White House Sees Immediate Price Relief from Energy Plan

Culminating a three-month, behind-closed-doors effort, the Bush administration's energy task force last week issued its much-anticipated report in which it mapped out a long-term strategy to bolster the nation's sagging energy infrastructure, promote conservation and efficiency efforts, accelerate siting of transmission and open more public lands to producers to head off a worsening "storm cloud on the horizon." The report sets the "tone" for the entire federal government on energy policy, telling it this is "the" issue on which to focus.

Although its proposals focus on the long term, the White House is counting on the report having a psychological impact on U.S. energy markets over the next couple of weeks, possibly moderating prices in the short-term, said spokesman Ari Fleischer during a White House press briefing last week. President Bush is "confident" that government assurances of increased energy supplies and enhanced conservation efforts will have a "ripple effect that benefits consumers, benefits the economy and helps to lower prices." He wouldn't say how quickly prices may fall or by how much.

Fleischer indicated it may even provide immediate price relief to California. "California, which faces blackouts, is going to [benefit] from the fact that the federal government is going [to] do its part to conserve energy. By conserving energy, it has an immediate short-term effect that can help lower prices and can avert blackouts."

"I think we got a good product here," although it's bound to create lot of "controversy," said Vice President Dick Cheney, head of the task force, during an invitation-only press briefing at the Old Executive Office Building last week with NGI and other energy trade publications. If these were easy issues, "then our predecessors would have tackled them."

He stressed that the focus of the 163-page report was on long-term energy solutions. "[We are] reminding people that short-term, so-called solutions that are really geared to insulate politicians...don't get us anywhere," and are "usually bad policy." Cheney said the short-term energy fixes enacted under the Clinton administration, such as instantaneous releases from the Strategic Petroleum Reserve, were a "joke."

Probably the most critical proposals in the task force report are those that seek to build up the energy infrastructure, while the most controversial recommendations call for drilling in the Arctic National Wildlife Refuge (ANWR) and giving the Federal Energy Regulatory Commission eminent domain authority over the siting of electric transmission facilities. Both will face stiff opposition in Congress.

Responding to environmentalists and other critics, Cheney said, "We've tried to pay a lot of attention to increased efficiencies and conservation in the report." However, "we also make the point that that's not enough. As important as conservation is, it doesn't close the gap" between supply and demand. Cheney, former chairman of Halliburton, favors aggressive development of new energy supplies and upgrades to the existing infrastructure as well. He said the task force report struck a balance between demand-reduction and supply-building measures.

The actual task force report was released by the White House last Thursday, as President Bush kicked off a cross-country tour and media blitz to sell his comprehensive energy plan to the public. It made 105 recommendations for executive, congressional and agency action to solve the nation's chronic energy problems. A total of 42 addressed conservation, environmental protection and alternative fuel development; 35 sought to create more supply and modernize the U.S. energy infrastructure; and 25 dealt with international initiatives to boost energy resources.

The report's "big emphasis" was on improving the nation's aging, inadequate energy infrastructure --- building more natural gas pipelines, power transmission lines, electric generation plants, nuclear facilities and refineries, said Andrew Lundquist, executive director of the Cheney task force, formally known as the National Energy Policy Development Group. "In some ways it's been neglected and it just hasn't kept up with the changing market."

In order to speed up the construction of new gas pipelines and other energy facilities, President Bush -- in response to task force recommendations -- signed an executive order Friday that directs the White House Council on Environmental Quality (CEQ) to establish an interagency task force to "assist and monitor" agencies in their efforts to expedite permitting reviews "or similar actions...to accelerate the completion of energy-related projects, increase energy production and conservation, and improve transmission of energy." The presidential order listed the representatives who would sit on the task force, but FERC was not mentioned.

The Interstate Natural Gas Association of America (INGAA), which represents interstate gas pipelines, gave high marks to the task force for its recommendations, particularly with respect to coordinated permitting. "As it is now, pipelines are playing shuttle diplomacy between eight different agencies," said Martin Edwards, director of legislative affairs.

The Cheney task force hopes that these actions will help to ease the regulatory load, which it says is one of the reasons for the "deteriorating" state of the nation's energy infrastructure. "Regulation is needed in such a complex field, but it has become overly burdensome. Regulatory hurdles, delays in issuing permits and economic uncertainty are limiting investment in new facilities, making our energy markets more vulnerable to transmission bottlenecks, price spikes and supply disruptions," the report noted.

