Policy outlook 2012

1. Policy & Political Outlook for 2012
“Era of Uncertainty” in Energy & Environmental Policy
and difficult Budget Landscape

 14 March 2012
San Diego, CA
Andrew Paterson 619-807-3267
Environmental Business International
www.ebiusa.com
adpaterson@gmail.com
EBI: 619-295-7685

2. EBJ: What’s IN, What’s OUT for 2012
Navy Seal Teams
Occupy Moscow Vladimir Putin
(Stanford  Colts)
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3. EBJ: What’s IN, What’s OUT for 2012
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4. Opening Observations & Uncertainties
Unfortunately, policy uncertainties will continue to increase going into 2012 election.
 The 2010 election had deep results (like 1994) at federal and state level, not a typical election.
 Obama still a better than even odds for re-election (50/50 60/40), unless the economy slumps further.
 But the Democrats could narrowly lose the Senate in 2012 (down 3-5 seats of 23 to about 49 vs 51).
 Republicans would still lack the size of the majorities Democrats enjoyed from 2007 to 2010. Gridlock.
• Hence, the 2012 election, could intensify Divided Government rather than resolve the partisan split.
Federal deficit will not be easily resolved; Super-Committee failed. Budget sequestration looms
 Entitlement reform holds the key to breaking the Deadlock; GOP willing to lose election rather than raise taxes
 DOD budget is already seeing some cutbacks with early troop draw down (Army). Look at base conversion.
 Budget pressures may force DOD to arrange more third party financings on construction, energy infrastructure.
 But, no cushion is built up for a Major Disruption (MidEast chaos, US quake, storms, epidemic, recession…)
Carbon cap is dead; Energy Security continues to be a priority, but Recovery Act is over.
 The Kyoto Protocol (cap and trade) approach is derailed now, likely through 2020, and would not be enforceable
anyway. Federal rule-makings would have mired it for years (Several agencies; 30+ rule-makings).
 Climate change is still occurring, but policy options will shift to domestic security and adaptation, if anything.
 Leverage to deal with GHG emissions has swung to Asia and North America, away from a stagnant EU.
 Hence, agency goals (e.g., DOD, DOI, EPA), and budget priorities are MORE important. [Exec Order 13514]
 Utilize Policies already in place: EPAct 2005, EISA 2007, ARRA, Tax deal 2010, State Measures… (!!)
 Replace “global warming” with “Energy Security” and “Resource Management” (fuels, water, land, etc.).
 Lenders and bond funds will drive more financing of energy infrastructure worldwide than carbon trading.
Hence, the health of credit markets will be more important than legislation.
4

5. Environmental Consulting by Media, 2010
5

6. REVIEW: Environmental Consulting Drivers
After 2008 After 2010
After 2010
election election
New Environmental Legislation HOPE NOPE!
New Infrastructure, permitting actions YES Delayed
(Water, power, transport, wiring…) Recovery Credit
Act (ARRA) squeeze
Energy Development Some, RE Yes: Oil, Gas
Yes: Oil, Gas
(despite Deepwater Horizon)
Economic Growth Recession Fragile
Fragile
(severe strain remains in credit markets) recovery
recovery
Commercial real estate turnover Depressed Lagging
Lagging
Hazardous waste / Remediation Declining Weak
Weak
EPA Regulations (CAA; Water, etc.) YES! YES, but
(lawsuits)
(lawsuits)
6

7. 9 Mar. 2012
Economic Recovery… “Where are We?”
Economic Cycle Research
Institute (ECRI)
The Weekly Leading Index
(WLI) growth indicator of the
Economic Cycle Research
Institute (ECRI) came in at -2.6 9/11
in today's public release of the NOW
Credit
data through March 9th. This is
Crisis
the eighth consecutive week of
improvement (less negative)
data for the Growth Index and
the highest level (i.e., least
negative) since August 19th of
last year. The underlying WLI
also improved, increasing from
an adjusted 124.1 to 124.3.
A significant decline in the WLI has QE 2
been a leading indicator for six of
the seven recessions since the
1960s. It lagged one recession
(1981-1982) by nine weeks. The QE 1 QE 2.5?
WLI did turned negative 17 times
when no recession followed, but 14
of those declines were only slightly
negative (-0.1 to -2.4) and most of
them reversed after relatively brief
periods.
http://dshort.com/articles/ECRI-Weekly-Leading-Index.html#ixzz1PqWIXGp0
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8. Engineering Firms recovering slowly (S&P 500)
Not quite
caught up
with S&P 500
8

9. View from the White House: Recovery !
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10. Agency Recap: EPA, DOE, DOD
?
10

11. EPA Budget for FY2013 proposed; no growth
Cutbacks focused in infrastructure finance, state water revolving funds.
Source: EPA
Budget in Brief
11

12. EEI, NAM, Chamber: “EPA Job-killing machine”
EPA Regulatory Timeline, with Impact in Energy
Source: EEI
2012
12

13. DOD FY2012 Proposal: Draw down
Troops coming out of Iraq in Dec. for draw down; but could DOD cuts be bigger if Congress fails ?
13

