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Policy outlook 2012

Policy outlook 2012


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  • 1. Policy & Political Outlook for 2012 “Era of Uncertainty” in Energy & Environmental Policy and difficult Budget Landscape 14 March 2012 San Diego, CA Andrew Paterson 619-807-3267 Environmental Business International www.ebiusa.com adpaterson@gmail.com EBI: 619-295-7685
  • 2. EBJ: What’s IN, What’s OUT for 2012 Navy Seal Teams Occupy Moscow Vladimir Putin (Stanford  Colts) 2
  • 3. EBJ: What’s IN, What’s OUT for 2012 3
  • 4. Opening Observations & UncertaintiesUnfortunately, policy uncertainties will continue to increase going into 2012 election.  The 2010 election had deep results (like 1994) at federal and state level, not a typical election.  Obama still a better than even odds for re-election (50/50 60/40), unless the economy slumps further.  But the Democrats could narrowly lose the Senate in 2012 (down 3-5 seats of 23 to about 49 vs 51).  Republicans would still lack the size of the majorities Democrats enjoyed from 2007 to 2010. Gridlock.• Hence, the 2012 election, could intensify Divided Government rather than resolve the partisan split.Federal deficit will not be easily resolved; Super-Committee failed. Budget sequestration looms  Entitlement reform holds the key to breaking the Deadlock; GOP willing to lose election rather than raise taxes  DOD budget is already seeing some cutbacks with early troop draw down (Army). Look at base conversion.  Budget pressures may force DOD to arrange more third party financings on construction, energy infrastructure.  But, no cushion is built up for a Major Disruption (MidEast chaos, US quake, storms, epidemic, recession…)Carbon cap is dead; Energy Security continues to be a priority, but Recovery Act is over.  The Kyoto Protocol (cap and trade) approach is derailed now, likely through 2020, and would not be enforceable anyway. Federal rule-makings would have mired it for years (Several agencies; 30+ rule-makings).  Climate change is still occurring, but policy options will shift to domestic security and adaptation, if anything.  Leverage to deal with GHG emissions has swung to Asia and North America, away from a stagnant EU.  Hence, agency goals (e.g., DOD, DOI, EPA), and budget priorities are MORE important. [Exec Order 13514]  Utilize Policies already in place: EPAct 2005, EISA 2007, ARRA, Tax deal 2010, State Measures… (!!)  Replace “global warming” with “Energy Security” and “Resource Management” (fuels, water, land, etc.).  Lenders and bond funds will drive more financing of energy infrastructure worldwide than carbon trading. Hence, the health of credit markets will be more important than legislation. 4
  • 5. Environmental Consulting by Media, 2010 5
  • 6. REVIEW: Environmental Consulting Drivers After 2008 After 2010 After 2010 election electionNew Environmental Legislation HOPE NOPE!New Infrastructure, permitting actions YES Delayed(Water, power, transport, wiring…) Recovery Credit Act (ARRA) squeezeEnergy Development Some, RE Yes: Oil, Gas Yes: Oil, Gas (despite Deepwater Horizon)Economic Growth Recession Fragile Fragile (severe strain remains in credit markets) recovery recoveryCommercial real estate turnover Depressed Lagging LaggingHazardous waste / Remediation Declining Weak WeakEPA Regulations (CAA; Water, etc.) YES! YES, but (lawsuits) (lawsuits) 6
  • 7. 9 Mar. 2012 Economic Recovery… “Where are We?”Economic Cycle ResearchInstitute (ECRI)The Weekly Leading Index(WLI) growth indicator of theEconomic Cycle ResearchInstitute (ECRI) came in at -2.6 9/11in todays public release of the NOW Creditdata through March 9th. This is Crisisthe eighth consecutive week ofimprovement (less negative)data for the Growth Index andthe highest level (i.e., leastnegative) since August 19th oflast year. The underlying WLIalso improved, increasing froman adjusted 124.1 to 124.3.A significant decline in the WLI has QE 2been a leading indicator for six ofthe seven recessions since the1960s. It lagged one recession(1981-1982) by nine weeks. The QE 1 QE 2.5?WLI did turned negative 17 timeswhen no recession followed, but 14of those declines were only slightlynegative (-0.1 to -2.4) and most ofthem reversed after relatively briefperiods. http://dshort.com/articles/ECRI-Weekly-Leading-Index.html#ixzz1PqWIXGp0 7
  • 8. Engineering Firms recovering slowly (S&P 500) Not quite caught up with S&P 500 8
  • 9. View from the White House: Recovery ! 9
  • 10. Agency Recap: EPA, DOE, DOD ? 10
  • 11. EPA Budget for FY2013 proposed; no growthCutbacks focused in infrastructure finance, state water revolving funds. Source: EPA Budget in Brief 11
  • 12. EEI, NAM, Chamber: “EPA Job-killing machine”EPA Regulatory Timeline, with Impact in Energy Source: EEI 2012 12
  • 13. DOD FY2012 Proposal: Draw downTroops coming out of Iraq in Dec. for draw down; but could DOD cuts be bigger if Congress fails ? 13
