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President Bush’s Energy Plan

May 17, 2001 at 12:00 AM EDT


RAY SUAREZ: Here to help us walk through the Bush energy proposal are Jane Houlihan, research Director at the Environment Working Group; Michael Marvin, president of the Business Council for Sustainable Energy, which represents wind, solar, and natural gas producing companies; Lynne Church, president of the Electric Power Supply Association, the national trade association for competitive power suppliers; Red Cavaney, president of the American Petroleum Institute, representing the major oil companies; Karl Rabago, managing director of the Rocky Mountain Institute, a research and education group focusing on energy efficiency; and Phil Verleger, an energy economist and president P.K. Verleger, a consulting firm.

Well, Ray Cavaney, let’s start with you. An overview of the Bush, does it make sense to you?

RED CAVANEY: Well, I think the plan is both comprehensive and practical; it embraced a lot of elements that many people were interested in. I thought that of particular note was the fact that when you compared his proposal with both the Democratic and Republican proposals up on Capitol Hill, there are 11 major areas that were common to all of them. So I think that creates an excellent place where they can all start, roll up their sleeves, and work together to help the consumer.

RAY SUAREZ: Lynne Church?

LYNNE CHURCH: I would agree. He took the words just right out of my mouth. I mean, there’s a lot of balance there. There’s a lot of areas where I think there’s a good foundation for bipartisan approach, and I think it is dealing certainly from our standpoint, it deals with a lot of the critical areas that the electric industry is facing.

RAY SUAREZ: Jane Houlihan, how about you?

JANE HOULIHAN: My first reaction to the plan was why all the secrecy? It seems to me a plan that could have been pulled down from coal, oil, nuclear company Web sites. It’s plans that have been around in history for a long time. And James Watt told the Denver Post, this is my plan dusted off from 20 years ago, so this is a great day for oil, coal, and fossil fuels; it’s obviously a great day for James Watt too, but it’s a bad day for the consumer and the public health and the environment it’s also a bad day.

RAY SUAREZ: Karl Rabago, your overview of the plan?

KARL RABAGO: I agree with much that has already been said. I think the plan has a little bit for everyone in it. It echoes the kind of talk we heard during the campaign about a comprehensive energy strategy, a bit of a relief after some of the rhetoric we heard in recent weeks, and I think the real determiner will be the actions in the form of budgets and real policy changes that come from this plan.

RAY SUAREZ: Now, Michael Marvin, like electricity and petroleum, there was a special concentration on renewable and alternative fuels. Both in the specifics and as a comprehensive plan, what did you make of it?

MICHAEL MARVIN: Well, I think it was a good start. It was an important start, and Karl made the most important point, which is either plan in and of itself, our nation’s energy strategy today is the same as our energy strategy yesterday. The question is: What do you do with this plan? How does the President work with the Congress? What gets implemented? The President made some very important moves in this proposal. There are a number of important additions on virtually all technologies. I have to say there were some missed opportunities as well relating to energy efficiency that maybe we can get into later, but, for example, what are we trying to do? We’re trying to tackle both sides of the coin. We’re trying to generate more energy, and we’re trying to use it more smartly. It’s a great opportunity to incentivize consumers to use less energy. For example, tax credits for extra efficient appliances in a home, tax credits for super efficient homes from home builders – incentivize what it is we’re trying to accomplish. Those were the missed opportunities, and so while I give the report some fairly good grades in a number of areas, that was the missed opportunity from my perspective.

RAY SUAREZ: Now, Phil Verleger, what did you make of the Bush plan?

