NEW U.S. CONGRESS HAS LITTLE TIME FOR ACTION ON ENERGY, ENVIRONMENT

The Republican party's takeover of Congress is producing the most interesting U.S. legislative session in many years, but it will be far from the most productive.

The 104th Congress bolted from the starting gate early All the emphasis has been on passing legislation contained in the House Republicans' Contract with America.

A Sample of Industry Issues in Congress (bytes 33918)

Those bills will preoccupy Congress for several months to come, leaving relatively little time for energy and environmental legislation. Bills not well advanced by spring may get caught in the legislative doldrums that usually occur when the presidential election campaign begins.

A number of environmental bills-but few energy measures-are in prospect. Some of the Contract with America provisions would have a positive effect on energy regulation.

ANWR LEASING

Last November's GOP Republican sweep at the polls placed two Alaska Republicans at the helm of congressional committees with key responsibility for oil and gas leasing issues.

Frank Murkowski now chairs the Senate energy committee and Don Young the House resources committee.

Linda Stuntz, a former deputy secretary of the Department of Energy, said, "Never before has such a small state enjoyed so much committee clout on issues relating to it and the oil industry"

That windfall for Alaska has fueled speculation that Alaskans will push bills to open the Arctic National Wildlife Refuge Coastal Plain for oil and gas leasing.

Murkowski and Young strongly advocate ANWR leasing, but they know that would take more time than appears to be available this session. Both have indicated ANWR leasing is several rungs down on their priority list.

The oil industry, particularly major producers, wants to see ANWR leased because of the strong indications that the Coastal Plain east of Prudhoe Bay field contains major oil fields and because the Trans-Alaska Pipeline System would have ample room for ANWR production.

But even major oil company lobbyists believe the industry should defer a push for ANWR and concentrate on bills that can be passed this session. They say even if the Republican majority can ram a bill through Congress, President Clinton surely would veto it, and it is unlikely a two-thirds majority could be mustered to override a veto.

Earlier this year, Interior Sec. Bruce Babbitt and Energy Sec. Hazel O'Lear reaffirmed the president's opposition to leasing ANWR.

There may not even be enough votes for passage.

One lobbyist said many Republicans elected last November aren't going to be easy to persuade. "They're not all 'Wall Street Republicans,' and many of them support environmental measures and oppose offshore drilling. The oil industry has a huge task ahead of it in educating these new Republicans."

Lobbyists said environmental groups would be the prime beneficiaries of ANWR legislation because they could use the issue to revive their shrinking membership and coffers.

The Senate energy committee will conduct hearings this year to examine U.S. energy policy and inventory resources on federal land.

Murkowski said the process logically may result in a bill to open ANWR (OGJ, Jan. 23, p. 24). He argued, rather plaintively, that the question of leasing ANWR should be decided on the basis of sound science, not emotions.

But the issue is an emotional one for environmentalists, who claim ANWR is the nation's last great wilderness area. Seventy House members and 15 senators recently endorsed bills to lock up ANWR (OGJ, Feb. 27, p. 64).

ANS OIL EXPORTS

Another issue dear to the hearts of Alaskans is a bill allowing unlimited exports of Alaskan North Slope (ANS) crude, which Congress banned in the 1970s for energy security reasons.

Murkowski said "prospects are good" his committee will approve a bill by late March. Murkowski and Young have authored legislation, and the Clinton administration has given the idea conditional support.

A DOE study concluded it is economically preferable to export ANS oil to Pacific Rim countries rather than ship it to the U.S. West or Gulf coasts.

Lower transportation costs would result in a higher netback for producers and more severance tax revenues for Alaska, the study said.

The state's department of revenue has estimated lifting the export ban would mean $185 million/year more for Alaska.

DOE said exports would increase domestic oil production, state revenues, and jobs without increasing gasoline prices (OGJ, July 11, 1994, p. 28).

California independent producers claim a surplus of Alaskan crude on the Lower 48 West Coast has depressed prices for their production. California independent refiners want the ban continued.

