Patrick Crow
Washington Editor
Congress is likely to pass broad energy legislation this fall that paradoxically seeks to reduce U.S. dependence on oil imports without increasing domestic oil production.
The House of Representatives approved 381-37 and the Senate 94-4 their separate but similar energy bills, so it appears Congress will approve a compromise bill by an overwhelming margin. A presidential veto is not threatened.
Still, passage of energy legislation is not a done deal. The quadrennial presidential election campaign will add an element of political volatility to a House-Senate conference committee's deliberations. And the legislation is racing against the calendar because Congress is due to adjourn early in October, a target it never meets. After deducting breaks for the Democratic and Republican nominating conventions and "district work periods," Congress will be in session only 10 of the 15 weeks before October.
Congressional aides say if conferees could convene in July they could instruct their staffs to beg:in merging similar elements of the 800 page Senate bill and 1,350 page House bill.
The staffs could reconcile 80-90% of the bills during the summer so conferees could resolve the remaining issues in September and submit a final bill for a vote in both houses.
HOW LEGISLATION DEVELOPED
A single massive bill is a different approach for congressional energy committees, the first such attempt in at least a dozen years.
Energy Sec. James Watkins launched the national energy strategy (NES) effort 3 years ago. After taking office, he found many energy policy statements on Department of Energy shelves but no real plans. Watkins then began developing a proposed NES complete with timetables and specific goals.
The White House removed the sting and the strategy from the final document but left a number of recommendations to improve all forms of U.S. energy production and encourage conservation.
Congressional energy committees, accustomed to one-shot bills, saw political advantage in the omnibus approach.
Providing something for everyone in a bandwagon bill would enable passage of measures that might not be passed singly.
Although the approach guaranteed more support, it did not guarantee evenly balanced legislation.
Oil producers complain that, other than a tax provision for independents in the House bill, the two bills do nothing to promote U.S. oil exploration or production.
The bills restrict offshore exploration, do not aid onshore drilling on federal lands, and do not allow exploration of the nation's best oil prospect, the Arctic National Wildlife Refuge Coastal Plain east of Alaska's Prudhoe Bay field (OGJ, Mar. 2, p. 29).
The oil industry successfully fought provisions in the bills to require it, rather than the government, to pay for filling the Strategic Petroleum Reserve (OGJ, June 1, p. 40).
WHAT THEY DO
By expanding use of domestic fuels and encouraging alternative fuels and conservation, the House and Senate bills are projected to reduce U.S. oil imports by about 6 million b/d from what they otherwise would be in 2010.
Imports averaged 7.2 million b/d in the first 3 months of 1991 and are expected to climb considerably in the next decade as domestic production sinks and demand rises.
The House bill would set a U.S. goal of 10% alternative fuel use by 2000 and 30% by 2010. It requires up to 50% of new federal fleet vehicles to use alternative fuels by 1998 and encourages use of alternative fuels in privately owned fleets. The Senate bill has the same goal but expands the alternative fuels requirement to 90% by 2000 for new federal vehicles.
Both bills have extensive energy efficiency initiatives for homes, businesses, industrial equipment, lamps, utilities, showerheads, and the like. Natural gas and power utilities would be encouraged to invest in conservation and energy efficiency measures.
The bills would encourage development of electric autos and facilitate production and trading of electrical power.
They have uranium enrichment and waste sections, but the Senate bill also would facilitate licensing of nuclear reactors and commercialization of advanced nuclear reactor technologies.
The bills would encourage use of coal in various ways and increase research to refine coal into liquid fuels. The Senate bill would boost coal gasification and oil shale refining research.
The House bill would reform oil pipeline rate making. Federal Energy Regulatory Commission staff members and persons without an economic interest could not intervene in tariff cases. A FERC commissioner would preside at Oil Pipeline Board rate cases.
Oil pipeline rates not protested or opposed for I year would be deemed lawful. And FERC would be required to issue, within a year, a simplified ratemaking methodology for oil pipelines.