PHILLIP VERLEGER: Well, I was a little disappointed. I think it was timid, and it missed an important opportunity to push for deregulation of electricity prices across the country and incorporate a windfall profit tax, take the bold move that Jimmy Carter took against the advice of his advisers in 1979. And I also was a little distressed to see them talk about energy security in terms of Richard Nixon’s energy independence, rather than in terms of energy security expanding the Strategic Petroleum Reserve. We don’t – we’re not going to get any place from ANWR, although it may be perfectly appropriate to develop it. But I think the most important thing is that it’s a huge mistake, as we’ve learned from past energy programs, to propose investments in infrastructure, although we clearly do need infrastructure investment before we get places right. We made a mistake in the 70s with natural gas, and a number of companies paid for it going bankrupt in the 80s because we over invested in natural gas, and I think we’re going to make the same mistake with electricity. The first thing we need to do is really fix the electricity pricing system and we did nothing there.

RAY SUAREZ: Karl Rabago, let me read you a quote from the report that was released today. “The United States is facing the most serious energy shortage since the oil embargo of the 1970’s, a fundamental imbalance between supply and demand.” Is that the way you see it?

KARL RABAGO: I see that there is an issue of a short-term lack of supply in some markets where things have not been organized well like California. But I don’t think there’s a fundamental shortage of opportunity. Let me read you another important quote here. It says, “As a result since 1973, the United States economy has grown by 126 percent. Our energy use has increased by only 30 percent.” In the last three decades then the fastest growing energy resource in this country has been improved energy efficiency. The technologies for that opportunity have only improved, and, like Michael said, we ought to be taking advantage of every opportunity we can to continue relying on that best resource, the one that has proven itself over the last three decades. There is one point on the supply/demand thing that, of course, bears pointing out, and that is that we really do have to pay attention to the economics. As the previous speaker said, prices are important, the projected curves in the introductory section of this report seem to imply that consumption will keep on growing and not respond to higher prices when, in fact, we know as a fact – we know that it will. Already, we’ve seen production responding to higher prices, as well, so we should take great care before tinkering with the system by, for example, encouraging excessive investment in supply. We’ll find ourselves in a glut situation like we found in the early 90’s, which was devastating to the industries that bring us our energy resources.

RAY SUAREZ: Well, let me hear from more of you on that. What is the nature of the problem, as you see it from your patch, and does this plan respond to the nature of the crisis? Red Cavaney?

RED CAVANEY: The big problem we have in delivering gasoline, diesel fuel and home heating oil to people in the United States is not the capacity to get the raw material, crude oil, but it’s to actually get it through the refining system, have enough capacity and then to have a distribution network and the kind of fuel base we need. Presently, we’re operating all out, close to 100 percent as we can get and still provide fuel, so the good news for the consumer is that finally after five weeks of record production running at this rate, the wholesale price reached its peak, it appears, on May 4th, has been trending down now for almost two weeks. Historically, if you look at things, retail prices always follow wholesale prices, and our inventories for the first week are about last year as is crude oil stocks, so I think there’s some good news here that the consumer can feel confident that if we can keep the refineries going and don’t have outages or pipeline outages, we can get through the summer.

RAY SUAREZ: That tight refinery capacity, is there anything in the Bush plan that responses to that in particular that’s creating your current problem?

RED CAVANEY: They look at various obstacles, which are permitting problems that are there. We need to expand capacity but permits are very difficult to get. They talk about doing that, possibly expediting those. They talk about look at some of the competing regulations that actually conflict with one another in trying to provide a clear roadway or a path for investment ahead, and that’s what’s needed to get capital back in the business.

RAY SUAREZ: Jane Houlihan, what’s the problem?

JANE HOULIHAN: One of the problems right now is the public’s feeling in a big way the high energy prices, you know, California utility bills are going to be a record high next month. Natural gas prices have doubled and the prices at the pump are up. But this plan – and people are feeling this, and especially low-income people – this plan doesn’t address those short-term problems. And what this plan does, this plan is in its essence a plan to increase production of dirty fossil fuels. That’s in the biggest picture; that’s what it is. It provides little relief to the consumer, certainly no relief in the short-term, and I think the administration missed a big opportunity here to develop a long range plan that would help consumers and stabilize prices.

