House Passes Energy Plan Opponents Love to Hate

Aug. 13, 2001
Bottom Line Energy Issues Newsletter
Criticism of the latest attempt by the Bush administration to enact a national energy policy came from as far away as London, but included Senate Democrats and domestic environmental and consumer advocates at home. Seems like the House bill as passed on Aug. 1, grants too many tax credits for energy producers and not enough to consumers, plain and simple. As I have noted before, the conflict between energy producers and consumer groups is likely to heat up as Bush attempts to stimulate production of fossil fuels while giving insufficient emphasis to conservation and renewables ,according to his critics. I could not find any news reports from groups supporting the House bill. Was that because they did not issue any, or because the news media did not publish any?"The Independent" of London noted in editorials that sponsors of the House bill received significant contributions from the oil and gas industry, $17,074 on average. Of the $65 million donated to congressional races last fall, 75 percent went to Republicans. The London paper said, "...the contested projections of how much oil may lie beneath that corner of Alaska, [and] the resort to scaremongering and anti-foreign sentiment had the desired effect." The Taxpayers for Common Sense said, "Energy lobbyists are drilling for Washington dollars and early this morning they struck gold. [This bill] is a grab bag of subsidies, tax giveaways and pork for wealthy companies masquerading as energy policy."The Sustainable Energy Coalition expressed "tremendous disappointment." It complained that the House bill gives $33 billion in tax incentives to coal, oil, gas, mining, and nuclear power companies despite concerns that such actions are "substandard public policy." A spokesman said that drilling for more oil will not solve the nation's energy problems alone. He added, "Both building and drilling take years until they yield an energy supply, and even then, much of the work is purely is not the time to de-emphasize energy efficiency and renewable energy programs."The challenge of keeping the environmentalists at bay shifts now to the Senate led by Sen. Jeff. Bingaman of New Mexico. Democrats envision a policy that would focus more on energy conservation, including stricter fuel standards for SUVs. Sen. Joe Lieberman, (D-CT), (remember him?) said, the House plan was "in tune with Bush's one note song, which is drill, drill, drill, produce, produce, produce." Sen. Barbara Boxer, (D-CA) said, "The fight has just begun...[In] the Senate where we have more time to deliberate and analyze I think you will see a different bill." Energy Sec. Spencer Abraham said the Administration will work with the Senate panel but he noted, "America's energy challenges are long-term problems that cannot be solved with quick fixes or overnight magic. We need a comprehensive long-term energy strategy that meets America's needs, reduces our dependency on foreign sources of oil, and enacts reasonable initiatives to conserve." What do YOU think? Your state Senators need to know. Senate action will pick up after the August recess.

