Crucial energy-related decisions with 2016 deadlines will face the new Republican-dominated Congress beginning in January.
The headline issues will be EPA emissions cuts, the Keystone pipeline, and an energy bill, but all the energy sectors have a stake in fights coming before the next presidential election.
“Republicans know that come 2016 the tables are turned,” explained Jonathan Weisgall, vice president of regulatory affairs at Warren Buffett’s Berkshire Hathaway Energy. “There will be nine Republican Senators up for re-election in Obama states and seven are freshmen. The dynamic on many issues will be in the Republican party.”
“There may be efforts to work together,” said former DOE official and Iberdrola Renewables Government Affairs Vice President Richard Glick, but “I don’t see House Republicans willing to accept what would get through the Senate.”
“How the House deals with the Clean Power Plan could be an early signal,” Weisgall said. The Environmental Protection Agency (EPA) rule, aimed at cutting U.S. greenhouse gas emissions 30% by 2030 and key to the President’s climate change effort, has an interim 2020 compliance target, he explained.
“To simply extend it without changing the 2030 date is a compromise that might work," Weisgall said. "Anything more serious, like saying it can’t be implemented until all costs and benefits have been spelled out and litigated—which is asking for a decade of litigation—would be tough for the President to swallow.”
Incoming Senate Majority Leader Mitch McConnell (R-KY) knows he cannot parlay deep conservative mistrust of the EPA rules into a veto-overriding super-majority. He will instead use delaying, defunding, and undermining tactics to impede the agency's progress.
“Republicans as a national party don’t believe in global warming,” observed Chadbourne and Parke Partner Keith Martin, “but the President should be able to hold the line on this.”
Where they could agree
McConnell and Speaker of the House John Boehner (R-OH) are already attempting to use their new leverage to push through the controversial Keystone XL pipeline, which would carry Canadian tar sands oil to refineries in the south, during this month's lame duck session
In the next Congress, there will be “a better chance of action in energy though not on big ticket items," Weisgall said. "I can see a modest energy bill with energy efficiency, streamlined regulation, public land uses, expediting LNG exports, and oil exports.”
An energy bill could be "an early indication of whether House Republicans will send something acceptable or something designed to trigger an allergic reaction,” predicted SolarCity Policy and Markets Vice President John Stanton, the former head lobbyist for the Solar Energy Industries Association (SEIA). “That will be an early opportunity for everyone to demonstrate they can work together.”
Any energy bill will likely lack an overt pro-oil or pro-renewables orientation, Stanton said.
“If Republicans want an energy bill, it should be balanced," he said.
Utilities and electric vehicles
Martin wondered if utility allies in the new Congress would push for support for transportation electrification. Massachusetts Department of Public Utilities Chair Ann Berwick recently said it could be the “salvation” of utilities and Southern Company CEO Tom Fanning said it would make utilities better investments by driving demand for electricity, Martin said.
“I don’t think utilities are interested in stimulating that market,” Stanton replied.
“It is not a policy issue,” Glick said. “When there is demand, utilities will embrace the technology. Demand will increase when the battery technology is there and the cost of batteries goes down.”
The solar industry's federal investment tax credit (ITC) is scheduled to drop from 30% to 10% at the close of 2016. Advocates want it extended and the lobbying has already started.
"Solar is a driving force in the U.S. economy,” said Clean Power Finance CEO Nat Kreamer. “Solar CEOs are on the Hill this week getting exactly this message out."
Tax incentives are very important to the renewables, Capitol Tax Partners’ Joseph Mikrut, a former Treasury Department Counsel, said. But he is not optimistic the 2015-16 Congress will continue them.
“There are people and groups that will do anything—and I say anything—to try and stop solar dead in its tracks,” SEIA President Rhone Resch said recently in declaring a campaign to extend the ITC.
Many in Congress aligned with fossil fuel interests want to eliminate it, he said. But polls show more than 90% of Americans support greater development of solar energy. So the industry will be backed in its fight for an extension by a big, determined army. “Forget about it,” Resch warned Congressional opponents of the ITC in a recent speech at a solar convention. “Walk away.”
The start-construction provision for solar
The campaign to keep the ITC in place will also argue for a start construction provision, Resch said. By allotting the 30% benefit not only to projects completed by December 31, 2016, but to those initiating construction by then, the provision would give the solar industry a softer landing.
The production tax credit (PTC) provided for wind and geothermal contains a start-construction provision. A compromise worked out for the closing days of the current session by House and Senate leaders is expected to extend the PTC and more than 50 other tax credits in the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act for two years and make a handful permanent, explained Bracewell & Giuliani Senior Counsel Curtis Beaulieu, a former tax counsel to the Senate Finance Committee.
The problem with adding the start-construction provision for solar is that it is expensive, Beaulieu said. And because it does not expire for two years, it will be easy to put off, Weisgall added.
“The extenders bill is to give us time to do corporate tax reform in the next Congress,” said Geothermal Energy Association Executive Director Karl Gawell. “Even good friends of the renewables like Oregon Democratic Senator Ron Wyden and Republican Senators Mike Crapo of Idaho and Orrin Hatch of Utah say it is time to look at something different.”
A technology neutral tax credit that rewards emissions reductions, similar to a 2013 proposal from former Montana Senator Max Baucus (D), would be the model, Gawell said. But there is not agreement for that among renewables leaders.
A larger policy framework like the Baucus proposal “is a viable concept with merit but won’t come into play without comprehensive tax reform,” Weisgall said.
A PTC phase-out is also something likely to come up during tax reform negotiations. It would likely apply only to new projects and would probably be either a gradual reduction of the 10 year term or a gradual cut in the $0.023 per kilowatt-hour credit, Beaulieu said.
The wind industry could be willing to discuss something like a phase-out “during the next Congress, with all parties that receive energy incentives through the tax code coming to the table to offer something up,” said wind developer Jacob Susman, CEO of OwnEnergy.
“Everyone says they want tax reform,” Beaulieu said. “It is possible but not probable. It depends on what happens in the first 3 months of next year.”
“What the new Congress could do, and it is doable, is good regulatory reform,” Gawell said. Clear consistent rules for geothermal that balance development with protecting the environment would make a huge economic difference to geothermal projects.
“And regulatory reform saves money," he added. "One of the problems facing this new Congress is that even the Republicans will be stymied by the demand for deficit reduction.”
Addenda: The state level
“State capitals across the country will be more Republican than at any time in 100 years and Republicans will have full control of 29 state legislatures,” Weisgall said. “In 2012-13, there were at least 22 efforts across the country to roll back renewables mandates but they all failed. With these election results, there will be new attacks.”