Maureen Lorenzetti
Washington Editor
WASHINGTON, DC, Nov. 25 -- US Senate Republican leaders late Monday decided to drop a pending energy bill nearly 3 years in the making because they could not secure enough votes to cut off debate on the measure.
A spokesperson for Senate Majority Leader Bill Frist (R-Tenn.) said the senator planned to take up energy legislation again in January. Congress returns briefly the week of Dec. 8, but is only expected to vote out an omnibus spending bill.
The bill's passage looked likely as recently as last week. But as negotiations dragged on about the fuel additive methyl tertiary butyl ether, critics had time to build up opposition. This made it increasingly difficult for the White House to defend controversial legislation the same time it was already expending precious political capital on more prominent domestic policy items, namely Medicare.
Congressional sources, both Democrat and Republican, noted that as much as President George W. Bush's administration said it wanted comprehensive energy legislation, ultimately it left the real bargaining to House and Senate Republican leaders.
Congressional and industry sources said the bill died for two key reasons: first, lawmakers larded up the legislation with pet projects that drove up costs and second, House Republican leaders refused to back down from a provision that gave MTBE producers limited product liability from water contamination lawsuits.
With the bill now officially dead, White House officials promised lawmakers they would renew the fight for the proposal in January. But the Republican's chief sponsor of the proposal, Sen. Pete Domenici (R-NM), told New Mexico radio journalists Monday that the chances were "slim to none" the bill could pass next year, given that 2004 is an election year in for both Congress and the White House. And he acknowledged that competing interests make it difficult to craft a comprehensive bill.
Energy bill weaknesses
Nevertheless, without a sweeping energy reform bill, Domenici warned that "all aspects" of energy production would suffer unless a national policy becomes law. A majority of the energy trade associations in Washington, DC, shared Domenici's view, and the legislation had something for everyone by addressing nearly every aspect of the oil, natural gas, and electric power businesses.
In the upstream, for example, the legislation sought to make resource-rich public land more accessible. It also expanded royalty relief and added some tax credits for independent oil and gas exploration and production companies.
But some industry analysts were skeptical that the bill would do much to boost US production. "This is a relatively meaningless piece of legislation for most E&P and oil field service companies," said Raymond James & Associates Inc. analysts Wayne Andrews and Marshall Adkins. "The bill's provisions as they relate to oil and gas will not materially change the dwindling supply of domestic petroleum or encourage energy companies to spend more money extracting oil and gas from the ground."
The analysts said, for example, that the section of the bill that specifically targets E&P companies comes primarily in the form of extended and enhanced Section 29 tax credits. But Andrews and Adkins said that, when the projected tax benefit is added up, incentives would contribute less than 2% of recent capital E&P spending.
"Is anyone really going to change their drilling plans based upon a couple of percentage points change in costs? We don't think so!" the two said Monday in a research note.
"We recognize that politics demands compromises, and obviously tax dollars are not limitless, but much more would have to be done to make the drilling incentives in the bill relevant to the companies that they are supposed to incentivize. For a start, the needless and politically motivated spending on loan guarantees for the Alaska gas pipeline and ethanol subsidies could have been reallocated to meaningful tax credits for E&P independents—the only companies that really contribute to slowing down the decline in US output of oil and gas. Unfortunately, we live in the real world, not a fantasy one."
The trade group that repesents independent E&P companies in Washington remains convinced omnibus legislation is needed. The Independent Petroleum Association of America said it would not give up its efforts to pass a bill when Congress reconvenes in December or next year.
"We will not rest," said IPAA Chairman John B. Walker. "This nation has waited over a decade for a comprehensive energy package from Congress. America is demanding an energy policy, and we're closer than we've ever been. The domestic oil and natural gas industry will continue its education and advocacy efforts over the next few months. We will do everything possible to help Congress pass a bill when it returns to Washington.
"Without an energy bill, America will pay a steep price—larger trade deficits, more foreign oil and natural gas, vulnerabilities in our national security, economic uncertainty, increased fuel costs for consumers, businesses, and industry," said Walker.
"The majority of the Senate does support passage of the energy bill, and it deserves a fair vote," said IPAA Pres. Barry Russell. "It's unfortunate and a disappointment that Senate procedures have forced this bill off the table. This particular energy legislation has been 3 years in the making. Congress knows it must act soon. I'm anxious to see our nation take the next step to ensure a comprehensive energy policy."
IPAA said it is pushing for comprehensive energy legislation that includes the following provisions: more access to nonpark, nonwilderness federal lands; tax and royalty reforms; and adjustments to federal regulations that IPAA said will lead to environmental safeguards without burdening the industry or government.
Grand compromise fails
On the downstream side, the bill included a fragile compromise over clean fuel compliance that addressed major fuel suppliers, ethanol interests, and Northeast air regulators.
The bill removed the 2% oxygenate mandate for reformulated gasoline in smog-filled cities so refiners would not be forced to add either MTBE or fuel ethanol to meet clean fuel rules. But to appease US Midwest legislators, the bill also included a "renewable fuels" mandate designed to add 5 billion gal/year of ethanol to the gasoline pool by 2012.
And in a nod to states struggling with water contamination issues, the legislation phased out MTBE in 10 years, although states could decide to keep using the additive.
Refiners strongly objected to the deal and demanded the bill include a "safe harbor" provision to protect producers from product liability lawsuits only. Similar language was already in the Senate bill for ethanol.
But a bipartisan group comprised mainly of US Northeast senators worried that the safe harbor provision would make it nearly impossible for states to recoup losses from MTBE-related water contamination. Their view was reinforced by an influential group of Northeast air quality managers who, at the 11th hour, decided to walk away from the deal because of MTBE liability issues.
Optimists, pessimists
Supporters of the clean fuel compromise said Congress is sure to reconsider the provision next year because there is a need to avoid price spikes associated with "boutique" reformulated fuels.
"Despite the fact that it is an election year, it is widely suspected that an energy bill with politically powerful and popular items like ethanol and electricity standards can be passed," said Frank Maisano, an industry spokesman for MTBE producers and electric utilities. "Remember, the last major energy bill was passed in 1992."
Ethanol producers, led by the Renewable Fuels Association (RFA) also pledged to keep the heat on Congress and the Bush Administration to resolve the clean fuel issue.
"Let there be no mistake; we are not giving up the fight to pass this bill," said RFA President Bob Dineen.
"Right now, the energy bill is being held hostage by the politics surrounding the MTBE liability waiver provision.
"Congressional and Administration leaders have pledged to continue working to pass the bill in January. We fully intend to hold them to that pledge. Americans, especially those in the Midwest, have a lot riding on the outcome," he said.
What will happen next year remains unclear. Domenici is not as optimistic as some industry lobbyists. Meanwhile Domenici's Democratic counterpart on the Senate Energy and Natural Resources Committee Jeff Bingaman (D-NM) called for breaking up the legislation into pieces so that energy efficiency, electricity reliability, and clean fuel reform would be considered separately. But whether lawmakers have the stamina to tackle one large energy bill once again is an open question.
Interest in a comprehensive bill could reignite if energy prices spike, for example. But in the absence of any real crisis, there is a decent chance that comprehensive energy legislation may languish indefinitely, industry and congressional sources said.
Contact Maureen Lorenzetti at [email protected].
