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Tuesday, November 22, 2011

Winter Fuels Outlook 2011-2012


Robert Pirog
Specialist in Energy Economics

The Energy Information Administration (EIA), in its Short-Term Energy and Winter Fuels Outlook (STEWFO) for the 2011-2012 winter heating season, projects that American consumers should expect to see heating expenditures that on average will be somewhat higher than last winter. Average expenditures for those heating with natural gas are projected to increase by 2.6%, while those heating with electricity are projected to see a decline in expenditures of about 0.6%. These two fuels serve as the heating source for about 88% of all U.S. household heating. Propane and home heating oil consumers are also projected to see increased expenditures.

Within the U.S. average projections, differences exist with respect to region of the country and type of fuel.

Economic conditions of slow growth and relatively high unemployment suggest that lower consumption of all fuels may occur, especially in the context of milder winter weather conditions as forecast by the National Oceanic and Atmospheric Administration (NOAA). While the price of natural gas has been relatively low, the price of oil has been relatively high over the past year. If the price of oil spikes for an extended amount of time, or if the price of natural gas increases, heating costs might be expected to rise above projected levels for many consumers. Lower prices could reduce seasonal heating expenditures.

Uncertainty exists with respect to the status of funding for the Low Income Energy Assistance Program (LIHEAP), the key federal program assisting low-income households with heating expenditures. Funding for the Department of Labor and the Department of Health and Human Services has to be resolved by Congress (S. 1599, H.R. 3070).

It has not been announced whether the CITGO program to assist some U.S. heating oil consumers will be continued.



Date of Report: November 1
4, 2011
Number of Pages:
11
Order Number: R420
90
Price: $29.95

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Monday, November 21, 2011

ARRA Section 1603 Grants in Lieu of Tax Credits for Renewable Energy: Overview, Analysis, and Policy Options


Phillip Brown
Analyst in Energy Policy

Molly F. Sherlock
Analyst in Economics


Congress created the Section 1603 grant program as part of the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5). This program, administered by the U.S. Department of the Treasury, provides cash grant incentives for renewable energy projects. Initially, the Section 1603 grant program was scheduled to expire at the end of 2010. A one-year extension was enacted as part of the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) at an estimated cost of $3 billion. Absent congressional action, the Section 1603 grant program will expire at the end of 2011.

As of December 6, 2010, grants totaling approximately $5.6 billion had been awarded to 1,495 entities, since Section 1603 became law in February 2009. Wind has received approximately 84% of the grant award value, while solar electric represents approximately 75% of entities that have received grant awards. “Other” technologies (qualifying energy property not represented by wind or solar electricity) have also received grant awards, although the value and number of awards represented by this category is relatively small compared to wind and solar electricity.

Prior to the availability of Section 1603 grants, qualifying renewable energy projects were federally supported primarily through the production tax credit (PTC) or investment tax credit (ITC). It has been common industry practice for renewable energy developers to partner with taxequity investors, where the tax-equity investors offer cash in exchange for project ownership, project cash flows, tax credits, and depreciation benefits. The Section 1603 grant program was motivated by difficult economic conditions and the perceived lack of tax-equity capacity to support renewable energy projects. Analysis of the tax equity marketplace reveals fluctuations in the dollar volume, number of participants, and required rates of return between 2007 and 2010.

Market response, since Section 1603 was established, has been mixed. The solar industry had a record year of installations in 2010 (887 Megawatts) and is forecasting another record year in 2011 (approximately 1,700 Megawatts). In 2010, the wind industry experienced a 50% decline compared to 2009 (approximately 5 Gigawatts installed in 2010 compared to 10 Gigwatts installed in 2009). Wind industry forecasts for 2011 are approximately 7,000 Megawatts. It is important to note, however, that many factors influence annual renewable energy installations, the cash grant being just one.

If Congress considers additional extensions to or modifications of the Section 1603 grant program, economic and cost factors may also be taken into account. Grants, as opposed to tax credit, may be a more efficient mechanism for delivering public funds to the renewable energy sector. As is the case with most tax or subsidy programs, however, there are concerns that grants may be going to projects that would have moved forward without added federal incentives.

