U.S. ENERGY LEGISLATION TO SEE CRUCIAL TIME IN July

Patrick Crow
Washington Editor

July may be a critical month for omnibus energy bills in Congress.

The Senate energy committee has finished work on the most comprehensive energy legislation Congress has seen in a decade. It is designed to facilitate almost all forms of U.S. energy production as well as conservation.

Debate on the Senate floor, expected in July, will see votes on several controversial issues.

In the House of Representatives, the energy and power subcommittee plans to begin marking up legislation in July.

The subcommittee has been holding hearings on energy issues for weeks. Its bills must clear the full energy committee before going to the House floor sometime next year.

Energy Sec. James Watkins began a quest for a National Energy Strategy 2 years ago and released the administration's proposals in February, but they contained more emphasis on regulatory and legislative changes than on strategy (OGJ, Mar. 4, p. 12).

Sens. Bennett Johnston (D-La.) and Malcolm Wallop (R-Mont.), chairman and ranking Republican on the Senate energy committee, respectively, pushed legislation through their panel in April and May.

SENATE LEGISLATION

The Senate bill, similar to the administration's plan, seeks to lower the nation's oil import dependence by reducing gasoline consumption and encouraging production and use of various energy sources.

Under the bill, the Department of Energy will inventory the nation's fuel resources including fossil fuels, renewable energy sources, and energy efficiency technologies-and recommend the least costly mix for the country, taking economic factors into consideration.

The Transportation Department will be required to revise Corporate Average Fuel Economy (CAFE) standards for automakers. The new standards must be flexible and consider safety requirements and available technology.

The bill requires nine out of 10 gasoline powered vehicles acquired for federal fleets and states by 2000 to use alternative fuels, as well as seven out of 10 vehicles acquired for private fleets.

Alternative fuels can include methanol, ethanol, alcohol mixtures with less than 15% gasoline, natural gas, LPG, hydrogen, coal liquids, or electricity. Vehicles can either be dedicated to alternative fuels or be capable of using either the alternative fuel and gasoline or diesel.

DOE is required to promote development and use of U.S. produced alternative and replacement (blendable with gasoline) fuels.

An energy efficiency chapter requires tougher energy standards for federal buildings, promotes a voluntary code for private industry, and funds efficiency research and development for energy intensive industries and industrial processes.

The legislation includes a program to commercialize advanced nuclear reactor technologies, reforms nuclear licensing, and reorganizes the government's uranium enrichment program.

It exempts companies formed to generate wholesale electricity from the Public Utility Holding Company Act and facilitates hydroelectric project permitting.

The bill has research programs for gas, oil shale, tar sands, advanced oil recovery, underground coal gasification, and other coal technologies.

It allows the Interior Department to lease the Arctic National Wildlife Refuge Coastal Plain for oil and gas exploration within 27 months of enactment.

A program is established to share as much as 37.5% of new federal revenues from Outer Continental Shelf leasing with states and coastal communities.

The bill bans leasing off California and New Jersey until 2000 but requires the administration to report on the potential of OCS oil and gas production.

It sets the goal of a 1 billion bbl Strategic Petroleum Reserve, up from 750 million bbl, and authorizes creation of a 10 million bbl Department of Defense petroleum products reserve.

It allows the administration to obtain imported oil for the SPR or DOD reserves without competitive bids. The exporting countries can continue to own the oil or products they store in either reserve.

GAS PROVISIONS

There are a number of natural gas reform provisions in the Senate bill.

New gas pipelines could be granted a Natural Gas Act optional certificate and the right of eminent domain if they are willing to assume the full risks of the project.

The bill makes the Federal Energy Regulatory Commission's issuance of a certificate the only federal action regarding pipelines requiring an environmental impact statement and makes FERC the lead agency for drafting the EIS.

It doubles to 60 days the posting requirement for pipeline rate changes filings and allows interstate lines to file joint tariffs for sequential transportation of gas.

It transfers from DOE to FERC the authority to authorize gas imports and orders FERC to consider any anticompetitive effects of those imports on U.S. gas producers.

It also orders the Justice Department to report within 6 months if imported gas has any regulatory advantages over domestic gas and how that might be remedied.

The bill requires FERC to act in 60 days on requests for rehearing of its orders and halves to 30 days the time to appeal a FERC order in court.