  • 14. DOD Environmental Budget, 2010 – 2012 Flat outlook, but vulnerable to cuts going forward. Two new BRAC rounds proposed for 2013, 2015.Between FY 2011 and FY 2012, the Department’s Defense Environmental Restoration Program decreases by $72.1 million, reflectingprice growth of $23.1 million and programmatic decrease of $95.2 million (-6.2 percent). The FY 2012 program decrease of$95.2 million primarily reflects a decrease in the Army program (-$105.2 million) because the Military Munitions Response Programrequirements were reduced from previous estimates. There also were minor decreases in the Navy (-$0.8 million), FUDS(-$4.2 million), and Defense-Wide (-$0.3 million) offset by an increase in the Air Force (+$15.3 million).Cleanup budget is higher (within $1,467.3M), while investigations are lower as more sites move into later stages. http://comptroller.defense.gov/defbudget/fy2012/fy2012_OM_Overview.pdf 14
  • 15. DOD Operational Energy Strategy (June 2011) Drivers for combat mirror needs in Civil Affairs: Efficiency, lower cost, options or diversification, adaptability for logistics, less pollution and lower carbon footprint. DOD’s Operational Energy Strategy outlines three principal ways to a stronger force: 1. More fight, less fuel: Reduce the demand for energy in military operations. 2. More options, less risk: Expand and secure the supply of energy to military operations. 3. More capability, less cost: Build energy security into the future force.Also: http://greenfleet.dodlive.mil/energy/task-force-energy/ 15
  • 16. DOD Energy Use (2010): Air MobilityFueling aircraft is the leading use of energy. Navy runs nuclear powered ships. The measure calls for projects to start in more than a dozen areas over the next year. It includes the creation of a Defense Operational Energy Board, made up of senior civilian and uniformed military officials, that will oversee the new strategy. It will also create an alternative-fuels investment portfolio to help develop new sources of fuel The U.S. military has been aware for years of the dangers of extended supply lines and energy-hungry troops and equipment, but leaders have focused on other priorities. "People are dying today. Where is the sense of urgency?" said Steve Anderson, a retired U.S. Army general who ran logistics in Iraq during the 2007 surge of U.S. troops. 16
  • 17. U.S. Fuel Consumption & Sources, 2000 – 2011US crude oil import deficit peaked in 2006, and is declining with recession, domestic production and use of biofuels. Declining crude imports since 2006 (from 60% to 50% of total) Rising U.S. crude oil production Ethanol increasing Bio-fuel standards in EPAct, EISA Exports rising (shown as negative, outflow)  17
  • 18. U.S. Fuel Consumption & Sources, 2000 – 2011Gasoline for motorists runs about 50% of total oil consumption -- other uses: aviation, heating oil, industry, maritime. Strategic factors to Declining crude imports since 2006 Arab Spring, monitor: [ Price doubled, Libya, Iraq (from 60% to 50% of total) Imports down 25% ] • Air emission trends and regulations • Hydro-fracking for shale gas • Permits for drilling • More EOR, some CCS with MMV Rising U.S. crude • Water use; Ground Retail gasoline price oil production water management (U.S. average) • Terminals for gas Ethanol increasing transfer (LNG) Bio-fuel standards in EPAct, EISA • Pipelines • Oil price volatility Exports rising (shown as negative, outflow)  impacting finance • Oil and gas supply |--Slowdown --| disruptions N.Gas turmoil. EPAct 2005 EISA 2007 |------Recession ----| • Storm damage • Bio-refinery siting • Vehicle engine Chinese stockpiling (for diesel generators) plummeted in July 2008 just prior to the Olympics, followed by recession. changes 18
  • 19. EIA: Liquid Fuel Supply, 1970 to 2035 (AEO 2012) Since 2007, Economic recession and financial turmoil dampened overall demand, globally. More domestic production with more EOR, Gulf production. Some sales of hybrid vehicles since 2005, but sales slumped in 2008. Now about 1m a year. 230m vehicles in U.S. fleet. REF standards in EPAct 2005 and EISA 2007: More biofuels: EIA: U.S. renewable fuel standard now set at 20.5 billion gallons by 2015 (~15% of consumption), 3 billion from cellulosic feedstocks (non-food). For 2022, 36 billion gallons (about one-fourth of projected consumption), 16 billion in cellulosic fuels by 2022. EISA is the Energy Independence and Security Act of 2007 (P.L. 110-140). 19
  • 20. Mexico… Peak oil crisis (Baker Institute)Peak Oil hit Mexico in 2005. Ripple effects are unfolding now. Exports declining Domestic demand Domestic demand 20
  • 21. DOE FY2013 Budget Request: $27.1BEE/RE remains the favored child with a $2.2B request. FE the loser.EM flat at $5.7B, with a few big sites garnering two-thirds of funds. FY 2012 Enacted 11,000 9,252 1,808 139 564 858 5,710 169 4,874 275 0 $26,300 Request FY2013: $27,155
  • 22. DOE Energy Loan Programs: >$60B in creditNearly 40 conditional commitments have been offered (~$34B in loan value).ARRA portion (Sec. 1705) expired 9/30/11, but Sec. 1703 (self pay) continues.House Investigations on Bankruptcies are plaguing the program now.But, only one-third of loan values have actually been disbursed to date. Loans offered: Auto sector: $8.4B Renewable sources: $14.96B Efficiency: $0.32B Nuclear: $10.3B TOTAL $34.0B 22
  • 23. “We don’t want Gov’t picking winners, losers”… (?!) “Too Big to Fail” ?! 23
