The Time Is Right for a Renewed Focus on Energy

Many factors are occurring to cause the Obama administration's well-publicized focus on infrastructure in general and on energy policy in particular. Energy independence has been a long-discussed but little-pursued goal. The current economic situation seemingly calls for a large stimulus from the federal government. Spending on infrastructure and energy has the dual advantage of causing job increases, resulting in increased spending in the relative short term, and of providing for long-term assets, which can generally increase the productivity of the economy. Climate is also an issue of great importance, and energy and infrastructure jobs can be a part of a new green remake of the economy. Finally, the U.S. infrastructure -- its energy infrastructure in particular -- requires substantial investment in order to provide efficient service to fuel the American economy. In fact, as recently as January 28, 2009, the American Society of Civil Engineers graded the U.S. national power grid as a D+.

As part of the stimulus package introduced by the Obama administration, the New Energy for America Plan focuses on several specific goals. These include assisting in the creation of new jobs by strategically investing many billions of dollars over the next 10 years to help catalyze private efforts to build a clean energy future; putting one million plug-in hybrid cars on the road by 2015; ensuring that 10 percent of U.S. electricity comes from renewable resources by 2012, and 25 percent by 2025; and implementing an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050. These are very broad initiatives that, while attractive, will likely require a number of specific legislative measures to implement.

Improvement of the U.S. energy infrastructure has many perceived advantages. Virtually the entire U.S. economy depends on reliable energy. The availability of high-quality power could help determine the future of the U.S. economy. An economic case can be made that an improved energy system will create new markets as private industry develops energy-efficient and intelligent appliances, smart meters, new sensing and communication capabilities, and green passenger vehicles that will revolutionize the auto industry.

Concern with respect to climate-related issues has been sweeping the globe for years. Businesses and utilities are pressured on many fronts to adopt business practices that respond to these environmental concerns. The Obama administration's goal seems to be to shift the way the country thinks about its power needs and the fuels used to produce it, how power is moved across the country, and how consumers use it. Certainly, improvements in the energy system can result in environmental improvement.

Attention to this front can result in improved reliability and security, reduced operations and maintenance costs, and increased efficiency of power delivery. Amazingly, a great percentage of power actually generated in the United States is lost to the inefficiency of our delivery system. Focus on improved delivery can reduce the need for increased power generation, which would result in cascading benefits throughout the system. Of course, an improved energy delivery system will have benefits to both individual and business consumers.

These initiatives will face many problems and competing interests. Grid developers face uncertainty with respect to cost allocations and returns on investment, environmental concerns abound, and landowner objections to infringements and any plans face a patchwork quilt of regulations enacted by every state crossed by power lines. Potential developers of alternative renewal energy sources from wind, water, biomass, geothermal, and solar sources face the difficulty of bringing the energy they generate to market because of a lack of transmission. The circumstances seem to call for a national effort. However, battles over a national grid will pit the potential for lower electric bills on average and more renewable power sources against national grid foes such as state regulators, environmental groups, local utilities, and even regional interest groups.

In the short term, energy users, energy developers, and transmission companies are likely to participate in a complicated debate on the best approach to solve these problems. This debate may not be the typical Democrat-versus-Republican, partisan bickering that has stymied action in the past. Other forces are lined up to make this a much more parochial battle.

All national power proposals have been opposed by landowners who do not want unsightly power lines or other related equipment near their homes, and by environmentalists worried about damage to natural resources. A national approach is also unpopular with vertically integrated utilities that do not want to compete with other utilities, as well as with those from regions that have abundant power generation and low electricity rates, as they believe that their prices will rise if extra electricity is sent elsewhere.

While legislation can be crafted to induce the development of renewable energy sources, the shape of the legislation and the approach with respect to energy will be the results of these debates. One possible model that has been suggested is the Highway Trust Fund, which funded highway construction in the past through the gasoline tax. A similar fund could be created for transmission and funded by transmission taxes on electric bills. Another suggestion involves tax incentives for landowners who allow transmission facilities on their properties and grants for the states that participate in this process. Tucked into the current rescue legislation is a measure allowing utilities to quickly write off investments and smart meters or other "smart grid equipment." This approach would allow companies to depreciate investments over 10 years instead of 20 years, in essence making bigger deductions each year and improving the affordability of improvements. Other proposals focus on limiting demand that will reduce the number of power generation facilities that need to be built. These proposals include stimulus money to retrofit buildings so that they require less power to heat and cool, can be dealt with more efficiently, or use more-efficient light bulbs and appliances. These types of proposals are more acceptable to environmentalists and conservationists who view with skepticism any push to build more and more power generation facilities. A key question to be resolved is what the energy regulatory structure will look like after the Obama administration and Congress work out the details of an energy program and provide certainty to an industry that has been operating in a constantly changing environment. Timing is important, since many plants and generating facilities take years to construct. Because of long lead times, companies are forestalling activities because they are not certain they will be investing in what will be appropriate programs for the future. As with the stimulus package in general, time would appear to be of the essence to establish an understandable energy policy.

While lofty goals have been pronounced and seem reasonable to pursue, action and success will require political fortitude and the cooperation of any constituencies. The time to take action would appear to be right. Everyone, from residential energy users to businesses to developers to transmission companies, should take an interest in this process, make their voices heard in the spirit of compromise, and move quickly to improve the U.S. energy situation.