Energy and Water Development: FY2012 Appropriations

Carl E. Behrens, Coordinator
Specialist in Energy Policy

The Energy and Water Development appropriations bill provides funding for civil works projects of the Army Corps of Engineers (Corps), the Department of the Interior’s Bureau of Reclamation, the Department of Energy (DOE), and a number of independent agencies.

President Obama’s FY2012 budget request for Energy and Water Development was released in February 2011, but the Congress was concerned for the first months of the year with completing the appropriations cycle for FY2011. As with other funding bills, the FY2011 Energy and Water Development bill was not taken to the floor in either the House or the Senate in the 111th Congress. Funding for its programs was included in a series of continuing resolutions, and at the beginning of the 112th Congress was part of a major debate over overall spending levels. Energy and Water Development programs were included in the Department of Defense and Full-Year Continuing Appropriations Act (P.L. 112-10) that became law April 15, 2011.

For FY2012 the level of overall spending is expected to be a major issue. In addition, issues specific to Energy and Water Development programs may include the following: 

• • the status of additional emergency supplemental funding for the Corps (Title I) for flood-related expenditures in the Midwest and elsewhere; 
• • the distribution of appropriations for Corps (Title I) and Reclamation (Title II) projects that have historically received congressional appropriations above Administration requests; 
• • support for ecosystem restoration and efforts to mitigate the impacts of water resource projects, including funding for the Everglades (Title I) and for the Central Valley Project and San Joaquin River Settlement (Title II); 
• • alternatives to the proposed national nuclear waste repository at Yucca Mountain, Nevada, which the Administration has abandoned (Title III: Nuclear Waste Disposal); 
• • large differences in funding proposals for Energy Efficiency and Renewable Energy (EERE) programs (Title III); and 
• • funding decisions in DOE’s Office of Environmental Management. 

On June 2, 2011, the House Appropriations Subcommittee on Energy and Water Development approved a FY2012 bill that would appropriate $30.6 billion for these programs, compared to the Administration’s request of $36.5 billion. The full Appropriations Committee voted out the bill (H.R. 2354) June 15.


Date of Report: July 7, 2011
Number of Pages: 63
Order Number: R41908
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Master Limited Partnerships: A Policy Option for the Renewable Energy Industry

Molly F. Sherlock
Analyst in Economics

Mark P. Keightley
Analyst in Public Finance

Expanded investment in clean and renewable energy resources continues to be a policy priority of the Obama Administration and an area of interest to the 112th Congress. In recent years, the primary policy vehicle for promoting investment in renewable energy has been tax credits, particularly the renewable energy investment and production tax credits. A lack of tax liability, however, has limited the renewable energy sector’s ability to fully take advantage of these and other tax benefits. The result has been an increased interest in exploring other options for promoting investment in renewable energy. One option might be to allow renewable energy entities access to the master limited partnership (MLP) business organizational form.

An MLP is a type of business structure that is taxed as a partnership, but whose ownership interests are traded on financial markets like corporate stock. Being treated as a partnership for tax purposes implies that MLP income is generally subject to only one layer of taxation in contrast to publically traded C corporations, which are subject to two layers of taxation. The ability to access equity markets in a manner similar to corporations allows MLP to obtain greater amounts of capital. Access to a greater pool of capital, when combined with the favorable partnership tax treatment, may allow MLPs to secure capital at a lower cost than similar businesses operating under a different organizational structure. The lower cost of capital, in turn, could increase investment in the renewable energy sector.

Congress first established rules relating to MLPs in the 1980s. At that time, the MLP structure was limited to businesses deriving 90% of their income from primary sources, which included dividends, interest, rents, capital gains, and mining and natural resources income. Effectively, this definition allowed oil and gas extraction and transportation activities access to the MLP structure, while renewable energy resources were generally excluded. The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) expanded the definition of income from qualifying sources to include transportation of certain renewable and alternative fuels, such as ethanol and biodiesel.

Provisions enacted under the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) enhanced the value of certain renewable energy tax credits for many renewable energy projects. By transforming existing tax credits into cash grants, the Section 1603 grants in lieu of tax credits program enhanced access to capital for many in the renewable energy sector. The Section 1603 grant program is scheduled to expire at the end of 2011. As Congress evaluates other policies to attract additional capital to the renewable energy sector, allowing renewable energy entities to structure as MLPs might be one option.

Extending the MLP structure to renewables could possibly attract additional capital to and stimulate investment in the renewable energy sector. There are, however, a number of potential policy concerns to consider. First, expanding access to the MLP structure could narrow the corporate tax base, which is one of the reasons access to this structure was limited in the first place. Second, if changes to the tax code allowing renewable entities to access the MLP structure are enacted alongside changes to current passive activity loss rules, there may be concerns about the possibility of renewable energy investments being used as a tax shelter. Finally, if the concern is that renewable entities are disadvantaged relative to fossil fuels currently able to use the MLP structure, one option would be to prevent other energy entities from structuring as MLPs.