14. DOD Environmental Budget, 2010 – 2012
Flat outlook, but vulnerable to cuts going forward.
Two new BRAC rounds proposed for 2013, 2015.
Between FY 2011 and FY 2012, the Department’s Defense Environmental Restoration Program decreases by $72.1 million, reflecting
price growth of $23.1 million and programmatic decrease of $95.2 million (-6.2 percent). The FY 2012 program decrease of
$95.2 million primarily reflects a decrease in the Army program (-$105.2 million) because the Military Munitions Response Program
requirements were reduced from previous estimates. There also were minor decreases in the Navy (-$0.8 million), FUDS
(-$4.2 million), and Defense-Wide (-$0.3 million) offset by an increase in the Air Force (+$15.3 million).
Cleanup budget is higher (within $1,467.3M), while investigations are lower as more sites move into later stages.
http://comptroller.defense.gov/defbudget/fy2012/fy2012_OM_Overview.pdf
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15. DOD Operational Energy Strategy (June 2011)
Drivers for combat mirror needs in Civil Affairs: Efficiency, lower cost, options or
diversification, adaptability for logistics, less pollution and lower carbon footprint.
DOD’s Operational Energy
Strategy outlines three principal
ways to a stronger force:
1. More fight, less fuel:
Reduce the demand for energy
in military operations.
2. More options, less risk:
Expand and secure the supply of
energy to military operations.
3. More capability, less cost:
Build energy security into the
future force.
Also: http://greenfleet.dodlive.mil/energy/task-force-energy/
15

16. DOD Energy Use (2010): Air Mobility
Fueling aircraft is the leading use of energy. Navy runs nuclear powered ships.
The measure calls for projects to start
in more than a dozen areas over the
next year. It includes the creation of a
Defense Operational Energy Board,
made up of senior civilian and
uniformed military officials, that will
oversee the new strategy. It will also
create an alternative-fuels investment
portfolio to help develop new sources
of fuel
The U.S. military has been aware for
years of the dangers of extended
supply lines and energy-hungry
troops and equipment, but leaders
have focused on other priorities.
"People are dying today. Where is the
sense of urgency?" said Steve
Anderson, a retired U.S. Army
general who ran logistics in Iraq
during the 2007 surge of U.S. troops.
16

17. U.S. Fuel Consumption & Sources, 2000 – 2011
US crude oil import deficit peaked in 2006, and is declining with recession, domestic production and use of biofuels.
Declining crude imports since 2006
(from 60% to 50% of total)
Rising U.S. crude
oil production
Ethanol increasing
Bio-fuel standards in EPAct, EISA
Exports rising (shown as negative, outflow) 
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18. U.S. Fuel Consumption & Sources, 2000 – 2011
Gasoline for motorists runs about 50% of total oil consumption -- other uses: aviation, heating oil, industry, maritime.
Strategic factors to
Declining crude imports since 2006 Arab Spring, monitor:
[ Price doubled, Libya, Iraq
(from 60% to 50% of total)
Imports down 25% ]
• Air emission trends
and regulations
• Hydro-fracking for
shale gas
• Permits for drilling
• More EOR, some
CCS with MMV
Rising U.S. crude • Water use; Ground
Retail gasoline price oil production water management
(U.S. average)
• Terminals for gas
Ethanol increasing transfer (LNG)
Bio-fuel standards in EPAct, EISA
• Pipelines
• Oil price volatility
Exports rising (shown as negative, outflow)  impacting finance
• Oil and gas supply
|--Slowdown --| disruptions
N.Gas turmoil. EPAct 2005 EISA 2007 |------Recession ----|
• Storm damage
• Bio-refinery siting
• Vehicle engine
Chinese stockpiling (for diesel generators) plummeted in July 2008 just prior to the Olympics, followed by recession. changes
18

19. EIA: Liquid Fuel Supply, 1970 to 2035 (AEO 2012)
Since 2007, Economic recession
and financial turmoil dampened
overall demand, globally.
More domestic production with
more EOR, Gulf production.
Some sales of hybrid vehicles
since 2005, but sales slumped in
2008. Now about 1m a year.
230m vehicles in U.S. fleet.
REF standards in EPAct 2005
and EISA 2007: More biofuels:
EIA: U.S. renewable fuel standard now set at 20.5
billion gallons by 2015 (~15% of consumption),
3 billion from cellulosic feedstocks (non-food).
For 2022, 36 billion gallons (about one-fourth of
projected consumption), 16 billion in cellulosic
fuels by 2022. EISA is the Energy Independence
and Security Act of 2007 (P.L. 110-140).
19

20. Mexico… Peak oil crisis (Baker Institute)
Peak Oil hit Mexico in 2005. Ripple effects are unfolding now.
Exports
declining
Domestic
demand
Domestic
demand
20

21. DOE FY2013 Budget Request: $27.1B
EE/RE remains the favored child with a $2.2B request. FE the loser.
EM flat at $5.7B, with a few big sites garnering two-thirds of funds.
FY 2012
Enacted
11,000
9,252
1,808
139
564
858
5,710
169
4,874
275
0
$26,300
Request FY2013: $27,155

22. DOE Energy Loan Programs: >$60B in credit
Nearly 40 conditional commitments have been offered (~$34B in loan value).
ARRA portion (Sec. 1705) expired 9/30/11, but Sec. 1703 (self pay) continues.
House Investigations on Bankruptcies are plaguing the program now.
But, only one-third of loan values have actually been disbursed to date.
Loans offered:
Auto sector: $8.4B
Renewable
sources: $14.96B
Efficiency: $0.32B
Nuclear: $10.3B
TOTAL $34.0B
22

