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National Association of Energy Service Companies

Policy Priorities

Federal

Jeffrey Genzer
Partner, Duncan, Weinberg, Genzer & Pembroke, P.C.
Excerpts from a speech given at the National Association of Energy Service Companies' Annual Conference, Dallas, Texas, November 15, 2006

“The Potential Impact of the Mid-Term Elections on U.S. Energy Policy”

While there has been a changeover in terms of party control of the House and Senate, energy policy shifts are expected to be incremental. Overall, what we are seeing is a smaller and more conservative Republican conference and a larger and more moderate Democratic conference.

House Speaker Elect Nancy Pelosi has indicated that energy policy is on her short list of items to be taken up within the first 100 hours. She is talking about a proposed expansion in alternative energy investment and commitment but she and her team are still formulating what that means.

Democrats will likely want to repeal the oil and natural gas tax incentives contained in the Energy Policy Act of 2005 and redeploy those funds to pay for more alternative energy research and deployment programs. Among the items to be considered include expansion of the renewable fuels standard from 7.5 billion gallons to 15 billion gallons and acceleration of the standard to 2010; and extension of the renewable energy and energy efficiency tax credits from the present expiration at the end of 2007 to a ten year period. Moreover, we hope that a long term extension of these tax credits would also provide the impetus for the IRS to clarify its guidance with regard to the Commercial Buildings Tax Deduction for the definition of an “eligible entity” and how energy efficiency work done in governmental buildings is allocated for tax purposes.

It is expected that Senator Bingaman, the incoming Chair of the Senate Energy Committee, will push his renewable portfolio standard on a national basis in order to achieve a 10% renewable energy usage level by 2020. However, it is unclear whether he will have the votes on this. Senator Bingaman is also likely to be more aggressive in pushing certain energy efficiency programs, such as incentives for building code improvements.

The 2002 Farm Bill will be rewritten this year and that bill includes an energy title which has some interest to this group. Section 9006 provides grants and loans for energy efficiency and renewable energy measures to be utilized by farmers, ranchers and rural small businesses. Either in the context of the Farm Bill or through a separate energy bill, it is expected that there will be an effort to expand the use and production of cellulosic ethanol and biofuels.

Among the individual bills likely to be considered are the Bi-Partisan Fuel Choices for American Security Act of 2005, focused on the transportation sector. There may be a move to pass price gouging legislation, although it is not clear how that is being defined. Pipeline Safety legislation is likely to move next year. Representative Steny Hoyer, in conjunction with co-sponsors Dingell, Udall and Oberstar have introduced a bill call the Progress Act which calls for, among other things, the establishment of a National Energy Security Commission.

Senator Cantwell has introduced a bill to mandate expanded use of vehicles employing alternative fuels and the installation of alternative fuel pumps, establish a tax credit for residential energy costs for the poor, extend renewable and energy efficiency incentives, and provide bonding authority for state and local governments to establish greenhouse gas emission reduction programs and fund oil consumption reduction activities. Incoming Chair of the Senate Environment and Public Works Committee, Barbara Boxer, supports mandatory emissions reduction programs and is expected to focus on global warming issues. She is likely to face pushback especially from Senator Inhofe of Oklahoma, soon-to-be ranking member of the Environment Committee. In addition, Senator Norm Coleman recently introduced a bill to prevent states such as California and the Northeast (through the Regional Greenhouse Gas Initiative) from regulating carbon emissions and other greenhouse gases.

Also expected to oppose a far reaching climate change bill is incoming House Energy and Commerce Committee Chairman John Dingell. Congressman Dingell is also expected to make it difficult for passage of an expanded corporate average fuel economy bill. I do expect that Congressman Dingell will reintroduce his legendary ferocious oversight of programs like the Administration's slow effort to implement appliance energy efficiency standards. I also expect aggressive effort in other areas like oversight of the management of FEMP, which may be ripe for oversight activity in either the House or Senate.

Individual members who have had an interest in energy efficiency and ESCO issues may be in new positions to help provide leadership. For example, Jack Reed of Rhode Island has taken a very active interest in promoting sound energy efficiency policies for public housing and he is in line to get on the Senate Appropriations Committee. The new senator from Minnesota, Amy Klobuchar, has an interest in pushing for innovative energy policies and Jon Tester, the new senator from Montana got into politics originally because of the failed electricity restructuring efforts in his state.

However, even if Congress does not act expeditiously on these alternative energy and energy efficiency issues, I think you will continue to see expanded efforts by the states to move forward to implement programs and mandates in this area. There has been a strong movement in recent years for state regulators and legislators to move the policy agenda in this area. The implementation of the Western Governors' Association Clean and Diversified Energy Action Plan, the Regional Greenhouse Gas Initiative, the EPA/DOE Energy Action Plan and the various EPA programs and partnerships all provide an opportunity for the industry outside of federal legislation.

I think there are three critical issues that may determine what happens in the next Congress and in the general formulation of energy policy direction. One is the apparent decision by Russia to use oil and gas production as a political weapon. This policy has already forced a government change in Ukraine and the squeeze is being applied to the Baltics, Hungary, Georgia, Poland and other former Soviet republics and satellites. I think that the pressure on the European Union to increase energy efficiency and renewable investment will be enormous. The second issue will be the growing energy needs of China and India and how those needs are satisfied. Finally, I think that the type and magnitude of energy pricing volatility over the next two years will be critical to world action.