Mitt Romney and You


Bold plan for independence, or more partisan overreach?

Fortnightly Magazine - September 2012

Just as we were going to press, the Romney-Ryan campaign released an energy plan that sets forth what purports to be a bold policy goal: to achieve North American energy independence in just eight years.

That goal is interesting in its own right. But it’s even more interesting against the current backdrop of economic and policy trends affecting energy and utility companies. And make no mistake, energy policy issues are heating up again. Just one day before the Romney plan was released, the U.S. Court of Appeals for the D.C. Circuit struck down the EPA’s Cross-State Air Pollution Rule (CSAPR). Two weeks earlier, the Senate Finance Committee approved legislation that would extend federal tax credits for wind energy. Meanwhile, debate is raging in policy circles over dividend taxes, which are set to increase to pre-2003 levels if Congress doesn’t act to extend the Bush-era tax cuts.

The November elections are set for just two months after this issue of Fortnightly hits readers’ mailboxes. Given the major energy policy issues now in play, Romney’s stated positions merit a closer look.

Dreaming of Independence

PUR Books - Principals of Utility Corporate Finance

On the same day the Romney-Ryan campaign released its plan, it also distributed an infographic that declared: “Energy Independence: No Longer a Pipe Dream.” It asserted the goal of achieving North American energy independence by the year 2020 “by taking full advantage of all our oil, gas, coal, renewables, and nuclear power.”

That litany of resources notwithstanding, the plan focuses mostly on petroleum. In fact, it largely could be summed up with the 2008 Republican campaign slogan, “Drill, baby, drill!” However, it does throw a few bones to the natural gas and power industries. They’re found in last two sections of the plan, which focus on regulatory reform and innovation. These sections—taken together with Romney’s earlier public statements and a campaign document titled “Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth”—outline the candidate’s power and gas policy priorities.

Reforming environmental regulation ranks high on those priorities. The issue of the day, CSAPR, isn’t specifically addressed in the Romney plan, although in earlier public statements he seemed to tacitly endorse the Clean Air Act’s “good neighbor” principle, which spawned the need for CSAPR and the Clean Air Interstate Rule (CAIR) that it was meant to replace. However, the Romney-Ryan plan emphasizes “allowing state reviews to satisfy federal requirements”—a key issue in the D.C. Circuit’s decision to strike down CSAPR. And Romney calls for agencies to give regulated industries “fair notice and a significant window” for complying with new standards—a clear nod to critics of the EPA “train wreck,” i.e., CSAPR and other new EPA rules that opponents say can’t be implemented in the time frame the agency specified.

Moreover, the campaign promises that as soon as Romney gets into the Oval Office he’ll launch a stem-to-stern review of all regulations from the Obama era, and will scuttle those that “unduly burden the economy or job creation.” Romney has explicitly stated his opposition to EPA’s proposed Utility Maximum Achievable Control Technology (MACT) rule, which targets mercury emissions. He promises to eliminate EPA’s proposed greenhouse gas regulations, saying that carbon isn’t a pollutant and shouldn’t be regulated under the Clean Air Act. And he advocates amending both the Clean Air Act and the Clean Water Act to “ensure that cost is taken properly into account at every stage in the regulatory process.”

This summer Romney came out against extending production tax credits (PTC) for wind projects beyond 2012. The campaign says wind should stand or fall on its own economics, without federal subsidies. More broadly, the Romney plan says federal incentives should focus on basic research and development rather than funding commercial operations. And notably, it ignores energy efficiency and conservation.

The plan expresses support for expanding the Nuclear Regulatory Commission’s capability to perform licensing reviews for multiple reactor designs, and promises to streamline processes so that license applications are resolved within two years.

Finally, although it’s not part of his energy plan, Romney favors lower taxes on investment income. In fact he’s proposed to eliminate taxes on dividends, capital gains, and interest for taxpayers earning $200,000 a year or less. This is welcome news for the financial departments at most of the Fortnightly 40 companies, whose dividend payouts represent a major portion of their shareholder value proposition (see “The Fortnightly 40 Best Energy Companies”).

Channeling Bush

The Romney-Ryan energy plan should sound familiar to anyone who’s followed U.S. energy policy for more than four years. That’s because it mirrors the policies of the George W. Bush administration. The Bush White House consistently prioritized fossil energy production and discounted environmental concerns. Bush publicly acknowledged anthropomorphic greenhouse warming, but repudiated regulatory measures to mitigate it. His administration scaled back Clean Air Act enforcement, largely neglecting the New Source Review process—in some cases facing civil litigation because of it.

Text on European Deregulation of Utility Market

The Romney campaign’s emphasis on considering cost in environmental regulation sends a clear message. MACT obviously would be a non-starter, but it’s difficult to predict how a Romney EPA might tackle mercury emissions and downwind air pollution. It’s a safe bet that some unscrubbed coal-fired plants would get a new lease with Romney in the White House. But on the other hand, it’s conceivable that a Romney EPA could be more successful at implementing new and tougher standards—by simple virtue of not overreaching the way the Obama EPA arguably has done.

Of course, none of that changes the bleak outlook for new coal-fired development in a market flooded by cheap natural gas. Romney aims to encourage more gas production and transportation, which would serve to keep new coal capacity even further out of market than it is now. The same is true of nuclear; no amount of licensing reform can make new reactors competitive with combined-cycle plants burning $3/Mcf gas.

It’s not entirely clear how Romney’s apparent indifference toward efficiency and conservation would translate into policy changes. One possibility: regime change at the Federal Energy Regulatory Commission (FERC) might lead the commission to roll back or amend any number of policies implemented over the past few years—including FERC Order 745, requiring favorable market pricing for demand resources. Although FERC is supposed to be a non-political agency, a more conservative chairman likely would end the commission’s recent run of policy activism.

Finally, Romney’s opposition to PTC extension could prove to be somewhat toothless, because it seems unlikely he’d veto any tax policy that would garner enough Republican support to be enacted. Already multiple layoffs at U.S. wind turbine companies have lawmakers in both parties scrambling to save the PTC. And Romney will need strong support from windy states like Colorado, Iowa, and Kansas. But in the longer term, a DOE under Romney likely would divert federal support away from commercialization and toward primary research—probably slashing the total spend in the process. That would slow down renewable investment, but it also would drive some states to boost portfolio requirements and incentive tariffs, to keep their renewable energy industries growing. Such policies tend to be more consistent than federal tax incentives that depend on a fickle Congress. And if Romney’s basic science priority isn’t just a token offering, it could yield breakthroughs in areas like photovoltaics and battery storage. Ironically, such a conservative policy shift actually could accelerate the transition to a cleaner, greener energy economy.