  • 24. Converts ITCs or PTCs to a cash grant from TreasuryTreasury Grants: $9.2 billion (ARRA Sec. 1603 program) As of Sept. 2011: • Total projects funded = ~20,000 [19,200 of them small solar projects] Solar in CA, TX Wind in TX, IL, WA, OR • Total installed capacity: 13.6 GW [but about 4 GW, adjusted for usage] • Total Grant Funding = $9.15 Billion [$7.26B for wind of 12.1 GW ] - about $7,780 per KW (adjusted for capacity factor of 30%) on 13.6 GW • Total private and federal investment = $31.1 Billion • Total estimated electricity generation from projects = 35.0 TWh [since 2009] About 0.3% of U.S. total (4 min a day) Treasury 1603 Grant Status: www.treasury.gov/initiatives/recovery/Documents/2011-04-06%20-%20S1603%20Overview.pdf 24
  • 25. Expired 12/31/11Treasury Grants: $7 billion (ARRA Sec. 1603 program) Total Awards by State (by April 2011) Treasury 1603 Grant Status (updated monthly) : www.treasury.gov/initiatives/recovery/Documents/2011-04-06%20-%20S1603%20Overview.pdf 25
  • 26. EIA: Outlook for U.S. Power Sector Build N.Gas over-build [Wind] [Wind] More N.Gas build…http://www.eia.gov/electricity/ 26
  • 27. EIA U.S. Electricity Fuel Mix, 2010 (AEO 2011)Non-hydro renewables up to 4% from 2.4% in 2000. 27
  • 28. U.S. Electricity: Generation vs Capacity, 2000 & 2010 Investment in renewable capacity needs to be placed in perspective relative to the entire landscape of electricity… at 2010 Coal Generation: Million MWhs at 2000 Nuclear N.Gas Hydro Biomass WindGeogeysers Oil GWs SolarPV 28
  • 29. US Dry Gas ProjectionShale gas is a game changer on the energy landscape; low prices pressure otheroptions out of the market. Will EPA water regulations curb some development? 29
  • 30. Fracking Future ? Groundwater regs ? 30
  • 31. EBJ: Remediation Market Niche Outlook, 2011Annual survey of >300 executives 31
  • 32. EIA U.S. Electricity Fuel Mix, 1990-2020 (AEO 2012) 32
  • 33. Utilities Closing 1,000s MW of Coal UnitsUtility AEP to close some coal plants, upgrade others TVA to Spend as Much as $5 Billion to ResolveWashington Post -- June 9, 2011 Carbon Violations in U.S., close 18 coal plantsAEP, the nation’s biggest coal-based utility, said it would shut down five aging Bloomberg -- Apr 14, 2011 The Tennessee Valley Authority agreed to close 18coal plants, convert at least two others to natural gas and retrofit a dozen more as coal-fired generators and install as much as $5 billion in pollution controls topart of a $6 billion to $8 billion plan it said would help it comply with proposed resolve alleged Clean Air Act violations in Alabama, Kentucky and Tennessee.Environmental Protection Agency regulations. The settlement with the Environmental Protection Agency and the states requiresAEP joins other utilities — including the Tennessee Valley Authority, Dominion TVA to install equipment targeting nitrogen oxides and sulfur dioxide, which create acid rain, the TVA said today in a statement. TVA, created in 1933 byResources and TransAlta — that have decided to close coal plants and upgrade President Franklin D. Roosevelt, will invest $350 million in clean-energy projectsothers for economic reasons or in conjunction with EPA negotiations. and pay $10 million in civil penalties.Coal-fired plants account for nearly 25,000 megawatts, or 65 percent, of AEP’s The TVA, which owns 59 coal-burning units, said it will replace the units withtotal generation capacity. AEP’s plan would close down 6,000 megawatts of low- or zero-emitting sources, including renewable energy, natural gas andcoal-fired units. The five plants that will close include units dating back to 1944; nuclear. The government-owned company, faulted by environmental groups forthe newest of those units is 51 years old. operating old and polluting plants, said it aims to become a top U.S. provider ofAEP chief executive Michael G. Morris complained in a statement of “unrealistic cleaner energy by 2020.compliance timelines in the EPA proposals” that he said would force AEP “to “These units are among the first built by TVA and have served us well over theprematurely shut down nearly 25 percent of our current coal-fueled generating years,” Chief Executive Officer Tom Kilgore said in a statement. “But as times change, TVA must adapt to meet future challenges.” Bruce Nilles, head ofcapacity.” He predicted higher electricity rates. energy programs at the San Francisco- based Sierra Club, said the agreement isRep. Shelley Moore Capito (R-W.Va.) and Sen. Joe Manchin (D-W.Va.) “by far the largest coal-retirement settlement in the nation’s history.”immediately pounced on AEPs announcement. “This is a perfect example of the “Tennessee and the surrounding region have been getting hammered by theEPA implementing rules and regulations without considering the devastating pollution from TVA’s coal plants for more than half a century,” Nilles said in animpact they may have on local economies and jobs,” Capito said. interview. The generators are, on average, 47 years old, exceeding their intendedBut environmental groups said that the plants to be closed were too old to be life span of 30 years to 40 years, he said.economically viable and that AEP needed to comply with a court order to curtail ‘Drive Up Utility Bills’toxic emissions. “EPA regulations do not require any power plants to shut Representative John Duncan, a Tennessee Republican, said the agreement willdown,” said Vickie Patton, a lawyer at the Environmental Defense