On April 20, 2010, a fire on the offshore Deepwater Horizon oil rig caused an explosion killing eleven workers. Within two days, the oil rig sank causing a pipe to break, and since then oil has been spreading rapidly in the Gulf of Mexico. Although the media focus has been on efforts to stop the oil spill, the impact of the oil spill is also affecting proposed federal energy legislation and regulatory oversight of the energy industry in general.
Proposed Legislation and Regulations:
On May 12, 2010, Senators John Kerry (D-MA) and Joe Lieberman (I-CT) introduced the American Power Act (“APA”) to Congress (see May 14, 2010 edition of the WER). One of the key provisions would expand offshore drilling for oil and natural gas. However, several members of Congress, including Robert Menendez (D-NJ), Bill Nelson (D-FL), and Frank Lautenberg (D-NJ), are voicing their opposition to the expanded offshore oil and gas drilling provisions in the APA. Thus far, President Obama has continued to underscore the need for a comprehensive climate and energy bill. Realistically, it appears that the Gulf oil spill disaster means that any compromise off-shore oil drilling provisions contained in the APA are a dead letter at this point in time.
The effort to raise fuel efficiency standards also may be affected by the oil spill. On May 21, 2010, President Obama signed a Presidential Memorandum directing the Environmental Protection Agency and the Department of Transportation to create the first National Policy to increase fuel standards for medium to heavy-duty trucks made from 2014-2018. President Obama also signed an extension on the National Program to increase fuel standards on cars and light trucks made in 2017 and after. This will allow fuel standards to be raised without legislation from Congress. President Obama used the disaster in the Gulf as an example, saying that the U.S. must reduce its reliance on imported oil and develop alternative sources of fuel and new transportation technologies.
Any increased emphasis on fuel economy standards could hasten greater adoption of electric vehicles, which will increase demand for electricity. Thus, over time, electric utilities could see increased customer demand to meet transportation demand. At this point in time though, it is difficult to predict the full impact on electricity demand.
On May 27, 2010, S. Elizabeth Birnbaum resigned as the director of the Minerals Management Service (“MMS”). MMS has been heavily criticized for mismanagement of its regulatory responsibilities and the handling of the oil spill. A week earlier, the Department of Interior Secretary Ken Salazar signed an executive order to reorganize MMS into three parts, and eliminated the Director position altogether.
The order creates the Bureau of Ocean Energy Management, which will oversee traditional and alternative energy development on the U.S. Outer Continental Shelf, and a new Bureau of Safety and Environmental Enforcement. Both will be supervised by Wilma A. Lewis, assistant US Interior secretary for land and minerals management. Salazar also established an Office of Natural Resources Revenue under Rhea S. Suh, assistant U.S. Interior secretary for policy, management, and budget, which will take over royalty and revenue functions that MMS has handled since 1982.
Future of Drilling:
On May 27, 2010, the Obama Administration suspended deepwater drilling in the Gulf and off the Alaskan coast. The President also extended a moratorium on deepwater drilling permits, and canceled a pending oil-lease sale in the Gulf and a proposed lease sale off the coast of Virginia. The moratoriums do not affect existing offshore oil production in the Gulf. However, due to the public scrutiny and upheaval at MMS, the future of offshore drilling is very uncertain. Since drilling and oil demand is not certain at this time, the full impact the oil spill will have on electricity demand also remains in flux.