Ushering in the New Energy Age
Prepared for Stateline
2001
It is not a far-fetched analogy to say we are about to see a transformation in the nation's energy model similar to the one we saw in the early part of the last century, when transmission lines began to crisscross the country and electricity began to light up American homes and power American industry's burgeoning expansion.
Today, an enlightened, stable national policy for the New Energy Age will require a fresh approach, inclusiveness and, crucially, a new model to maintain the nation's social, political and military fabric. We may not be able to eliminate our reliance on foreign sources of energy entirely, but we can take advantage of readily available, abundant domestic energy resources and enhance our delivery system.
The Midwestern states will, of course, figure prominently on both the supply and demand sides of this issue, and consequently, I'd like to take this opportunity to put energy policy in a national, as well as a regional, context.
If as a nation and individual states, we muster the vision, will and courage necessary, I believe we have the resources and wherewithal to avoid the disruptive fluctuations in energy prices we've seen over the past 30 years due to our reliance on imported oil. This is why I welcomed the opportunity to serve as chairman of the National Governors Association (NGA) Natural Resource Committee. The nation's governors want an opportunity to take a lead in that transformation, not only for the Midwest and North Dakota, but also for the country.
The NGA approved a strong, effective energy policy proposal last month at its annual meeting in Rhode Island. I've touched on some of its provisions and principles here. But I want to underscore the fact that we must have a seat at the table in shaping and managing any long-term energy policy the nation adopts if that policy is going to succeed. As governors, our states have a vested interest in its outcome.
It bears repeating just why an effective energy policy is so important. Ultimately, energy policy is not just about quality-of-life issues, although Americans have certainly earned their standard of living by dint of hard work and entrepreneurship. Solid energy policy is about maintaining a competent healthcare system, a clean environment and a water-works system that delivers pure, healthy drinking water to all our citizens. It's about sustaining a solid national defense and a vigorous business environment. It's about delivering efficient and limited government to serve taxpayers. Ultimately, it's about America's fitness to serve people.
Unfortunately, however, high-energy prices, energy instability and access to affordable and adequate energy supplies are having a bruising impact on consumers and businesses. It's affecting our farmers, too, not only in North Dakota and the Midwest, of course, but throughout the nation.
Low-income families are particularly vulnerable, paying proportionally nearly four times more than other American households for power. Keep in mind that low-income families spend a much larger percent of their earnings on utility expenses than most Americans.
Rising energy costs for businesses drive up consumer costs, force worker layoffs and swell inflation. Small businesses, an important sector of North Dakota's economy, are particularly hard hit.
A recent survey of small businesses conducted by the National Federation of Independent Business found that more than half of the firms that had experienced blackouts in California last winter had to reduce or shut down business operations during the blackouts. One-third of the businesses lost sales, almost 21 percent said materials were damaged or destroyed and almost 40 percent had to pay employees for work that was not completed. In North Dakota, small business is big business, an important component of our economy.
The impact on farming is particularly disturbing to me. Farm costs since 1990 have risen 55 percent, much of it due to large bumps in the cost of fuel for farm equipment and fertilizer. The effect on farming strikes home here in North Dakota for two reasons: First, 37 percent of North Dakota's economy is related to agriculture; it's a $3 billion industry that has suffered for a variety of reasons in recent years; a weak energy policy only makes farmers' circumstances more difficult. And second, farming is part of North Dakota's heritage. North Dakotans value the independence, courage and professionalism of North Dakota farmers, especially small farmers. They deserve an energy policy that serves them.
Again, to truly make a difference to consumers, businesses and farmers we need a comprehensive, long-term national energy policy that taps the regional wisdom of the nation's governors. Meeting that challenge is a tall order, but I believe the nation is up to the task, and North Dakota is willing to do its part.
North Dakota, for example, ranks sixth in the nation in energy production. Lignite coal alone contributes about $65 million to the state economy. We export over 60 percent of our power, but we, like other states, could be exporting much more energy than we are if the transmission system were not stretched so thin. Typically, our transmission lines are running near full capacity. This is ironic considering California's recent energy woes and all of the near breakdowns in the power delivery system we've seen in other parts of the country this summer.
North Dakota, like other states, could be alleviating the energy shortage in the region, the nation and even in Canada, and that's what we're preparing to do. For example, here in North Dakota, we plan to build two new power plants in the state.
Vision 21, a bipartisan state-industry partnership here in North Dakota, is planning to build two $750 million clean technology coal-burning power plants. Each will generate about 500 megawatts, employ about 1,000 people at an average salary of about $40,000 and contribute about $6 million annually to the state treasury in tax revenues.
Those plants will go a long way toward meeting the rapidly increasing energy needs of, for example, Minneapolis and beyond, while providing high-wage jobs for North Dakotans. And because the plants will use cutting-edge technology, North Dakota's air and water will be protected. That's the kind of initiative that can only work at the state level.
And North Dakota isn't the only state with reserves of domestic fuels and latent generating capacity, and others states, too, have initiatives that could help meet the country's energy needs, which is something the NGA can take a lead role in.
Perhaps no element is more important to a successful energy policy than a market-based transmission system that allows for adequate export anywhere on the continent and that stimulates competition among producers. A company in southern California that wants to buy "green" power from North Dakota, for example, should be able to access it easily and reliably. Upgrading energy transmission will improve energy delivery and supply, and its essentially an issue best addressed on the state and regional level with close federal cooperation.
Currently, little incentive exists for producers to enhance transmission lines or compete for business. In fact, no unified national energy grid exists, and the unintegrated system now in place doesn't enable producers to deliver energy wherever there may be demand for their product. Nor does it allow end users to "shop" for the best energy deal available.