It gives a limited antitrust indemnity to independent producers who form cooperatives to pool gas for sale to pipelines. Independents are defined as those with less than 6 MMcfd of production.

The bill allows FERC to exempt the natural gas cost component of a pipeline's rates from NGA regulation if it finds the pipeline provides comparable transportation service and serves a competitive market.

And the bill relaxes the federal "Sunshine Act" so FERC commissioners can discuss issues outside of public meetings.

INDUSTRY REACTION

The Senate bill provides less than some sectors of the oil and gas industry wanted, but it has something for all of them.

Independents are disappointed the bill does not do more to encourage domestic oil production, but they won guarantees that domestic gas will not have unfair competition from Canadian gas imports.

The Senate bill does not improve access to the OCS for major producers, but they would be able to lease ANWR, the prime potential oil province in the country.

Some refiners had objected to an oil import setaside for the SPR, but that provision was removed. And the Senate energy committee rejected a plan to require refiners to produce alternative fuels.

Gas producers and pipelines say reforms in the bill should streamline FERC permitting and make it easier to sell gas.

Watkins called the Senate bill "a comprehensive, studied, pragmatic, workable solution that conservationists and producers alike should be able to support."

The American Petroleum Institute lauded the bill for containing conservation actions that make economic sense and continued research on alternative fuels.

It also said ANWR leasing is mandatory because the area "holds the promise of billions of barrels of oil, tens of thousands of jobs, significant revenues for the government, and billions of dollars in increased economic activity for the benefit of all Americans for many years to come."

The American Gas Association praised sections of the bill that could expedite pipeline construction, encourage use of natural gas vehicles, and expand federal R&D on gas technologies.

ANWR, CAFE TRADEOFF

The Senate bill's critics complain it does too little for the environment, or ANWR should not be leased, or both.

In a report on the measure, Sen. Bill Bradley (D-N.J.) complained, "While the bill is truly comprehensive in that it touches on most of the elements of energy in our economy, it is not balanced. The energy conservation measures are weak or ineffective.

"This bill offers little impetus for the structural changes in our economy necessary to reduce our dependence on oil."

Johnston sought to include something in the bill for everyone to improve its chances for passage.

And he sought to counterbalance the ANWR leasing provisions, which environmentalists strongly oppose, with the tougher CAFE standards conservationists demanded.

However, the Bush administration would not agree to tougher CAFE standards, and environmentalists rejected any link between ANWR and CAFE.

Eli Bergman, executive director of Americans for Energy Independence (AEI), said that sets the stage for "a huge fight" on the Senate floor.

"The committee came up with a good package, a balanced ticket," Bergman said. "The contents are good on the supply side and demand side as well. The only thing missing was some numbers in the CAFE provisions.

"The problem on the Senate floor is that both sides are entrenched on ANWR and CAFE. Environmental coalitions threaten to oppose the bill if it contains ANWR-even if they get what they want on CAFE. And the administration threatens to veto the bill over tougher CAFE alone.

"This demonstrates the ideological mindsets that can frustrate a good energy bill. If anything is to happen, there will have to be some compromise."

Bergman thinks the White House must be more flexible on CAFE "or they can lose it all. It's the administration that has the power to broker a bill."

ANWR AMENDMENTS

The ANWR debate could trigger a Senate filibuster.

The energy committee reported an ANWR leasing bill in 1988 but it was not brought to a vote on the floor because it lacked the 60 votes needed to overcome an expected filibuster.

The committee approved leasing again the following year, but the Exxon Valdez oil spill occurred a few days later and the bill died.

Oil company lobbyists have tried to count the Senate votes for ANWR this summer and say it's an open question as to whether there are enough for passage.

Twenty senators, an unusually high number, have cosigned an anti-ANWR leasing bill by Sen. Bill Roth (RDe.).

Sen. Tim Wirth (D-Colo.), who led the fight against ANWR in the energy committee, will work against it on the floor.

He said, "Even if the most optimistic production estimates are realized, oil from the Coastal Plain would contribute precious little to our energy security."

ANWR supporters fear Senate majority leader George Mitchell (D-Me.), who opposes ANWR leasing, may be able to use his powers to work against leasing.