Finally, this report presents various policy options Congress may want to consider regarding the Section 1603 grant and related tax credits for renewable energy. The first option presented is to allow the grant program to expire. Even if the grant program were to expire, tax incentives would remain available. A second option is to extend the Section 1603 grant program. An extension of the grant program may be considered alongside an extension of the PTC for wind, which is set to expire at the end of 2012. A modification to the ITC and PTC, which could potentially enhance the benefits associated with the existing tax incentives, is presented as a third option.



Date of Report: November 9, 2011
Number of Pages:
35
Order Number: R416
35
Price: $29.95

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Thursday, November 17, 2011

The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History

James M. Bickley
Specialist in Public Finance

Excise taxes have long been a part of our country’s revenue history. In the field of gasoline taxation, the states led the way with Oregon enacting the first tax on motor fuels in 1919. By 1932, all states and the District of Columbia had followed suit with tax rates that ranged between two and seven cents per gallon. The federal government first imposed its excise tax on gasoline at a one-cent per gallon rate in 1932. The gas tax was enacted to correct a federal budgetary imbalance. It continued to support general revenue during World War II and the Korean War.

Economists know the gasoline excise tax as a “manufacturer’s excise tax” because the government imposes it at production (i.e., the producer, refiner, or importer) for efficiency in collection. Particularly in the short run, when the demand for gasoline is relatively inelastic, economists recognize that any increase in the gasoline tax ultimately falls on the consumer.

The Highway Revenue Act of 1956 established the federal Highway Trust Fund for the direct purpose of funding the construction of an interstate highway system, and aiding in the finance of primary, secondary, and urban routes. Each time Congress has extended the Highway Trust Fund it has also extended the federal excise tax on gasoline.

As recently as 1990 and 1993, Congress passed legislation dedicating a portion of gasoline tax revenue for deficit reduction. However, none of the current 18.4-cent-per-gallon tax imposed on gasoline is dedicated to the General Fund. One-tenth of one cent per gallon is dedicated to the Leaking Underground Storage Tank Trust Fund; 2.86 cents per gallon is allocated for mass transit purposes and earmarked to the Mass Transit Account within the Highway Trust Fund; and the balance, 15.44 cents per gallon, is earmarked to the Highway Account, also within the Highway Trust Fund.

On July 29, 2005, President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). This act provided a six-year extension of the Highway Trust Fund excise taxes that were scheduled to expire in 2005. Thus, the gasoline excise tax is scheduled to expire after September 30, 2011. The act also established a Motor Fuel Tax Enforcement Advisory Commission. Among the commission’s duties are to review motor fuel revenue collections, to conduct investigations related to motor fuel taxes, and to help develop and review legislative proposals with respect to motor fuel taxes.

For FY2011, the Congressional Budget Office estimates that revenues and interest credited to the Highway Trust Fund will total $36.9 billion, which will be divided into the Highway Account ($31.8 billion) and the Mass Transit Account ($5.1 billion). CBO also estimates that the fund’s three primary revenue sources and their yields will be the gasoline tax ($24.0 billion), the diesel tax ($8.7 billion), and the tax on trucks and trailers ($2.2 billion).

On September 16, 2011, President Obama signed H.R. 2887, Surface and Air Transportation Programs Extension Act of 2011 (P.L. 112-30), which extended, through March 31, 2012, current surface transportation programs and the motor fuel, heavy truck, and truck tire taxes that support the Highway Trust Fund. Congress is considering legislation to further extend the time of Highway Trust Fund expenditure authority and other highway taxes in order to finance surface transportation programs including the Moving Ahead for Progress in the 21st Century Act.



Date of Report: November 8, 2011
Number of Pages: 17
Order Number: RL30304
Price: $29.95

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Tuesday, November 15, 2011

Regulatory Incentives for Electricity Transmissions—Issues and Cost Concerns


Richard J. Campbell
Specialist in Energy Policy

Following the August 14, 2003, electric grid blackout which affected large portions of the Northeast United States and Ontario, Canada, Congress acted to promote investment in the nation’s electrical grid to increase the system’s capacity and efficiency. Inadequacies of an antiquated transmission system were blamed for the 2003 blackout. The Energy Policy Act of 2005 (P.L. 109-58) (EPACT) directed the Federal Energy Regulatory Commission (FERC) to hold a rulemaking on incentive rates for construction of critical electric transmission infrastructure “for the purpose of benefitting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion.” The Final Rule was issued in July 2006 with FERC Order No. 679, “Promoting Transmission Investment through Pricing Reform.” EPACT Section 219 stipulates that “all rates, charges, terms, and conditions be just and reasonable, and not unduly discriminatory or preferential.” FERC reviews the requested incentives under Section 219 to ensure that these are matched to risks and challenges of the proposed investment.

