A once-in-a-lifetime confluence of forces is re-shaping the business models of America’s electric utilities. Rising costs, combined with technological advancements and shifts in regulatory policy...
Energy Reform: A Legislative Washout?
Congress is shifting U.S. energy policies toward green alternatives. Is the new direction temporary or permanent?
The late Congressman Morris Udall, D-Ariz., coined his First Law of Politics when observing his colleagues in action: “If you can find something everyone agrees on, it’s wrong.”
Udall’s Law aptly describes recent trends in energy policy on Capitol Hill. Fundamental questions about fuel supply, efficiency standards, and environmental performance have splintered both parties into warring factions. As a result, the only proposals legislators can agree upon seem to be watered down half-measures. Case in point: The corporate average fuel economy (CAFE) standards passed by the Senate technically mandate no changes until the year 2020.
“It’s very disappointing that even now, with oil at $70 a barrel, we can’t enact sensible guidelines for automakers,” says Gregg Easterbrook, a visiting fellow at the Brookings Institution in Washington, D.C.
Considering the political difficulty of enacting populist and timely legislation like fuel-economy standards, the likelihood of major legislative initiatives affecting electric and gas utilities seems even more remote—especially if conflicts or delays push legislation into 2008, when national election campaigns will begin in earnest (see sidebar “Electrifying the Electorate: Energy Policy and the 2008 Campaigns”) .
“Given the number of people in the Senate who are running for president, I’d say 2008 is a total wash, legislatively,” says John Shelk, president and CEO of the Electric Power Supply Association (EPSA) in Washington, D.C. “If energy legislation isn’t signed into law this year, it’s hard to see anything significant getting done next year.”
At the same time, however, recent trends on Capitol Hill suggest the political winds are shifting in ways that eventually will yield major changes in energy and environmental policies—changes that will hit utilities squarely in the balance sheet.
For example, the Senate came just a few votes short of enacting a federal renewable portfolio standard (RPS). The bill, sponsored by Energy & Natural Resources Committee Chairman Jeff Bingaman, D-N.M., proposed requiring 15 percent of the nation’s electricity to be generated from renewable sources by 2020. Republican opponents, led by Sen. Pete Domenici, R-N.M., derailed the bill by proposing to allow nuclear and clean-coal technologies to meet the requirement. Nevertheless, the federal RPS came closer to enactment than ever before, and lawmakers in both parties are working more cooperatively to draft climate-change legislation that could garner majority support. These developments—particularly in the context of the bills that still are moving forward—might portend a shift toward greener energy.
“What we see in energy legislation debate today is a microcosm of a generational move favoring the environment,” says Dana Contratto, a partner with Crowell & Moring in Washington, D.C. “These societal trends began in the late 1960s, and today they are bringing a sea change, a confluence of environmental implications for energy policy that have grown up over 35 or 40 years. They are evolving into a pragmatic approach to seriously promote renewable energy and address carbon emissions.”
On the other hand, these trends might also