23. “We don’t want Gov’t picking winners, losers”… (?!)
“Too Big to Fail” ?!
23

24. Converts ITCs or PTCs to a cash grant from Treasury
Treasury Grants: $9.2 billion (ARRA Sec. 1603 program)
As of Sept. 2011:
• Total projects funded = ~20,000
[19,200 of them small solar projects]
Solar in CA, TX
Wind in TX, IL, WA, OR
• Total installed capacity: 13.6 GW
[but about 4 GW, adjusted for usage]
• Total Grant Funding = $9.15 Billion
[$7.26B for wind of 12.1 GW ]
- about $7,780 per KW (adjusted for
capacity factor of 30%) on 13.6 GW
• Total private and federal investment
= $31.1 Billion
• Total estimated electricity generation
from projects = 35.0 TWh [since 2009]
About 0.3% of U.S. total (4 min a day)
Treasury 1603 Grant Status:
www.treasury.gov/initiatives/recovery/Documents/2011-04-06%20-%20S1603%20Overview.pdf
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25. Expired 12/31/11
Treasury Grants: $7 billion (ARRA Sec. 1603 program)
Total Awards by State (by April 2011)
Treasury 1603 Grant Status (updated monthly) :
www.treasury.gov/initiatives/recovery/Documents/2011-04-06%20-%20S1603%20Overview.pdf
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26. EIA: Outlook for U.S. Power Sector Build
N.Gas over-build
[Wind]
[Wind]
More N.Gas build…
http://www.eia.gov/electricity/
26

27. EIA U.S. Electricity Fuel Mix, 2010 (AEO 2011)
Non-hydro renewables up to 4% from 2.4% in 2000.
27

28. U.S. Electricity: Generation vs Capacity, 2000 & 2010
Investment in renewable capacity needs to be placed in perspective relative to the entire landscape of electricity…
at 2010
Coal
Generation: Million MWhs
at 2000
Nuclear
N.Gas
Hydro
Biomass
Wind
Geogeysers
Oil
GWs
SolarPV
28

29. US Dry Gas Projection
Shale gas is a game changer on the energy landscape; low prices pressure other
options out of the market. Will EPA water regulations curb some development?
29

30. Fracking Future ? Groundwater regs ?
30

31. EBJ: Remediation Market Niche Outlook, 2011
Annual survey of >300 executives
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32. EIA U.S. Electricity Fuel Mix, 1990-2020 (AEO 2012)
32

33. Utilities Closing 1,000s MW of Coal Units
Utility AEP to close some coal plants, upgrade others TVA to Spend as Much as $5 Billion to Resolve
Washington Post -- June 9, 2011 Carbon Violations in U.S., close 18 coal plants
AEP, the nation’s biggest coal-based utility, said it would shut down five aging Bloomberg -- Apr 14, 2011 The Tennessee Valley Authority agreed to close 18
coal plants, convert at least two others to natural gas and retrofit a dozen more as coal-fired generators and install as much as $5 billion in pollution controls to
part of a $6 billion to $8 billion plan it said would help it comply with proposed resolve alleged Clean Air Act violations in Alabama, Kentucky and Tennessee.
Environmental Protection Agency regulations. The settlement with the Environmental Protection Agency and the states requires
AEP joins other utilities — including the Tennessee Valley Authority, Dominion TVA to install equipment targeting nitrogen oxides and sulfur dioxide, which
create acid rain, the TVA said today in a statement. TVA, created in 1933 by
Resources and TransAlta — that have decided to close coal plants and upgrade
President Franklin D. Roosevelt, will invest $350 million in clean-energy projects
others for economic reasons or in conjunction with EPA negotiations. and pay $10 million in civil penalties.
Coal-fired plants account for nearly 25,000 megawatts, or 65 percent, of AEP’s The TVA, which owns 59 coal-burning units, said it will replace the units with
total generation capacity. AEP’s plan would close down 6,000 megawatts of low- or zero-emitting sources, including renewable energy, natural gas and
coal-fired units. The five plants that will close include units dating back to 1944; nuclear. The government-owned company, faulted by environmental groups for
the newest of those units is 51 years old. operating old and polluting plants, said it aims to become a top U.S. provider of
AEP chief executive Michael G. Morris complained in a statement of “unrealistic cleaner energy by 2020.
compliance timelines in the EPA proposals” that he said would force AEP “to “These units are among the first built by TVA and have served us well over the
prematurely shut down nearly 25 percent of our current coal-fueled generating years,” Chief Executive Officer Tom Kilgore said in a statement. “But as times
change, TVA must adapt to meet future challenges.” Bruce Nilles, head of
capacity.” He predicted higher electricity rates.
energy programs at the San Francisco- based Sierra Club, said the agreement is
Rep. Shelley Moore Capito (R-W.Va.) and Sen. Joe Manchin (D-W.Va.) “by far the largest coal-retirement settlement in the nation’s history.”
immediately pounced on AEP's announcement. “This is a perfect example of the “Tennessee and the surrounding region have been getting hammered by the
EPA implementing rules and regulations without considering the devastating pollution from TVA’s coal plants for more than half a century,” Nilles said in an
impact they may have on local economies and jobs,” Capito said. interview. The generators are, on average, 47 years old, exceeding their intended
But environmental groups said that the plants to be closed were too old to be life span of 30 years to 40 years, he said.
economically viable and that AEP needed to comply with a court order to curtail ‘Drive Up Utility Bills’
toxic emissions. “EPA regulations do not require any power plants to shut Representative John Duncan, a Tennessee Republican, said the agreement will
down,” said Vickie Patton, a lawyer at the Environmental Defense Fund. increase energy costs for consumers. “The EPA has gone power mad,” he said in
“Companies like AEP make the decision — either invest in common retrofits like a statement. “I’m disappointed that TVA caved in to these demands. This
settlement will drive up utility bills for people in Tennessee and the surrounding
scrubbers to clean up pollution, or close down old and poorly controlled plants
states and hurt poor and lower income people the most.”
and replace them with cleaner, more efficient generation.” Mary Anne Hitt, a
Representative Ed Whitfield, a Kentucky Republican and chairman of the House
Sierra Club official, said those emissions contribute to thousands of premature
Energy and Commerce Committee’s energy and power panel, said the agreement
deaths from asthma and heart attacks and added $62 billion a year to health costs. reflects the efforts of environmental groups to dictate policy.
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34. EIA: Renewable Electric Sources to 2035
34