Fund. increase energy costs for consumers. “The EPA has gone power mad,” he said in“Companies like AEP make the decision — either invest in common retrofits like a statement. “I’m disappointed that TVA caved in to these demands. This settlement will drive up utility bills for people in Tennessee and the surroundingscrubbers to clean up pollution, or close down old and poorly controlled plants states and hurt poor and lower income people the most.”and replace them with cleaner, more efficient generation.” Mary Anne Hitt, a Representative Ed Whitfield, a Kentucky Republican and chairman of the HouseSierra Club official, said those emissions contribute to thousands of premature Energy and Commerce Committee’s energy and power panel, said the agreementdeaths from asthma and heart attacks and added $62 billion a year to health costs. reflects the efforts of environmental groups to dictate policy. 33
  • 34. EIA: Renewable Electric Sources to 2035 34
  • 35. Meanwhile, Clean Energy still lagging… NEX Global Index of Clean Energy (95 Co.s) The NEX is a global index of 95 firms listed on 27 exchanges in 22 countries (excluding Hong Kong and Taiwan) whose innovative technologies and services focus on the generation and use of cleaner energy, conservation, efficiency and the advancement of renewable energy in general. The NEX Universe Companies worldwide active in wind, solar, biofuels, hydro, wave and tidal, geothermal and other renewable energy businesses, as well as energy conversion, storage, conservation, efficiency, materials, pollution control, emerging hydrogen and fuel cells. NEX is a rule-based index and uses equal- weighting methodology modified by sector and market capitalization bands to provide diversification across the clean energy industry. The index is rebalanced quarterly on the last business day of March, June, September and December, when the components and the initial weights are determined. At rebalancing no singlehttp://www.nexindex.com/pdf/2011_09_30_nex%20factsheet.pdf component can exceed 5% weight. 35
  • 36. Solar firms dim since summer (vs. NASDAQ)Lower stock values hinder raising capital in clean energy; No IPOs. 36
  • 37. EIA: US Electricity Fuel Mix, 1990-2020 (AEO 2012)Observations: Trends in U.S. Electricity - Summary• Overall electricity consumption is still rising, but the recession has cut growth forecasts, with some efficiencies also. [But, very little electrification of transport.]• With closures of older coal plants (perhaps 10%-20% of capacity by 2020), coal’s share of electricity is expected to decline from roughly 50% in 2000 to about 40% of national supply by 2020. [Much of it old, seldom run plants.]• MORE GAS: With a sharp rise in shale gas availability since 2007, natural gas is replacing coal as it is retired. Gas turbines were over-built in the late 1990s, and some of that capacity is being turned on now as natural gas prices dropped from >$12/Mbtu in 2008 to less than $4/Mbtu with the onset of the recession, gas glut.• Relicensing of reactors and construction of four reactors (GA, SC) will keep nuclear at 20% of supply through 2020. This contrasts with a decline in Europe and Japan, and a reactor building boom in China, Korea and Asia, despite Fukushima.• Hydropower remains stagnant; no new dams since the 1960s.• Renewable sources are rising, particularly given state RES policies: Wind comprises most of the growth, none of it in Southeast. Few new biomass or geothermal units were built since 1990; Solar stays below 0.5% by 2020 if it triples from 2010. 37
  • 38. Energy Policy needed; but Union divided … 38
  • 39. States not waiting for federal State RES Map consensus on energy policy.http://www.ucsusa.org/clean_energy/ 39
  • 40. AWEA: Wind Power now at 47,000 MWsAWEA 4th Qtr report 2011 No wind for whistling Dixie 40
  • 41. RFA: 209 U.S. Bio-refineries, 14B gallonsTwo-thirds of capacity is in just 5 upper Midwest states: IA, NE, IL, MN, IN (“Big TEN”).EIA estimates that the RFS of 36B by 2022 will not be met as construction has slowed. 41
  • 42. EIA International Energy Outlook 2010 (base case)The world remains dependent on Fossil Fuels through 2050 (liquids, coal, gas)Coal remains an expanding portion of energy supply through 2030 (Asia, OECD). Coal (Asian growth) Rising renewables, but just to feed new demand, rather than replace fossil. Nuclear will struggle to hold current share (with new plants).We cannot conserve our way to lower GHG emissions. Energy use is rising, demanding investment. 42
  • 43. Global CO2 Emissions, 1990 – 2030“Major Emitters” (Top 10) matter most. U.S.+China = 50% in 2030 Kyoto signers were 55% in 2002; but will only be 35% in 2030.1990 2010 2030 43
  • 44. Long Recession = Emissions down to 2025 Enhanced Energy Security Reduce oil imports  Better engines  Plug-in hybrids U.S. emissions revised downward  Bio-fuels  Tele-commuting Credit crisis Better electricity use Recession  More energy efficiency  More (shale) gas, less coal  CHP in Urban areas  Energy  Water cycles  More renewable sources  Waste to Energy  Build reactors  Carbon Capture + Utilization … Reduced GHG emissions [mutual objectives] + Technology job growthEIA: U.S. energy-related CO2 emissions will not reach 2005 levels until after 2025.And if policies are extended, then emissions will rise even more slowly to 2050. 44