Date of Report: June 28, 2011
Number of Pages: 16
Order Number: R41893
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The Smart Grid and Cybersecurity—Regulatory Policy and Issues

Richard J. Campbell
Specialist in Energy Policy

Electricity is vital to the commerce and daily functioning of United States. The modernization of the grid to accommodate today’s uses is leading to the incorporation of information processing capabilities for power system controls and operations monitoring. The “Smart Grid” is the name given to the evolving electric power network as new information technology systems and capabilities are incorporated. While these new components may add to the ability to control power flows and enhance the efficiency of grid operations, they also potentially increase the susceptibility of the grid to cyber (i.e., computer-related) attack since they are built around microprocessor devices whose basic functions are controlled by software programming. The potential for a major disruption or widespread damage to the nation’s power system from a large scale cyberattack has increased focus on the cybersecurity of the Smart Grid.

Federal efforts to enhance the cybersecurity of the electrical grid were emphasized with the recognition of cybersecurity as a critical issue for electric utilities in developing the Smart Grid. The Federal Energy Regulatory Commission (FERC) received primary responsibility for the reliability of the bulk power system from the Energy Policy Act of 2005. FERC subsequently designated the North American Electric Reliability Corporation (NERC) as the “Electric Reliability Organization” (ERO) with the responsibility of establishing and enforcing reliability standards. Compliance with reliability standards for electric utilities thus changed from a voluntary, peer-driven undertaking to a mandatory function. The Energy Independence and Security Act of 2007 (EISA) later added requirements for “a reliable and secure electricity infrastructure” with regard to Smart Grid development. NERC is also responsible for standards for critical infrastructure protection (CIP) which focus on planning and procedures for the physical security of the grid. Self-determination is a key part of the CIP reliability process. Utilities are allowed to self-identify what they see as “critical assets” under NERC regulations. Only “critical cyber assets” (i.e., as essential to the reliable operation of critical assets) are subject to CIP standards. FERC has directed NERC to revise the standards so that some oversight of the identification process for critical cyber assets was provided, but any revision is again subject to stakeholder approval. While reliability standards are mandatory, the ERO process for developing regulations is somewhat unusual in that the regulations are essentially being established by the entities who are being regulated. This may potentially be a conflict of interest, especially when cost of compliance is a concern, and acceptable standards may conceivably result from the option with the lowest costs. Since utility systems are interconnected in many ways, the system with the least protected network potentially provides the weakest point of access.

Cybersecurity threats represent a constantly moving and increasing target for mitigation activities and mitigation efforts could likewise spiral upward in costs. Recovery of costs may present a major challenge especially to distribution utilities and state commissions charged with overseeing utility costs. EISA only requires states to consider recovery of costs related to Smart Grid systems. FERC has jurisdiction over the bulk power grid, and cannot compel entities involved in distribution to comply with its regulations. Recoverability from a cyber attack on the scale of something which could take down a significant portion of the grid will likely be very difficult, but maintaining a ready inventory of critical spare parts in close proximity to key installations could quicken recovery efforts from some types of attack. The electricity grid is connected to (and largely dependent on) the natural gas pipeline, water supply, and telecommunications systems. Technologies being developed for use by the Smart Grid could also be used by these industries. Consideration could be given to applying similar control system device and system safeguards to these other critical utility systems.


Date of Report: June 15, 2011
Number of Pages: 25
Order Number: R41886
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Civilian Nuclear Waste Disposal

Mark Holt
Specialist in Energy Policy

Management of civilian radioactive waste has posed difficult issues for Congress since the beginning of the nuclear power industry in the 1950s. Federal policy is based on the premise that nuclear waste can be disposed of safely, but proposed storage and disposal facilities have frequently been challenged on safety, health, and environmental grounds. Although civilian radioactive waste encompasses a wide range of materials, most of the current debate focuses on highly radioactive spent fuel from nuclear power plants.

The Nuclear Waste Policy Act of 1982 (NWPA) calls for disposal of spent nuclear fuel in a deep geologic repository. NWPA established the Office of Civilian Radioactive Waste Management (OCRWM) in the Department of Energy (DOE) to develop such a repository, which would be licensed by the Nuclear Regulatory Commission (NRC). The program’s civilian costs were required to be covered by a fee on nuclear-generated electricity, paid into the Nuclear Waste Fund. Amendments to NWPA in 1987 restricted DOE’s repository site studies to Yucca Mountain in Nevada.

DOE submitted a license application for the proposed Yucca Mountain repository to NRC on June 3, 2008. The NRC license must be based on radiation exposure standards set by the Environmental Protection Agency (EPA), which issued revised standards September 30, 2008. The State of Nevada strongly opposes the Yucca Mountain project, disputing DOE’s analysis that the repository would meet EPA’s standards. Risks cited by repository opponents include excessive water infiltration, earthquakes, volcanoes, and human intrusion.