It estimated natural gas markets alone need about 38,000 miles of new pipelines and 255,000 miles of distribution lines to match supply and demand. Toward that aim, the task force recommended that the Bush administration "work closely" with both Alaska and Canada to expedite the construction of a long-line pipeline from natural gas-rich Alaska to the Lower 48 states.

In what was seen as the most crucial proposal for bolstering the electric grid infrastructure, the report directed Energy Secretary Spencer Abraham, in conjunction with appropriate federal, state and local authorities, to develop legislation that will grant eminent domain authority to FERC to site electric transmission lines. This would be similar to the siting authority that the Commission currently has over gas pipeline projects.

Awarding FERC siting authority is "far preferable" to the current state-by-state approach to siting, said FERC Commissioner William Massey, and should spur the construction of much-needed transmission facilities in the country. He noted that there hasn't been any new transmission built in the United States in the last decade largely due to utilities' frustration with the existing siting process. In contrast, FERC has approved more than 10,000 miles of new interstate gas pipelines in six years, he said.

But states aren't going to relinquish their siting authority easily, Massey warned. "States in some regions will fight tooth and nail" on this issue.

Moreover, the task force recommended that Secretary Abraham, in cooperation with FERC, take steps to improve the reliability of the transmission system. It directed him to develop legislation to create a "self-regulatory organization" that would enforce reliability rules. The organization would be subject to Commission oversight.

In addition, it suggested that the Western Area Power Administration (WAPA) begin exploring an expansion to relieve the constrained "Path 15" transmission line in California. The project would be financed by "non-federal contributions," the task force noted.

Without these much-needed infrastructure enhancements, the consumers nationwide will continue to face tight energy supplies, resulting in "spiking prices" for natural gas, electricity, gasoline and heating oil "every year," warned Lundquist. He stressed the report was fuel neutral. "It's not a report where we pick and choose what the fuel of choice is for the future." Instead, the task force looked at each fuel, and made recommendations for each, he said. "Frankly, we need supply from all of the sectors" from the cleanest to the dirtiest fuels.

The report painted a bleak supply picture for both gas and power. "Our increasing demand for natural gas...far exceeds the current rate of production. We should reconsider any regulatory restrictions that do no take technological advances into account," the task force advised.

The most prominent and controversial supply-building recommendation from the task force was the opening of ANWR to oil and gas drilling. Designating it as the "most promising [resource] prospect in the United States," the report directs Interior Secretary Gale Norton to work with Congress to pass legislation that would open up the coastal plain region of the Arctic refuge to exploration and development in an environmentally sound manner.

To win support for the hot-button measure on Capitol Hill, the task force proposed that $1.2 billion of bid bonuses from leasing in ANWR be used to fund research into alternative and renewable energy resources. Even with this carrot approach, however, ANWR will face an uphill battle in Congress from Democrats and even from some wary Republicans.

In addition to ANWR, the report recommended that Interior consider further lease sales in the onshore National Petroleum Reserve-Alaska. The U.S. Geological Survey estimates the area has a "high potential" for energy resources, with a "mean estimate" of about 2.1 billion barrels of oil and 8.6 Tcf of gas.

In an effort to boost gas supply in the Lower 48 states, the report directed the Interior Department to review land-access and lease-stipulation "impediments" to oil and gas exploration and development on federal land, and to consider "economic incentives" for environmentally friendly offshore development-such as royalty reductions. "The federal government owns about 31% of the nation's land, so it can have a major role in increasing energy production in appropriate places," it said.

The report stressed the "significant potential" of oil and gas resources on federal land in the Lower 48 states. Oil resources on federal land have been estimated at 4.1 billion barrels, while gas reserves were put at 167 Tcf. "Much of these potential resources have been placed off-limits or are subject to significant restrictions. For example, about 40% of the natural gas resources on federal land in the Rocky Mountain region have been placed off-limits," it said. Although "in many cases, limits on oil and gas development are appropriate," the report noted "improved technology has helped to reduce the impact of oil and gas development on the environment."

Just to keep up with gas demand, the task force estimated that total wells drilled each year will have to double 1999 levels by 2020. This will require major additions to both onshore and offshore rig fleets, as well as a more experienced work force, it noted.