Five maritime unions that once opposed exports have been placated by a stipulation that the oil would be carried in U.S. flagged ships with U.S. crews. A major concern for the administration is how to draft the bill so the requirement for U.S. ships will not violate free trade treaties.

Sens. Patty Murray (D-Wash.) and Mark Hatfield (R-Ore.) have filed a bill opposing exports.

Murray explained, "With ANS crude exports, we would have an influx of large foreign flag tankers offloading crude to smaller ships along our coast so our refineries could be supplied with the oil we need. This offloading is an environmental hazard we can ill afford."

TAX RELIEF

Once again, the oil industry, particularly independents, is asking Congress for tax measures that would maintain or increase U.S. production.

And again, the roadblock is that offsetting revenues must be found for any measures that deny the Treasury money. This has become more difficult because Congress is looking at all possible spending cuts to reduce the federal budget deficit.

Acting on a request the Independent Petroleum Association of America filed under Section 232 of the Trade Expansion Act, the administration concluded the nation's growing reliance on low priced crude imports threatens national security (OGJ, Feb. 27, p. 31).

In response, DOE said it will continue measures to reduce the nation's dependence on oil imports. Involved are programs to increase domestic production, improve conservation, and encourage energy efficiency.

This spring DOE may recommend more actions, including lower insurance limits in the 1990 Oil Pollution Act (OPA90), relaxing the ANS export ban, granting royalty relief for deepwater Gulf of Mexico production, and allowing the expensing of geological and geophysical costs.

Meanwhile, the Oklahoma congressional delegation filed a bill proposing a tax credit for marginal oil production and other industry relief measures.

The new Congressional Oil and Gas Forum, consisting of more than 40 lawmakers, will push the bill.

The caucus, headed by Sens. Bennett Johnston (D-La.) and Pete Domenici (R-N.M.) and Reps. Jim McCrery (R-La.) and Glenn Poshard (D-Ill.), is a group of congressmen whose aim is to aid the petroleum industry. It is an outgrowth of a 117 person congressional coalition that promoted-but could not pass-an industry relief bill last year.

Oil lobbyists are encouraged this session because Rep. Bill Archer (R-Tex.) now chairs the tax writing House ways and means committee. But even Archer, who always has worked to help the industry, has warned that any relief bills must be balanced by spending cuts in other federal programs.

While independents mostly want relief for marginal wells, major companies are more interested in fundamental reform of the alternative minimum tax (ATM). They said integrated oil companies are the only capital intensive industry that cannot use accelerated cost recovery for a substantial portion of capital investment.

THE OKLAHOMA SOLUTION

Under the Oklahomans' bill, existing marginal wells would receive a tax credit equal to $3 for the first 3 bbl of production and 50/Mcf for the first 18 Mcfd of gas. High water cut production also would be eligible for credits.

For wells drilled after June 1, 1995, the credit would be $3/bbl for the first 15 b/d of oil and 50/Mcf for the first 300 Mcfd.

The tax credits, which would apply against regular taxes and the ATM, would phase out as oil prices rise between $14 and $20/bbl and gas prices rise between $2.49 and $3.55/Mcf.

The bill would:

Repeal the net income limitation for computing percentage depletion.
Exclude marginal production from independents' 1,000 b/d percentage depletion limit.
Repeal the property allocation rule for computing depletion.
Freeze the percentage depletion rate at about 20%.
Allow expensing of geological and geophysical costs.
Expand the enhanced oil recovery tax credit.

The legislation also would roll back OPA90 spill insurance provisions, set a 6 year statute of limitations on federal oil and gas royalty collection actions, and repeal prohibitions against the export of U.S. oil production.

The bill is largely identical to one oil state congressmen promoted last session.

But this year's bill does not contain a provision granting a tax credit to encourage deepwater (400 m or deeper) production. That credit would benefit relatively few companies and has thin political support. Johnston and Sen. John Breaux, also a Louisiana Democrat, have filed bills that use different approaches to aid marginal offshore fields.

