Energy policy to dominate political agenda this summer

Maureen Lorenzetti
OGJ Online

The wait is over. President George W. Bush cemented industry 's expectations that he would seek a friendlier regulatory climate in Washington when he released a much-anticipated White House energy task force report last week.

The May 17 document, guided by Vice-Pres. Dick Cheney, did not disappoint oil lobbyists, although it did cause a political firestorm among environmental groups and their supporters in Congress.

White House officials called the report a "blueprint" that Congress could use for energy policy legislation. The report listed 105 recommendations spanning a wide range of energy issues from wellhead to burner tip. Of those, 73 were directives to federal agencies, many of which directives federal regulators would have -- in theory -- considered anyway as part of the normal course of business. Mostly they urged the Interior, Energy, and Commerce departments to work in concert when crafting energy policies. There also was a strong emphasis on expanding local authority in the area of clean air and natural resource rules.

Congress, meanwhile, was stuck with the real dirty work: only lawmakers can decide whether to approve President Bush's recommendation to open part of the Arctic National Wildlife Refuge to drilling, for example. Capitol Hill alone has the power to reconsider a contentious batch of electricity proposals that failed to pass in the last Congress. Those include: building a nationwide electricity market; giving the federal government authority to site transmission lines; and repealing a 1935 law that restricts mergers of some electric utilities.

The president also asked Congress for $6 billion in new tax incentives over 10 years for conservation and renewable energy programs. Additionally, he wanted lawmakers to craft a new "multi-pollutant" strategy to curb power plant emissions.

That's a tall order for Capitol Hill, but Republican leaders say they are up for the challenge, pledging to pass some, if not all of these energy initiatives this summer. Democrats however have indicated there are wide differences in opinion on what future energy legislation should look like and it is uncertain what the future holds at this date. House Minority Leader Dick Gephardt (D-Mo.) said May 17 the president's plan "makes the wrong choices for the American people," and the report itself "looks like an ExxonMobil annual report, and maybe that's what it is."

Balancing act

But even if Congress fails to pass any of the legislative proposals, there was still a lot for industry to like in the 163-page report. The document generally embraced industry's pleas for less federal involvement in environmental rules and permitting.

Many environmental groups criticized the task force report, saying the White House wanted to "drill its way out" of high energy prices at the expense of environmental protection.

The president however, maintained his proposal was balanced between increasing energy supplies and encouraging conservation.

"The plan addresses all three key aspects pf the energy equation: demand, supply, and the means to match them," President Bush said in St. Paul, Minn., when he unveiled his report. "First, it reduces demand by promoting innovation and technology to make the world leader in efficiency and conservation. Second, it expands and diversifies America's supply of all sources of energy -- oil, and gas, clean coal, solar, wind biomass, hydropower, and other renewables, as well as safe and clean nuclear power. Third and finally, the report outlines the ways to bring producers and consumers together, by modernizing the networks of pipes and wires that link the power plant to the outlet on the wall," President Bush said.

Despite the White House's best efforts however, most of the attention, and controversy from the report stemmed from the president's unspoken endorsement of many (although not all) of the proposals that oil companies offered during last year's presidential elections.

The American Petroleum Institute, for example, had told candidate Bush its members wanted at least four elements in an energy policy: greater access to resources on federal lands, onshore and off; an end to unilateral sanctions that ban US companies from operating in some nations; a balanced approach to environmental regulations that considers the nation's energy needs; and expedited permitting for the construction and modernization of refineries, pipelines, and other facilities (OGJ, Sept. 25, 2000, p. 48).

Less than a year later, API looked prophetic. The task force recommendations consistently sought to expand public land access and streamline permitting.

Most of the recommendations call on regulators to take an interagency approach to resolve energy policy issues. In the past, agencies often had philosophical differences that put them at cross-purposes with each other, stalling action.

Notably absent from the task force report was a call to expand tax incentives for marginal oil and gas production, although the White House has signaled it would support pending bipartisan bills on Capitol Hill.

Industry also was unsuccessful in convincing the administration to remove existing unilateral sanctions against Iran and Libya, although the report did call for an interagency group to "review" sanctions policy.

The White House said it will continue to pursue a "quiet" dialogue with the Organization of Petroleum Exporting Countries, but spurred calls for a more active lobbying campaign to boost supply.

Recommendations

To increase domestic production, the report said the Departments of Energy and Interior will promote enhanced oil and gas recovery from existing wells through new technology. Interior will review conditions for deepwater and marginal production royalty relief.

And the report reaffirmed the Strategic Petroleum Reserve should be used to respond to an imminent or actual disruption in oil supplies, not to manage prices.

In the area of public lands access, Interior will examine and modify impediments to federal oil and gas leasing, consistent with existing law.

Interior will expedite an ongoing study of impediments to federal oil and gas exploration and development on public lands, and review public land withdrawals and lease stipulations.

Interior and Commerce will review federal laws covering the coastal zone and the Outer Continental Shelf. Interior will hold an offshore lease sale in the eastern Gulf of Mexico (Sale 181). And it will expand leasing in the National Petroleum Reserve-Alaska.

In the area of environmental rules, the Environmental Protection Agency, DOE and the Justice Department will review existing enforcement actions regarding New Source Review to ensure that they are consistent with the Clean Air Act.

EPA and DOE will ensure America has adequate refining capacity to meet needs of consumers, streamline permitting when possible, and study changes in reformulated gasoline rules that might increase flexibility in the strained fuel delivery system.

