Energy Policy

Advanced Energy Economy's Woolf says EPA climate rule to converge with utility business evolution in 2015

As Republicans gain control of both chambers of Congress this week, energy and climate issues are expected to dominate discussions on Capitol Hill. How will the power shift, oil price dynamics and the Obama administration's executive actions on climate impact policies coming out of the 114th Congress? During today's OnPoint, Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy, previews crucial legislative and regulatory energy battles expected this year. He also explains how the debate, and likely vote, on the Keystone XL pipeline could set the stage for subsequent energy measures.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy. Malcolm, thank you for joining me again.

Malcolm Woolf: Happy to be here. Happy New Year.

Monica Trauzzi: Happy New Year. Malcolm, as Republicans gain control of both chambers of Congress this week, energy and climate issues are expected to dominate much of the discussion on Capitol Hill. Oil prices continue to drop. So do prices at the pump. How is that going to impact the types of legislation and the types of discussions we see over the next year out of this Congress?

Malcolm Woolf: I think it's actually wonderful that we're now experiencing the politics of prosperity. We've got low oil prices down below $50 a barrel I saw yesterday. Natural gas prices are low. Real benefits to the U.S. economy and to U.S. consumers. It's also a great time to start thinking about the next generation of advanced energy technologies, how do we keep that energy prosperity going. We've all see that what goes up must come down and vice versa. And both coal and natural gas are global commodities, and we've seen the risks that come with being vulnerable to a single global commodity. So fuel diversification, employing the new technologies that are coming along are really -- now is a great time to do that because we are reaping the benefits from the existing technologies.

Monica Trauzzi: Do you think there's pressure to do that now because the prices have dropped so low?

Malcolm Woolf: I think there's some opportunities to do so now. I think the pressure is less coming from the prices and more so from customers, from consumers who are really seeing the new technologies and opportunities and want to take advantage of it themselves.

Monica Trauzzi: Keystone is at the top of the agenda for Republicans. How long do you anticipate we could see that dominating the discussion here in Washington? How much room is that going to take up?

Malcolm Woolf: It certainly seems like, you know, it's one of the first items of business that they plan to get through. It's going to be interesting to see how that plays out. Certainly seems like they've got the votes to pass something. Unclear whether President Obama will veto it or whether there's enough votes to sustain an override, so that it's an issue that I think is going to resolve itself one way or the other pretty quickly.

Monica Trauzzi: But it also could foreshadow how things might go on other policies later in the year.

Malcolm Woolf: Absolutely. And interesting the decision, or at least the statements to have an open process and to allow for free amendments is going to be interesting 'cause that's really been one of the issues that's bottlenecked so much bipartisan legislation, hasn't found a way to get enacted. And, you know, even things that weren't controversial became a Christmas tree for things that were, and it's going to be interesting to see whether the open amendment process is something that is going to be able to move forward.

Monica Trauzzi: Right, Shaheen and Portman comes to mind when you ...

Malcolm Woolf: That is one of them. Sure.

Monica Trauzzi: EPA will be finalizing its Clean Power Plan this year. We're expecting that to come in June. Talk a bit about how the challenges of the evolving utility business model are going to come in line with that final rule.

Malcolm Woolf: Yeah, I think 2015's going to be a really interesting year 'cause we're seeing two different trends kind of converging, one of which is the evolving business model. Utilities in particular have seen generally, over the last few years, low load growth. At the same time, they're seeing increased customers' expectations. Customers want to use their Nest thermostats to control their home. They want to take control of their load. They want to put solar or other sources of fuel ... generation on their home. So utilities have to think through, given the new technologies, given the changing expectations, what is our business model. And as they're planning out the next 10, 20, 30 years, at the same time, they can't ignore what's going to happen on carbon, and whether it's EPA's Clean Power Plan or some other form of that carbon controls, utilities making 30-year-plus investments have to deal with that. So I think you're seeing an increased role in 2015 of the utilities finally being forced to kind of make a decision and to place a bet on how are these utility models going to play out and how do we hedge our risks in a -- kind of in a carbon world that, in the next 30 years, they have to anticipate.

