Grappling with downturn tops '99 energy agenda of U.S. Congress

Left to right, Sen. Thad Cochran (R-Miss.), Sen. Mary Landrieu (D-La.), Rep. Don Young (R-Alas.), and Rep. Billy Tauzin (R-La.) explain their Outer Continental Shelf revenue-sharing bill at a press conference.

The U.S. oil industry's depression has added a rare sense of urgency to energy legislation in the U.S. Congress this year.

Although oil prices fell most of last year, legislators from oil states accomplished almost nothing in response.

But now legislators are seeing the economic effects of the oil depression in the economies of their congressional districts, and their rhetoric is being matched with legislation and hearings.

What bills they will be able to force through the legislative process-and how those laws could help U.S. producers in the short term-remains to be determined.

And the movement could be derailed suddenly, if Congress sees signs that steps by major oil exporting countries to cut production (see story, p. 18), and thus reverse the global oil price decline, are beginning to work.

Agendas

Although their priorities are usually pragmatic, the chairmen of the Senate and House energy committees have outlined some legislation they want their panels to consider.

Senate Energy Committee Chairman Frank Murkowski (R-Alas.) has already held hearings on how low oil prices are hurting U.S. producers (OGJ, Feb. 8, 1999, p. 30).

And the Energy Committee held a joint hearing with the Foreign Relations Committee on how Iraqi production growth is undermining the world oil market.

However, this session, the Energy Committee will focus mostly on legislation for retail electricity reform and the disposal of nuclear waste.

Sen. Jeff Bingaman (D-N.M.) has replaced the retired Dale Bumpers (D-Ark.) as the ranking Democrat on the panel. That's good news for producers, because Bumpers often was antagonistic toward the industry, while Bingaman is the opposite.

The Senate Environment Committee largely sets the congressional agenda on air and water protection bills. This session, committee Chairman John Chafee (R-R.I.) wants to reauthorize the Clean Water Act and the Comprehensive Environmental Response, Compensation, and Liability Act, or "Superfund." He also plans oversight hearings on the Environmental Protection Agency.

In the House, Commerce Committee Chairman Tom Bliley (R-Va.) is mostly focused on electricity decontrol and nuclear waste legislation.

Bliley has left the oil industry issues to Rep. Joe Barton (R-Tex.), energy and power subcommittee chairman. Barton already has held a 2-day hearing on the impact of the Exxon Corp.-Mobil Corp. merger (OGJ, Mar. 22, 1999, p. 42).

Richardson's role

Energy Sec. Bill Richardson-who was a long-time congressmen from a New Mexico district with oil and gas production-has become the industry's champion in the administration and on Capitol Hill.

As a Washington energy association spokesman observed, "Richardson has been more sympathetic (toward the industry) than any previous energy secretary-ever."

Although there's relatively little the Department of Energy can do to help the industry directly, Richardson has announced several initiatives (OGJ, Feb. 22, 1999, p. 24).

He has met with Treasury Sec. Robert Rubin, Interior Sec. Bruce Babbitt, and EPA Administrator Carol Browner to encourage them to revise their rules that affect producers (OGJ, Jan. 11, 1999, p. 24).

Richardson also arranged a meeting between oil industry and White House officials to explore what can be done to relieve the oil depression.

Any signs that the White House supports oil industry relief measures would greatly lubricate the machinery for change within the administration-and on Capitol Hill.

Richardson also has said the administration has not totally rejected the idea of tax relief for producers. He is working "to see if part of the tax bill (this spring) can consider these initiatives."

However, he stressed that any measures would have to be cost-effective and propose a funding source to meet budget offset rules.

Marginal well credit

When U.S. independents discuss relief measures, heading their list is tax credits to keep economically marginal oil and gas wells in production until prices rebound.

Several congressmen have proposed bills allowing a tax credit of up to $3/bbl for marginal wells when prices drop to $14/bbl and 50¢/Mcf when gas prices drop to $1.56/Mcf (OGJ, Mar. 8, 1999, p. 30).