In addition, Rep. Cal Dooley (D-Calif.) has filed a bill to set sliding scale royalties for heavier grades of crude to offset the higher cost of production.

CONTRACTUAL BENEFITS

The Contract with America does not specifically deal with energy but contains several provisions of interest to the petroleum industry.

The three most mentioned are cost/benefit analysis of new rules, government "takings" of private property through rulemakings, and unfunded federal mandates.

Passage of those provisions is not a sure thing. They will be costly. The joint Committee on Taxation has estimated the Contract with America tax proposals would cost the government $196.3 billion during 5 years.

Archer said his House ways and means committee will propose revenues in March to balance the costs.

The contract bills are moving slowly and are unlikely to be finished in the 100 days allotted. All the measures are more popular in the House than in the Senate. Several could be vetoed by Clinton.

Because contract provisions would affect federal rulemaking, the Republican controlled House has passed a bill freezing any federal regulations issued since last Nov. 20. Agencies could not issue rules this year until Congress enacts permanent restrictions on the government's regulatory authority

The Senate may reject the bill or reduce its scope from the 4,300 rules covered by the House bill to 900 "significant" regulations.

The regulatory moratorium seems to be largely symbolic. Clinton is expected to veto the bill, and there is little chance of an override.

In his own symbolic move, Clinton last month ordered federal agencies to report to him by June 1 on what regulations are unnecessary and could be deleted. The administration also has signaled that it might accept a freeze that applied only to rules with an economic effect valued at $50 million or more.

UNFUNDED MANDATES

In February, the House passed an unfunded mandates bill 360-74, sending it to a House-Senate conference committee to resolve minor differences with the bill approved by the Senate.

The legislation aims to discourage Congress from enacting laws that require states, counties, and cities to fulfill federal requirements without federal funding.

Neither the House nor Senate bills ban unfunded federal mandates outright.

They require cost estimates to be prepared for new laws so Congress will know the cost of regulation before a bill is passed. If a bill contains more than $50 million in unfunded mandates for state or local governments it will be subject to a special procedural vote.

The Senate set a $200 million and the House a $100 million threshold on unfunded mandates for the private sector.

Because both bills apply only to future unfunded mandates, House Speaker Newt Gingrich (R-Ga.) has proposed that the House schedule a "corrections day" each month to consider bills repealing "destructive" federal laws or rules, including those with unfunded mandates.

The National Resources Defense Council complained, "We are confronted with sweeping legislation that does not directly amend any single environmental law but will make efforts to carry out all of them exceptionally difficult, if not impossible."

RISK ASSESSMENT

Oil industry lobbyists are keenly interested in risk assessment laws.

Jerry Jasinowski, National Association of Manufacturers president, told a House committee the U.S. has no system for making "rational, well informed, carefully considered decisions ... to provide the greatest environmental, safety, and health benefits to the public."

He leads the Alliance for Reasonable Regulation, a coalition of 1,000 organizations lobbying for use of sound science, risk assessment, and economic analysis in regulatory decisionmaking.

Jasinowski said, "Society needs to be assured that the tax dollars and resources used in regulatory policy are prioritized to provide the greatest return on investment."

He argued that many federal rules amount to hidden taxes. In 1993, he said, regulatory decisions totaled $581 billion, or more than $5,900/family."

Commerce committee Chairman Tom Bliley (R-Va.) said under current law, federal regulators frequently overstate risks and force the public and private sectors to spend untold sums to avoid risks that are virtually nonexistent.

After the House commerce committee marked up a risk analysis bill last month, Environmental Protection Agency Administrator Carol Browner complained that under the measure EPA could not have banned lead from gasoline or pesticides like DDT.

She said, "Risk analysis is an important tool that is already used to assure that all major rules are scientifically justified. Requiring it for every single action is neither fair, effective, nor affordable."