35. Meanwhile, Clean Energy still lagging…
NEX Global Index of Clean Energy (95 Co.s)
The NEX is a global index of 95 firms
listed on 27 exchanges in 22 countries
(excluding Hong Kong and Taiwan)
whose innovative technologies and
services focus on the generation and use
of cleaner energy, conservation,
efficiency and the advancement of
renewable energy in general.
The NEX Universe
Companies worldwide active in wind,
solar, biofuels, hydro, wave and tidal,
geothermal and other renewable energy
businesses, as well as energy
conversion, storage, conservation,
efficiency, materials, pollution control,
emerging hydrogen and fuel cells.
NEX is a rule-based index and uses equal-
weighting methodology modified by sector and
market capitalization bands to provide
diversification across the clean energy industry.
The index is rebalanced quarterly on the last
business day of March, June, September and
December, when the components and the initial
weights are determined. At rebalancing no single
http://www.nexindex.com/pdf/2011_09_30_nex%20factsheet.pdf component can exceed 5% weight.
35

36. Solar firms dim since summer (vs. NASDAQ)
Lower stock values hinder raising capital in clean energy; No IPOs.
36

37. EIA: US Electricity Fuel Mix, 1990-2020 (AEO 2012)
Observations: Trends in U.S. Electricity - Summary
• Overall electricity consumption is still rising, but the recession has cut growth
forecasts, with some efficiencies also. [But, very little electrification of transport.]
• With closures of older coal plants (perhaps 10%-20% of capacity by 2020), coal’s
share of electricity is expected to decline from roughly 50% in 2000 to about 40% of
national supply by 2020. [Much of it old, seldom run plants.]
• MORE GAS: With a sharp rise in shale gas availability since 2007, natural gas is
replacing coal as it is retired. Gas turbines were over-built in the late 1990s, and
some of that capacity is being turned on now as natural gas prices dropped from
>$12/Mbtu in 2008 to less than $4/Mbtu with the onset of the recession, gas glut.
• Relicensing of reactors and construction of four reactors (GA, SC) will keep nuclear
at 20% of supply through 2020. This contrasts with a decline in Europe and Japan,
and a reactor building boom in China, Korea and Asia, despite Fukushima.
• Hydropower remains stagnant; no new dams since the 1960s.
• Renewable sources are rising, particularly given state RES policies: Wind comprises
most of the growth, none of it in Southeast. Few new biomass or geothermal units
were built since 1990; Solar stays below 0.5% by 2020 if it triples from 2010.
37

38. Energy Policy needed; but Union divided …
38

39. States not waiting for federal
State RES Map consensus on energy policy.
http://www.ucsusa.org/clean_energy/
39

40. AWEA: Wind Power now at 47,000 MWs
AWEA 4th Qtr report 2011
No wind for
whistling
Dixie
40

41. RFA: 209 U.S. Bio-refineries, 14B gallons
Two-thirds of capacity is in just 5 upper Midwest states: IA, NE, IL, MN, IN (“Big TEN”).
EIA estimates that the RFS of 36B by 2022 will not be met as construction has slowed.
41

42. EIA International Energy Outlook 2010 (base case)
The world remains dependent on Fossil Fuels through 2050 (liquids, coal, gas)
Coal remains an expanding portion of energy supply through 2030 (Asia, OECD).
Coal
(Asian growth)
Rising renewables, but
just to feed new demand,
rather than replace fossil.
Nuclear will struggle to
hold current share (with
new plants).
We cannot conserve our way to lower GHG emissions. Energy use is rising, demanding investment.
42

43. Global CO2 Emissions, 1990 – 2030
“Major Emitters” (Top 10) matter most. U.S.+China = 50% in 2030
Kyoto signers were 55% in 2002;
but will only be 35% in 2030.
1990 2010 2030
43

44. Long Recession = Emissions down to 2025
Enhanced Energy Security
Reduce oil imports
 Better engines
 Plug-in hybrids
U.S. emissions revised downward  Bio-fuels
 Tele-commuting
Credit crisis Better electricity use
Recession  More energy efficiency
 More (shale) gas, less coal
 CHP in Urban areas
 Energy  Water cycles
 More renewable sources
 Waste to Energy
 Build reactors
 Carbon Capture + Utilization
… Reduced GHG emissions
[mutual objectives]
+ Technology job growth
EIA: U.S. energy-related CO2 emissions will not reach 2005 levels until after 2025.
And if policies are extended, then emissions will rise even more slowly to 2050.
44