Another popular bill in both houses would grant producers a special 5-year carryback for certain eligible oil and gas production revenue losses.

The Department of the Treasury has opposed those measures, saying they would not help the smaller producers, who need help the most, because most of those firms are not making money and therefore have no tax liability.

Rep. Bill Archer (R-Tex.), chairman of the tax-writing House Ways and Means Committee, says he wants to give producers a 5-year carryback when his committee marks up a tax bill this spring.

Archer noted that the Clinton administration has proposed the same relief for steel producers beset by low prices for their commodity.

Sen. Kay Bailey Hutchison (R-Tex.) has filed a marginal well relief bill. She also proposed a bill to exempt independents from paying taxes for 5 years on production from shut-in wells that have been put back on line.

Sen. Dick Lugar (R-Ind.) is pushing a bill to overhaul the alternative minimum tax (AMT). It would retroactively index to inflation the exemptions used to calculate a taxpayer's AMT liability. Those exemptions haven't been raised since 1993.

And the National Association of Manufacturers is conducting a national petition drive for a 10% income tax cut for individuals and businesses in order to keep the economy growing. Its 14,000 member companies and affiliates are circulating the petition among their 18 million employees.

NAM expects the international financial crisis and declining U.S. economic activity to halve economic growth to 2% this year. It said that, if Congress does not approve a 10% cut, then it should consider AMT relief, research and development tax credits, and capital gains tax relief.

Iraqi situation

U.S. producers blame Iraqi exports for some of the deterioration in world oil prices.

After Iraq invaded Kuwait in August 1990, the United Nations imposed an embargo on Iraqi exports. In April 1995, the U.N. allowed Iraq to sell $2 billion worth of oil every 6 months (about 500,000 b/d) to buy foreign food and medicine.

A year ago, the U.N. increased Iraqi's allowable to $5.2 billion every 6 months (about 2.6 million b/d). The Clinton administration has proposed allowing Iraq to export even more crude.

Oil-state congressmen are sympathetic to the humanitarian purpose of the sales but argue they were ill-designed.

Sen. Don Nickles (R-Okla.) said, "Because U.N. policy sets a dollar limit on Iraqi production and not a barrel limit, low prices encourage Iraq to produce more oil. As a practical matter, Iraqi production is currently only limited by its capacity to produce."

More than 40 House members recently urged the Clinton administration to seek lower caps on Iraqi oil exports.

Rep. Mac Thornberry (R-Tex.) said, "The oil-for-food program may have been established with good intentions, but it's a program that has clearly gone astray. Not only are food and medicine failing to reach the Iraqi people, but it is becoming increasingly apparent that Saddam Hussein is using the program to flood the world with cheap oil and drive prices downward."

Also, congressmen have asked the Department of Commerce to examine the national security effect of rising oil imports.

Commerce studied rising oil imports in 1994 and determined in 1995 that the trend did threaten national security, but the administration took no specific action.

Sen. Bingaman said, "Back then, 51% of our domestic consumption was foreign oil. Now this level has increased to 56%. If there was a security threat in 1995, there must be an even greater one today."

Royalty reform

Federal royalty reform is actually an administrative rather than a legislative issue, but the controversy has spilled into the congressional arena.

For 2 years, the Minerals Management Service has been trying to revamp its regulations on how U.S. producers calculate the royalties they owe the federal government.

The MMS has revised its proposed rule several times, but the regulation remains controversial. Oil companies say it is unworkably complex and has provisions that amount to a back-door increase in federal royalty rates.

Last fall, oil-state congressmen inserted a clause in a budget law to block MMS from issuing the rule before June 1. The goal was to allow time for more MMS-industry negotiations-which have not occurred.

Angered at the lack of talks, the Senate Appropriations Committee recently voted to extend the moratorium until Oct. 1. The House is likely to concur.

As a result, Interior Sec. Bruce Babbitt reopened the door to negotiations (OGJ, Mar. 15, 1999, p. 32).

The Senate Energy Committee is expected to hold oversight hearings on the progress of those talks.

