A controversial proposal to lease the coastal plain of the Arctic National Wildlife Refuge in Alaska will likely be debated in early April as the Senate moves to a fourth week of debate on a comprehensive energy bill. Possible amendments to clean fuels programs, including a renewable fuels standard for transportation fuels, are also likely to be considered after Congress comes back from a 2-week spring recess Apr. 8.
Meanwhile, last week senators considered a measure to boost renewable energy in electric power generation and a plan to tighten energy trading regulations. Neither issues were voted on. The energy trading plan sponsored by Sen. Dianne Feinstein (D-Calif.) dominated debate after negotiations with Sen. Phil Gramm (R-Tex.) collapsed. The two parties disagree over how much government oversight is needed to protect consumers and energy markets from companies that may seek to mishandle energy derivatives and other financial instruments used to manage risk.
Energy trading issues are volatile. But even more controversy awaits the Senate as it prepares to debate ethanol and ANWR issues.
The ultimate fate of both proposals could yet change, depending on the levels of gasoline prices this spring and summer, industry officials said.
If prices rise dramatically above historic seasonal norms, ANWR leasing chances could brighten, while ethanol mandate proposals could fade.
Energy trading battle
Opposition from the White House and Federal Reserve Chairman Alan Greenspan may make it hard for Feinstein's latest proposal to survive the Senate, Wall Street analysts predicted. And even if Feinstein's measure does pass the Senate, it may face an uphill battle when lawmakers from the Republican-led House sit down with their Senate colleagues to hammer out a final bill for the president to sign.
Closed-door negotiations are expected to continue, with no votes expected until April unless a deal is reached, congressional sources predicted. Gramm is also urging Feinstein and her supporters to let the administration study the issue before making dramatic changes to commodity regulations.
In extended floor debate on the issue, Gramm said he would support legislation that focuses only on natural gas and electricity derivatives; currently, the bill seeks broader government authority that would include metals and oil markets. Gramm also strenuously opposes a portion of the bill that would force trading houses to make public pricing information from wholesale trades. He also wants to exempt energy swaps and derivatives from expanded oversight and eliminate a proposal that would force trading houses to expand financial capital requirements.
Both Feinstein and Gramm support having the Commodities Futures and Exchange Commission expand record-keeping of various trades and strengthen fraud provisions.
Higher gasoline prices
According to Mar. 18 data from the Energy Information Administration, the national average of retail gasoline prices has risen 17¢/gal this month with prices much higher for reformulated gasoline (RFG) in the Midwest and on the West Coast. Higher energy costs in those two politically strategic regions 2 years ago largely spurred interest by the White House and Congress in updating energy laws.
A bill passed by the Republican-led House last August includes an ANWR leasing provision but does not substantially address how to update the Environmental Protection Agency's outdated RFG program. Lawmakers in the Democratic-controlled Senate, meanwhile, say they are optimistic the Senate will pass its own sweeping energy measure this spring.
The Senate bill is not expected to contain an ANWR provision, although supporters of leasing in the ANWR 1002 area of northeastern Alaska insist the battle isn't over.
ANWR leasing supporter Sen. John Breaux (D-La.) this week predicted there are 50-60 votes for his cause, although he declined to be more specific. And labor interests that were instrumental in winning an ANWR leasing vote in the House also cautioned it was premature to assume the ANWR debate was finished.
"Everyone said we couldn't do it in the House, and we did it," James P. Hoffa, general president of the International Brotherhood of Teamsters, said, adding, "We'll be holding members accountable" when elections happen in November. He suggested that his efforts in the Senate have not been as successful because of parliamentary rules that allow "the tyranny of a few" to stall a vote.
Not enough votes
But higher fuel prices could help Breaux and other lawmakers get the 60 votes they need to ensure that ANWR can be considered as part of a Senate bill. Right now, however, ANWR supporters admit they don't have the votes. Privately, White House officials have also signaled they are willing to accept an energy bill without ANWR in it, according to industry officials. Recent studies by EIA, the Congressional Research Service, and Democratic lawmakers haven't helped leasing supporters with their cause, either.