To further bolster domestic supply, the report recommended that President Bush direct the departments of Energy and Interior to "promote" the development of enhanced oil and gas recovery from existing wells through new technology. It did not specify how they should "promote" this, however.

It also called for Interior to continue its Outer Continental Shelf (OCS) oil and gas leasing program and approve E&P plans on "predictable schedules." Although it wasn't mentioned specifically, this presumably includes the controversial Lease Sale 181 in the Eastern Gulf of Mexico that is planned for December of this year. The president's brother, Florida Gov. Jeb Bush, has contested the proposed sale off the coast of Florida, saying it would hurt the state's tourist industry. This will be the first lease sale in the eastern Gulf since 1988.

The task force further proposed that the departments of Interior and Commerce undertake a review of the federal statutes and regulations that may be hampering offshore oil and gas development in the coastal zone and on the OCS. "For areas that are available for possible development, it is projected that with advanced technology we could recover 50 billion barrels of oil and 300 trillion cubic feet of natural gas," the report said, adding that both oil and gas have an "impressive environmental record" in the offshore.

The task force skirted around the issue of congressional moratoria on offshore leasing, which has placed about 610 million acres of the OCS off-limits to producers. If it had recommended the removal of the ban, it would have touched off fireworks both in Congress and at the state level.

In the electric arena, the task force said the U.S. will need about 393,000 MWs of new generating capacity by 2020 to meet growing demand. It estimated the nation will have to build between 1,300 to 1,900 power plants over the next two decades, or more than 50 to 90 plants a year. Most of these, it added, are likely to be fueled by natural gas. However, the task force is counting on expansions in nuclear capacity and greater use of clean-coal technology to lessen the dependence on gas.

With respect to FERC, Lundquist said there wasn't any consideration given to making structural changes at the Commission, given its status as an independent agency.

Because of its independent status, FERC will be exempt from the executive order signed by President Bush Friday that will require federal agencies to explain the market impact of any "significant energy action" that they are undertaking to the Office of Management and Budget (OMB). Specifically, the order would require all federal agencies to submit a "detailed statement" to the OMB of regulatory actions that could "significantly and adversely" affect the supply, distribution or use of energy. The order defines "significant energy action" as any action by an agency that "promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking."

Conservation, energy efficiency and renewable fuels were an "important issue" in the report, despite published news accounts to the contrary, Lundquist said. "I think that [many] will be surprised at the balance...in conservation, renewables, energy efficiency and [the] environment." Also, the report recognizes the "advances that we've had in technology that have helped out the environment, clean air and clean water."

The report backed or recommended a slew of financial and tax incentives to put renewable and alternative energy fuels on more equal footing with traditional fuels. It supported a hike of $39.2 million in the Department of Energy's (DOE) fiscal year 2002 budget for research and development of renewable energy; recommended that the Environmental Protection Agency (EPA) develop a new renewable energy partnership program to help companies buy renewable energy; favored an expansion and extension of tax credits for electricity produced using wind and biomass; supported legislation to provide a new 15% tax credit for residential solar energy property, up to a maximum of $2,000; recommended that Congress continue the ethanol excise tax exemption; and directed the Treasury Department to work with Congress on legislation to provide for a temporary income tax credit for purchases of new hybrid or fuel-cell vehicles between 2002 and 2007.

On the environmental front, the task force recommended that EPA Administrator Christie Whitman lobby Congress to pass legislation that would establish a flexible, market-based program to reduce and cap emissions of sulfur dioxide, nitrogen oxides and mercury from electric power generators. The program would provide "significant health benefits even as we increase electricity supplies."

The report's recommendations, according to Lundquist, were the result of some "very frank discussions" about energy issues by the nation's top policy leaders and industry executives over the course of eight meetings. "They made some difficult decisions because we're in difficult times. We believe what has led to these problems is there hasn't been a long-term focus on energy" by the federal government for quite some time.

"There are some things in here [the report] that we're going to work with Congress on," but "we don't have a [legislative] package to submit at this point," Cheney told reporters. The task force may propose amendments to energy legislation that already is pending in Congress, he said.

The energy task force will remain intact until the Bush administration can get a "pretty good handle on the actual follow-through and implementation of [the] recommendations," Cheney said, rejecting the notion that it would stay in operation indefinitely. "I'm not a big believer in permanent task forces."

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