The House bill would extend the octane posting requirement for gasoline to all liquid automotive fuels, including gasohol, diesel, ethanol, and methanol. States would be allowed greater authority to enforce laws against octane mislabeling and posting.
GAS PROVISIONS
The bills contain a number of provisions to expand or facilitate the working of natural gas markets.
Both bills would allow FERC to grant optional certificates for pipeline construction when sponsors assume the risk. The rates would not be subject to regulation.
They allow anyone to move gas under Natural Gas Act Section 311, and rates would be considered just and reasonable. Pipelines would be allowed to bypass local distribution companies to serve industrial customers directly.
They permit FERC to allow outside contractors to prepare environmental statements to speed applications and give FERC 60 days--double the current time--to act on rehearing applications.
They would streamline FERC's certificate procedure. Pipelines would no longer need FERC certificates of convenience and necessity to repair or replace facilities if the action does not reduce capacity or cost more than $20 million.
Both bills would require pipeline interconnects in gas fields. And they would exempt independent electrical power producers from the Public Utility Holding Company Act.
The Senate bill would give independent operators producing less than 6 MMcfd a limited antitrust exemption so they can form cooperatives to sell gas.
It exempts companies selling natural gas as an auto fuel from federal regulation. And it would deregulate normal gas sales if FERC found the market had a competitive environment.
The House bill declares gas imports from Canada are a first sale. It allows pipelines to jointly file with FERC rates for sequential transportation of gas through their facilities.
It allows FERC to implement informal rulemaking procedures, to phase its certificates, and designate priority projects. FERC also must expedite its consideration of Natural Gas Act Section 7 applications.
CONFERENCE ISSUES
The first problem facing the energy bill conference is the fact that the House bill contains revenue provisions in tax relief for independent producers and credits for alternative fuels), but the Senate bill does not.
That leaves the Senate with two options:
- The finance committee could report out a tax bill containing those items, which the Senate could pass so it could be considered in conference with the House bill.
- The Senate could just name some finance committee members to the conference committee.
Going through the finance committee will take more time and open the possibility that the committee's bill could be loaded with controversial, nongermane tax provisions if it is the only tax bill this year. The loading could occur, as one observer said, "if people in Congress get the idea this is the only train leaving the station."
The Senate finance committee is not expected to oppose a provision on the alternative minimum tax (AMT). Earlier in the year, it voted independents AMT tax relief, but the provision was included in an economic relief bill President Bush vetoed.
The House bill, authored by Rep. Bill Archer (R-Tex.), limits AMT relief to 1993 through 1997 and to independents.
It would end the AMT adjusted current earnings adjustment for intangible drilling costs and percentage depletion and end the AMT preference item for percentage depletion.
Independents would be required to compute a "hypothetical AMT income" (AMTI) using present rules for determining the AMT preference for IDCs.
The measure ends the AMT preference for excess IDCs. But independents could not reduce their overall AMTI by more than 30% of their hypothetical AMTI in 1993 and 40% in 1994-97.
The relief section would deny the government $900 million in revenues, and a miscellany of small tax changes was proposed to offset that effect.
The Disabled American Veterans vows to fight the provision because it would divert $339 million from a fund for widows and children of deceased veterans.
GAS PRORATIONING
One of the hottest issues before the conference committee will be producing states' prorationing of gas production.
Oklahoma and Texas acted on prorationing between passage of the Senate and House bills, so the Senate bill is silent on the issue.
But the House voted 238-169 to restrict gas prorationing. Reps. Ed Markey (D-Mass.) and James Scheuer (D-N.Y.) said their amendment would allow prorationing for protection of correlative rights, which courts have upheld.
But it would ban prorationing if it restricts gas production and thus raises wellhead prices.
Markey said prorationing in Oklahoma and Texas has "led to a speculative boom in natural gas prices, which have spiked the price of natural gas up 27% over the past couple of months."
Congressmen from producing states pointed out that the Oklahoma and Texas actions did not set gas production at less than market demand.
The two congressmen leading their respective conferees, Rep. John Dingell (D-Mich.) and Sen. Bennett Johnston (D-La.), both oppose inclusion of an antiprorationing amendment.
