Will a divided Congress lead to bipartisanship on energy and environment policy? During today's OnPoint, Scott Segal, a partner at Bracewell & Giuliani and director of the Electric Reliability Coordinating Council, previews the debate over climate and energy policy under the new Congress. He also talks about the electric reliability issues surrounding U.S. EPA's regulation of greenhouse gas emissions and other pollutants.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Scott Segal, a partner of Bracewell & Giuliani, and director of the Electric Reliability Coordinating Council. Scott, it's great to have you back on the show.
Scott Segal: Good to be back.
Monica Trauzzi: Scott, coming off of last week's elections, DC is buzzing about what a Republican-led House will mean for the future of energy and environment policy. Does is a shift in the house signal a roadblock on these issues?
Scott Segal: No, I don't think so one bit. In fact, if you look historically at the time that Congress has been the most productive on energy and environmental issues, it's been in a time of divided government. To date, the most expensive environmental statute ever adopted by the Congress was the Clean Air Act amendments of 1990, which was adopted with a Democratic Congress and a Republican president working hand in glove with each other to get it done. Now, what does it require? It requires a little adult supervision. It requires a sense of cooperation. In this particular case, I do not look for comprehensive or omnibus types of legislation in this issue. I think the president himself said a month ago in Rolling Stone and then a couple of weeks ago in another interview and then just the day after the election in his press conference, that he no longer thinks the broad-scale legislative process is going to work. That he's looking more as, I think he put it, to bite-size pieces or bite-size chunks of legislation. But here's the key factor, the president sets the agenda and I think John Boehner has said that in his press conference, Mitch McConnell has said that as well. The president sets the agenda, but if he wants there to be these bite-size pieces of legislation to be passed, then he must come with an open mind with respect to some of the Republican initiatives that will likely travel in tandem with those bite-size pieces of legislation. For example, he's got to be able, once and for all, to bring certainty to the issue of when the EPA's regulatory authority will begin on global greenhouse gases. So what a perfect time to accept a two or three-year delay on the amount of time necessary to develop regulation at the very time that you're succeeding on one of your other policy initiatives, let's say to advance clean energy technology. So it's now a time with a divided government to advance legislation that brings everybody together.
Monica Trauzzi: We'll talk a bit more about EPA regulation in a second. What do you think about John Boehner and his leadership potential?
Scott Segal: Well, John Boehner is certainly an old hand in the ways of Washington. I do not believe, at a personality level, there's anything that would exclude John Boehner from having warm relations on each side of the aisle. He has a lot of friends in this city on both sides of the aisle and I think he'll use that. I think he'll, frankly, with all due respect to Speaker Pelosi, I think he'll probably have a lighter hand leadership than Speaker Pelosi did. It will not be a situation, in my judgment, where he's chasing down every last particular vote or bringing legislation that hasn't been seen before to the floor of the House of Representatives and then insisting on people voting for that legislation as sort of a loyalty test. I don't think we're going to see that quite so much out of Boehner. I don't think that's his personality and I don't think it's his strategy.
Monica Trauzzi: Renewable electricity standard, does it have any legs in the new Congress?
Scott Segal: The renewable electricity standard, as it was constructed or debated over the last couple of years, I don't think that that's going to be advanced in this new Congress for two reasons. The first is I think it's a little bit, as currently drafted, too intrusive in the economy and, frankly, if there's any lesson from the 2010 midterms, it is that the people want cost-effective and modest governmental approaches. They don't want things that are particularly intrusive. In addition, the condition of the economy right now is probably not right for something like that. However, if the supporters of renewable electricity standards could broaden the horizons of their legislation a little bit to include things like nuclear power, a more pronounced role for hydro-electric, the ability to satisfy the rules based on energy conservation programs and a reasonable timeframe, then that type of clean energy standard could definitely be advanced. That could be one of those bite-size chunks the president was talking about.
Monica Trauzzi: We touched on EPA regulation earlier and in his postelection speech the president seemed to sort of be lukewarm about the potential for EPA regulation at the beginning of next year. What was your takeaway?
