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Massive Energy Bill is Almost There

Posted on: Friday, 29 July 2005, 12:00 CDT

Jul. 29--Farmers and big oil companies may benefit from the energy bill about to be signed by President Bush, but don't expect to see less expensive gasoline anytime soon.

After six years of disputes, the House and Senate are preparing to send comprehensive energy legislation to the White House. The 1,725-page bill, which passed the House Thursday and is expected to clear the Senate Friday, roams from wind turbines to nuclear plants to how large a utility like Exelon can grow.

The bill also will make a noticeable impact on everyday life: It will extend daylight savings time by several weeks to save energy.

Key components of the bill include government subsidies or support for one industry or another.

For example, it mandates that oil refiners increase their use of ethanol to make gasoline from about 4 billion gallons a year now to 7.5 billion gallons by 2012. Ethanol already receives a significant tax break compared with gasoline.

Ethanol is a domestic energy alternative to imported oil but is not seen as a replacement for gasoline. It is made from corn and benefits Illinois farmers. One of the world's leading makers of ethanol is Archer Daniels Midland Co. of Decatur. Last year ADM earned a profit of nearly half a billion dollars.

Christine McCracken, a senior managing director at FTN Midwest Securities, said the energy bill is fine for farmers and ADM, but not as generous a subsidy as it appears.

"It is a great safety net for the industry," she said. But McCracken warned that the nation is building too many ethanol plants and the price of ethanol is in danger of falling, despite the increased demand.

The nuclear industry, paralyzed for several decades by cost overruns and public opposition, would continue to get a government subsidy.

The legislation extends the Price-Anderson Act, which limits the liability of nuclear plant operators in the case of disaster. Critics say that fact transfers risk from the owners of nuclear plants to taxpayers.

Edward Quinn, past president of the La Grange-based American Nuclear Society, said the legislation is needed because otherwise no one would take the risk of building and operating a nuclear plant. The last new nuclear plant was commissioned 30 years ago.

"It is a requirement of business," he said.

The bill also promises up to $2 billion in government money as so-called "risk insurance" for any regulatory delays in the construction of six new nuclear power reactors.

Chicago-based Exelon Corp. is the largest operator of nuclear plants, and is part of two groups looking to build a new nuclear plant in the U.S.

But Exelon, the corporate parent of Commonwealth Edison, is unlikely to crank up a new reactor anytime soon, as the company wants the government to find a final resting place for spent nuclear fuel.

"We are particularly pleased that the bill supports the development of advanced nuclear facilities," said Exelon Chief Executive John Rowe. "While it remains unlikely that Exelon will build a new nuclear plant in the near term, we simply must have a next generation of nuclear plants in the U.S."

Another part of the energy bill would abolish the Public Utility Holding Company Act. That law was enacted in the Depression to rein in wrongdoing by utility cartels.

The advocacy group Public Citizen describes the act as "one of the most important federal consumer protection laws ever passed."

For example, it prohibits oil companies and investment banks from owning utility companies.

Martin Cohen, executive director of the Citizens Utility Board, said utilities have wanted to get rid of the act for years.

"It would make utility mergers and takeovers a lot easier and less subject to regulatory oversight," Cohen said.

The bill offers subsidies and benefits for the oil and gas industries, some of it for research.

Estimates of the subsidy vary, but critics say big oil companies do not need the money, and with petroleum prices so high don't need government help to increase production.

"Sixty dollars a barrel is quite a lot of incentive," said James Hamilton, an economist at the University of California at San Diego.

That price has already led to record earnings for oil companies. Last year Exxon Mobil Corp. earned a profit of more than $25 billion.

Nor will increased petroleum output in the United States force down the price of oil. Crude oil is a global commodity with a price set by international demand. No one anticipates that the U.S. could pump enough oil to force down prices.

"It would be quite fair to say this bill is not going to reduce the price you pay at the pump for gasoline next summer," Hamilton said.

One subsidy for oil and gas firms is a $50 million-a-year, 10-year commitment to research ways to tap very deep deposits of natural gas, both on and offshore, and natural gas from other sources such as shale.

Melanie Kenderdine, a vice president with the Gas Technology Institute in Des Plaines, said the money is needed to find ways to extract a massive amount of gas now out of reach.

She said as much as 1,300 trillion cubic feet of gas could be recovered through new technology financed by the bill. That is enough to satisfy U.S. demand for natural gas for decades.

"You are talking about an enormous resource base--50 to 60 years of recoverable gas," Kenderdine said. "There is a public interest in this program that is well served."

Even critics say the energy bill has its merits.

"The energy bill goes in the wrong direction of providing billions in tax subsidies for old polluting technology," said Howard Learner, executive director of the Environmental Law and Policy Center.

"But there are certainly some provisions in the bill we like," Learner said.

Early reports indicate the bill includes more than $3 billion in subsidies or incentives to generate electricity from wind, the sun and other renewable resources.

Wind turbine operators had repeatedly said that without their subsidy, no new generating capacity would be built.

The money for wind power is good news for Gov. Rod Blagojevich.

His administration has a goal for Illinois to derive 8 percent of its electricity from renewable resources by 2013, most of it from wind. Several wind farms, some of them involving scores of turbines, are projected to be built in the next several years.

John Kelly, executive director of the Distributed and Sustainable Energy Center in Des Plaines, said Congress also created a tax credit for people and businesses that use the sun to generate electricity with photovoltaic cells.

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EXC, ADM,

Source: Chicago Tribune

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