45. Climate Change Legislation Frozen
Climate-change legislation buried under record snowfall in capital
By Alexander Bolton - 02/09/10 09:30 PM ET Feb 2010
Record snowfall has buried Washington — and along with it, buried the chances of passing
global warming legislation this year. Cars are stranded in banks of snow along the streets of the
federal capital, and in the corridors of Congress, climate legislation also has been put on ice.
Democratic senators say a bill that was once a top priority for the party and for President Barack
Obama cannot be dug up again during 2010. Voters are mostly concerned with jobs and the
economy. Global warming is at the bottom of their list. And now, the paralyzing snowfalls
have made the prospect of winning support for a climate bill this year even less likely.
Sen. Jim DeMint (R-S.C.) on Tuesday used the D.C. snowstorm to make a political jab, saying
that it provides evidence for global warming skeptics. “It's going to keep snowing in DC until Al
Gore cries “uncle,” the conservative Senator tweeted on Twitter.
Sen. Jeff Bingaman (D-N.M.) said the blizzards that have shut down Congress have made it
more difficult to argue that global warming is an imminent danger.
“It makes it more challenging for folks not taking time to review the scientific arguments,”
said Bingaman, who as the chairman of the Energy and Natural Resources Committee has
jurisdiction over energy and climate change issues.
“People see the world around them and they extrapolate,” Bingaman said. “I think that it’s hard to
see an economy-wide cap-and-trade [proposal] of the type that passed the House could prevail,”
he added, though he suggested a more limited alternative could have a better chance. The
seasonal snowfall total for Washington reached 45 inches after nearly two feet of snow dumped
on the region over the weekend. Forecasts predicted another six to 20 inches to fall on Tuesday
and Wednesday, putting the city on course to break a 111-year-old record for its snowiest winter. Democrat Gov. Joe
The record snowfall has forced the House to cancel all votes this week. The Senate met Manchin of WV guns
Tuesday, but may not meet the rest of the week. down Cap and Trade
For critics, it was an opportunity to poke fun at the issue’s most prominent advocate. to win a Senate seat.
“Where’s Al Gore when we need him?” quipped Senate Republican leader Mitch McConnell
(Ky.), who burst out laughing when asked about the prospect of passing cap-and-trade legislation
Tuesday while the city was still digging out. Some Senate Democrats dismiss the role snow has
played in the debate, but they acknowledge there is growing consensus that global warming
legislation will not pass in the 111th Congress. “I don’t think that the climate change with cap-
and-trade is going to pass this year,” said Sen. Kent Conrad (D-N.D.), who as Budget chairman is
putting together Congress’s annual estimate of how much revenue the government will collect
next year and in future years.
45

46. Promote the Upside, rather than Consensus
46

47. Do we need a GHG Bill? EPAct, EISA, ARRA
 TRANSPORTATION
 Renewable Fuels Std at 36b gallons by 2022, with cellulosic
 Upgraded CAFÉ on engines in the EISA bill… but automakers digging out
 Transportation package possible in 2012, with energy title
 ENERGY INVESTMENT
 DOE Loan Guarantee Program from EPAct ‘05, expanded in ARRA
 DOE LGs now bigger than DOE… >$60B, all fuel sources
 ARRA spending on Energy + “Smart Grid” at 2x-3x previous budgets
 ARRA tax credits through 2016, plus Treasury grants to 2012
 30 states have RES which is a steadier driver than cap and trade + RGGI
 Rate base still available in the Southeast, Midwest for big projects [debt]
 RESIDENTIAL / COMMERCIAL
 Expanded building and appliance standards, but huge base
 National EE Action Plan with states… but N.gas is cheap again
 Will the commodities (oil, gas, metals) roller coaster continue ?
 Wild card: is fuel supply secure, or more volatility, higher prices ahead ?
47

48. U.S. States & Infrastructure… bigger drivers after Recovery Act subsides
NARUC Perspective: compounding rate pressures
State Utility Commissions face several pressures going into 2012:
1. Expansion and mandatory gas pipeline safety measures (after San Bruno)
2. Smart grid and transmission upgrades, other electricity investment
3. Water utility rates and financing either urban upgrades, or rural extensions
4. Telecommunications rate recovery for expanding broadband
Broadband
wiring
Urban
water
Marcellus Shale drilling upgrades
(permitting, planning)
San Bruno gas pipeline explosion (Sep 2010)
48

49. NERC: EPA Air Rules to Impact Reliability
NERC Long-term Reliability
Assessment (Oct. 2010)
Several regulations are being
promolgated by the EPA. Depending
on the outcome of any or all of these
regulations, the results may
accelerate the retirement of some
fossil fuel‐fired power plants. The
EPA is currently developing rules
under their existing regulatory
authority that would mandate existing
power suppliers to invest in retrofitted
environmental controls at existing
generating plants or retire them.
In particular, four active EPA rule-
making proceedings could have
significant effects on grid reliability as
early as 2015. These rules under
development include:
1. Clean Water Act – Section 316(b),
Cooling Water Intake
2. Coal Combustion Residuals As a result of these accelerated retirements, capacity reductions may diminish reserve
(CCR) Disposal Regulations margins and could impact bulk power system reliability in the near future. Potential
3. Clear Air Transport Rule (CATR) impacts of EPA regulations on bulk power system reliability include not only retrofitting
4. Title III of the Clean Air Act – existing generation but also constructing or acquiring replacement generation or other
National Emission Standards for resources. Bulk power system planning and operation approaches, processes, and tools
Hazardous Air Pollutants (NESHAP) will require sufficient time for changes to be made, otherwise either reliability will suffer or
for the electric power industry aggressive environmental goals may not be attainable. Therefore, the risk to reliability is a
[MACT Standard] function of the compliance timeline associated with the potential EPA regulations.
49

