I asked this question of a couple dozen exhibitors and attendees at the recent Energy 2005 show in Long Beach, CA, and despite some occasional grumbling about sinecures extended to the gas, oil, and nuke folks (the plaint brings to mind Mark Twain's reminder that "People will sleep better not knowing how their sausage and politics are made") the response was decidedly positive. In fact the least enthusiastic comment I received was a curmudgeonly, "Well at least we have something to work with," and I could live with that if I didn't feel that there was a lot more to recommend the Act.

Though there was obviously enough pork captured within its 1,750 pages to guarantee the bill's Congressional success, in the estimation of most of my informants, the costs were acceptable weighed against the value of the Act's underlying messages … high among which is that the lingering dream of a return to the days of cheap energy in the US are as dead as the dodo.

While today's (August 22, 2005) $60+/bbl of oil may well give way to somewhat lower prices tomorrow, there is a growing awareness among even those with the rosiest of glasses that the realities of supply and demand can no longer be swept away by the magic thinking of such luminaries as Nobel Prize winner, Milton Friedman, who predicted $10/bbl oil and the collapse of OPEC. Neither happened, and despite the popularity of similar predictions based to a great extent on the belief that oil-producer greed was at the root of our energy woes, there have been voices in the wilderness for more than a decade promoting the vision that over-demand is the real issue.

Sheik Yamani of Saudi Arabia—concerned as long ago as 1997 that his country was producing nearly 50% more oil than it was discovering—predicted that if the depletion of reserves was allowed to continue, the marketplace and not OPEC would determine the cost of oil and this would lead to a sharp increase in its price. Recently, OPEC Secretary General, Pumomo Yusgiantoro, while admitting that the rapid rise in the price of oil was in his words, "…crazy," went on to point out that the culprit was not OPEC, but in fact the replacement of its buffering effect by the immutable laws of supply and demand.

A Shift in Uncertainty
In fact nothing could be clearer in the Act than the urgency with which our government now views the need to push forward a wide variety of alternative energy activities in the expectation that federal support will encourage private-sector investment. Equally important to the Act's success is more aggressive action on the part of many state governments that have adopted a watch-and-wait posture in the absence, heretofore, of a clear signal from above. Reading what the bill has to say is one thing. How it is interpreted and how aggressively the various players respond are matters that will spell the difference between its success and failure.

Even though no one can predict with any certainty just what the Energy Act's impacts will be, there seems little doubt in the minds of the people with whom I've spoken that it will encourage innovation, not only in the promotion of new technologies, but in how the investment community responds to the opportunities it presents. In fact I suspect that it is in this latter arena that the real action is going to take place.

For instance, almost certainly the removal of restrictions on investment in the electricity and natural gas arena by non-utility concerns will have enormous impacts on the nation's utility structure, though it is not obvious at this early date just what form such investments might take. One consequence of this could well be increased consolidation that might reduce competition in the power delivery system, but the offset to this is that investing institutions might be more inclined to promote distributed generation.

Even though it is not explicitly addressed, the need for the nation to adopt more energy-efficient practices and behaviors is there just beneath the surface of almost every program espoused by the Act. To get a sense of this I'd like to invite you to read Ed Ritchie's The Energy Policy Act: It's All About The Incentives beginning on page 68 of this issue. The article provides a snapshot of what the Act holds for different elements of the nation's energy system. We will follow closely and report on what we see as significant developments, but I would like very much to hear what you have to say.

Please address your thoughts and observations to editor@forester.net.

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DE - September/October 2005