International issues included a State, Treasury, and Commerce department review of economic sanctions that are not in the interest of US energy security.

DOE, State, and the Federal Energy Regulatory Commission will propose reforms to cross-boundary permitting with Canada and Mexico for gas and electric transmission.

DOE will work with the International Energy Agency to improve global oil data.

The State, Commerce, and Energy Departments will support a Caspian oil export pipeline via Turkey if it demonstrates its commercial viability.

Electricity reforms call for FERC to promote competition and encourage investment in transmission facilities. DOE will consider expanding research and development on transmission reliability and superconductivity.

DOE will authorize the Western Area Power Administration to explore ways to relieve the Path 15 transmission bottleneck in California through a transmission expansion financed by nonfederal funds.

By Dec. 31, DOE will identify and report on transmission bottlenecks and the advisability of establishing a national grid.

DOE, in consultation with other federal and state agencies, will propose legislation to give FERC authority to grant electricity transmission lines the same eminent domain powers gas pipelines have. DOE and FERC will propose rate incentives that might relieve transmission congestion.

And federal power authorities, including the Bonneville Power Administration, would review the need to build more transmission.

Short term

The White House said it intends to implement the energy study's recommendations although it has no timetables.

However, Democrats may force a deadline or two, depending on the support they receive from fellow lawmakers and the mood of the public.

Democratic congressional leaders said they want a special House-Senate investigative committee to investigate high energy prices to see if oil companies are gouging consumers. Democrats also want Congress to create a national consumer energy commission to study recent energy price spikes from a consumer perspective and provide recommendations for legislative action (OGJ Online, May 10, 2001).

The White House is trying to move on the regulatory front. The day after the report was released, the president signed two executive orders. One urged federal agencies to consider energy policy when implementing major rules. Another sought to streamline permits for energy projects on an interagency basis.

President Bush said, "The future is achievable, if we make the right choices now. But if we fail to act, this great country could face a darker future, a future that is, unfortunately, being previewed in rising prices at the gas pump and rolling blackouts in the great state of California."

Jerry Jordan, chairman of the Independent Petroleum Association of America, responded, "We are pleased that the president will require all federal agencies to consider the energy impact of new regulations, as well as instituting a streamlining process for issuing permits for energy-related projects. Realistically, natural gas will continue to be a major component in the energy mix. Ensuring natural gas supplies in the face of growing demand is vital to our national interest."

Ironically, Congress may have a hand in delaying some of the administrative actions. Most of the administration's senior policy advisors have yet to be confirmed by the Senate. And many of President Bush's recommendations require extensive input by senior staff at agencies.

Congressional sources say less than half of Bush's 500 high-level government picks will be confirmed by September and it is unlikely the administration's team will be fully in place until winter. Nominees for jobs may act as advisors, but cannot make the key decisions required by many of the task force proposals.

Congressional delays

The situation is equally murky for energy-policy recommendations that require legislative action.

Before it became public, Democrats began criticizing the report for not focusing enough on short-term worries such as higher gasoline prices. And with Congress so closely divided it will take an unusual amount of parliamentary discipline and compromise to advance legislation. So far, the outlook is not too promising although it is still early in the congressional session.

Areas of the plan that have bipartisan support include tax incentives for renewable energy, energy efficiency, and gas-electric "hybrid" cars. Independents producers may benefit as well: pending Senate bills by both Republicans and Democrats would expand tax breaks for marginal well production.

Republican leaders continue to insist ANWR leasing could pass Congress under the right set of legislative circumstances. But even White House officials admit that scenario is a long shot.

Yet, pro-ANWR supporters insist political momentum could well shift in their favor if gasoline prices were to suddenly spike due to a supply disruption in the Middle East. Similar reasoning is offered for other controversial proposals in the task force plan that would require congressional approval.

The task force report does not ask Congress to lift a decades-old moratorium on leasing most federal lands offshore. However, it does call on the secretaries of Commerce and Interior to "re-examine" the legal and policy regime to see if changes are needed.

Most industry lobbyists say expanded offshore drilling outside the Gulf of Mexico and parts of Alaska is a political non-starter. As a presidential candidate, Bush opposed drilling offshore California and Florida. His brother Jeb Bush, the governor of Florida, has opposed the federal government's plan to hold Lease Sale 181 in the eastern Gulf, although most of the tracts are closer to Alabama than to Florida.

"We're careful never to say never," noted an industry lobbyist. "There could be support for some offshore drilling if we run into $3/gal gasoline this summer."

Overall, Congressional sources and industry lobbyists give 50:50 odds that there will be any kind of meaningful energy policy legislation passed this year.

Still, there is some middle ground, and cautious optimism that some proposals may be enacted. These include some noncontroversial items proposed by Jeff Bingaman (D-NM), the Senate Democrats' leader on energy policy issues.

They include streamlined national standards for gasoline in order to ease production and distribution problems; ensuring refinery production is not curtailed during electricity blackouts; requiring federal vehicles to use more alternative fuels; and urging the maximization of production and distribution of fuels.

The president however appears to have crossed the point of no return when it comes to energy policy.

He told reporters that the US desperately needs an energy policy. "Interestingly enough, this is the first comprehensive energy policy probably ever -- certainly in a long time," President Bush said.

Contact Maureen Lorenzetti at Maureenl@ogjonline.com