  • 45. Climate Change Legislation FrozenClimate-change legislation buried under record snowfall in capitalBy Alexander Bolton - 02/09/10 09:30 PM ET Feb 2010Record snowfall has buried Washington — and along with it, buried the chances of passingglobal warming legislation this year. Cars are stranded in banks of snow along the streets of thefederal capital, and in the corridors of Congress, climate legislation also has been put on ice.Democratic senators say a bill that was once a top priority for the party and for President BarackObama cannot be dug up again during 2010. Voters are mostly concerned with jobs and theeconomy. Global warming is at the bottom of their list. And now, the paralyzing snowfallshave made the prospect of winning support for a climate bill this year even less likely.Sen. Jim DeMint (R-S.C.) on Tuesday used the D.C. snowstorm to make a political jab, sayingthat it provides evidence for global warming skeptics. “Its going to keep snowing in DC until AlGore cries “uncle,” the conservative Senator tweeted on Twitter.Sen. Jeff Bingaman (D-N.M.) said the blizzards that have shut down Congress have made itmore difficult to argue that global warming is an imminent danger.“It makes it more challenging for folks not taking time to review the scientific arguments,”said Bingaman, who as the chairman of the Energy and Natural Resources Committee hasjurisdiction over energy and climate change issues.“People see the world around them and they extrapolate,” Bingaman said. “I think that it’s hard tosee an economy-wide cap-and-trade [proposal] of the type that passed the House could prevail,”he added, though he suggested a more limited alternative could have a better chance. Theseasonal snowfall total for Washington reached 45 inches after nearly two feet of snow dumpedon the region over the weekend. Forecasts predicted another six to 20 inches to fall on Tuesdayand Wednesday, putting the city on course to break a 111-year-old record for its snowiest winter. Democrat Gov. JoeThe record snowfall has forced the House to cancel all votes this week. The Senate met Manchin of WV gunsTuesday, but may not meet the rest of the week. down Cap and TradeFor critics, it was an opportunity to poke fun at the issue’s most prominent advocate. to win a Senate seat.“Where’s Al Gore when we need him?” quipped Senate Republican leader Mitch McConnell(Ky.), who burst out laughing when asked about the prospect of passing cap-and-trade legislationTuesday while the city was still digging out. Some Senate Democrats dismiss the role snow hasplayed in the debate, but they acknowledge there is growing consensus that global warminglegislation will not pass in the 111th Congress. “I don’t think that the climate change with cap-and-trade is going to pass this year,” said Sen. Kent Conrad (D-N.D.), who as Budget chairman isputting together Congress’s annual estimate of how much revenue the government will collectnext year and in future years. 45
  • 46. Promote the Upside, rather than Consensus 46
  • 47. Do we need a GHG Bill? EPAct, EISA, ARRA TRANSPORTATION  Renewable Fuels Std at 36b gallons by 2022, with cellulosic  Upgraded CAFÉ on engines in the EISA bill… but automakers digging out  Transportation package possible in 2012, with energy title ENERGY INVESTMENT  DOE Loan Guarantee Program from EPAct ‘05, expanded in ARRA  DOE LGs now bigger than DOE… >$60B, all fuel sources  ARRA spending on Energy + “Smart Grid” at 2x-3x previous budgets  ARRA tax credits through 2016, plus Treasury grants to 2012  30 states have RES which is a steadier driver than cap and trade + RGGI  Rate base still available in the Southeast, Midwest for big projects [debt] RESIDENTIAL / COMMERCIAL  Expanded building and appliance standards, but huge base  National EE Action Plan with states… but N.gas is cheap again Will the commodities (oil, gas, metals) roller coaster continue ? Wild card: is fuel supply secure, or more volatility, higher prices ahead ? 47
  • 48. U.S. States & Infrastructure… bigger drivers after Recovery Act subsides NARUC Perspective: compounding rate pressuresState Utility Commissions face several pressures going into 2012:1. Expansion and mandatory gas pipeline safety measures (after San Bruno)2. Smart grid and transmission upgrades, other electricity investment3. Water utility rates and financing either urban upgrades, or rural extensions4. Telecommunications rate recovery for expanding broadband Broadband wiring Urban waterMarcellus Shale drilling upgrades(permitting, planning) San Bruno gas pipeline explosion (Sep 2010) 48