Johnston, bowing to pressure from 32 other senators (OGJ, May 18, Newsletter), has scheduled energy committee hearings on the issue June 18.
OFFSHORE LEASING BANS
Both bills restrict the government in leasing acreage on the Outer Continental Shelf (OCS). They would change the Interior Department's proposed 5 year leasing program (OGJ, May 11, p. 22).
All segments of the industry oppose such bans, and the Bush administration has pledged to work to dilute the bans in the conference committee.
The House bill would ban leasing through 2001 everywhere except in the central and western Gulf of Mexico and off Alaska with the exception of Bristol Bay.
Leasing could proceed in the banned regions after 2002 if certain environmental studies are performed.
The bill orders the Interior Department to cancel within 90 days and to repurchase from lessees after Oct. 1, 1995, controversial leases: 23 in Bristol Bay, 73 off Southwest Florida, and 21 off North Carolina.
Interior could give holders of canceled leases credits against royalties or delay rentals owed on future or existing OCS tracts.
The House bill would give coastal and Great Lakes states 4% of all federal revenues generated by offshore oil and gas leases--about $112 million/year.
The Senate bill would ban leasing until Jan. 1, 2000, off California, Washington, Oregon, New Jersey northward, and off Southwest Florida.
It directs Interior to buy back the leases off Southwest Florida, including payment for expenses and lost profits.
The Senate bill also outlines a complex formula under which it would share federal royalties from offshore leasing with coastal states and local governments with federal leases off their shores to a maximum of $300 million/year.
REACTIONS
DOE's Watkins said passage of the House bill "offers the real possibility of enacting comprehensive and balanced energy legislation such as the country has not seen for 20 years."
The American Petroleum Institute said, "While the legislation encourages conservation and development of alternative fuels, both important steps, it does nothing to recognize the critical need for increased domestic production of oil and natural gas. That can only mean America's growing dependence on foreign oil will accelerate in coming years."
The Independent Petroleum Association of America was pleased the House bill gave small producers relief from the AMT. "IPAA wants a strong national energy strategy, and domestic production of oil and natural gas is indispensable to that strategy."
The National Ocean Industries Association said "While emphasizing conservation and research and development, which should be done, the House has failed to realize the importance of continued supplies of our main energy source now and in the foreseeable future: oil.
"By restricting access to the OCS, the House has ensured the U.S. will only increase its prominence as a world buyer of oil.
"The bill calls for increased use of natural gas to replace oil but fails to account for increased production to meet these new, mandated demands for gas. In fact, the bill ensures that industry will not be able to develop some very promising gas fields offshore. We have to discover new supplies of oil and gas to ensure that we have the necessary supplies to fuel this country.
"We had the opportunity to enact a true energy policy this year. It is a shame that we let that opportunity go by. However, we should not be surprised. It took a war to snap this country into the reality of our energy imbalance. But as the troops came home, reality faded."
Nick Bush, Natural Gas Supply Association president, said, "It's hard to consider it an energy bill when it writes off 25% of the nations gas supply: gas from the OCS."
PERILS AHEAD?
Don Santa, a Senate energy committee counsel, is very optimistic Congress will pass an energy bill this year.
He said, "This is an isolated example of the legislative system working exactly the way its supposed to and at a time when' that doesn't seem to happen much."
But Santa noted there have been many setbacks, like when the Senate initially rejected its bill over the ANWR leasing issue.
"It's sort of like the book, The Perils of Pauline," he said.
"It's a 16 chapter book, and at the end of each chapter she's tied to railroad tracks or facing a similar crisis. With the energy bill, we're only at Chapter 11."
Rep. Billy Tauzin (D-La.) noted last week the legislation has much in it to please environmentalists: conservation requirements, alternative fuels programs, and clean fuel strategies.
"It is a national environmental strategy rather than an energy strategy," he said, explaining that all it does for the oil industry is "put more and more of the offshore off limits to drilling--even to the point of buying back leases.
"It has much more of the environmental agenda in it than it has provisions for production."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