Meanwhile, the Independent Petroleum Association of America has urged the Department of the Interior to consider royalty reductions, or some form of tax relief, for all wells producing 50 b/d or less on federal lands (OGJ, Feb. 22, 1999, p. 26).

It said, "With oil prices now at record lows, wells producing 50 b/d are uneconomic. Royalties need to be reduced for these wells; otherwise, they will be shut in or abandoned, further reducing domestic production."

Congress may consider legislation to that effect.

Revenue sharing

A large number of oil state congressmen is supporting legislation to earmark federal revenues from Outer Continental Shelf oil and gas production.

At least half of the funds would be designated for infrastructure development in coastal states and nationwide conservation and wildlife programs.

The Senate bill would use 50% of OCS revenues, or $2.296 billion/year. The House bill earmarks 60%, or $2.74 billion/year.

Both the Senate and House bills would allocate 27% of federal OCS revenues, about $1.24 billion, to 34 states with shorelines on oceans or the Great Lakes, although only six have oil and gas production. The allocation would be made with a formula based on hydrocarbon production, coastline miles, and population.

Sponsors note that the federal government shares 50% of its onshore oil and gas revenues with the states where the production occurs. But offshore, it gives coastal states only 27% of revenues from a 3-mile strip just beyond state waters (the Section 8(g) area) and none of its revenues from production beyond that.

Sen. Murkowski said, "This remedies a tremendous inequity in the distribution generated by offshore oil and gas production by directing that a portion of these monies be allocated to coastal states and communities."

Despite wide support in Congress-the calculated effect of including so many states in the funds distribution-the legislation faces some major hurdles.

Many environmental groups applaud a secure funding source for conservation and wildlife programs but oppose the bill because they fear it is a disguised incentive for coastal communities to accept offshore drilling.

Proponents of the House and Senate bills strongly disagree on how the revenues would be divided among programs. And they may have to find offsetting revenues for the multibillion-dollar program unless they can obtain a waiver of budget laws.

Electricity reform

Electricity market restructuring is a top priority of the energy committees in both houses (see related story, p. 17)

The issue defied solution in the last Congress, because it is complex and controversial and lacked any semblance of consensus. Those same factors will be working against it this session.

Both the House and Senate energy-legislating committees plan hearings this spring-last session, the House held 20 hearings-and the Clinton administration will fine-tune the widely criticized proposal it belatedly offered.

Commerce Committee Chairman Bliley is a strong supporter of such legislation. He said, "Consumers in all 50 states deserve to choose their electricity providers by a certain date-sooner better than later. Competition means lwer prices and better service. At least 18 states have already decided to open up their markets. More will follow. If we fail to act, a messy patchwork of regulations will result."

Sen. Murkowski is less enthusiastic and has less ambitious goals for the Energy Committee he chairs. His strategy will be to draft a "bare bones" bill that would avoid controversy and offend as few stakeholders as possible.

Oil and gas associations are somewhat on the sidelines, but as fuel producers and large electricity consumers, they are very interested observers. The gas-producing and transmission industries are especially watchful for signs they might not get a level playing field with other fuels.

Chances of passing an electricity reform bill seem less than 50-50. Industry groups have lobbied congressmen hard for the past 2 years, and legislators are knowledgeable on the issues. But there still is sharp disagreement among stakeholder groups.

Y2K issues

Congress may consider legislation this spring to limit lawsuits against companies that experience Year 2000 computer problems (OGJ, Feb. 15, 1999, p. 22).

Senate and House bills would establish a 90-day "problem-solving" period during which companies could fix software before lawsuits could be filed.

The bills encourage mediation, limit punitive damages to $250,000, and restrict class-action lawsuits.

The Clinton administration is dead set against the legislation. As with product liability reform bills in the past, the administration opposes measures that would limit consumers' rights to sue.

The administration also has argued that such a Y2K exemption could serve as a disincentive for companies to fix their computer problems.

Sen. Patrick Leahy (D-Vt.) voiced the same concern. "I fear that some may be seeking to use fear of the Y2K millennium bug to revive failed liability legislation of the past."

