FOR THE first time in at least a decade, government officials are taking a serious look at what passes for a US national energy strategy. Events over the past couple of years suggest that a review and update are long overdue.
President George W Bush has directed Vice-President Dick Cheney to create a task force on energy policy and to work with Senator Frank Murkowski (R-AK) on steering energy legislation through Congress. They certainly have their work cut out.
It takes a tremendous amount of energy — in the form of oil, natural gas, coal, and electricity — to keep the US economy humming along smoothly today. However, supply problems are growing and must be addressed now. Recession and inflation are very real possibilities if the government fails to take action.
Oil prices continue to climb. Natural gas prices soared this past winter, as did electricity rates in some parts of the country, especially California. A colder than normal winter was only partly to blame.
In a special report that starts on page 32, Associate Editor Mary Davis describes how electricity blackouts and skyrocketing utility rates have impacted tank cleaning operations in California. The article warns that more power shortages are likely this summer.
Electricity deregulation is blamed, but that's not the real villain in the California meltdown. Even as the state adopted a so-called deregulation plan, state elected officials did everything they could to create disincentives for utilities to serve the market. Environmental controls are some of the strictest in the nation, which means older power plants have been shuttered and new ones aren't being built. California utilities have had to buy electricity at a premium from sources out of state, but they are prevented by law from passing the full amount of these costs along to consumers.
California's economy is beginning to show signs of power deprivation. In the fourth quarter of 2000, California led the nation in the number of mass layoffs, and forecasters have downgraded estimates of economic growth. Tank cleaning is just one industry sector that is suffering.
California stands as the poster child for how not to do electricity deregulation. While other states are moving forward on deregulation, it's important to keep the California experience in mind and not make the same mistakes.
Natural gas prices also affect tank cleaning and other businesses, and the impact is being felt across the country. Wash racks report that their natural gas costs increased by as much as 100% this past winter. Natural gas production simply has not kept pace with demand.
On top of all that, oil prices are unlikely to drop anytime soon. In fact, the Organization of Petroleum Exporting Countries met in mid-March to discuss cutting oil production for the second time this year already.
High diesel prices have already had an impact that has rippled through the US economy. No trucking company has been spared, and owner-operators were especially hard hit when prices began climbing two years ago. Some owner-operators simply parked their trucks, which added to the driver shortage.
Raw material supply isn't the only factor affecting the price and supply of refined petroleum products, such as gasoline and diesel. For instance, critics of the Environmental Protection Agency's latest clean diesel rule say it will lead to supply shortages. Boutique fuels, such as gasohol, required in spot markets around the country have placed an additional burden on industry, making fuel more expensive and wreaking havoc with supply and distribution.
Demand for product continues to increase, while production decreases. The energy infrastructure — pipelines, refineries, utility transmission lines — is aging and the regulatory environment in most states makes building new facilities difficult, if not impossible.
Clearly, the United States needs a broad-based, comprehensive energy policy. The US Energy Association says the following key factors should be included: oil and gas drilling on public land, greater reliance on nuclear energy, and recognition that no single source of energy can meet growing needs.
The National Energy Security Act announced by Senator Murkowski is a first step, but only a first step. The 300-page bill seeks to reduce the United States' reliance on foreign oil to 50% by opening up new tracts of land for oil exploration, including the Arctic National Wildlife Refuge in Alaska. It would also promote production of alternative fuels, natural gas, coal, and nuclear energy.
The debate in coming months is certain to be lively, as it should be. The future of the US economy hangs in the balance of the energy policy that finally emerges.