  • 49. NERC: EPA Air Rules to Impact ReliabilityNERC Long-term ReliabilityAssessment (Oct. 2010)Several regulations are beingpromolgated by the EPA. Dependingon the outcome of any or all of theseregulations, the results mayaccelerate the retirement of somefossil fuel‐fired power plants. TheEPA is currently developing rulesunder their existing regulatoryauthority that would mandate existingpower suppliers to invest in retrofittedenvironmental controls at existinggenerating plants or retire them.In particular, four active EPA rule-making proceedings could havesignificant effects on grid reliability asearly as 2015. These rules underdevelopment include:1. Clean Water Act – Section 316(b),Cooling Water Intake2. Coal Combustion Residuals As a result of these accelerated retirements, capacity reductions may diminish reserve(CCR) Disposal Regulations margins and could impact bulk power system reliability in the near future. Potential3. Clear Air Transport Rule (CATR) impacts of EPA regulations on bulk power system reliability include not only retrofitting4. Title III of the Clean Air Act – existing generation but also constructing or acquiring replacement generation or otherNational Emission Standards for resources. Bulk power system planning and operation approaches, processes, and toolsHazardous Air Pollutants (NESHAP) will require sufficient time for changes to be made, otherwise either reliability will suffer orfor the electric power industry aggressive environmental goals may not be attainable. Therefore, the risk to reliability is a[MACT Standard] function of the compliance timeline associated with the potential EPA regulations. 49
  • 50. FERC hearing focus on Nov. 29-30, 2011 NERC: Reliability Assessment 2010 Facing more RE sources and uncertainties…In summary (p.40), the ranking of the2010 Emerging issues suggest theindustry is being asked to solve manymultifaceted, interconnected issues,while at the same time providingreliable service to its customers.The industry is in transformation, (State RESs)where many interrelated issuespresent complex risks to bulk powersystem reliability across the planning,design, and operational spectrum.Overall, the risk assessmentsuggests more than the relativeimportance of individual issues, butthe confluence of the interrelatedissues emerging simultaneously.While during the short‐term,solutions, approaches, and bestpractices are being developed,significant challenges exist in thelong‐term that must be overcome. 50
  • 51.  …Political Outlook to 2012
  • 52. Political Mood… 52
  • 53. Control of SENATE by Party, 1976 - 2010In 2012, Dems will have 23 seats to defend, while only 10 GOP senators are up. Senate Control, 1976-2010 Democrat Republican65 Carter Reagan Bush, Sr Clinton GW Bush, Jr Obama Dems +6 in 2006 In 1994 Republicans recaptured what they and +8 in 200860 had under Reagan in the Senate.5550 ?45 The 2000 election split the Senate 50-50.40 1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 53
  • 54. 2010 Results for the SENATE: 6 seats shiftRepublicans gained most in the Industrial Heartland, Plains. Old Senate in Senate: 2011 59 Ds  53 Ds -6 41Rs  47 Rs 9 votes 3 votes Either party can easily block major legislation via filibuster. Murkowski caucuses with GOP 54
  • 55. Current split: 53Ds – 47Rs Senate 2012 Rack-up: -3 to -5 Ds = 51Rs – 49 Ds D = 9 of 23 D = -1 D = -2 to -4 D = -1 or -2 R = 7 of 10 No losses R = -1 to -2 Safe D “Leans D” Toss-up “Leans R” Safe RCA-Feinstein FL- Bill.Nelson Democrats ND- [Conrad] IN-LugarDE-Carper MI- Stabenow HI- [Akaka] MT-Tester MS- WickerMD-Cardin MN-Klobuchar NM- [Bingaman] TN-CorkerNY-Gillibrand NJ-Menendez VA- [Webb] WY-BarrassoRI-Whitehouse OH- Brown WI- [Kohl] UT-Hatch* AZ- [ Kyl ]VT-Sanders WV-Mancin MO-McCaskill TX- [Hutchison] RepublicansPA-Casey NE-B.Nelson MA- S.BrownWA- Cantwell CT- [Lieberman] NV- Heller ME- [Snowe] * Potential retirement http://cookpolitical.com/charts/senate/raceratings.php http://www.electionprojection.com/2012elections/senate12.php Peaking ahead to 2014… 20Ds, 13Rs[ OPEN; Retiring ] Could lead to Democrats losing 2-4 more seats. 55
  • 56. GOP turnout triggered DEEP gains in states, not just broad wins in the Congress. GOP Gains Leverage for 2012 via State HousesOverall, Republicans have exclusivecontrol of redistricting in 202 districts,Democrats hold authority in 47districts, bipartisan or citizencommissions will draw 92 districts, SOURCE: NCSLcontrol is divided in 87 districts, and www.ncsl.org/tabid/21253/default.aspxseven districts are in At Large statesthat do not require redistricting.About 200 more districts will becreated via participation by bothparties or by non-partisan panels.California voters approved a ballotmeasure Tuesday that transferred thedesign of districts from theDemocratic-controlled Legislature to anon-partisan commission.Republicans won control of 19legislative chambers across the USA.Democrats won zero.Republicans flipped both legislativechambers in Alabama, Maine, Source: NCSL.orgMinnesota, New Hampshire, NorthCarolina and Wisconsin. The partywon control of houses ofrepresentatives in Colorado, Indiana, GOP governorIowa, Michigan, Montana, Ohio andPennsylvania. Independent Commission 56
  • 57. GOP turnout triggered DEEP gains in states, not just broad wins in the Congress. Comparison: State Houses before 2010 election Republicans Make Historic Gains in 2010 Republicans have added over 675 seats to their ranks in this election, dramatically surpassing 1994 gains. This number could go even higher as the tallies in the undecided races are determined. The chamber switches thus far are all Democratic to Republican except for Montana House which was tied and is now Republican, and the Oregon House which was Democratic and is now tied. This is the first time in Alabama that Republicans have controlled the legislature since reconstruction. The North Carolina Senate has not been Republican since 1870. And Republicans have reportedly taken over 100 seats in the New Hampshire House. The Minnesota Senate will be controlled by the GOP for the first time since Minnesota switched back to partisan elections in 1974.GOP gainsAlabama - House and SenateColorado - HouseIndiana - HouseIowa - HouseLouisiana - HouseMaine – House and SenateMichigan - HouseMinnesota - House and SenateMontana - HouseNew Hampshire - House and SenateNew York - SenateNorth Carolina - House and SenateOhio - HousePennsylvania - House Source: NCSL.orgWisconsin - Assembly and SenateTied : Oregon House; Alaska SenateOne chamber still has undecided seats:New York House. 57