Four independent, but loosely interconnected grids, serve all of North America: the Western Interconnection; Eastern Interconnection; Electric Reliability of Council of Texas; and the Province of Quebec. These grids are linked at only a few locations. Think of them as a plumbing system, but the pipes carry energy instead of water. As the continent's power needs grew over the years, the pipes became too narrow to accommodate the energy flow from one grid to another. In short, we outgrew the system's capacity.
To make the situation even more complicated, in 1996, the Federal Energy Regulatory Commission (FERC) required utilities that owned transmission lines to provide open access to utilities that didn't own transmission lines. This was not a bad idea in principle because it enabled all producers, regardless of size, to get their energy to market, but understandably, it removed any market-driven incentive for producers to build new lines. We want to keep access to the lines open, but at the same time, we want to encourage the industry to upgrade and expand lines adequate to meet demand.
Consequently, it boils down to a matter of supply, demand and delivery. Our challenge is to boost supply and enhance and integrate our transmission grid so that prices remain low and energy is accessible - from anywhere on the continent, to anywhere on the continent. If we accomplish that, price caps on electricity sales, such as the one FERC imposed on California and the Western grid last June, would become unnecessary. The market itself will take care of controlling prices.
In this respect, I think it's important that the energy industry itself take a lead. Producers must find ways to better serve the public in order to compete, and that means committing themselves to enhancing and integrating the continental energy grids to get their product to market. They also need to find new, more efficient and cleaner production technologies. Government - state and federal - can be the catalyst here, but the private sector needs to make it happen. In the long-term, doing so is in their own best interest.
The NGA's position regarding all this is to work with the federal government, with the acknowledgement that the states are well positioned to attract market-based investments in the transmission system and to ensure timely licensing and permitting.
Responsible environmental energy policy is a large part of the mix here, too, and should no longer be a divisive issue for the nation. The NGA recognizes that conservation and improved energy efficiency are the first line, low- cost, environment-friendly options in weaning us from reliance on imported oil.
In the New Energy Age, we know more than ever before about the relationship between energy production and its impact on the environment. Good environmental stewardship coincides here with good energy policy. That's a win-win situation. In my state, in fact, we take pride in our top ranking nationally for our clean environment. North Dakotans know that we need to be good stewards of the land - both for ourselves and our children. Conservation and the environment are issues on which all reasonable parties should be able to reach consensus. A strong business environment is no longer incompatible with a strong natural environment.
Projections by the U.S. Department of Energy (DOE) confirm this. Over the next twenty years, American real gross domestic product (GDP) is estimated to grow by 63 percent between 1999 and 2020, but consumer and commercial demand will actually decrease owing to greater energy efficiency and a reduction in energy-intensive industries. It seems that in the New Energy Age, we can have our cake and eat it, too.
Today, moreover, we're finally able to take renewables out of the realm of science fiction and put them squarely in the realm of practicality. Biodiesel, geothermal, wind and hydropower, all of which are clean, domestic sources of energy, are being developing here in North Dakota and elsewhere. They've been around for years, but we haven't been able to take full advantage of them because of a skeptical public perception, high cost and a transmission infrastructure hobbled by too little capacity and too few tie-ins to out-of-state buyers.
But energy produced from alternative sources is becoming more accessible, more affordable and more acceptable to the public. There is even preliminary evidence that consumers may be willing to pay just a little more for green energy. At least the idea is being floated with consumers by the industry.
Finally, we need a responsive and streamlined regulatory system that ensures conscientious stewardship of the environment, without hurling unnecessary obstacles in the path of responsible energy development.
Responsible and responsive regulation - both environmental and licensing regulation - is something high on the NGA's agenda. We'll be looking at the role the Federal Energy Regulatory Commission (FERC) might play with respect to the principle of state and regional control. The NGA has formed a joint state-federal task force to address just this issue.
But planning energy policy is mere speculation without reliable, unbiased information. Good decisions are impossible at every level without solid data. I'm a pragmatist, a firm believer in supporting and making prudent decisions based on disciplined research, whatever that research tells us. As chairman of the NGA Natural Resources Committee, I'm committed to making sure we have the information we need to make sound decisions.
Here in North Dakota, we rely for information on the University of North Dakota's Environmental and Energy Center, an indispensable, world-class resource for formulating sound energy policy. I, like governors across the country, plan to use the very best data available, combined with the very best principles, to guide us in energy policy.
Many of the issues that concern me, and that I intend to promote as the governor of North Dakota and through the NGA, are addressed in the SAFE bill, Securing America's Energy Future. The U.S. House passed the bill in early August with bipartisan support - 36 Democrats voted for it - and it's now in the Senate.
The NGA looks forward to partnering with the President and Congress to craft the best energy policy possible for the American people. And it appears the President is willing: Among the recommendations in his national energy policy is an explicit recognition of the nation's "unique regional energy concerns" and a pledge to work with the NGA and regional governors associations to "better serve the needs of diverse regions of the country." I find that encouraging.
The NGA's proposed energy policy, the SAFE Act and the President's proposed national energy-policy guidelines represent a healthy base upon which to formulate a durable energy policy. They represent an approach that is comprehensive, responsive to our conservation needs and respectful of state authority and regional differences.
The New Energy Age will touch the lives of an entire generation, so we had better take care to get it right the first time. With constructive state and federal collaboration, conscientious planning, good data - and plenty of good will - I'm convinced we can look forward to an era marked by continuing prosperity and the same exceptional quality of life that preceding generations enjoyed and worked so hard to achieve.
We owe it to our children.