Newly minted Energy Secretary Spencer Abraham has a slew of challenges before him. With California's rolling blackouts threatening to spread eastward, OPEC nations cutting production, and gasoline prices set to jump this summer, the former Michigan senator faces the daunting task of garnering support in a sharply divided Congress for a new, yet-to-be-released energy policy. A Harvard Law School graduate who served as Deputy Chief of Staff to former Vice-President Dan Quayle, Abraham is helping to shape energy policy by sitting on a Cabinet-level task force headed by Vice-President Dick Cheney. Abraham, who once famously sponsored legislation to abolish the Energy Dept. he now heads, took some time out on Mar. 23 to speak with BusinessWeek correspondent Laura Cohn about the challenges he faces in his new job. The following are edited excerpts of their conversation:
Q: Could you clarify your view on energy tax breaks? You said the other day the Administration doesn't favor manipulation of the tax code to favor certain industries, but in the Bush budget blueprint there are some incentives for renewable energy sources.
A:What I said was we would reject both of the extremes in the debate: the one extreme, that we can somehow conserve our way to energy security, and the other extreme, that we could somehow tax-incentivize or government-subsidize our way to energy security. That doesn't mean we won't have conservation measures in our plan. It doesn't mean we won't have some form of government support in our plan. I'm confident that when the President reveals his plan, it will be a much more balanced plan, with a much greater focus on allowing market forces to be the principal backer in moving us in the direction of energy security.
Q: What does that mean really?
A:It means giving opportunities, trying to eliminate some of the impediments that stand in the way of the development of more energy resources. It means trying to address some of the infrastructure issues that right now are significant impediments.
Q: The Administration keeps talking about long-term solutions, but there are blackouts in California, and we may have some in New York this summer. What can policymakers do in the short term to help our energy crisis?
A:State policymakers obviously have a very direct role that they can play. In New York, they're trying to bring more power online. The current projected margin between supply and demand is about 400 megawatts short of their goal. But between now and the summer, they think they can make that up. Similarly, in California, Governor Davis is taking aggressive action as a policymaker to address the conservation side, trying to reduce demand through a variety of programs.
But there's a limited amount of things we can do here. This problem in the West, and particularly in California, took a number of years to develop. It's a consequence of a number of years of not building new generation, of adopting policies that discouraged the market from operating effectively. It developed because policymakers in California last year prevented utility companies from buying except on the wholesale spot market. That isn't legislative. That was the public utility commission's decision. We can't undo all of [these things] overnight. Nor does the federal government have a huge reservoir of electricity somewhere that we can turn on and somehow send.
We will not take action, as you well know, that would make the situation worse, such as price controls, which would both increase demand, decrease supply, and probably not reduce prices at all.
Q: What's the Administration doing to open up the dialogue with OPEC?
A:I've already had conversations with a number of OPEC ministers and will expand that in the days ahead. We're not going to engage in the sort of approach that we've seen in the past of going and begging OPEC countries. We're going to engage in more quiet discussions. One of the things we certainly want to convey is the fact that given the world economic situation right now, the stability of supply is a very important ingredient in allowing the economy to move to a more prosperous and growth-focused direction.
Q: But the Mar. 17 decision by OPEC to cut production was called "disappointing" by the Administration. Some critics are wondering whether the Bush Administration really wants higher prices.
A:What I think disappoints some of the critics is [that] this further buttresses our Administration's position, which is the commonsense position for America: that we can't expect other countries to put America's best interests ahead of their own. To the extent that we allow ourselves to become further and further dependent on oil from OPEC, we have less and less control over our own energy security and consequently over our own economic and national security. I think the decision they made was pretty obviously one that should have awakened Americans to the need for more energy production here at home.
Q: How does drilling in the coastal plain of Alaska's National Wildlife Refuge (ANWR) help our supply shortage in the short term?
A:It's obviously not possible for it to help in the short term because even if Congress were to act immediately, the time that would be involved in any kind of development or exploration would be considerable. But Americans have been given a misunderstanding about ANWR. First of all, the U.S. Geological Survey has estimated that the amount of oil reserve there would be a range of [from about] 5 billion to 6 billion barrels [to] as much as 16 billion barrels of oil. The mean is about 10 billion barrels of oil. Some have argued that that isn't very much. It is obviously a huge amount. It would free us, if we want to use December, 2000, statistics, from approximately 54 years of imports from Saddam Hussein.
Q: Some lobbyists in Washington are concerned that you aren't visible enough in this energy crisis. What's your response to that?
A:Well, I don't know who they are. This Administration's profile, policy, and approach isn't going to be dictated by lobbyists and special interests. We're going to do the things that make the most sense at the right time and in the right way. Obviously, I'm playing a pretty active role in this process. On the other hand, this is ultimately going to be the President's policy, and he and the Vice-President are going to be the principal sources when we finish this process of announcing it.
Sometimes we pay too much attention in Washington to public relations, as opposed to the substance. In fact, that's what I think has been a problem with regard to energy problem. We've spent too many years posturing about it, instead of focusing on the substance, and that's what I'm going to try to do.
Q: So you weren't concerned when Dick Cheney was named to head this task force?
A:Not at all. I thought it was a good idea. I think everybody understands that if Vice-President Dick Cheney is assigned the lead responsibility on a project, it's a high-priority project. I'm sure that this department will take a very major role in the implementation of policy. Part of the problem we've had in the past is that we haven't brought everybody together, so we haven't had a national energy policy that was comprehensive.
Q: What about the Energy Dept.'s budget? Will research and development be put back in?
A:We're trying to balance this budget. We're going to let the policy that comes out of the Cheney Task Force be the governing factor in setting future budgets. It seemed to us to be a little bit inappropriate to suddenly begin a whole array of initiatives when we still don't have conclusions from this process. Putting the budget ahead of the policy is the wrong way to do it. It's too often the way it's done in Washington.
Q: What about conservation? Will that play a role in this Administration's policy?
A:We're not going to take an approach that says that somehow all the energy demand increases of the next 20 years can be addressed with conservation. The principal kinds of solutions are ones that are going to be driven by private investment.
The problem we have is that even as we might decrease the demand for certain things, new innovations are coming about every day. Five years ago, we did not foresee this huge electricity increase that would be required to meet the demands of the Internet -- and people aren't fully hooked in yet. Who knows what new innovations over the next 20 years will come about and which ones will be energy-intensive in their nature? A lot probably will.
What I'm saying is, we tend to look at the conservation side as if nothing new will happen in this country. So that's why it's just not feasible to say that we can conserve our way out of the problem or we can find sufficient renewable energy sources to address the challenge. At the same time, it's not possible to say, well, if we just give a few tax breaks to people, they're going to be able to come up with all kinds of new energy supplies either. It's challenging.