On May 19, 2011, FERC released a Notice of Inquiry (NOI) on the “scope and implementation of its transmission incentives regulations and policies” in Order No. 679. In the NOI, FERC notes that there have been “significant changes in the electric industry,” and it now seeks comments regarding the scope and implementation of its incentives program. FERC states in the NOI that more than 75 FERC applications have been received since the Final Rule was issued, with over $50 billion in proposed investments. As comments by some FERC Commissioners note, increases in transmission rates are “sometimes perceived” to be caused by return-on-equity (ROE) incentive adders. However, FERC’s codification of Section 219(a) changes EPACT’s language to “either ensure reliability or reduce the cost” which can potentially lead to cost increases (especially for reliability-specific projects).

FERC is not required to track or report to Congress on the status of transmission incentives, nor is FERC required to make any determination of the “effectiveness” of these incentives to cause the construction of new transmission facilities. Such a determination is thus beyond the scope of the NOI. In comments submitted to the NOI, the Edison Electric Institute (EEI) stated its opinion that Order No. 679 transmission incentives will provide “regulatory certainty,” and are “supporting the development of transmission.” EEI further notes that while not conclusive, industry data suggest that Order No. 679 incentives have had a “positive impact” on transmission investment in many regions. However, EEI’s own analysis arguably shows a decade-long trend of increasing transmission investment by the industry may have occurred without Order No.679’s transmission incentives.

Going forward, FERC appears to have regulatory discretion with regard to establishing criteria for project approvals, but has declined to do so on the grounds “that to do so now would limit the flexibility of the Rule.” FERC may or may not revisit this decision as a result of its consideration of comments submitted to the NOI. Expectations have been raised as to the large dollar investment possible over the next two decades in transmission systems alone, with one estimate from the electricity industry suggesting $298 billion will be required to meet future electricity demand. However, with the concerns raised over the effects of transmission incentives on consumer rates (especially incentives granting higher ROE incentives to applicants), implications of related federal policies on the electric power sector, additional FERC regulatory policies for transmission, and the aging of electricity infrastructure among key issues, the need for continuing transmission incentives may be a matter for Congress to consider.



Date of Report: October 28, 2011
Number of Pages: 18
Order Number: R42068
Price: $29.95

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Monday, November 14, 2011

Energy Markets and Production: A Compendium

A decade ago, 158 refineries operated in the United States and its territories and sporadic refinery outages led many policy makers to advocate new refinery construction. Fears that crude oil production was in decline also led to policies promoting alternative fuels and increased vehicle fuel efficiency. Since the summer 2008 peak in crude oil prices, however, the U.S. demand for refined petroleum products has declined, and the outlook for the petroleum refining industry in the United States has changed.

In response to weak demand for gasoline and other refined products, refinery operators have begun cutting back capacity, idling, and, in a few cases, permanently closing their refineries. By current count, 124 refineries now produce fuel in addition to 13 refineries that produce lubricating oils and asphalt. Even as the number of refineries has decreased, operable refining capacity has actually increased over the past decade, from 16.5 million barrels/day to over 18 million barrels/day. Cyclical economic factors aside, U.S. refiners now face the potential of longterm decreased demand for their products. This is the result of legislative and regulatory efforts that were originally intended, in part, to accommodate the growing demand for petroleum products, but which may now displace some of that demand. These efforts include such policies as increasing the volume of ethanol in the gasoline supply, improving vehicle fuel efficiency, and encouraging the purchase of vehicles powered by natural gas or electricity.

In addition to the refining industry, this collection of seven Congressional Research Service studies provides detailed analyses on unconventional gas shales, options for a federal renewable electricity standard, and alternative fuels and advanced technology vehicles.


Date of Compendium:
August 15, 2011
Number of Pages: 156
Order Number: IS31593
Price: $39.95: Subscribers to Congressional Research Report pay $19.97

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