Demand for oil will increase by one-third, yet we now produce 39% less oil than we did in 1970. Consumption of natural gas is expected to increase by 62% over the next two decades. More than 61% of US residences (58 million homes and apartments) are heated with natural gas.

But 40% of our domestic gas resources are now off limits or so restricted that development is virtually impossible. Electricity demand will increase by 45% over that same period, owing at least in part to the growth of power-hungry information technology. In the multifamily sector, 42% of all units built in 1999 featured natural gas heat; 56% of those new units featured electric heat. Coal currently provides more than 50% of electricity generation.

Unless remedial steps are taken immediately, the consequences will ripple with greater severity throughout all sectors of the economy. Small property owners are particularly vulnerable and are already feeling the crunch.

Examples cited in the California-based McConnell Report tell the typical story. A small owner of an Oakland triplex saw his costs for common area utilities quadruple. An owner of a 44-unit building in Berkeley reported costs 105% higher than a year earlier. The margin squeeze is magnified in rent-controlled communities because rent adjustments are granted, if at all, a full year after the owner had paid the higher costs, and only after going through a complex, cumbersome process that many owners view as worse than an IRS audit. In addition, conservation efforts are stymied when tenants don't pay for gas and electricity and owners have no ability to control utility use.

The national energy crisis can be reduced to very simple terms: increasing demand, tightening supply, an aging energy network and a political atmosphere that demands a quick fix to a long-term problem. The root cause of the present energy crisis is tied to the unbalanced national energy policy of the Clinton Administration, which focused on energy efficiency, natural gas and non-traditional energy sources while undermining the use of other energy sources, notably oil and coal.

According to a study of federal energy-supply policies issued in August 2000 by the National Association of Manufacturers, even in its promotion of natural gas, there was a disconnect between favoring natural gas use and discouraging natural gas production. The Clinton Administration restricted natural gas reserves on multiple-use federal land and the Outer Continental Shelf (OCS). At the time of the study, natural gas and oil exploration and production were off-limits or significantly restricted in 40% of the Rocky Mountain region and in the OCS off of the entire East Coast, the entire West Coast and more than 50% of the Eastern Gulf of Mexico.

Coal production was targeted in particular. Clinton set aside 1.7 million acres of Utah as a national monument, thus permanently restricting the area from the extraction of resources. The area contains the largest coal field in the nation: 7 billion tons of clean-burning, low-sulfur coal worth more than $1 trillion.

The Clinton Administration even tried to use international pressure to force domestic energy-use reductions with its promotion of the Kyoto Protocol. If ratified, the treaty would have arbitrarily imposed quotas on carbon-dioxide emissions equivalent to a reduction in fossil-fuel use by more than 30% by the end of the decade.

The Bush Administration is changing course and looking to fill the gap between supply and demand. In addition to increasing energy efficiency, the new policy will concentrate on increasing domestic production of a diverse supply of energy, improving its delivery and forging a new partnership with our hemispheric neighbors.

A cornerstone of the new plan involves a proposal for a national energy grid that will boost competition in the electricity market. More electricity than ever is being shipped longer distances over a transmission system that was originally designed to provide limited power-sharing among neighbors. According to Energy secretary Spencer Abraham, price spikes in the Midwest and New York City and recent blackouts in northern California have been the direct result of the failure to update America's antiquated electricity grid.

The solution is to create a true interstate highway system for electricity where power can move freely from coast to coast. That way isolated communities, which welcome power generation, will have a broad base of customers.

The US House of Representatives has combined energy bills from four legislative committees into a comprehensive energy package. Key provisions include encouragement of natural gas and oil production, including Alaska's ANWR, as well as sundry tax incentives. A broad-based coalition of business, industry and consumers, known as the Alliance for Energy and Economic Growth, is generally supportive of the initiatives being put forward by Congress and the Bush Administration.

In the long-run, however, more is needed. This includes broad-based tax changes to improve the investment climate, such as repeal of the AMT (alternative minimum tax); modernized capital recovery (depreciation) schedules; and a permanent R&D tax credit. Combining these with revamped regulatory structure and promotion of cost-effective energy technologies--from lower energy lighting to real-time electric metering--offers the best promise for future dependable energy.

The guiding principles are simple: the most energy at the cheapest price and with the least environmental damage. For small property owners, this is a common sense approach to a problem affecting us all.

F. Patricia Callahan (aaspo@aol.com) is president and founder of the American Association of Small Property Owners in Washington DC, a public-policy advocacy group. Callahan is a corporate attorney whose area of expertise includes housing, strategic litigation, property rights and environmental regulation, real estate, tax and fiscal policy, ERISA and retirement income policy, financial markets, labor relations and grassroots development. Before founding AASPO, she headed two divisions in the Department of Commerce under President George Bush.

Instant Insights /

Washington Insider - Energy and the Small Property Owner

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