Bush’s Plan Redraws Lines of Power Politics

Calls to drill for oil in the Arctic, increase the use of coal and revive a dormant U.S. nuclear energy industry have generated most of the headlines.

But the most significant--and potentially most controversial--measure in President Bush’s long-awaited National Energy Policy will be the proposal to connect and expand the country’s electric transmission lines to create regional grids and ultimately a national system for efficiently transmitting power across the country.

That seemingly technical suggestion will be controversial, experts say, because the White House will seek legislation to allow the federal government to override state regulations of transmission lines--a hodgepodge of intrastate power grids operated by municipalities and investor-owned utilities that often present bottlenecks to sharing power among utility systems.

By making a point of power lines, the Bush plan acknowledges a key fact: that the energy crisis, as it has widened from California to engulf all of the West and now points east, goes well beyond one of supply and demand--and prices--of crude oil and natural gas. It’s a problem of infrastructure--antiquated or insufficient oil refineries and pipelines, electric generators and transmission lines.

Under proposals in the Bush plan, details of which will be revealed today, owners of power lines would sell them into so-called regional transmission organizations set up by the Federal Energy Regulatory Commission.

The RTOs would be similar to the natural gas pipeline companies that emerged in the 1940s to transport the then-new fuel from the Southwestern producing states to California, the Midwest and the East Coast.

The form of the new transmission companies will emerge in the next year or so, industry experts say. The electric utility industry supports “the creation of regional companies with profit incentives for increasing electricity throughput and minimizing load restrictions,” John Rowe, head of the Edison Electric Institute trade group, advised Vice President Dick Cheney in a letter.

A national grid would allow efficient operation of the country’s power plant system, experts say.

“We have surplus power in some areas and insufficient power in others, notably California and the Western states,” says Lawrence Makovich, electric power expert at Cambridge Energy Research Associates. “The aim of the national energy policy is to achieve balance.”

The energy policy comes against the backdrop of California’s electricity crisis and Cheney’s projection that the country will have to build 1,300 power plants in the next 20 years to ensure sufficient power for a growing U.S. economy.

The sheer number of power plants is not that large in the context of a total of 10,200 power plants in the United States today, and the fact that 80 new plants are expected to come into service this year. (Although most of the new plants are small electric generators for individual companies and institutions.)

But the trend in power plants is significant because most will be fueled by natural gas, which is in tight supply and selling at three times its price of a year or two ago.

Key proposals in Bush’s energy policy will aim to spur exploration for natural gas on federal lands in the Rocky Mountains and in the Arctic National Wildlife Refuge in Alaska.

Experts anticipate that the refuge will be more a source of debate than of natural gas in the coming years, but they foresee the Bush policy pushing approval for construction of a pipeline to bring natural gas now being produced on the North Slope of Alaska down through Canada to the 48 contiguous states.

Other pipelines, such as a gas line from Baja California that received preliminary U.S. federal government approval Wednesday, will also be encouraged.

Bush also is expected to pledge $2 billion for research on ways to burn coal without releasing harmful gases into the environment. But coal faces a problematic future because it creates more carbon dioxide than other fuels, utility executives say, and use of coal will decline over time.

California’s disastrous experience with deregulation played a major role in bringing about the energy policy, says Philip Romero, dean of the Lundquist School of Business at the University of Oregon and an economics advisor to former California Gov. Pete Wilson.

We started deregulation thinking there was a surplus, and were shocked when shortages arose, Romero says. The mistake “exposed a danger to the country.”

The thinking among industry experts is that investment in power plants lagged in the 1990s because of uncertainties surrounding impending deregulation, and that investment lagged in oil and gas because prices were low for years on end.

So the energy policy’s main aim is to spur production.

“If it results in oversupply some years down the road, some businesses will lose money. But they’re big guys, and the system is better off with too much than too little,” says Edward Muller, a Santa Monica-based energy investor and former head of Edison Mission Energy, Edison International’s power plant development unit.

There will be controversy. Groups advocating conservation and energy efficiency will make good points--recalling that in the energy crisis of the 1970s, fuel-economy reforms for motor vehicles and energy-saving innovations in industry dramatically increased efficiency in the U.S. economy. Today, the economy uses only 57% of the energy it required in 1973 to produce the same amount of economic output.

Yet groups arguing for alternative policies will find reason more than contention, energy industry executives claim.

“We must work together with the environmental part of the community. We don’t want gridlock,” says Richard Green, chairman of Utilicorp United, a Kansas City, Mo.-based utility.

“The energy plan by itself is de minimis, unless the Legislature can pass it with large bipartisan majorities,” says the Edison Institute’s Rowe, co-chief executive of Chicago-based utility Exelon Corp.

The new policy won’t deal with massive energy problems anticipated this summer. The problems in fact may well gain support for the policy.

“The policy will gather support through this summer as gasoline prices rise and electricity blackouts make everybody skittish about energy,” Romero predicts. “Bush’s window with this thing is in the hot weather from now till October.”

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James Flanigan can be reached at jim.flanigan@latimes.com.