50. FERC hearing focus on Nov. 29-30, 2011
NERC: Reliability Assessment 2010
Facing more RE sources and uncertainties…
In summary (p.40), the ranking of the
2010 Emerging issues suggest the
industry is being asked to solve many
multifaceted, interconnected issues,
while at the same time providing
reliable service to its customers.
The industry is in transformation, (State RESs)
where many interrelated issues
present complex risks to bulk power
system reliability across the planning,
design, and operational spectrum.
Overall, the risk assessment
suggests more than the relative
importance of individual issues, but
the confluence of the interrelated
issues emerging simultaneously.
While during the short‐term,
solutions, approaches, and best
practices are being developed,
significant challenges exist in the
long‐term that must be overcome.
50

51. 
…Political Outlook to 2012


52. Political Mood…
52

53. Control of SENATE by Party, 1976 - 2010
In 2012, Dems will have 23 seats to defend, while only 10 GOP senators are up.
Senate Control, 1976-2010
Democrat Republican
65 Carter Reagan Bush, Sr Clinton GW Bush, Jr Obama
Dems +6 in 2006
In 1994 Republicans recaptured what they and +8 in 2008
60 had under Reagan in the Senate.
55
50 ?
45
The 2000 election split the Senate 50-50.
40
1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12
53

54. 2010 Results for the SENATE: 6 seats shift
Republicans gained most in the Industrial Heartland, Plains.
Old Senate in
Senate: 2011
59 Ds  53 Ds
-6
41Rs  47 Rs
9 votes 3 votes
Either party can
easily block major
legislation via
filibuster.
Murkowski caucuses
with GOP
54

55. Current split: 53Ds – 47Rs
Senate 2012 Rack-up: -3 to -5 Ds = 51Rs – 49 Ds
D = 9 of 23 D = -1 D = -2 to -4 D = -1 or -2 R = 7 of 10
No losses
R = -1 to -2
Safe D “Leans D” Toss-up “Leans R” Safe R
CA-Feinstein FL- Bill.Nelson Democrats ND- [Conrad] IN-Lugar
DE-Carper MI- Stabenow HI- [Akaka] MT-Tester MS- Wicker
MD-Cardin MN-Klobuchar NM- [Bingaman] TN-Corker
NY-Gillibrand NJ-Menendez VA- [Webb] WY-Barrasso
RI-Whitehouse OH- Brown WI- [Kohl] UT-Hatch*
AZ- [ Kyl ]
VT-Sanders WV-Mancin MO-McCaskill TX- [Hutchison]
Republicans
PA-Casey NE-B.Nelson MA- S.Brown
WA- Cantwell CT- [Lieberman] NV- Heller
ME- [Snowe]
* Potential retirement
http://cookpolitical.com/charts/senate/raceratings.php
http://www.electionprojection.com/2012elections/senate12.php
Peaking ahead to 2014… 20Ds, 13Rs
[ OPEN; Retiring ] Could lead to Democrats losing 2-4 more seats.
55

56. GOP turnout triggered DEEP gains in states, not just broad wins in the Congress.
GOP Gains Leverage for 2012 via State Houses
Overall, Republicans have exclusive
control of redistricting in 202 districts,
Democrats hold authority in 47
districts, bipartisan or citizen
commissions will draw 92 districts, SOURCE: NCSL
control is divided in 87 districts, and www.ncsl.org/tabid/21253/default.aspx
seven districts are in At Large states
that do not require redistricting.
About 200 more districts will be
created via participation by both
parties or by non-partisan panels.
California voters approved a ballot
measure Tuesday that transferred the
design of districts from the
Democratic-controlled Legislature to a
non-partisan commission.
Republicans won control of 19
legislative chambers across the USA.
Democrats won zero.
Republicans flipped both legislative
chambers in Alabama, Maine, Source: NCSL.org
Minnesota, New Hampshire, North
Carolina and Wisconsin. The party
won control of houses of
representatives in Colorado, Indiana,
GOP governor
Iowa, Michigan, Montana, Ohio and
Pennsylvania.
Independent Commission
56

57. GOP turnout triggered DEEP gains in states, not just broad wins in the Congress.
Comparison: State Houses before 2010 election
Republicans Make Historic Gains in 2010
Republicans have added over 675 seats to their ranks in this election, dramatically surpassing 1994 gains. This number could go even
higher as the tallies in the undecided races are determined. The chamber switches thus far are all Democratic to Republican except for
Montana House which was tied and is now Republican, and the Oregon House which was Democratic and is now tied. This is the first
time in Alabama that Republicans have controlled the legislature since reconstruction. The North Carolina Senate has not been
Republican since 1870. And Republicans have reportedly taken over 100 seats in the New Hampshire House.
The Minnesota Senate will be controlled by the GOP for the first time since Minnesota switched back to partisan elections in 1974.
GOP gains
Alabama - House and Senate
Colorado - House
Indiana - House
Iowa - House
Louisiana - House
Maine – House and Senate
Michigan - House
Minnesota - House and Senate
Montana - House
New Hampshire - House and Senate
New York - Senate
North Carolina - House and Senate
Ohio - House
Pennsylvania - House Source: NCSL.org
Wisconsin - Assembly and Senate
Tied : Oregon House; Alaska Senate
One chamber still has undecided seats:
New York House.
57

