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WebMemo #352 on Energy and Environment

October 17, 2003

How Congress Can Ensure Reliable and Affordable Energy Supplies

By

In its rush to send an energy bill to the President for his signature before the end of this year, there is growing concern that Congress will pass a bill that panders to a host of special interest groups, fails to adequately boost domestic supplies of energy, and is an energy bill in name only.

 

There is still time, however, for the conferees to improve the current bill and ensure that families and businesses will have reliable and affordable supplies of energy to meet their ever growing needs.  Conferees can do this by adopting policies that:

 

  • Enhance domestic supplies of energy;
  • Encourage investment in the electric grid;
  • Resist repeated calls for energy suppressing regulations and mandates;
  • Eliminate unnecessary special interest subsidies; and
  • Allow the market place-not the federal government-to determine the nation's fuel winners and losers.

Key Measures to Enhance Domestic Supplies

Driven in large part by government policies that encourage the use of natural gas, such as natural gas-fired power plants for the electricity generation sector, demand for natural gas is projected to increase by over 50 percent in the next 20 years.  In fact, the Energy Information Administration, an independent statistical and analytical agency within the U.S. Department of Energy, reported earlier this year that the availability of adequate natural gas supplies at competitive prices to meet growth in demand will be a major consideration for energy markets through 2025. Already, U.S. consumers are paying the highest prices in the world for natural gas.

 

The nation cannot, however, depend on the traditional supply basins in North America to meet its growing needs.  As the National Petroleum Council recently reported, despite a significant increase in gas-directed rig count between 1999 and 2001, only minor increases in production were realized.

 

Though Congress has adopted policies that encourage the use of natural gas, it has supported measures that restrict access to these same "favored" resources.  The conferees should assert leadership in remedying these conflicting policies.  Specifically, they should send Congress a bill that opens up areas for exploration and development that are currently off-limits:

 

  • federal lands,
  • offshore areas; and
  • the outer continental shelf. 

If the conferees fail to do so, consumers will likely see their energy costs increase and they will rightfully blame Congress for imposing another hidden tax on their families and businesses. 

 

Given the nation's dependence on oil from various unstable regions of the world, conferees should follow the House's principled lead and retain approval of a mere 2000 acres of flat, treeless tundra in the Arctic National Wilderness Refuge (ANWR) for exploration and development of energy resources. 

 

Provisions to Attract Investment in the Grid

The blackout that left millions without power this past summer does not validate a "federal" take-over of the electricity market as some may advocate.  It does, however, underscore the need to responsibly "fix" the nation's strained transmission system.  If Congress wants to pass a responsible national energy bill, it should include the following provisions in the plan:    

 

  • Grant FERC limited siting authority--provided that the property is used exclusively for electricity transmission purposes, the property is used within a reasonable time, and the property owner is compensated for the loss in value of the rest of the property;
  • Streamline the federal lands permitting process by designating the Department of Energy as the lead agency to coordinate and set deadlines for the federal permitting process;
  • Repeal the Public Utility Holding Company Act (PUHCA) that makes it difficult for firms to acquire and divest power assets and interferes with the ability of firms to enter new markets;
  • Reform FERC transmission rate policies to attract the capital needed for investment in the transmission system; and
  • Revise the tax code to give electric transmission assets tax treatment similar to other major capital assets.

Congressional action on other electricity issues - such as mandating that utilities join regional transmission organizations (RTOs), and implementation of FERC's standard market design proposal - should be delayed until Congress has scrutinized and rigorously debated these measures.

 

Energy Suppressing Provisions to Keep Out

  • Mandatory renewable portfolio standard (RPS) - Given that renewable energy, such as wind and solar, are unreliable, require back-up capacity, add to the cost of production, and are projected to account for only 8.5 percent of generation in the next two decades, a federal mandate to require utilities to provide a certain amount of generation by renewable energy sources is irresponsible and has no place in a sound energy bill.
  • Kyoto-like climate change language - Despite "rumors" to the contrary, the science of climate change remains unsettled.  Congress needs to fill major gaps in knowledge on climate change before it commits to drastically reduce reductions in greenhouse gas emissions that would severely restrict the nation's use of energy.  Members need to resist alarmist calls for immediate reductions in the energy bill.
  • Statutory increase in CAFE standards - The Corporate Average Fuel Economy program has had a downsizing effect on passenger cars and, according to a National Academy of Sciences 2001 report, is responsible for between 1,300 and 2,600 deaths a year.  While a sound energy plan would repeal this ineffective program and let consumers respond to market signals to foster energy conservation, the conferees should at the very least, resist calls to statutorily increase the current standards.

Market-Distorting Provisions to Avoid

There is no role in a sound energy plan for political interference in the marketplace, including, but not limited to:

 

  • Taxpayer subsidies for ethanol use in the nation's fuel supply that will only enrich a few large agribusinesses while imposing a hidden tax on consumers;
  • Guaranteed price floor for gas prices for the Alaska pipeline; or
  • Designated route for the construction and initial operation of a natural gas pipeline to Alaska's North Slope.

Conferees should remove these and other such market manipulating measures that are currently in the House and Senate bills, from the final energy plan.

 

Reliable and Affordable

The goal of a national energy policy should be to enhance the nation's energy security and provide reliable, affordable, and sufficient supplies of energy to consumers.  This calls for adopting a balanced plan that includes a diverse mix of fuel types, responsibly increases the nation's domestic energy supplies, provides for market-based incentives to attract needed capital investments for the nation's energy infrastructure, streamlines bureaucratic regulations, and lets the marketplace-not political interference-determine the nation's energy winners and losers.  Congress still has time to enact a balanced and responsible national energy plan by incorporating these key principles in its final energy bill.

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