In their industry relief bill, the Oklahoma delegation has a provision that would require federal agencies to use sound scientific data to determine risk criteria and benefits.

The delegation said, "This provision will allow the public to examine the scientific basis for each risk criteria and require full disclosure of all uncertainties. It also provides for a petition process to require an agency to review an existing regulation to ensure that benefits exceed costs."

'TAKINGS' ISSUE

The Fifth Amendment to the Constitution prohibits the government from taking private property without paying "just compensation."

Conservatives argue that government has passed various laws that ban activities on private land and thus constitute a "taking."

Two often cited examples are wetlands preservation provisions in Section 404 of the Clean Water Act and the Endangered Species Act. The oil industry has been affected by both.

Courts long have held that the government must provide compensation for a taking only when the owner is deprived of nearly all of a property's value.

Legislation in the Contract with America proposed to lower the economic threshold for a regulatory taking to 10% of property value from 100%.

Opponents, many of them environmentalists worried that existing legislation might be weakened, say that would increase the cost of regulations so much that the federal government could not afford to protect public health, safety, and the environment.

In documents supporting their industry relief bill, Oklahoma lawmakers said, "Private property rights are so important to our society and our economy that our forefathers chose specifically to protect them in the Fifth Amendment to the U.S. Constitution.

"Unfortunately, the federal bureaucracy has increasingly used environmental laws to trample on those rights, and most people don't have the time or money to fight the government in court.

"The legislation targets the two worst property rights offenders, the Endangered Species Act and the wetlands permitting program established by Section 404 of the Clean Water Act."

The bill would require a landowner's written consent before federal agencies could enter private property, guarantee a landowner's access to information gathered about his property, guarantee a landowner's right to dispute the accuracy of that information, guarantee a landowner's right to be paid if federal actions under the Endangered Species Act or wetlands permitting program reduce the value of their property by 10% or more.

Congress is very likely to raise that 10% limit to 33% or even 50%.

ENVIRONMENTAL ISSUES

Passage of unfunded mandates, risk assessment, and takings laws would radically change reauthorization of several environmental laws, including the Clean Water Act, Comprehensive Environmental Response, Compensation, and Liability Act (Superfund), and Endangered Species Act.

John Chafee (R-R.I.), new chairman of the Senate environment and public works committee, opposes all three proposed laws for that reason. He said reauthorizations of the three major bills "are going to take some time," hinting that they may not be done this session.

Chafee said his committee will conduct hearings to explore repeal of companies' retroactive liability for Superfund cleanups, a major item on the business community's lobbying list.

Companies said when they clean up sites to the government's specifications, they should not be liable for future cleanups if the government later raises its standards.

Sen. Robert Smith (R-N.H.) and Rep. Michael Oxley (R-Ohio), chairmen of the subcommittees that will initiate Superfund bills, have agreed their measures will not be so radically different as to prevent a compromise version.

Smith plans to "start from scratch" on a bill, and the issue of retroactive liability will be on the table. Lawmakers in both houses want the revised Superfund to be more effective while costing less.

Some congressmen also want to reopen the 1990 Clean Air Act amendments (CAAA) in response to consumer complaints about emissions tests, reformulated gasoline, and requirements for carpool programs.

To head off the problem, EPA has been meeting with state officials and plans to give them more flexibility in CAAA mandated programs.

Oil lobbyists said CAAA contains a number of unfunded mandates such as requirements for alternative fuels purchases and several provisions affecting oil and gas exploration and production.

Young said he will block further funding for the Endangered Species Act until he can pass legislation limiting its regulatory reach.

Interior Sec. Bruce Babbitt defended the law, telling Congress that if lawmakers will not change the bill Interior will seek to make it more flexible through administrative changes.

DOE DOWNSIZING

Republican dissatisfaction with several cabinet departments and agencies-particularly DOE-could affect the way the petroleum industry conducts its business.

To stem Republican attacks, the administration proposed to cut DOE funding $14.1 billion during the next 5 years. The proposed fiscal 1996 budget is $17.8 billion.