California Squeezes Past July - But August Beckons
Efforts to speed up construction of power plants, emergency permission to fire up diesel generators, conservation efforts, and a slightly cooler than normal July all converged to help get the state past expected rolling black outs in July with no curtailments. But the immediate relief allowed time to step back and look at the bigger picture for the long term.
When Gov. Gray Davis assumed the task of buying power wholesale last spring to help bail out the investor-owned utilities (IOU) that were squeezed by the state policy requiring them to buy high and sell low, he assigned the task to the state Dept. of Water Resources (DWR). Since the staff was not qualified for the task they engaged a bevy of consulting contractors with, it turns out, financial interests in electric generating companies. With their help(?) the state entered contracts for long term power purchases stretching out 10-20 years at prices lower than the devastating peaks, averaging $137 per megawatt-hour, but much higher than the mandated default rates. Several of the consultants are being investigated for conflicts of interest and some have agreed to out of court settlements. Although he fired a few of them, Gov. Davis has exempted 16 others by classifying them as "contractors" instead of "consultants" and, thus, relieved them of conflict investigations. Don't you just love it?In an editorial the Los Angeles Daily News noted, "It looks like the out-of-state energy producers Gov. Davis denounces as criminals weren't the only ones to make a bundle off the California power crisis. ...[members] of the Davis brain trust had access to some pretty valuable information...[some] might call that insider information, which federal law prohibits public and private citizens from using when buying and selling securities. But securities fraud might only be the tip of the iceberg. If any administration officials, consultants or contractors used their influence to steer state policy in a lucrative direction, CA could be facing the worst case of public corruption in its history."To help pay the estimated $40 billion plus future bills, the state has attempted to take pricing control away from the Public Utility Commission, and also to issue about $12 billion in general revenue bonds to be paid by taxpayers this fall. Wall Street analysts have voiced concern about such a large bond issue, which is reported to be four times higher than any previous state ever issued. And, the PUC is understandably concerned about giving up its power to set electricity rates. Under the plan the state would have u fettered access to electricity revenues and would lock itself into buying electricity. No longer would ratepayers be protected by the PUC.
To make matters even worse, during July the state found itself in possession of a surplus of power, as much as 20 percent on a spot market basis, that it needed to sell. At the lower market prices it lost $millions. It is easy for critics to use this situation alone in questioning the state's wisdom in attempting to manage power markets. The point is that it is difficult to impossible to predict the way power futures markets will go. The question is how the risk should be shared among investors, consumers, and taxpayers. If you have buildings in CA, you better get involved.
Don't Forget About ESCOs
While national and state politics dominate the news, Pepco Energy Services has quietly been awarded nearly $800 million in energy related service contracts and has completed energy efficient retrofits from Connecticut to North Carolina. This unregulated arm of Pepco also has been offering competitively priced electricity since 1999 beginning with the deregulated retail market in Pennsylvania. Now, it reports gaining a large segment of the market recently opened in Maryland by signing up large users formerly supplied by Baltimore Gas & Electric who shifted to market based rates on July 1, 2001. An estimated 400 other large users will be making the shift by July 2002. Don't forget you can learn about the offerings of ESCOs like Pepco Energy Services by visiting There is a charge for a subscription, but the savings from energy efficiency retrofits could be substantial whether you operate buildings in states with open retail competition or not. Also, see the Sempra Energy item below.
EnerTech Forum Issues Futures Predictions
A group of 162 entrepreneurs in energy industries gathering for their national conference predicted the debate on energy policy will spur developments of distributed generation and slow down the process of energy deregulation. These executives also noted it is important for building owners to use the latest in facility usage measuring and analytical tools to achieve a competitive energy market. Such tools permit end-use customers to fully understand their energy consumption patterns and provide them with the ability to make better short-term and long-term energy decisions. Coming soon are Internet based real-time energy information systems. One such is a new partnership announced between DTE Energy Technologies and Coactive Networks that will help bring distributed generation solutions to consumers world wide. This technology will provide the means for central monitoring and communications for networks of distributed generation equipment, all via the Internet. Traditionally, utilities have generated electricity centrally and distributed it through extensive transmission networks. In contrast, distributed generation is comprised of small-scale facilities such as micro-turbines or fuel cells dispersed throughout the service area. They can be built faster and cheaper, and they eliminate long-distance transmission lines which enhances reliability and power quality. For investment information, visit
FERC Ups the RTO Ante
Since its infamous Order 2000, the Federal Energy Regulatory Commission has attempted to get utilities to create a new system of Regional Transmission Organizations for operations by end of 2001, but progress has been slow. With future control and development of a true national grid uncertain, present transmission line owners understandably are reluctant to invest in badly needed expansion and maintenance. Also, siting of new lines often requires passing regulatory hurdles that take years.

