The Energy Policy Act of 2005: a little something for everyone

On Aug. 8, President Bush signed into law the Energy Policy Act of 2005 — the first major piece of energy legislation in more than a decade. It includes provisions that are likely to benefit virtually every aspect of the energy industry.

Because the new law addresses everything from the construction of nuclear power plants to tax credits for energy-efficient products, it will take a while to sift through its 1,724 pages to determine its effect on businesses and consumers in the Granite State. One thing is certain: while it may have long-term impacts on the energy industry, its provisions will not result in immediate price reductions for consumers, either at the gas pump or on utility bills.

The biggest winners are oil and gas producers, who receive a lion’s share of the act’s $14.5 billion in tax incentives and other significant benefits, including provisions related to the treatment of royalty payments and drilling on federal lands. Other big winners include proponents of the construction of new nuclear power plants, companies trying to build new liquefied natural gas facilities and the ethanol industry, which will benefit from a new federal mandate requiring the inclusion on ethanol in gasoline.

More utility mergers

While a large portion of the act’s tax incentives are targeted at oil and gas producers, it does provide incentives for construction of energy-efficient homes, installation of energy-efficient home improvements, purchase of energy-efficient products and purchase of hybrid and alternative-fuel vehicles.

One provision that may have a big impact on utilities doing business in New England is the repeal of the Public Utility Holding Company Act of 1935, or PUHCA. This Depression era legislation put significant limitations on the ability of public utilities and public utility holding companies to merge with or be acquired by other businesses that were not related to the utility industry. PUHCA also required that utility operations be limited to a single integrated system, making it difficult for geographically remote utilities to merge with one another.

The repeal of PUHCA is likely to lead to a significant increase in merger activity involving utilities and make it more likely that utilities may acquire or be acquired by a wide range of unrelated entities, including financial institutions, major industrial conglomerates, oil and gas companies and private equity investors and funds. In addition, the repeal of PUHCA will make it easier for foreign companies to acquire electric and gas utilities.

While the repeal of PUHCA removes a significant burden from utility mergers and acquisitions, these mergers will still receive significant regulatory scrutiny from state public utilities commissions, the Federal Energy Regulatory Commission and the Federal Trade Commission.

Reduced LNG roadblocks

The Energy Policy Act contains significant benefits for the nuclear power industry and provides new incentives for the construction of future nuclear generator stations.

With these new incentives, it is possible that current activities by a coalition of companies to develop a new generation of nuclear power stations may come to fruition. Some of these incentives include a new production tax credit for electricity generated by new nuclear power stations, a new loan guarantee program, standby support frameworks to protect against regulatory and judicial delays and the extension of Price Anderson liability protections.

While there have been numerous proposals to site new liquefied natural gas facilities, most have run into significant regulatory roadblocks. To remove some of the regulatory hurdles created by state and local regulatory proceedings, the act gives the FERC exclusive jurisdiction regarding the siting of LNG facilities — similar to the FERC’s jurisdiction over the siting of natural gas pipelines and hydropower projects.

Another of the act’s significant provisions is a new mandatory ethanol content standard for gasoline, which will require fuel manufacturers to use 7.5 billion gallons of ethanol by 2012.

Ethanol is a type of fuel that is created by refining corn, sugar cane or other types of plant materials. The new mandatory content standard is a big benefit for the primarily agricultural states of the Midwest and South, where most of the ethanol is currently manufactured. In the future, however, New Hampshire may be able to gain some of the benefits of the new standard because the act also allows ethanol to be made from wood waste. nhbr

Seth Shortlidge, a partner at Pierce Atwood LLP, represents utility, energy and environmental clients in state and federal regulatory proceedings throughout New England.