58. Weak GOP seats were culled in 2006; no Dems lost in 2006 or 2008.
Control of HOUSE by Party, 1976 - 2010
A realignment occurred in 1994 with
new district lines and the loss of
conservative Southern Democrats.
Post-Watergate high water
mark for Democrats. House Control, 1976-2010
Democrat Republican
350Carter Reagan Bush, Sr Clinton GWBush, Jr Obama
300 House flips to GOP,
without new lines
250
?
200
150 Democrats recapture House in
2006 as Iraq War festers.
 40 years of House rule by Democrats
100
1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12
58

59. 2010 Results for HOUSE: 63 seat swing
Gains by Republicans were distributed widely in suburbs.
Old House in
House: 2011
256 Ds  193 Ds
-63
179 Rs  242 Rs
Chris Lee
(R-26)
38 votes 24 votes
(Margin needed for
218 votes.)
Despite big swing,
GOP margin is less
than the margin
Democrats had.
Less 1 Republican (NY-26) The Vote on Waxman-Markey (July 2009):
Of 49 Democrats elected in 2006 or 08:
And minus ― 21 voted for HR 2454 and lost
one Weiner ― 12 voted for HR 2454 and survived
(NY-9) ― 16 abstained and only 3 survived
59

60. U.S. Political Party Process
Democrats take Congress GOP kicked out ADPaterson
of White House
Foreplay
yields
2006 2008
A huge stubborn beast that is difficult to move.
2011
US Congress
2010
60

61. Contest for President 2012
61

62. 2012 Election Factors
Factors Favoring Obama Factors Favoring GOP
 IF Economy recovers with broad based  IF Recovery falters, or if interest rates
job growth (unemployment <8.5%) rise, housing prices slump further
 Fundraising as incumbent  Fundraising against incumbent
 Troops come home early (from Iraq)  Turmoil rises in MidEast as Troops exit
 Ground game (GOTV) mobilizes urban  Lower city turnout in swing states, with
vote in swing states… fewer races for higher Tea Party turnout in suburbs.
governor than in 2010 GOP governors push in swing states.
 Independents see GOP House blocking  Independents see Democrats refusing
budget deal (Govt shutdown) to curb spending for budget deal
 Stable or lower fuel prices (<$100/bbl;  Any calamity in Middle East or storm
and <$4 / gallon gasoline) damage that stresses oil prices
 Stumbles by GOP candidate  Any scandals tied to White House
62

63. Summer Politics… Fuel Prices
63

64. Election 2012: Scenarios?
Obama at even odds. GOP positioned to take Congress.
GOP keeps House & takes Senate GOP loses House seats / Senate 50/50
Obama
Re-elected 50% 10%
Scenarios?
GOP
wins 40% 0%
Pres.
64

65. EBI Summit
Election 2012: Scenarios?
If Obama is re-elected, Government will be intensely divided.
GOP keeps House & takes Senate GOP slim hold on House / Senate 50/50
“GRIDLOCKED GRISTMILL” “WHITE HOUSE LEVERAGE”
Obama Troops come home on timeframe Cutbacks at Pentagon; troops home
Re- Tax deal showdown in 2013 Urban renewal, city water projects
Tug of war on agency priorities Tax cuts for wealthy expire
elected
EPA constrained on regulations Clean Air Act revisions put forward
Lots of veto threats, some vetoes New nuclear still moves ahead
Moderate Supreme justices with lower emissions
RIGHT-SIZING GOVERNMENT DOWN “SENATE CLOTURE BATTLES ”
GOP Federal land sales, projects Renewable energy standards stay
wins More oil and gas pumping Push for energy independence with
New nuclear and some coal plants domestic drilling, usage, pipelines
Pres. More energy R&D, incentives More energy R&D, incentives
EPA withers with wave of retirees Lots of acrimony on spending cuts
More conservative judges; Tax cuts Moderate Supreme justices
65

66. After GOP debates and after primaries in South
Intrade.com: Political Futures (as of 14 Mar. 2011)
As nominee… General election…
M.ROMNEY >85% OBAMA WINS: 50% 60%
Sen. RUBIO as Veep 25%
Snowe retires
SANTORUM <5%
GOP TAKES SENATE 75%  55%
R.PAUL 2%
GOP HOLDS HOUSE 70%
66

67. Third Party Run… ? [not likely]
Palin – Perot Gore – RFK, Jr
See, here’s the Deal; She’s in charge Save the Earth… Again !
Nunn – Norris Schwarzenegger – Cheney
Vote for us; no one gets hurt Shock und Awesome !
Iran,
Y’all are
Toast !
67

68. REVIEW:
2008 Result: 365 / 173  No states flipped for GOP
GOP has few places it can go to regain states: OH, VA, FL, IN, NC, CO (+95)
Strong Dem (265)
Weak Dem (26)
Barely Dem (74)
Exactly tied (0)
Barely GOP (14)
Weak GOP (39)
Strong GOP (120)
270 Electoral votes needed to win
Map algorithm explained
Dem Pickups: CO FL IN IA NV NM NC OH VA
GOP Pickups: NONE
http://www.electoral-vote.com/
68

69. Outlook
2012: How many of 9 States that flipped stay Blue?
2012 election is first
one with results of
2010 census.
FL now has same
electoral count as NY
Red states: +5 net
So, GOP needs + 92.
States that flipped
Blue from 2004.
http://www.270towin.com/
69

70. Outlook
2012: CORE States for Each Party (1992-2008)
BLUE CORE EDGE:
19 States have voted
Democrat in each of
the last five elections,
with 242 Electoral
Votes for 2012.
(270 to win).
Only a dozen states
with just 101 EVs have
voted every time since
1990 for Republicans.
GOP needs to flip a
Blue State to create
any cushion for losses
in 2012.
http://www.270towin.com/
70