To speed things up, on July 11, FERC issued a new order requiring owners of transmission lines to relinquish their control to four regional transmission operators, except for Texas and Florida that have insufficient interstate tie lines. In the Northeast, the FERC order directed the New York Independent System Operator, the PA, NJ, MD Interconnection (PJM), PJM West, and the Independent System Operator of NE to expedite their discussions on consolidation. Formation of a Northeastern regional transmission organization was supported by NY PSC Chair, Maureen O. Helmer and PPL Corporation. Its PPL official statement read," We believe the Northeast energy market demands a single RTO, a single market, a single operator, a single tariff, a single transmission expansion regime, a single interconnection regime, and a single independent monitor. PPL does not support interim steps." However, some states, including Massachusetts and California, are not enthusiastic about giving up their control to an independent regional authority. Indeed, part of the Bush energy plan is to obtain federal authority to overrule local opposition to transmission line siting by taking personal property through eminent domain.
It is not a giant leap of imagination to anticipate that four such regional electricity operators could eventually influence the socio-economic climate of their respective member states. With FERC in charge of power to run the states, what else might the Feds choose to run? After all, what aspect of life can do without electricity? The public/press outcry over runaway prices in CA showed how difficult it is to allow a free market the time it takes to adjust to supply/demand imbalance of electricity, and what can happen when government tries to take over. Unfortunately, a tendency for more government control of the power delivery infrastructure seems imminent even while the theoretical benefits of open competition in power generation are being debated. The war between energy importing and exporting states, and producer and consumer advocates, now may be augmented by a war between state and federal controllers.
Is This Outsourcing or What
Sempra Energy Solutions, unregulated subsidiary of Sempra Energy Global Enterprises announced a 15-year, $31 million contract with Hollywood & Highland. TrizecHahn Development Corp. will outsource to Sempra "the ownership, operation, and provision of energy infrastructure that supplies air conditioning" at its new $615 million entertainment and retail center in Los Angeles. The project, located adjacent to the historic Graumans Chinese Theatre will open Nov. 8, 2001. This is claimed to be one of the most ambitious real estate developments in the world. Hollywood and Highland will comprise more than 70 world-class retailers, a six-screen expansion of the historic theater, and a 640-room hotel. It will host many dazzling and prestigious events in an unsurpassed menu and level of elegance, according to the announcement. Pres. Lee Wagman said, "We are building a highly visible landmark attraction. With that comes the task of ensuring that our energy systems are top-of-line, always functioning and best suited for economic expenditures and environmental concerns. By putting that task in the hands of Sempra Energy Solutions, we are confident that we'll succeed on all counts." Bob Dickman, Pres. of Sempra Energy Solutions said, "[We] will ensure that the energy infrastructure will operate in a reliable, proficient, and highly responsive manner. Our partnership with Hollywood & Highland exemplifies the benefits of outsourcing energy services for companies who own large development properties as it provides them with the most value, most efficient infrastructure, and most responsive services." For more information about this out-of-the-box innovation, contact Jennifer Andrews ,877-866-2066, and visit

Texas Consumer Choice Moves Up
After delays of two months due to computer glitches, the Electric Reliability Council of Texas (ERCOT) began moving customers of investor-owned utilities (IOU) to new suppliers July 31. However, residential consumers have not flocked to join the pilot program that ends Jan.1, when full customer choice begins. Since choice was offered to 265,000 residential customers only 90,000 have joined up. However, the tepid response from individuals was contrasted with a "stampede" of commercial and industrial customers who joined the pilot program.
The new competitive retail providers include Reliant Energy, Entergy Corp., Texas-New Mexico Power Co and TXU in addition to Royal Dutch Shell and Green Mountain Energy plus The New Power Co, a joint venture of Enron, AOL/Time Warner, and IBM. There also are ten registered aggregators who put together large groups of users so they will have the leverage of negotiating bulk purchases. Those who choose not to switch will be served by three retail electric providers (REP) selected through competition by the PUC as Providers of Last Resort (PLR). They will guarantee back-up electric service for most customers of the investor-owned utilities after retail competition begins Jan 1. All residential IOU customers will enjoy a six percent rate cut, adjusted to fuel prices. The PUC will designate a PLR if the chosen retail provider defaults in any way. However, the PLR rates are higher priced due to the risks and costs associated with planning and serving an uncertain number of customers and uncertain electricity load. This service is intended to be temporary and used only under rare circumstances. Pricing will be set under competitive bidding for six-month intervals. Although Texas planners do not expect any California style crises, they are not popping any champagne corks yet. Risks and unexpected challenges could include more computer glitches, new fuel cost increases that could erode the rate cut, disputes over default pricing, and critics who never agreed with the law. They are not alone. Some economists have expressed dismay, for example, over the state's shortage of transmission lines that could harm competition, increase bills, and undermine reliability. A senior policy analyst for the Consumers Union said, "So many people have declared Texas a success before it even opened... [but] I fear that consumers won't see savings, that they will see a decline in service and...there may be reliability problems." We shall see.For a complete update on energy developments and what you can do to minimize your risks, look for the September issue of Buildings magazine. That's the bottom line.Lew Tagliaferre [email protected]
C-E-C Group (703) 321-9268

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