DOE again will propose that Congress allow it to sell or award leases on Elk Hills field in California and other naval petroleum reserves. The Republican majority may agree.

Some new House Republicans said the administration's plan to shrink DOE doesn't go far enough. The 73 freshmen said they will draft a plan to eliminate DOE and the Commerce, Education, and Housing and Urban Development departments while preserving essential functions.

House appropriations panels recently voted to cut $211 million from DOE's fiscal 1995 spending, including $35 million from solar and renewables programs and $53 million from energy conservation programs. The full House is likely to approve.

The Senate, however, is another matter.

Two of the three senators heading key committees want DOE retained.

One is New Mexico's Domenici, budget committee chairman.

Another is Alaska's Murkowski, energy committee chairman, who said DOE should be retained but with a budget cut of $500 million. He said it is far too early to suggest abolishing DOE until Congress knows where DOE's essential functions would be moved.

Sen. Bill Roth (R-Del.), government affairs committee chairman, plans hearings on "rightsizing" DOE, Interior, and Commerce, among others.

House Republicans also are challenging the need for the U.S. Geological Survey and Bureau of Mines, two Interior Department agencies (OGJ, Jan. 2, p. 25).

Gordon Eaton, USGS administrator, recently argued the nation needs the data USGS gathers and publishes on geology, hydrology, and cartography.

"Eliminating a science agency such as USGS is like pulling an emergency alarm off the wall," Eaton said. "The earthquakes, volcanoes, floods, fires, and landslides won't stop, but our ability as a nation to anticipate their occurrence and deal swiftly with them will be seriously eroded."

EPA could come under fire, too.

Gingrich has called EPA "a highly centralized command bureaucracy artificially trying to impose its judgment with almost no knowledge of local conditions and with a static rather than dynamic view of itself."

OFFSHORE ISSUES

The oil industry will be pushing hard in Congress this session for a "legislative fix" to reduce tough insurance requirements in OPA90.

The Minerals Management Service has concluded it has no alternative but to issue rules that require offshore operators to have $150 million in oil spill cleanup insurance. Industry said that level is prohibitive, and insurance requirements should be in some proportion to the risks involved.

Last year, MMS waited for Congress to act on the problem, while legislators said they were waiting for the administration to propose changes. This session, the hot potato clearly will be in Congress' hands.

Oil industry lobbyists were trying to draft a consensus bill the entire industry could back.

Moratoria denying MMS funds to plan certain offshore lease sales are likely to be continued this session, although lobbyists were trying to educate new congressmen on the issue. The Clinton administration wants the moratoria continued.

Lobbyists said industry is not so concerned about lifting blanket moratoria as it is about gaining access to specific areas such as those off the Florida Panhandle and southern California, where the potential for production is high.

A key lobbyist said, "We want to reduce the scope of moratoria to allow some sales and begin rebuilding industry confidence in the offshore leasing process. But the notion of having these sales has to be presold to the citizens along the coasts."

OTHER BILLS

Several other measures affecting the oil and gas industry could make progress.

The Interstate Natural Gas Association of America and American Gas Association will lobby for legislation setting a national, mandatory, one call, notification system for locating underground utilities. The bill, prompted by pipeline ruptures caused by third party damage, appears to have a good chance of passage.

Gas producers want legislation giving them a 3 year statute of limitations on royalty overcharge proceedings. They say court interpretations, supported by MMS, have made producers liable for a virtually unlimited period and prevented them from closing their books on previous fiscal years (OGJ, Feb. 13, p. 23).

Congress may consider a DOE proposal to create a federally chartered corporation to help the oil and gas industry raise capital for field development projects (OGJ, Feb. 20, p. 32).

The Petroleum Development Investment Management Corp. (Paddie Mac) would be similar to other federally chartered, publicly traded corporations. It would facilitate oil and gas price hedges, provide production rate sureties, and establish a secondary market for hedged, surety covered loans for industry