A recent EIA report estimated that ANWR production in 2020 might reduce oil imports by only 2%, for example. And Senate Democratic leaders argued that the 735,000-job estimate the Teamsters used in the House to justify drilling was outdated and used unrealistic assumptions about field reserves and world oil market conditions. They said an independent analysis by various government and private economists show the possible job benefit of ANWR exploration may in fact only represent 65,000 jobs by 2020.
ANWR proponents countered that expanding domestic oil production makes good public policy even if the exact amount of jobs created through ANWR drilling may be in doubt.
"Even if those numbers are off by one-third, it still means that across the spectrum it will bring about thousands of jobs," said Hoffa.
Ethanol, MTBE
The Senate bill will likely retool RFG to make it easier for states to ban methyl tertiary butyl ether from gasoline if they choose. But a controversial provision designed to triple the amount of fuel ethanol in the gasoline pool may come under increasing fire if opponents of the measure are successful in convincing the public the ethanol mandate will boost prices.
The Senate bill now has a provision blessed by major oil companies and ethanol interests streamlining clean fuels guidelines. The bill also repeals a federal oxygenate mandate for RFG 270 days after the bill becomes law. In addition, it requires, beginning in 2004, that at least 2.3 billion gal/year of renewable fuel be used nationwide. By 2010 the requirement expands to 5 billion gal/year, but the provision is written broadly, with no requirement that renewables be included in each gallon of gasoline and without restrictions on where renewables can be used. The provision also bans refiners from blending MTBE into gasoline after 4 years.
Not everyone approves of the RFG provision, although even opponents of the deal expect most of it to become law, either as part of the pending energy bill or attached to other legislation. Nevertheless, some state officials, terminal operators, and refiners continue to warn that the plan makes the gasoline supply too dependent upon the fuel ethanol industry, which now produces only 1.7 billion gal/year of the oxygenate. And MTBE producers argue that even if ethanol supplies are plentiful, West Coast refiners do not have enough clean fuel blendstock capacity to meet an ethanol mandate after 2006.
Recent federal and California studies also suggest that the proposal, designed to triple demand for renewable transportation fuels, may boost gasoline and diesel prices to a level both consumers and politicians may find unacceptable.
Unfinished RFG, MTBE business
Congress may still deal with related proposals on RFG specific to the Northeast and California, two areas where ethanol supplies could be limited. The California delegation is expected to see broader leeway for their state in meeting renewable fuels mandates. Lawmakers from Farm Belt regions, meanwhile, will likely seek to strengthen demand for ethanol. Sen. Chuck Grassley (R-Iowa), for example, introduced an amendment to remove California's special oxygen standard, "opt-out," from the RFG portion of the bill.
The Senate proposal now allows California to eliminate the RFG oxygen standard as soon as the bill becomes law, in deference to state concerns over groundwater contamination from MTBE. But many states, including more than a dozen other jurisdictions that want to ban the oxygenate, must wait at least 270 days while EPA revamps RFG rules. Grassley's amendment makes California wait like the other 49 states to remove the oxygen standard.
But in light of California Gov. Gray Davis's decision to delay his own state's MTBE ban by a year, the amendment may not be seriously considered, industry officials said.
Refiners now have until Jan. 1, 2004, to get rid of MTBE, although ethanol supporters are urging California refiners to ban the use of MTBE voluntarily by the end of this year. California refiners told the state last month it could meet the earlier deadline. However, some state officials warned the Democratic governor that banning MTBE by 2003 would mean policy-makers are risking dramatically higher fuel prices next year.
Other economic issues
The specter of higher gasoline prices in California and elsewhere is just one indication that economic issues continue to play a large part of the ongoing energy debate, even though there are signs the economy is improving.
Industry officials point to the recent defeat over stricter automobile fuel efficiency standards in the Democratic-controlled Senate as strong evidence that measures seen as inconvenient or costly will not pass, no matter what the perceived public policy benefit is.