71. Outlook -- possibly just MO, NV and NH determine winner
2012: Very few States Decide the Outcome
2012 election is first
one with results of
2010 census.
Red states: +5 net since
2008. So, GOP needs
+ 92 to reach 270.
Likely GOP Pickups:
OH IN VA NC … FL
Battleground in Midlands:
MO, IA, MI, WI ? NV, NH !
If Team Obama keep
the core of 242 (19
states), then winning FL
is enough for victory.
http://www.270towin.com/
71

72. Possibility ? 269 to 269… Constitutional Crisis ?
2012: Possible Deadlock given Tendencies
Could the 2012
election end in a
deadlock like 2000 ?
GOP Pickups:
FL OH IN
VA NC NH
Dems hold:
CO NM NV +
Omaha, NE
President selected
in NEW House…
Each state, one vote.
[GOP holds 5 of 7
single seat states,
30 of 50 delegations.]
http://www.270towin.com/
72

73. States: “Red” (Bush) vs. “Blue” (Gore/Kerry)
Different priorities will alter market opportunities for environmental firms.
Red States (Bush) Blue States (Gore/Kerry)
 Chemical plants & NASCAR!  High-tech & Hockey
 Film: “Talladega Nights”  Film: “An Inconvenient Truth”
 Producer states: Opportunities  User states: Need upgrades of
for expansion of energy energy infrastructure: pipelines
infrastructure (pipelines, LNG) and transmission, urban load
 Roads and suburbs; SUVs rule!  Mass transit, congestion tolling
 Transportation and siting projects  Hybrids and “clean fleets”
 More energy exploration  More “green energy” policies
 State PUCs approve “clean coal”  More lawsuits on coal power
plants (with scrubbers) + gas plants (feud over NSR, CAA)
 Water + drought management  Water infrastructure makeovers
 Real estate development and  “Restoration Economy” and land
more access to federal lands use conservation
EBI Summit 2007 73

74. Dealing with Gridlock… Do Something !
74

75. END / Q&A
2008
2012?
75

76. Mapping Scenarios to manage Uncertainty in Energy / Environmental Policy
Political Scenarios: 2012 Election Outcomes
SCENARIO (I) Divided Gov't (II) GOP Takeover (III) Obama Gains
Likelihood==> 50% 40% 10%
Presidency Obama Re-elected GOP wins WH Obama Re-elected
House [New lines for 2012] GOP keeps House GOP keeps House GOP loses House
Senate [23 Ds / 10 Rs] GOP takes Senate GOP wins Senate Senate split NET
Tax cuts to stimulate economy Possible Likely Not likely Coin toss
Transport Bill Renewal (SAFETEA-LU) Might pass in 2012 Likely YES Likely
Environmental legislation Not likely No chance Not likely NO
EPA regulatory rollbacks Obama veto Virtual certainty No chance 60% NO
EPA budget cuts Obama veto Dems can filibuster Not likely Some
Climate bill by 2016 Zero chance No way Still lack 60 votes NO
Electricity Reliability measures Likely Probably Likely Likely
Farm Bill (with an energy title) Likely In some form Likely Likely
76

77. Mapping Scenarios to manage Uncertainty in Energy / Environmental Policy
Political Scenarios: 2012 Election Outcomes
SCENARIO (I) Divided Gov't (II) GOP Takeover (III) Obama Gains
Likelihood==> 50% 40% 10%
Presidency Obama Re-elected GOP wins WH Obama Re-elected
House [New lines for 2012] GOP keeps House GOP keeps House GOP loses House
Senate [23 Ds / 10 Rs] GOP takes Senate GOP wins Senate Senate split NET
Potential Energy bill
Clean Energy Standard Not likely Not likely Complicated Not likely
Repeal of oil tax subsidies Not likely No way Complicated Not likely
Offshore exploration Likely Virtual certainty Complicated Likely
More use of federal lands Likely Likely Likely (lawsuits?) Likely
Extended RE subsidies (>2012) Possible Not likely Likely Possible
Reliability standards Likely Probably Likely Likely
National Infrastructure Bank Complicated Not likely Likely Coin toss
Defense spending Weapons cutbacks Some cuts Troops back sooner No growth
DOD uses 3rd-party financing Possible Possible Likely Possible
Defense cleanup budget ($5) Steady Some cuts New BRAC Steady
DOD clean energy inititiatives Expanding Might survive Likely Likely
EPA Budget & Priorities More pressure for cuts Regulatory relief No increase Cuts
77

78. EBI Summit Wrap-up: Some Discussion Themes
Opportunities Challenges
 E&E well-managed thru recession;
now “lean and mean”  Natural gas price horizon looks
low for a decade; N.gas <$4
 Following US Corps overseas… and
global MNCs with int’l standards  “Stimulus cliff” (Recovery Act
over); Treasury grants expired.
 Asia still expanding at rapid rate:
Deeper austerity in EU
energy, minerals, food
 Equity capital in retrenchment;
 ENERGY – WATER – FOOD nexus;
Credit crisis remains for lenders
internal “resource accounting”
 Struggle for siting, grid, pipeline
 State RES remain: >70,000 MWs
integration continues
 Grid reliability, integration, storage,
 Political gridlock, lack of leaders
driven by results, not just regs
(leadership shifts to states) –
 Data, IT needs for new relations global problem at national level
 More emphasis on partnerships
78