RAY SUAREZ: Well, Lynne Church, how do you respond to that?

LYNNE CHURCH: Well, I think, look, what is very clear in the California situation is that we do have a supply shortfall. That is the fundamental problem in California, the Northwest, and increasingly in other parts of the country, and what we need is to in addition to conservation and efficiency, we do need to build new power plants, and our industry is ready to invest a lot of money to do that. But we are running into conflicting as with refineries, conflicting regulations, we’re running into a lot of NIMBY opposition on – don’t build in my backyard. We’re running into a lot of concern, well, you can’t build in my state if the power is going to be used in another state, even though having more power just generally in a region will mean a more reliable service and certainly keep prices stable, so we need to see an atmosphere that encourages the development of new plants, and most of the new ones that are being built are very efficient natural gas plants that are very low in emissions.

RAY SUAREZ: As I understand it, the Bush plan lowers the threshold for construction of new nuclear plants as well. Might they become more economical, given what’s in the plan, with liability protection and some other things for your members?

LYNNE CHURCH: Well, in fact, many of our members do have nuclear plants that are being sold on a competitive basis. Many of the plants are very efficient and they’re increasingly efficient; they can compete. They are being now managed by companies that are buying a number of plants, which means that you have a lot of efficiencies, and it’s a much better management scheme. And so I think nuclear – certainly the existing nuclear plants have a role to play. I mean, we can’t afford to replace all of the existing nuclear plants; there’s just no way we’re going to build enough new plants to replace them in the short term.

RAY SUAREZ: Michael Marvin?

MICHAEL MARVIN: Well, I guess to me the question is: Why? I am certainly not proposing that we put in any sort of a ban on construction of nuclear power plants. I don’t have a position frankly – but we’ve seen is generally speaking, the public does want them; Wall Street won’t finance them; and utility executives won’t build them. So the question is: Why are we looking backwards for an energy strategy that’s intended to look forward – and I think the market – you see in California in particular you see the substantial price rise in the cost of electricity for the consumer. And what that has translated to is now we see reports according to the Department of Energy, you see 90,000 megawatts of new supply coming on line in the next 18 months, and that’s with or without this energy strategy. That is again according to the Department of Energy – that’s a quarter of all the nation’s needs between now and 2020.

RAY SUAREZ: So where is the answer when it comes to alternative fuels, where would they fit in the mix in the view of your members that would – that would make it let’s say worthy more of our attention?

MICHAEL MARVIN: Well, I would tell you that obviously the simplest answer there is anytime you have a higher commodity price in electricity you are going to make technology such as wind and solar and geothermal and biomass more cost competitive. Wind now is so incredibly cost effective it now can rival in the best situation – can rival a new natural gas plant. We’re seeing 60 percent increases in the market in wind technologies. These are tremendous technological successes; it’s a very exciting story. And frankly one of the perverse benefits of an energy crisis, if you will, is an increased recognition of these technologies, where they’ve been, where they are now, just how far we’ve come with energy efficiency and renewable technologies now – combined heating power and fuel cells – very exciting stories.

RAY SUAREZ: Phil Verleger, go ahead.

PHILLIP VERLEGER: I think wind and the alternative arguments are extremely strong and what also needs to be added is that they’ve been frustrated by what I call manipulation by Southern California Edison; they don’t pay the renewables, whether they’re a cogeneration facility like the one President Bush visited today in Minneapolis or the wind producer. And they’ve deliberately held down the rates, and this is one of the reasons why we have to get prices right is so that – and pay all the generators – whether they’re nuclear generator, or the wind producer in the Mojave Desert the same prices as the out of state generator – is that will bring down the spot price and that will rationalize the investment process so that we don’t over investment in gas fired power plants and then discover we have too many.

RAY SUAREZ: Would the markets set the prices? You’ve stressed this during your remarks – that we should get the price structures, the incentives and the disincentives right. What if the Bush administration did nothing at this point? Would this take care of itself? Would some of it take care of itself?

