Energy crisis deja vu: the U.S. energy needs--and the world's--are changing fast. Are we prepared?

Is the United States at the beginning of another energy crisis?

Oil prices surged past $50 a barrel in late 2004, bumping heating oil and gasoline to the highest prices in years. Natural gas jumped to around $6 per million Btu after having spent most of the late 1990s at one-third that price. The power transmission system failed in eight eastern and Midwestern states in the summer of 2003--and some of the fundamental flaws that caused the failure have yet to be fixed. And the nation continues not only to import more than half of all the oil it uses, but is now beginning to import more natural gas to make up for its falling gas production. Whether or not these diverse factors add up to a crisis might not matter. The fact is that the energy system is changing fast, and not all of those changes have been easy. Federal energy legislation is stuck in partisan wrangling, so most of the action to address energy is at the state level.

UNDERSTANDING THE CHANGES

Representative Carl Holmes, a Republican, who chairs the Kansas House Energy Committee, suggests that legislators need to understand the fundamental changes at work in the energy system. "Kansas is ninth in oil production in the country," he says. "Oil used to be a big part of the economy in the state, but now our oil and gas production is declining. We're using our energy resources up fast."

Democratic Representative Terry Backer, who chairs the Connecticut House Energy Committee, agrees. "Not only are we using more and more energy, but we are starting to import more and more of it from outside the country. We're starting to expose ourselves to new risks," he says.

Both Holmes and Backer suggest that legislators need to be aware of some big shifts in the way we get our energy, and that we need to think hard about more efficiently using what we have while exploring all the alternatives that will give us new supplies, like renewable energy, along with the fossil fuels we know so well.

The United States is likely to import more and more oil and gas, at the same time other countries are beginning to need a lot more. China's appetite for oil and gas will double every five years at its current 14 percent growth rate. Tom Hewson of Energy Ventures Analysis says the United States is now exporting coal to China. China is on track to add 562 coal-fired power plants over the next eight years. For the first time, China's billion-plus population is starting to affect what we pay for energy, and that's not likely to change any time soon.

Tom Markin, a vice president with BP, observes that at the same time other countries like China are increasing their energy consumption, North America is the only major region showing a decline in gas production. The United States' need for energy just seems to grow and grow.

COMPETITION = HIGHER PRICES

What does this mean for states? It means the states that now see their gas prices set by domestic factors will suddenly start to see their gas prices set by international factors. When Japan was forced to shut down several of its nuclear facilities for an extended period in 2003 it switched to natural gas fired power plants. Since Japan imports almost all of its natural gas, the demand affected international gas prices. If the United States had been importing a lot of natural gas, as it now does with oil, it would have seen its own gas prices go up because power plants went down in Japan.

"Is gas the next oil? Will we be as dependent on imports of gas 20 years from now as we now are on oil?" asks Kansas Representative Holmes.

He has a point. Gas production in the United States and Canada has been declining over the past several years. The country is at least going to have to give a lot of thought to putting up some large new natural gas import terminals, yet hardly anybody likes to see a big industrial facility built nearby.

"People worry about these big import terminals," Representative Backer says about proposed liquefied natural gas terminals in New England. "But the fact is that we have to do something to meet our energy needs."

The fact that these import terminals are even being considered is one among several indications that some big changes in our energy policy may be ahead. Once again, states are taking the lead in thinking about these new energy policies.

THERE ARE SOLUTIONS

"States need a comprehensive energy policy," says Utah Representative Sheryl Allen. "An energy policy is something that states can refer to when they are developing other pieces of energy legislation." Utah is going to spend a good portion of the year developing just such a policy, she says. So is Kentucky.

Given Kentucky's large reserves of coal, Representative Tanya Pullin, who chairs the House Energy Committee, says her state's plan is likely to focus on finding ways to develop new markets. "One thing I'm very interested in is the new clean coal technology," she says.

Clean coal technology vastly reduces tire amount of sulfur dioxide and nitrogen oxides that a power plant releases. Clean coal refers to many things. But frequently it means using technology to turn coal into a gas, and then to run that gas through a standard combustion turbine to generate electricity. Although it's not the cheapest way to generate power and is still a new technology, two first-of-their-kind plants in Indiana and Florida have been using this clean coal technology for years and several others will soon be built.

Dave Hadley, who serves on the Indiana Utility Regulatory Commission is a big proponent of investing in clean coal. "Every utility regulator should ask their utilities to consider an investment in clean coal technology before they make the investment in a conventional facility."

Renewable energy offers a lot of promise, and it costs a lot less than it used to. In 1979, wind energy cost 40 cents per kilowatt hour. Today it costs between 3.5 too 5 cents per kilowatt hour before some federal tax credits.

Almost every state in the West is planning to build some wind projects, and 18 states around the country require their utilities to get some of their power from renewable energy. Colorado's voters passed a ballot initiative in November that requires the state's largest utilities to get 10 percent of the power they generate from renewable sources like wind power.

Representative Jeff Morris, chair of the Washington Science Technology and Energy Committee, suggested that part of the answer max lie in new technology. "Smart electrical meters and distributed generation [small scale power plants often located on a customer's premises] can actually make the power system more secure and can make it run smarter," he says. Morris says it's important for states to remember the role new technologies can play in using the existing system efficiently and in the end reducing our dependence on big power plants and power lines.