Separately, the Senate already has passed a bill to establish a $500 million Small Business Administration loan program to help small firms fix their Y2K problems.

Congressional committees plan oversight hearings on the Y2K threat, but the American Petroleum Institute predicts U.S. oil firms will experience few, if any, disruptions.

Kyoto treaty

The Clinton administration has not sent the Kyoto Protocol to the Senate, and it is not expected to do so soon.

The pact would restrict international emissions of gases, mostly carbon dioxide, believed to contribute to postulated catastrophic global warming (OGJ, Nov. 2, 1998, p. 27).

Administration officials have promised Congress they will not attempt "back-door" implementation of the treaty with regulations.

But some congressmen would like to give U.S. industry incentives to reduce their greenhouse gas emissions regardless of any treaty.

Sen. Chafee and 10 other senators filed a bill giving companies pollution-trading credits for their near-term reductions in emissions.

It would let various federal agencies draft emission-credit agreements with companies.

Sen. Joe Lieberman (D-Conn.), a cosponsor, said the bill would give industry incentives "to begin taking tangible steps to limit the accumulation of greenhouse gases."

Environmental groups are split on the measure. Some support it, and some said it would be too generous or it would encourage U.S. firms to move manufacturing plants overseas to achieve emissions credits at home.

Sen. Murkowski said, "This bill essentially would implement the unratified Kyoto protocol by presupposing there will be a cap on emissions and offering a credit against that cap."

He added that provisions in the bill essentially would designate carbon dioxide as a pollutant under the Clean Air Act. "I'm not ready to provide EPA with the authority to regulate a naturally occurring gas that we all exhale every time we breathe."

The Global Climate Coalition said the bill is premature, because the Senate has not considered the Kyoto treaty.

It said, "While industry deserves recognition for its successful voluntary efforts, there is an existing program already within DOE. There is no need to reinvent a wheel that already exists."

The Business Council for Sustainable Energy, which represents firms in the natural gas and electric utility industries, endorsed the legislation.

It said, "Providing incentives for U.S. companies to voluntarily reduce greenhouse-gas emissions in advance of possible future regulatory obligations has the potential to generate economic and environmental benefits."

Other issues

Rep. Don Young (R-Alas.) is pushing legislation that would require congressional approval and public participation before the United Nations designates "biosphere preserves" or "world heritage sites" in the U.S.

The House passed a similar bill in the last Congress, but the Senate did not.

Young said the U.N. has designated 67 such sites in the U.S. He said, "These are negotiated solely between the U.N. and the executive branch. Local citizens affected by U.N. land designations are never asked about their concerns, and no public input is solicited."

He said the federal government could be required to take regulatory actions to protect the reserves, threatening use of private lands nearby.

Congress is expected to reauthorize the Natural Gas Pipeline Safety Act and the Hazardous Liquid Pipeline Safety Act this year.

Rep. Barbara Cubin (R-Wyo.) plans to seek additional funding so the Bureau of Land Management can keep pace with applications for coalbed methane drilling in the Powder River basin. BLM officials told the Resources Committee's Energy and Minerals subcommittee, which Cubin chairs, that they expect a flood of applications for permits to drill (APDs).

Cubin said BLM's Buffalo, Wyo., office processed only 350 of the 450 APDs it received last year, and the volume is expected to jump to 1,500/year by 2004 (OGJ, Oct. 19, 1998, p. 37).

But she said BLM has no plans to increase its staff handling the applications.

Short session

In theory, the 106th Congress has until mid-October of next year to complete its work.

In practice, the window is much smaller, because 2000 is a presidential election year. Typically, by the summer of such a year, congressmen become preoccupied with the presidential conventions and their own fall campaigns.

A highly-charged political atmosphere develops that blocks all but the most critical-or least controversial-legislation. So blockbuster bills, such as electricity reform, must move through both houses by early next year to have a chance of enactment.

Even smaller bills, such as marginal well tax credits, face the same practical deadlines.

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