Utility Growth Opportunities

By Lewis Tagliaferre | Feb 15, 2006
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After nearly five years of political wrangling, Congress passed and President Bush signed the Energy Policy Act (EPAct) on Aug. 8, 2005. The first comprehensive energy update since 1992, the House Committee on Energy and Commerce said, “It will promote conservation, reduce our growing dependence on unstable oil supplies from the Middle East, improve our economy, and create new jobs.” Opponents say it focuses too much on more of the same and not enough on alternative fuels and conservation. But a careful reading of its provisions leads to the conclusion that more work and not less will result for electrical contractors stemming from its many provisions.

When it comes to electricity, the policy authorizes a new public/private electric reliability organization, promotes restart of nuclear power and shifts toward use of clean-coal technology for future power generation. Provisions also include development of hydrogen fuel and more use of renewable fuels in generation portfolios, plus improved technology and products for energy efficiency.

There could even be a hybrid truck or two in your vehicle fleet partially funded by tax incentives for replacing present gas-guzzling trucks and SUVs. Look carefully in the following highlights, and you may find some opportunities for new business described here that could emerge in the next few years. But, don’t expect things to stay the same.

Repeal of Public Utility Holding Company Act (PUHCA)

Electrical contractors working in operation and maintenance for utility plants could see fewer, but larger, types of clients. The repeal of PUHCA by the EPAct will facilitate mergers and acquisitions (M&A). More companies will soon propose to combine with other utilities.

Three such proposals currently are under consideration. Foreign companies and investors from nonutility industries may see an opportunity to purchase or co-invest in U.S. electric utilities. The traditional role of the U.S. Security and Exchange Commission (SEC) in reviewing M&A proposals is eliminated. Is the requirement for utility combinations to be contiguous or interconnected among adjacent states?

M&A approval still is subject to state approval, and both the states and the U.S. Federal Energy Regulatory Commission (FERC) are given additional authority to review books and financial records to ensure fiscal integrity and nonabuse of market power. Contractors maintaining utility plants could be affected if their clients lose identity and operational control, so keeping ahead of M&A will be important.

Petroleum development

The EPAct provides incentives for constructing more refineries and increasing domestic oil production. Electrical contractors in these areas could see rising opportunities if the industry responds to the tax incentive. In addition to financial incentives, the EPAct requires establishment and maintenance of inventory of offshore resources. This stipulation provides a starting point for future additional offshore oil drilling and gas leasing in areas currently off limits to leasing and drilling.

The EPAct also enhances the ability of oil companies to site new offshore pipelines in the Gulf of Mexico region. Nevertheless, increasing demand could require the United States to possibly double imports of foreign oil the next decade, requiring expansion of port facilities, refineries, and storage and distribution infrastructure.

Energy project siting and infrastructure development

Major energy facilities for power generation and transmission will be easier to site, so delays will be shortened and projects approved more rapidly. Work for contractors in power plant construction and high voltage lines may see considerable acceleration.

The EPAct encourages the siting and development of energy facilities and resources by providing financial incentives and granting new authority to the FERC to intervene where states find it difficult to get projects moving. Financial incentives and the upward pressure on oil and gas prices are likely to accelerate efforts to develop and produce marginal domestic resources of oil and natural gas.

Federal authority for siting badly needed and delayed liquefied natural gas (LNG) terminals and distribution will encourage early expansion of that sector where it is now stifled by local opposition groups. Those companies with pending LNG and oil and gas projects should maximize the development and production of facilities that qualify for the new investment incentives.

Impacts on nuclear power

The EPAct encourages the renewal of nuclear energy programs that have been dormant more than 20 years. Tax credits and loan guarantees are provided for thousands of megawatts and could substantially lower the cost of new plants to consumers. Funding for more nuclear energy research and development demonstrates a renewed commitment from the U.S. government to next-generation nuclear technologies.

The Nuclear Regulatory Commission (NRC) is given new streamlined licensing procedures that will help mitigate the inevitable opposition to regeneration of nuclear power. Contractors supporting these efforts may see renewed activity in related government and private labs and institutions. As with all power plants, security measures will be of primary importance to nuclear power plants, so expect the latest in access controls, detection and defensive protection to be employed.