PHILLIP VERLEGER: No, it would not take care of itself, because we have the vestiges of the 1938 federal power commission and SEC regulation of utilities. We actually need a positive action to lift the controls or lift the governance. You know 20 years ago we had old oil, which is $5 oil and stripper oil which was $30 oil, and when we deregulated the prices, it equilibrated at around $20. So the consumer actually saw prices fall. And what we need is a policy that gets the same price to all the producers. Now I’d put in a windfall profit tax on part of the increase – not all of the increase – to compensate the average wage earner and many of the people in California and Massachusetts who would be hurt for the transition period. But if you get prices right, you encourage the conservation, you encourage distributive generating, which wasn’t spoken of at all on this program, which alleviates the need for some of these transmission facilities, and you actually begin to move towards a more rational energy system. We did the same thing for petroleum, and it had amazing – caused an amazing rationalization over 10 years and took a lot of excess cost out of the system. The same thing would happen at the electricity sector and we would see energy consumption drop; we’d see fossil fuel emissions drop; and the economy would actually function much better. But what you’d have to do is take the bold step of removing the price controls on electricity because they right now are causing the problems we have in California, particularly with this horrible drought in the Northwest.

RAY SUAREZ: Well, some of this plan has very long time horizons. But if it passes in its current form, how does America look different in, I don’t know, 10 years?

LYNNE CHURCH: Well, hopefully we will have new power plants and efficient as well as new renewable resources; we will have a much larger and much better integrated transmission grid to move power around and to make sure that all sectors of the country are – have reliable power and have reasonable prices, and presumably – hopefully we will see new natural gas resources and new natural gas pipelines that are going to be needed to fuel a lot of these new power plants.

RAY SUAREZ: Karl Rabago.

KARL RABAGO: I have to disagree. I think that more central station power plants and more big transmission lines and more big gas pipelines indiscriminately. I’ll admit we need some, but the proliferation of them that is suggested by the ultimate extreme of this plan, it is antithetical to the development of renewable energy to distributive resources, I think that problems like California don’t get solved just by throwing a lot of supply, a lot of pipes and a lot of wires at it — if customers don’t have a meaningful way to respond with energy efficiency or any kind of demand response function. So we have to be very careful that things tend to narrow as we look backwards, and if we’re going to narrow that to uneconomic nuclear power plants, excessive reliance on central station plants, and huge capital investments necessary to connect those to the grid, we will forego a very bright part of our future in clean, renewable, distributive generation resources and an abundance of energy efficiency resources.

RAY SUAREZ: Red Cavaney, same question.

RED CAVANEY: Most energy investments in production need very, very long lead times and huge, huge amounts of capital, so we need to be making decisions now and in that period of four to six years down the road we’ll start to have sort of a – if I can use power as an analogy to going to a grocery market where there are select oranges, there will be a lot more oranges in the bin, they’ll look a lot more attractive; consumers will have more choices and with more choices you’re going to get a better supply and demand balance and ultimately more affordable energy for people and I think that’s the picture that we’re trying to get to.

RAY SUAREZ: Jane Houlihan.

JANE HOULIHAN: Well, I hope that in 20 years we have a portfolio that pushes us a lot closer toward using a big percentage of renewable and clean energies. Another thing that I hope happens over the next two decades is that we learn to control pollution from dirty technologies as we phase those out. One of the things that’s happening now – the administration has punted on some big pollution issues in this plan – mercury from coal powered – coal burning power plants, for instance – the National Academy of Sciences last year estimated that 60,000 children are born at risk from adverse neurological damage from the mercury in the fish their mothers ate while they were pregnant. Well, coal is our biggest source of mercury pollution and we need to learn to reduce that. The administration does nothing in this plan to address those kinds of problems, and that’s what I hope they fix and that’s what I hope we can do in the next 20 years.

RAY SUAREZ: Guests, thank you all for joining us.