  • 58. Weak GOP seats were culled in 2006; no Dems lost in 2006 or 2008. Control of HOUSE by Party, 1976 - 2010 A realignment occurred in 1994 with new district lines and the loss of conservative Southern Democrats.Post-Watergate high watermark for Democrats. House Control, 1976-2010 Democrat Republican 350Carter Reagan Bush, Sr Clinton GWBush, Jr Obama 300 House flips to GOP, without new lines 250 ? 200 150 Democrats recapture House in 2006 as Iraq War festers.  40 years of House rule by Democrats 100 1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 58
  • 59. 2010 Results for HOUSE: 63 seat swingGains by Republicans were distributed widely in suburbs. Old House in House: 2011 256 Ds  193 Ds -63 179 Rs  242 Rs Chris Lee (R-26) 38 votes 24 votes (Margin needed for 218 votes.) Despite big swing, GOP margin is less than the margin Democrats had.Less 1 Republican (NY-26) The Vote on Waxman-Markey (July 2009): Of 49 Democrats elected in 2006 or 08: And minus ― 21 voted for HR 2454 and lost one Weiner ― 12 voted for HR 2454 and survived (NY-9) ― 16 abstained and only 3 survived 59
  • 60. U.S. Political Party Process Democrats take Congress GOP kicked out ADPaterson of White House Foreplay yields 2006 2008 A huge stubborn beast that is difficult to move. 2011 US Congress2010 60
  • 61. Contest for President 2012 61
  • 62. 2012 Election FactorsFactors Favoring Obama Factors Favoring GOP IF Economy recovers with broad based  IF Recovery falters, or if interest rates job growth (unemployment <8.5%) rise, housing prices slump further Fundraising as incumbent  Fundraising against incumbent Troops come home early (from Iraq)  Turmoil rises in MidEast as Troops exit Ground game (GOTV) mobilizes urban  Lower city turnout in swing states, with vote in swing states… fewer races for higher Tea Party turnout in suburbs. governor than in 2010 GOP governors push in swing states. Independents see GOP House blocking  Independents see Democrats refusing budget deal (Govt shutdown) to curb spending for budget deal Stable or lower fuel prices (<$100/bbl;  Any calamity in Middle East or storm and <$4 / gallon gasoline) damage that stresses oil prices Stumbles by GOP candidate  Any scandals tied to White House 62
  • 63. Summer Politics… Fuel Prices 63
  • 64. Election 2012: Scenarios?Obama at even odds. GOP positioned to take Congress. GOP keeps House & takes Senate GOP loses House seats / Senate 50/50ObamaRe-elected 50% 10% Scenarios?GOPwins 40% 0%Pres. 64
  • 65. EBI Summit Election 2012: Scenarios?If Obama is re-elected, Government will be intensely divided. GOP keeps House & takes Senate GOP slim hold on House / Senate 50/50 “GRIDLOCKED GRISTMILL” “WHITE HOUSE LEVERAGE”Obama Troops come home on timeframe Cutbacks at Pentagon; troops home Re- Tax deal showdown in 2013 Urban renewal, city water projects Tug of war on agency priorities Tax cuts for wealthy expireelected EPA constrained on regulations Clean Air Act revisions put forward Lots of veto threats, some vetoes New nuclear still moves ahead Moderate Supreme justices with lower emissions RIGHT-SIZING GOVERNMENT DOWN “SENATE CLOTURE BATTLES ” GOP Federal land sales, projects Renewable energy standards stay wins More oil and gas pumping Push for energy independence with New nuclear and some coal plants domestic drilling, usage, pipelines Pres. More energy R&D, incentives More energy R&D, incentives EPA withers with wave of retirees Lots of acrimony on spending cuts More conservative judges; Tax cuts Moderate Supreme justices 65
  • 66. After GOP debates and after primaries in South Intrade.com: Political Futures (as of 14 Mar. 2011) As nominee… General election…M.ROMNEY >85% OBAMA WINS: 50% 60% Sen. RUBIO as Veep 25% Snowe retires SANTORUM <5% GOP TAKES SENATE 75%  55%R.PAUL 2% GOP HOLDS HOUSE 70% 66
  • 67. Third Party Run… ? [not likely]Palin – Perot Gore – RFK, JrSee, here’s the Deal; She’s in charge Save the Earth… Again ! Nunn – Norris Schwarzenegger – Cheney Vote for us; no one gets hurt Shock und Awesome ! Iran, Y’all are Toast ! 67
  • 68. REVIEW: 2008 Result: 365 / 173  No states flipped for GOPGOP has few places it can go to regain states: OH, VA, FL, IN, NC, CO (+95) Strong Dem (265) Weak Dem (26) Barely Dem (74) Exactly tied (0) Barely GOP (14) Weak GOP (39) Strong GOP (120) 270 Electoral votes needed to win Map algorithm explainedDem Pickups: CO FL IN IA NV NM NC OH VAGOP Pickups: NONE http://www.electoral-vote.com/ 68
  • 69. Outlook2012: How many of 9 States that flipped stay Blue? 2012 election is first one with results of 2010 census. FL now has same electoral count as NY Red states: +5 net So, GOP needs + 92. States that flipped Blue from 2004. http://www.270towin.com/ 69