Provisions for electric transmission

High-voltage transmission lines get strong support in the EPAct. The Department of Energy (DOE) is given broad powers to designate transmission “corridors of national interest” in order to rapidly upgrade or add transmission capacity for reliability or economic purposes. The economic aspect of this authority could be controversial.

If states cannot act because special interests oppose the economic analysis, FERC could then require the development of transmission in those corridors. This authority will also make it harder for public interest and environmental groups to delay the approval of power lines, so line builders will likely see more work opening up.

The EPAct also promotes additional electric transmission infrastructure by requiring the setting of common nationwide standards for electric reliability, the setting of incentive rates for transmission, and the creation of a national organization that will monitor the status of the grid. These provisions imply a shift of authority from the states either to the federal government or to regional operating organizations for transmission grid operations.

Improvements in renewable energy

Renewable forms of energy are strongly encouraged, but there is a window of opportunity to pursue them. The EPAct provides for substantial production tax credits (1.8 cents per kWh) for many renewable energy options for nine years, if they are online by the end of 2007.

On the other hand, the Act does not provide for a national renewable portfolio standard (RPS), something many conservationists wanted. Still, available tax credits and the growing role of state energy offices in setting building performance standards are likely to help expand use of solar and wind projects, in addition to distributed energy applications. There could be a flurry of activity the next two years as users rush projects to completion in order to capitalize the tax credits. The EPAct, as described in a highlight sheet issued by U.S. House Committee on Energy and Commerce Press Office:

°Reauthorizes the Renewable Energy Production Incentive program to provide renewable energy production incentives for solar, wind, geothermal, biomass and expands it to include landfill gas

°Authorizes $100 million for increased hydro-power production through increased efficiency at existing dams and modernizes the nation’s hydro-power laws to allow increased production, without compromising existing environmental protections

°Directs the agencies of federal government to use more renewable energy, with a goal of using 7.5 percent or more by 2013.

The impacts on energy efficiency

Energy efficiency is given a strong push. Special provisions in the EPAct will establish new efficiency standards for a wide range of appliances that supply the loads wired by electrical contractors. It also will make it easier for the DOE to run voluntary energy-efficiency programs. Hybrid vehicle tax credits will enhance awareness of and interest in hybrid vehicles, including new trucks and other vehicles, possibly of use to electrical contractors. New home builder tax credits will enhance a residential builder’s ability to construct more efficient homes.

Appliance manufacturer tax credits may encourage those that build such structures to push the envelope of energy savings potential. Although these measures may not substantially reduce national consumption of oil imports, they could impact the designs of buildings and power distribution and control methods. According to the highlight sheet, the EPAct:

°Requires a 20 percent reduction in federal building energy use by 2015, provides funding for energy-efficiency programs for public buildings, including schools and hospitals, and increases fuel efficiency requirements for federal vehicles

°Authorizes $3.4 billion a year for 2005 through 2007 for the Low Income Home Energy Assistance Program (LIHEAP). It also increases funding for low-income weatherization programs and state energy programs to improve energy efficiency

°Expands the Energy Star program, a government/industry partnership for promoting energy-efficient products and buildings

°Establishes new energy-efficiency standards for many new commercial and consumer products that use large amounts of energy—providing significant savings on monthly energy costs

°Permanently authorizes Energy Savings Performance Contracts in upgrading federal facilities, but limits the number of federal agencies and number of contracts, so that the program does not score above $500 million.

Clean coal and gasification incentives

The EPAct provides incentives for expanding and developing clean-coal and coal gasification technology projects. Contractors involved in mining and coal distribution will see expansion of work to bring the nation’s vast coal reserves into more prominence for power generation plants. The act provides substantial amounts in direct grants, loan guarantees and accelerated depreciation, divided among different technologies and types of fuel, to make this coal option an economic preference. By stimulating further reductions in the level of power plant emissions, these incentives will give the United States a response to international critics of its position on global warming.

The Edison Electric Institute, association of investor-owned utilities, summarized the act this way, “Taken together, these provisions will help provide consumers adequate and reliable supplies of electricity at reasonable cost in an environmentally acceptable manner with more renewable, clean and energy-efficient options.” Increasing work for electrical contractors is a good benefit too. EC

TAGLIAFERRE is proprietor of C-E-C Group. He may be reached at 703.321.9268 or [email protected].



About The Author

Lewis Tagliaferre is proprietor of C-E-C Group. He may be reached at 703.321.9268 or [email protected].





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