Monica Trauzzi: But it is a big bet because there's a strong possibility that the rule won't hold up in court.

Malcolm Woolf: Sure. There is definitely that risk that the rule won't hold up, although the Supreme Court has said on several occasions that EPA has the right to regulate carbon. So whether or not this rule gets remanded or not, I think a utility looking decades ahead, which they have to do if they're going to build a new coal plant or a new natural gas plant or a new nuclear facility. They've got to be thinking through those risks, and so I think a lot of them are gravitating towards the no regrets strategies. Increasingly you can hedge your risks by investing in efficiency. You can invest in renewables. The low-carbon technologies that are increasingly cost-competitive tend to be a way for utilities to diversify their mix, and I think we're going to see, for business reasons, a lot of utilities moving in that direction.

Monica Trauzzi: How critical are state regulators in sort of facilitating that transition in business models but also ensuring reliability?

Malcolm Woolf: Absolutely. They are the front lines on both of those issues. I sometimes think of them as the 200 most important people you've never heard of, the state utility commissioners. They are ultimately -- their ultimate job is to keep the lights on through a liability as well as to keep prices affordable, yet they're increasingly being asked by state legislators to perform a third role, which is public policy purposes, whether it's grid reliability through microgrids or renewable portfolio standards or greenhouse gas goals. So they've got a really tough important job, and it changes a lot. A lot of utility commissioners govern investor-owned utilities, which are only a small portion of some states' utility energy mix. So they are really at the front lines of figuring out how do we plan for an energy future that deals with the evolving business model, the carbon constraints and the reliability needs that we've got.

Monica Trauzzi: And some of these state regulators are very concerned about the role of the Clean Power Plan in ensuring reliability.

Malcolm Woolf: Absolutely. And reliability is central and EPA is also very aware of that. I think actually the concerns are a little bit misplaced. We've -- there have been studies done by PGM, by Minnesota, by California that have found that increased renewables at rates far higher than EPA's even suggesting can be integrated. You've got to do some more advanced work, you've got to talk to communities so that you can cite the projects, but there's ways to integrate them. Certainly the technology's there that really can work. We also think that EPA's proposal is actually very conservative on energy efficiency. They've proposed a 1.5 percent target as they calculated their target for efficiency. We've seen that, that lots of utilities have done that. BG&E which serves most of Washington, D.C., and Pepco, they've certainly been able to do that, and that doesn't even count the whole energy services ESCO market -- a $4.7 billion market today that EPA didn't even calculate. So when you add in what can be done on energy efficiency, it really adds a safety margin in terms of reliability. 'Cause if we can control load growth, it makes it that much easier to keep the lights on.

Monica Trauzzi: Natural gas is a critical element of the policy, but right now, state and local fracking policies don't really seem to be in line with the overarching natural gas policy that we see coming out of this administration. What's the future of that? How are these two going to converge?

Malcolm Woolf: Yeah, I don't know if they're going to converge. All politics is local, and when you're siting, you're doing local fracking, it's -- you know, you're concerned about the local aquifer and local trucking access and a lot of the local issues, and you're seeing it play out. Certainly we're experiencing the benefits of the fracking boom, low natural gas prices. In certain states such as New York with Governor Cuomo recently putting the moratorium, I think the patchwork is probably going to continue 'cause these issues are largely done at a state and local level. That said, it does seem to be an emerging kind of gold standard coming out of the states and localities about how to regulate fracking appropriately, how to do so in a way that's responsible, and as that continues to get traction, I think that's ultimately going to be the way that the issue resolves itself.

Monica Trauzzi: All right. We'll end it right there. Thank you for coming on the show. Nice to see you again.

Malcolm Woolf: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow. Very nice.

[End of Audio]

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