  • 70. Outlook2012: CORE States for Each Party (1992-2008) BLUE CORE EDGE: 19 States have voted Democrat in each of the last five elections, with 242 Electoral Votes for 2012. (270 to win). Only a dozen states with just 101 EVs have voted every time since 1990 for Republicans. GOP needs to flip a Blue State to create any cushion for losses in 2012. http://www.270towin.com/ 70
  • 71. Outlook -- possibly just MO, NV and NH determine winner2012: Very few States Decide the Outcome 2012 election is first one with results of 2010 census. Red states: +5 net since 2008. So, GOP needs + 92 to reach 270. Likely GOP Pickups: OH IN VA NC … FL Battleground in Midlands: MO, IA, MI, WI ? NV, NH ! If Team Obama keep the core of 242 (19 states), then winning FL is enough for victory. http://www.270towin.com/ 71
  • 72. Possibility ? 269 to 269… Constitutional Crisis ?2012: Possible Deadlock given Tendencies Could the 2012 election end in a deadlock like 2000 ? GOP Pickups: FL OH IN VA NC NH Dems hold: CO NM NV + Omaha, NE President selected in NEW House… Each state, one vote. [GOP holds 5 of 7 single seat states, 30 of 50 delegations.] http://www.270towin.com/ 72
  • 73. States: “Red” (Bush) vs. “Blue” (Gore/Kerry)Different priorities will alter market opportunities for environmental firms. Red States (Bush) Blue States (Gore/Kerry) Chemical plants & NASCAR!  High-tech & Hockey Film: “Talladega Nights”  Film: “An Inconvenient Truth” Producer states: Opportunities  User states: Need upgrades of for expansion of energy energy infrastructure: pipelines infrastructure (pipelines, LNG) and transmission, urban load Roads and suburbs; SUVs rule!  Mass transit, congestion tolling Transportation and siting projects  Hybrids and “clean fleets” More energy exploration  More “green energy” policies State PUCs approve “clean coal”  More lawsuits on coal power plants (with scrubbers) + gas plants (feud over NSR, CAA) Water + drought management  Water infrastructure makeovers Real estate development and  “Restoration Economy” and land more access to federal lands use conservation EBI Summit 2007 73
  • 74. Dealing with Gridlock… Do Something ! 74
  • 75. END / Q&A2008 2012? 75
  • 76. Mapping Scenarios to manage Uncertainty in Energy / Environmental Policy Political Scenarios: 2012 Election OutcomesSCENARIO (I) Divided Govt (II) GOP Takeover (III) Obama Gains Likelihood==> 50% 40% 10%Presidency Obama Re-elected GOP wins WH Obama Re-electedHouse [New lines for 2012] GOP keeps House GOP keeps House GOP loses HouseSenate [23 Ds / 10 Rs] GOP takes Senate GOP wins Senate Senate split NETTax cuts to stimulate economy Possible Likely Not likely Coin tossTransport Bill Renewal (SAFETEA-LU) Might pass in 2012 Likely YES LikelyEnvironmental legislation Not likely No chance Not likely NOEPA regulatory rollbacks Obama veto Virtual certainty No chance 60% NOEPA budget cuts Obama veto Dems can filibuster Not likely SomeClimate bill by 2016 Zero chance No way Still lack 60 votes NOElectricity Reliability measures Likely Probably Likely LikelyFarm Bill (with an energy title) Likely In some form Likely Likely 76
  • 77. Mapping Scenarios to manage Uncertainty in Energy / Environmental Policy Political Scenarios: 2012 Election OutcomesSCENARIO (I) Divided Govt (II) GOP Takeover (III) Obama Gains Likelihood==> 50% 40% 10%Presidency Obama Re-elected GOP wins WH Obama Re-electedHouse [New lines for 2012] GOP keeps House GOP keeps House GOP loses HouseSenate [23 Ds / 10 Rs] GOP takes Senate GOP wins Senate Senate split NETPotential Energy bill Clean Energy Standard Not likely Not likely Complicated Not likely Repeal of oil tax subsidies Not likely No way Complicated Not likely Offshore exploration Likely Virtual certainty Complicated Likely More use of federal lands Likely Likely Likely (lawsuits?) Likely Extended RE subsidies (>2012) Possible Not likely Likely Possible Reliability standards Likely Probably Likely Likely National Infrastructure Bank Complicated Not likely Likely Coin tossDefense spending Weapons cutbacks Some cuts Troops back sooner No growthDOD uses 3rd-party financing Possible Possible Likely PossibleDefense cleanup budget ($5) Steady Some cuts New BRAC SteadyDOD clean energy inititiatives Expanding Might survive Likely LikelyEPA Budget & Priorities More pressure for cuts Regulatory relief No increase Cuts 77
  • 78. EBI Summit Wrap-up: Some Discussion Themes Opportunities Challenges E&E well-managed thru recession; now “lean and mean”  Natural gas price horizon looks low for a decade; N.gas <$4 Following US Corps overseas… and global MNCs with int’l standards  “Stimulus cliff” (Recovery Act over); Treasury grants expired. Asia still expanding at rapid rate: Deeper austerity in EU energy, minerals, food  Equity capital in retrenchment; ENERGY – WATER – FOOD nexus; Credit crisis remains for lenders internal “resource accounting”  Struggle for siting, grid, pipeline State RES remain: >70,000 MWs integration continues Grid reliability, integration, storage,  Political gridlock, lack of leaders driven by results, not just regs (leadership shifts to states) – Data, IT needs for new relations global problem at national level More emphasis on partnerships 78