Energy Bill Woes

by Scott Sklar, The Stella Group, Ltd.

Washington, D.C.

One thing you learn in Washington, D.C., is that politics is never predictable. After a nine year career as an aide in the US Senate and over 25 years as a registered renewable energy lobbyist, I am still always amazed at the machinations and changes of course in the legislative arena. This year just typifies the mercurial nature of the legislative process.

Now is the time for everyone in this industry to pick up a pen, lift a phone, or gear up their e-mail — because the issues at stake are huge and action needs to be taken.

As early as November 8th, SEIA reported to its members, “At a press conference this morning, Speaker Pelosi stated that the House intends to take up and pass an energy bill before the end of next week (11/17) and it will include an energy tax title.” Four days later, the Democratic leadership in the House and Senate are seriously considering breaking off the three most contentious policy issues of the Energy Bill — vehicle mileage standards (CAFE), renewable energy portfolio standard (RPS), and the host of energy tax incentives (ITC/PTC).

The leadership has a series of conflicting needs within the Democratic Party, adhering to its own imposed “pay as you go” budget rules, and threats of Presidential vetoes. On November 9th, Rep. Lee Terry (R-Neb.) told reporters that he and Rep. Baron Hill (D-Ind.) wrote to Pelosi yesterday “saying we will garner our supporters to vote against any energy bill” that doesn’t include their fuel economy legislation (H.R. 2927) that would increase the corporate average fuel economy, or CAFE, standards to 32 miles per gallon for light trucks and 35 mpg for passenger cars by 2022.

Speaker Pelosi and Senate Majority Leader Harry Reid (D-Nev.) both support the CAFE increase passed by the Senate in June, which mandates an increase to 35 mpg overall for the domestic fleet by 2022. In the end, the Democratic leadership wants to have one sure piece of legislation that addresses cutting petroleum imports — and vehicle mileage is the way to do just that. In this case, the Administration does support a modest CAFE package and the big question mark is Democratic Energy Committee Chairman John Dingell who hails from Detroit.

The next symbolic issue has become the Renewable Portfolio Standard (RPS) which failed in a Senate vote but is included in the House Bill. Senior staff of the Congressional tax writing committees — the Senate Finance Committee and the House Ways and Means Committee — have always raised the point that an RPS has a lower (no) budget impact as a regulation than the myriad of tax incentives for energy efficiency and renewable energy. The Gulf of Mexico oil lease issue (see below) has been a tough nut to cover the expected revenue loss from the renewable incentives, particularly the wind production tax credits, which could cost well over $1 billion per year. The national environmental groups, led by the Union of Concerned Scientists, have made this the core issue on renewables from an environmental group perspective, which is causing some ripples of concern by CEO’s in the renewable energy industries.The electric utilities are vociferously lobbying against an RPS through EEI, their trade group.

The White House and a handful of other electric utilities have said they can live with a very modest RPS, which some renewable advocates fear might be such a low bar, the market would achieve it even without an RPS. And of course, an RPS does NOT address renewable thermal applications from biomass, ground coupled heat pumps and solar water heating, nor non-grid connected renewables such as small wind or dedicated solar photovoltaic systems.

The extension and expansion of both the investment tax credits (ITC) and the production tax credits (PTC), has now brought an Administration veto threat based on cost and whether it is at the expense of the Gulf of Mexico oil and natural gas leases. The ITC has the solar and fuel cell industry organizations pushing for an eight-year extension rather than the two-year extension as done in the last energy bill passed in 2005 (EPACT05). The larger solar companies, for instance, have said that it will take longer than two years to get a concentrated solar plant on line, and thus a short extension would tilt public renewable energy incentives against large generation plants.

A similar situation would be faced by large wind farms and geothermal plants if the PTC had a short extension. And the range of renewable and efficiency technologies that were left out of EPACT05 (or not treated equitably) all face being disregarded again — small wind, ground coupled heat pumps, solar daylighting, combined heat and power, and water energy (such as freeflow hydropower, tidal, wave and ocean currents and thermal).

The energy bill’s offsets for all the tax incentives has President Bush threatening a veto because the legislation requires companies granted leases in prior years to renegotiate the terms of their contract to include price thresholds, pay a conservation fee, or lose the right to bid on future leases.

Also, the $6 billion over five years to be raised by the energy bill’s provision was called into question earlier this week when a Louisiana judge, ruling on a lawsuit brought by what is now Anadarko Petroleum Corp., determined that the federal government could not collect royalties on offshore oil and gas leases issued in 1996-2000, even when oil and gas prices spike. But on November 9th, CRS supported a position of the Democratic lawmakers hoping to recoup billions of dollars in unpaid oil and gas royalties to fund pending energy legislation. Legislators do not need to fear a recent federal court decision in a report released Friday by the Congressional Research Service.

While every clean energy trade and advocacy group has unleashed a swarth of legislative alerts against dropping the renewable energy tax provisions, focused at the House Speaker and Senate Majority Leader — up to now they have played mostly an inside game — upping their PACs, attending fundraisers, and conventional lobbying. Playing such a conventional “inside game” now has caught the groups by surprise.

In a major speech by this clean energy expert this past week, I concluded, “this situation could be our worst nightmare, with passage of a weak RPS that truly doesn’t incentivize the market and loss of the ITC and PTC which truly drives the combined market penetration of renewable energy and energy efficiency.”

In fact, we could face the situation where loan guarantees for nuclear and incentives for cleaner coal come out of a core Energy Bill, a compromise on vehicle mileage standards are approved and a weak RPS is also approved which allows the Congressional Democrats to claim victory — something for everybody.

But we all know, that the tax incentives are what drives investment into these portfolio of clean energy industries — both to companies and projects. Loss of the credits or even just a small extension could be devastating. Now is the time for everyone in this industry to pick up a pen, lift a phone, or gear up their e-mail — because the issues at stake are huge and action needs to be taken.