Scott Segal: Right, well, the president did not offer up a ringing endorsement of an immediate regulatory outcome on global greenhouse gases. Now, I don't think he went as far as to say that he is looking for the Congress to give him a two-year delay or three-year delay or whatever it might be. I think instead what he was saying is that there's nothing that forces him to take a position where only EPA can control CO2. Remember that both President Obama and Administrator Jackson have previously said that the preferable approach would be to have Congress deal with CO2, because that's really new ground for the Clean Air Act. Regardless of what the Supreme Court said, it would still be new ground for the Clean Air Act to do it. Better to have Congress weigh the pros and cons of it and set the course for national policy. So, I think what the president is just sort of re-emphasizing at that point is right. Now, what conditions need to obtain before Congress can act? Well, I don't think Congress is going to act between now and January 2, 2011, which is when carbon dioxide is due to become a regulated pollutant under the Clean Air Act. And since Congress isn't going to act between now and then, some delay, whether legislative or agreed to by the administration in advance must occur in order to give the Congress sufficient time to act. If the president doesn't do it, then what we're setting up is a situation where the administration will essentially be agreeing to a moratorium on all new construction in the energy sector and in the manufacturing sector. Because if CO2 is subject to regulation under the Clean Air Act and the agency has not produced sufficient guidance, has not trained the states in the way that's appropriate to implement that program, doesn't know what's going to go into those permits, it's going to halt construction in this country. If you do that, you will destroy more jobs than the last two years' worth of stimulus packages have created.
Monica Trauzzi: So, you contend that utilities will not be able to keep pace with demand if these regulations are in place on top of all the other regulations that EPA has set for next year?
Scott Segal: Well, there is a broad problem with reliability and I know there's been a lot of commentary on that point. Look, the NERC, which is the North American Electric Reliability Council, which is essentially the nation's grid operator, recently released a report that talked about just four regulations that are faced by the electric power sector. Two clean air regulations, National Ambient Air Quality Standards and a Maximum Achievable Control Technology standard, a waste standard dealing with coal ash and, of course, a water standard dealing with cooling water intake. Looked at those four together and came to the conclusion that if implemented simultaneously there, particularly at a regional level, would be a substantial threat to electric reliability. That was an under estimation of the effect it we'll really be facing. Why? Because it doesn't count CO2 at all, which remember, January 2 is the date at which CO2 is subject to regulation and a lot of the assessments they made about any reservoir of available electric power right now we think are greatly overestimated. Look, we're in an economic recession, that much is true, but we hope everybody thinks that we will slowly be coming out of that recession. If we're going to slowly be coming out of that recession, we can't count on a reservoir of readily available electricity, hopefully, that would be put to use on the country's growth. So there is no backdrop, no essential backstop to prevent us from having a reliability crisis with new regulations in place.
Monica Trauzzi: But have some utilities just been lax about being proactive to set themselves up in a way that they're ready to deal with these regulations?
Scott Segal: Well, I don't believe that's right, because if you look at the actual spending record and the operations and maintenance records of utilities, what you will see is hundreds of billions of dollars have been spent on environmental compliance obligations as it is. So, it's not as though this is a sector that has looked the other way and the proof is in the pudding. The EPA Clean Air Trends report have time after time again shown continual decreases in criteria air pollution in the United States. That hasn't happened by accident, it's happened because the fleet has been subject to air pollution control at great and substantial cost. So these are companies that have made large investments. I'd stack their record of investment against any other sect.
Monica Trauzzi: So what should EPA do?
Scott Segal: Well, EPA should proceed with caution. The yellow light is efficiently on. If I were the Environmental Protection Agency, here's what I would say. If we were to have a true threat to electric reliability in the United States it would be a threat to our economy and a threat to national security. It would be the kind of thing that the president ought to say, you know what, under the authority vested in me under the Clean Air Act, I'm going to say this is an emergency situation. I'm not going to back off from the regulations because those regulations are part of the trust he has under the Clean Air Act. But what I am going to say is I'm going to give a delay of several years in order that the industry can get into compliance, get the technology in place. There is not enough time. If you owned a single utility boiler you might be able to bring it in compliance under the most aggressive implementation schedule that EPA is talking about. But if you own 22 boilers, there's no way. So he ought to think about a reasonable delay that is respectful of what's going on with the economy, respectful of our ability to put more capacity online and what the technology and engineering constraints really are.
Monica Trauzzi: OK, we're going to end it there. Thank you for coming on the show.
Scott Segal: Awesome!
Monica Trauzzi: Good to see you.
Scott Segal: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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