Senator Harris McDowell of Delaware looks at the problem a little differently. He believes the nation's energy system needs to invest in efficiency before building new power plants.

"The cheapest and cleanest kilowatt hour of electricity is the kilowatt hour you never generate," he says.

BEING EFFICIENT

Most energy efficiency programs come from states. Fourteen now have a "system benefit fund" which is a small charge on electricity customers' bills. Utilities and the state (or another organization the legislature designates) can spend the accumulated funds on energy efficient measures--subsidizing efficient air conditioners or light bulbs for instance. States use other methods, too. When Colorado's utility proposed to build a 500 MW coal plant in Pueblo, environmental organizations objected, but agreed to support the construction when the state's major utility agreed to fund large energy efficiency programs.

So is there a silver bullet that can solve this quiet energy crisis? Maybe not, but perhaps that silver bullet needs to fit in the cartridge of a six-shooter. The nation's need for energy is growing so fast, and the world's need for energy is growing even faster. We're going to need it all--whether it be using energy as efficiently as possible, introducing new sources of energy, finding ways to make use of our coal resources within constraints of today's and tomorrow's environmental regulations, or stretching the most out of domestic and imported natural gas and oil.

With the deadlock in Washington, D.C., on any major new energy legislation, it is once again up to the states to find solutions that work for them.

REPRESENTATIVE

CARL HOLMES KANSAS

REPRESENTATIVE

TERRY BACKER CONNECTICUT

REPRESENTATIVE

SHERYL ALLEN UTAH

REPRESENTATIVE

TANYA PULLIN KENTUCKY

REPRESENTATIVE

JEFF MORRIS WASHINGTON

MAJOR NATURAL GAS TRADE MOVEMENTS

TRADE FLOWS WORLDWIDE (BILLIONS CUBIC METERS)

[ILLUSTRATION OMITTED]

NATURAL GAS PRODUCTION

Gas production increased during 2003 in all regions apart from North
America, where it declined for the second consecutive year. The
fastest growth was in South and Central America and the Caribbean,
reflecting big increases in Trinidad and Tobago, and Argentina.

[ILLUSTRATION OMITTED]

CONSUMPTION
(PRIMARY ENERGY)

The United States consumes more energy
than China, but China's use is growing
more rapidly, jumping 55% from 1993 to
2003. Increased U.S. use for this period
was a comparitively small 13%. China
increased its energy use by almost 14%
between 2003-2004 alone.

[ILLUSTRATION OMITTED]

RENEWABLE ENERGY STANDARDS

Eighteen states require their utilities to get a
percentage of their power from renewable
energy by a target year.

States          Requirements       Target Year

Arizona         1.1% (60% solar)      2007
California      20%                   2017
Colorado        10%                   2015
Connecticut     10%                   2010
Hawaii          20%                   2020
Iowa            2%                    1999
Maine           30%                   2000
Maryland        7.5%                  2019
Massachusetts   4%                    2009
Minnesota *     19%                   2015
Nevada          15% (5% solar)        2013
New Jersey      6.5%                  2008
New Mexico      10%                   2011
New York        24%                   2013
Pennsylvania    8%                    2020
Rhode Island    16%                   2019
Texas           2.7%                  2009
Wisconsin       2.2%                  2011

* Includes minimum requirements adopted for one utility.

SYSTEM BENEFIT FUNDS
FOR RENEWABLE ENERGY

(Cumulative between 1998 - 2017)

Fifteen states place a surcharge on consumers'
bills to fund renewable energy development.

                 Fund Amount by 2017
States              (in millions)

Arizona                 $234
California             $2,048
Connecticut             $248
Delaware                 $18
Illinois                $114
Massachusetts           $494
Minnesota               $200
Montana                  $14
New Jersey              $286
New York                 $89
Ohio                     $25
Oregon                   $95
Pennsylvania             $67
Rhode Island             $30
Wisconsin                $21

RELATED ARTICLE: Unfinished business.

The 109th Congress must deal with a long list of unfinished business left over from 2004. One long-standing issue is the energy bill, which narrowly failed in a November 2003 Senate filibuster vote.

The filibuster targeted a contentious safe-harbor provision for producers of methyl tertiary-butyl ether (MTBE), a fuel additive whose use in recent years has become controversial because of incidents of water contamination.

In an attempt to prevent another deadlock between the chambers, House Energy and Commerce Committee Chairman Joe Barton of Texas says he will wait for Senate Energy and Natural Resources Committee Chairman Pete Domenici of New Mexico to take the lead. Domenici already has laid the groundwork to reopen natural gas discussions. In December, he issued a request for proposals on natural gas issues and was to have held a conference on natural gas production and demand issues late in January.

Other issues of importance to states are also likely to come up this session. One would remove much of the authority for permitting construction of certain power transmission lines from the states and place it instead with the Federal Energy Regulatory Commission. Another major provision would convert some voluntary standards that keep the power system running reliably to enforceable mandatory standards. Finally, it is likely that Congress will attempt to repeal the Public Utilities Regulatory Policies Act, which many states rely on to encourage renewable energy production in their states.

--Tamra Spielvogel, NCSL 

Matthew H. Brown directs NCSL's energy program.