Bush's Energy (Oil) Policy

By Adam Zagorin/Washington

There wasn't a lot of tension at Spencer Abraham's confirmation hearing last week. George W. Bush's pick to head the Energy Department is a shoo-in. But one uncomfortable moment came when Abraham refused to say what the new Administration would do about California's electricity crisis. That prompted Frank Murkowski, chairman of the Energy and Natural Resources Committee, to growl, "You better have some answers."

What will Bush do to keep the lights on? He doesn't have a lot of options. Last week he ruled out new federal controls on wholesale electricity prices, which Governor Gray Davis had proposed as a way out of the mess. Bush also nixed the idea of bailing out the state's nearly bankrupt utilities. The Los Angeles Times compared his position with President Gerald Ford's 1975 refusal to rescue New York City from fiscal default, "a decision memorialized," the Times noted dryly, "by the tabloid headline: FORD TO CITY: DROP DEAD."

Most energy experts agree that beyond playing mediator, Washington shouldn't step in. Instead, the White House apparently plans to take aim at federal environmental regulations that, Bush argues, limit power supplies by keeping plants from running at capacity. But taking on the green lobby could use up valuable capital at a time when Bush wants to press his domestic agenda. And his big problem is more basic: his energy policy is mostly just an oil-and-gas policy. He wants to use tax credits to boost domestic oil production, and he has a 10-year, $7.1 billion plan that includes drilling for petroleum on 1.5 million acres of protected Alaskan tundra in the Arctic National Wildlife Refuge. But those ideas--the second one hugely controversial--would take years to have an effect, and even then wouldn't ease the electricity crunch. Bush's goal of eliminating regulations that impede the construction of refineries, pipelines, plants and transmission lines would help someday, but it won't be any easier to get through Congress than his scheme to drill in the Arctic.

Bush's senior economic adviser, Larry Lindsey, has the task of figuring out what to do about California. One stopgap: renew the Clinton Administration's order that power and gas companies across the country transfer their excess capacity to the Golden State. But diplomacy may be the most effective arrow in Bush's quiver. He plans to place energy on the national-security agenda and lobby OPEC to pump more oil. Although the cartel last week announced production cuts, which pushed prices higher, some key members, such as Kuwait and Saudi Arabia, remain grateful to Bush's father for winning the Gulf War. Will they help the son?

For consumers, Bush's laissez-faire approach is likely to be painful. The new President backs hundreds of millions of dollars in extra funding for an energy-assistance program to ease the burden on the poorest Americans. For everyone else, high prices could be around for a while. The clearest indication of that came from Kenneth Lay, the chairman of Enron, the Houston-based energy giant that is the nation's largest power marketer, with a major stake in California. Last week Lay warned that California would have to resolve a "pretty much self-inflicted problem"--even if that means price increases for consumers.

Lay is a Bush family friend and a member of W.'s energy transition team. Enron and its officers contributed $300,000 to the Inauguration; the company was one of the largest contributors to Bush's campaign.

The betting in Washington is that Lay's policy will be national policy.

--By Adam Zagorin/Washington