nation's economy, the primary goal of comprehensive energy legislation should be to balance supply and demand and sufficiently address the factors that impede access to reliable and affordable supplies of energy. The Barton bill represents a step in the right direction, but needs some work. The full committee mark-up affords the members an opportunity to amend the bill to meet these objectives.

 

What Is Good About the Barton Bill

Of particular note in this bill is what it does not contain. There is no:

  • Renewable portfolio standards;
  • Climate change initiatives;
  • Statutory increase in corporate average fuel economy (CAFÉ) standards; or
  • Mandatory regional transmission organizations (RTOs).

These measures distort the market and cause residential and business consumers alike to pay higher prices for energy. It is likely, however, that attempts will be made in full Committee to add these, or similar anti-competitive energy measures to the bill. Members need to remain steadfast in their opposition to these and similar energy suppressing measures.

 

The bill also calls for increasing the Strategic Petroleum Reserve from its current 700 million barrels to one billion barrels. Given the nation's dependence on foreign oil, much from unstable regions in the world, this provision is critical to the nation's energy and national security. This is an important tool of national security and is intended for imminent or actual disruption in oil supplies -- not for market interference.

 

Equally important is what the Barton bill does contain. For example, the electricity title (Title VII), includes the following pro-competitive measures, including:

 

Repeal of the Public Utility Holding Company Act (PUHCA). Administered by the Security and Exchange Commission (SEC), PUHCA is a statute that makes it difficult for firms to acquire and divest power assets, and it interferes with the ability of firms to enter new markets. The SEC has been calling for PUHCA's repeal for the last two decades. This provision is long overdue and necessary to restructure the electricity sector and make it more competitive and beneficial to consumers.

 

Repeal of the Federal Energy Regulatory Commission's (FERC) merger review authority. This provision places the anti-trust responsibility where it rightly belongs-to either the Department of Justice, or the Federal Trade Commission. This provision is also long overdue.

 

Providing a "fall-back" provision that would allow FERC to issue permits for electric transmission facilities under certain conditions. This provision would make it easier to move electricity from areas of excess power to areas in need of additional power, significantly reducing transmission congestion in interstate commerce and enhancing reliability.

 

Granting a "limited" eminent domain authority to site transmission facilities while ensuring private landowners are truly "justly" compensated for their property.   It creates a win-win situation - transmission lines needed to transport power could be built to avoid blackouts and price spikes, and property owners would be fairly compensated for the land taken from them by eminent domain.

 

What is Problematic About the Barton Bill

There are significant problems with the current legislation. Including:

 

Designating a specific route for construction and initial operation of a natural gas pipeline to Alaska's North Slope. That decision should be made by experts, such as engineers, not by politicians in Washington, D.C. Getting this gas from the Alaskan North Slope to the lower 48 states is essential to meet the nation's growing demand for energy and should be included in a responsible national energy plan, without political interference.

 

Authorizing the Energy Secretary to administer a $100 million grant program to demonstrate technologies for the recovery of oil and natural gas reserves from reservoirs with a complex geology, low reservoir pressure, or unconventional natural gas reservoirs in coalbeds, tight sands, or shales in onshore public lands as well as state and private lands with appropriate approval. While the goal is laudable - to recover unproven oil and natural gas reserves - a more effective way to recover these reserves would be to offer certain tax incentives to entities, such as faster equipment depreciation allowances, for oil and gas exploration in these specific reservoir areas.

 

"Conditionally" repealing the mandatory purchase requirements under Public Utilities Regulatory Policy Act (PURPA).   PURPA forces utilities to purchase power from qualified facilities at inflated prices for power they do not need and pass these higher costs onto consumers. These noncompetitive PURPA contracts impede the development of competitive electricity markets. They should be repealed prospectively, not just conditionally to foster competition and lower energy costs for consumers.

 

Failing to facilitate competition in the energy sector, by not removing the subsidies, preferences, and advantages the Tennessee Valley Authority (TVA) and the Power Marketing Administrations (PMAs) receive. While it brings these facilities (TVA, PMAs, munis, and rural co-ops) under FERC jurisdiction by subjecting them to open access requirements similar to those applied to investor-owned utilities, it fails to reduce the preferences and financial subsidies these facilities receive and that are not available to those that are privately owned.

 

Remaining silent on the most controversial provision in the electricity title - Standard Market Design (SMD).   Advocated by FERC, the SMD seeks to set uniform, national standards for the operation of regional transmission grids and wholesale energy markets. It also seeks to expose price signals for transmission investment. This standardization, however, fails to take into consideration regional differences in local conditions.

 

Failing to authorize oil and natural gas exploration in the Arctic National Wildlife Refuge (ANWR). In May 2000, the Energy Information Administration, an independent statistical agency within the Department of Energy, issued a report (Potential Oil Production from the Coastal Plain of the Arctic National Wildlife Refuge: Updated Assessment) stating that this area contains, "The largest unexplored, potential productive onshore basin in the United States." It is shortsighted and misguided to exclude this important energy producing provision from a comprehensive energy bill. The full committee should correct this error and add the necessary authorization for oil and gas exploration in ANWR to the bill.

 

An ethanol mandate. All this represents is a tax on consumers and corporate welfare for a few elite business.

 

Failing to repeal the CAFE law, or at very least, strike any references to it in this bill. CAFE standards have caused manufactures to produce smaller, lighter, and less safe vehicles. It is time for politicians to stop distorting the marketplace with irresponsible policies and convoluted regulations, and allow the market to respond to consumer demand for passenger vehicles.

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