The US Senate confounded policy-watchers on July 31 when it suddenly discarded Republican energy reform legislation, resurrected the Democrats' 2002 version, and approved that measure by a decisive 84-14 vote.
Senate leaders from both parties suspended weeks of partisan sparring over the Republican bill by agreeing to pass legislation that had won on an 88-11 margin last April when Democrats narrowly controlled the chamber. Political analysts said the decision to recycle last year's legislation was a pragmatic one. By choosing to pass last year's bill again, Republicans could avoid a series of pending high-profile votes on climate change and clean air issues. Democrats, meanwhile, could argue that their policy choices represented a stronger consensus.
Also important to both sides was preserving a clean fuel program that includes an ethanol mandate plan endorsed by the White House and blessed by Midwest constituents that may be pivotal in the next election cycle.
"This bill isn't perfect, but it is a vast improvement over the Republican bill in the Senate and an immeasurable improvement over the Republican bill in the House," said Senate Minority Leader Tom Daschle (D-SD).
The House this spring passed a comprehensive energy bill that calls for leasing of a limited portion of the Arctic National Wildlife Refuge, a proposal the Senate consistently rejects. The House bill also expands royalty relief and offers tax incentives for oil and gas production.
Whether the Senate's decision will ultimately lead to a final bill the White House will accept is still not certain, according to industry observers.
"We view the likelihood of a bill getting to President George W. Bush's desk this fall to have a 60% chance of success. It is still feasible, but we think it will not be easy," said Christine Tezak, energy analyst with Schwab Capital Markets, Washington, DC.
"Although adopting last year's Democrat-sponsored language could hurt the minority's ability to vote against a bill emerging from conference, consensus language developed this year, particularly on the electricity title and the Alaska natural gas pipeline, is now subject to reintroduction in a House-Senate conference."
She added that the temporary abandonment of this year's negotiated language could erode momentum behind the bill. That's because as the Senate goes into conference it will need to reintroduce language that doesn't have the validation of floor votes behind it, she noted.
Comparisons, then and now
From an oil and gas perspective, the two Senate versions are similar regarding tax incentives. But on public land access issues, the GOP version S. 14 calls on the administration to take a complete oil and gas inventory, for acreage onshore and offshore, even in areas now under drilling moratoria. The 2002 version has no such provision.
The 2002 provision also does not include an S. 14 provision that gives producers royalty incentives for drilling deep wells in shallow water on the Outer Continental Shelf. (A similar, although less generous, royalty plan for deep wells in shallow waters is currently being considered by the Minerals Management Service).
Regarding a proposed Alaskan natural gas pipeline, the 2002 version will reinforce the impasse between the House and Senate over the government's involvement in the construction of the $20 billion project.
A newer tax incentive plan intended to be part of the energy bill sought to avoid 2002 language that included a controversial floor price. North Slope producers instead would have received a production tax credit that provided as much as a 52¢/MMbtu credit for Alaska gas transported to market. The credit phased out as the price at the wellhead rose above 83¢/MMbtu. The credit was not available if the price at the wellhead rose above $1.35/MMbtu (indexed for inflation). S. 14 already included a loan guarantee plan ensuring that 80% of the total capital cost (up to $18 billion) would be protected.
Last year's Senate plan that again passed the Senate last month includes both loan guarantees and a floor price to spur construction of an Alaskan gas pipeline. Senate language includes a $10 billion loan guarantee, along with a tax credit triggered when the Alberta hub price falls below $3.25(Can.)/MMbtu. The White House and the House endorse the idea of a pipeline but have serious reservations about incentives connected with the project.
The White House energy plan does not advocate new tax incentives to boost domestic production. Both the House and Senate, however, are expected to add new tax incentives into a final energy bill, albeit not as generous as the versions discussed last year, which included $8 billion in the House bill and $4 billion in the Senate package for oil and gas.
Changes afoot
At least one key Republican leader vowed to update the bill to incorporate this year's energy provisions into last year's energy bill during what is expected to be an autumn conference on the bill.
"This deal is not how I envisioned getting an energy bill to conference," said Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee and S. 14's original author. "But if it gets us closer to our goal, I consider it a win. I consider it a win for a nation in desperate need of a bold and balanced energy policy that will create jobs, protect our economy, and make us less dependent on foreign energy.
"I look forward to chairing the conference on this bill. I promise you we will write many of this year's energy provisions into the bill at conference. We will do more for production. We will do more for energy diversity. We will do more for research. The final bill will look more like what I produced in committee this spring than it will the bill we are passing tonight. Tonight's bill is just a vehicle to get us to conference," Domenici said.
Domenici's Democratic counterpart, Sen. Jeff Bingaman (D-NM), who shepherded last year's energy bill through the Senate, also praised the Senate's action.
"I'm pleased that the Senate recognized the value of the long, hard work that members put into an energy bill in the last Congress, the balance we successfully stuck between energy production and energy efficiency, and our recognition of the linkage between energy policy and environmental policy, including climate change," Bingaman said. "Passage of the bill again in this Congress is a vindication of the leadership shown by Sen. Daschle in the last Congress. The strength of this bill is its broad, bipartisan support, and we hope the conference will produce a bill that can command similar bipartisan support."
Industry reaction
The Renewable Fuels Association, which represents ethanol producers, was one of the first trade groups to respond to the Senate's surprise action.
"Although it was a bit unorthodox, the Senate is to be commended for finding a way to pass an energy bill and move the issue forward to conference with the House. Last year's bill contained a nearly identical renewable fuels standard package and also included most of the ethanol tax modifications expected to be in this year's bill. We will work to include additional changes to the ethanol excise tax credit in the final conference bill," said RFA Pres. Bob Dinneen.
The American Petroleum Institute also cautiously endorsed the Senate's decision to temporarily abandon S. 14.
"The nation needs a comprehensive national energy plan sooner rather than later. We are encouraged that Congress understands the need for action and has undertaken serious discussions of these difficult issues," API said. "We look forward to continuing to work with Congress toward fashioning a comprehensive energy bill that would increase and diversify the nation's energy supply so vital to the economic growth, job creation, and improved quality of life for US consumers."