The Obama Administration “has determined that developing the Yucca Mountain repository is not a workable option and the Nation needs a different solution for nuclear waste disposal,” according to the DOE FY2011 budget justification. As a result, no funding for Yucca Mountain or OCRWM was requested or provided for FY2011. DOE filed a motion with NRC to withdraw the Yucca Mountain license application on March 3, 2010. DOE’s withdrawal motion has prompted legal challenges from states that have defense-related and civilian waste awaiting permanent disposal. An NRC licensing board denied DOE’s withdrawal motion on June 29, 2010, a decision that is under review by the NRC commissioners.

Alternatives to Yucca Mountain are being evaluated by the Blue Ribbon Commission on America’s Nuclear Future. Draft recommendations released May 13, 2011, called for a new, federally chartered organization to be established to “expeditiously” develop one or more nuclear waste repositories with an “assured” source of funding. The draft recommendations also urged that the roles of various levels of government in siting and regulating nuclear waste facilities be established through negotiations, that one or more “consolidated interim storage facilities” be developed, and that long-term research, development, and demonstration be conducted on technologies that could provide waste disposal benefits.

For FY2012, the Administration again requested no funding for the Yucca Mountain project, but the House Appropriations Committee provided $25 million to DOE and $10 million to NRC to continue the Yucca Mountain licensing process. The Committee bill specifies that the funds may not be used for closing out licensing activities unless the NRC commissioners accept DOE’s license withdrawal motion, “or for actions that irrevocably remove the possibility that Yucca Mountain may be a repository option in the future.”


Date of Report: June 22, 2011
Number of Pages: 27
Order Number: RL33461
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The U.S.-Canada Energy Relationship: Joined at the Well

Paul W. Parfomak
Specialist in Energy and Infrastructure Policy

Michael Ratner
Analyst in Energy Policy

The United States and Canada, while independent countries, effectively comprise a single integrated market for petroleum and natural gas. Canada is the single largest foreign supplier of petroleum products and natural gas to the United States—and the United States is the dominant consumer of Canada’s energy exports. The value of the petroleum and natural gas trade between the two countries totaled nearly $100 billion in 2010, helping to promote general economic growth and directly support thousands of energy industry and related jobs on both sides of the border. Increased energy trade between the United States and Canada—a stable, friendly neighbor—is viewed by many as a major contributor to U.S. energy security. The U.S.-Canada energy relationship is increasingly complex, however, and is undergoing fundamental change, particularly in the petroleum and natural gas sectors.

Congress has been facing important policy questions in the U.S.-Canada energy context on several fronts, including the siting of major cross-border pipelines, increasing petroleum supplies from Canadian oil sands, increasing natural gas production from North American shales, and the construction of new facilities for liquefied natural gas (LNG) exports. Legislative proposals in the 112th Congress could directly influence these developments. These proposals include H.R. 1938, which would expedite consideration of the Keystone XL pipeline proposal, H.R. 909, which would encourage petroleum and natural gas production on the outer continental shelf and in the Arctic National Wildlife Refuge, and S. 304, which would support a program to train workers involved with oil and gas infrastructure in Alaska. Other proposals in Congress affecting hydraulic fracturing operations for natural gas production, offshore drilling, or U.S. oil shale development could also affect the U.S.-Canada energy relationship.

Traditionally, the energy trade between the United States and Canada, while intertwined, has been uncomplicated—taking the form of a steadily growing southward flow of crude oil and natural gas to markets in the U.S. Midwest and Northeast. But recent developments have greatly complicated that energy relationship creating new competition and interconnections. Consequently, while energy policies in one country have always inevitably affected the other, their cross-cutting effects in the future may not be widely understood and, in some cases, may be largely unanticipated. For example, policies affecting U.S. shale gas production could affect North American natural gas prices overall, and thus, the costs of producing petroleum from oil sands (which requires large volumes of natural gas for heating). Changing oil sands costs could, in turn, affect Canadian petroleum supplies to the United States, affecting north-south pipeline use and changing U.S. petroleum import requirements from overseas. Changing natural gas prices would also change the economics of Arctic natural gas, however, and influence the development of the Arctic natural gas pipelines, which could provide an alternative source of economic natural gas for oil sands production in Alberta. How such scenarios could play out in reality is open to debate, but they illustrate the tangled web policymakers in both countries must navigate as they consider future energy, environmental, and transportation decisions.

As Congress debates legislative proposals affecting the petroleum and natural gas industries, it may be helpful to consider these proposals in the broadest possible North American context, recognizing that the energy sector in Canada may be moved in one direction or another based on policies in Washington, DC. To date, the judgment of Congress has favored a growing U.S.- Canada energy partnership—but ensuring that this relationship continues to be as mutually beneficial as possible will likely remain a key oversight challenge for the next decades.


Date of Report: June 17, 2011
Number of Pages: 16
Order Number: R41875
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