DOE's Watkins and Interior Sec. Manuel Lujan have said the president should veto the bill if it does not contain ANWR leasing.

Sen. Frank Murkowski (R-Alas.) will offer an amendment to give 90% of any ANWR revenues and royalties to Alaska instead of the 50-50 split in the committee bill.

FUELS DEBATES

Although the Bush administration has threatened to veto any bill that contains tougher, rigid CAFE standards, Sen. Richard Bryan (D-Nev.) is expected to offer an amendment to increase CAFE to 40 mpg by 2001.

A Bryan bill has considerable support, although the Senate narrowly defeated it last fall.

The Senate commerce committee has approved the Bryan bill.

In the Senate energy committee, the Bryan measure was voted down, but also rejected as too weak was a proposal for a 37 mpg CAFE by 2006.

The Senate floor may see a revival of an amendment by James Jeffords (R-Vt.) to require refiners to offer alternative fuels, which the energy committee considered and rejected.

The Jeffords bill would require refiners to offer alternative fuels such as alcohol fuels, natural gas, and electricity equal to 10% of their gasoline sales in 1998, increasing to 30% by 2010.

API lobbied hard against that provision, and the administration said it could prompt a presidential veto.

As a consolation, the committee adopted a provision empowering the energy secretary to require alternative fuels production if he determines alternative fuels supplies are not meeting market demand and refiners will not voluntarily produce them.

CANADIAN GAS, TAXES

The Independent Petroleum Association of America convinced the Senate energy committee to protect U.S. producers against any differences in the way domestic and Canadian gas supplies are priced.

Bradley fought that amendment in committee and may seek to overturn it with an amendment on the Senate floor.

The administration opposed the import amendment because it is contrary to the White House objective of an integrated North American gas market and raises concerns over obligations under international agreements, most particularly the U.S.-Canada Free Trade Agreement.

The Interstate Natural Gas Association of America and AGA will be working to overturn the provisions, too.

AGA said the language is vague and "potentially could unduly restrict Canadian gas imports, build unnecessary trade barriers, harm consumers, and damage sectors of the.economy that depend on Canadian gas."

A gas lobbyist said efforts are under way to negotiate a compromise in which FERC would be required to act more promptly to resolve complaints over the pricing of Canadian gas.

Sen. Pete Domenici (RN.M.), a champion of the gas import provisions for IPAA, has signaled a willingness to negotiate.

In addition, there could be amendments offered on the Senate floor to raise gasoline taxes, an action the Bush administration strongly opposes.

The energy committee lacked jurisdiction to include taxes in its bill, but its report noted, "One of the most effective and automatic ways to achieve efficiency and substitution of alternative fuels in gasoline is to increase gasoline prices.

"The price of gasoline today, adjusted for inflation, is lower than it was in 1973. Thus, although the efficiency of new automobiles has doubled since that time, vehicle miles traveled has increased 45%, and today the nation consumes more gasoline. There are more vehicles on the road, and those vehicles are on average driven further."

HOUSE PROSPECTS

Despite what the Senate does on ANWR and CAFE, the House of Representatives is not likely to approve either.

Rep. Phil Sharp (D-Ind.), House energy and power subcommittee chairman, has filed a series of energy policy bills not too different from some of the proposals in the Senate bill and is holding a series of hearings on them that continues through this month.

He wants to begin marking up legislation in July, although the work may not be complete before Congress takes its month long August recess.

No decision has been made on whether to mark up the bills separately or roll them into omnibus legislation. If passed separately, the House rules committee might link the bills for a floor vote.

One pending Sharp measure would enable a faster fill of the SPR. It would require importers to place 3% of their imports in the SPR as a "user fee." They would continue to own the oil. If it were sold in a drawdown they would receive the proceeds. The Senate energy committee rejected a similar plan.

At a hearing, Sharp opposed independent producers Canadian gas legislation. He sympathized with them"It's not easy to be a gas producer these days and make money"-but insisted there should be no separate rules on Canadian gas.

Sharp said energy tax changes should be a key component of an NES and has called for a "modest" gasoline price increase and possibly an $18-20/bbl oil price floor.

But the ways and means committee has jurisdiction over energy taxes and is not expected to legislate in view of a gasoline tax increase and some incentives for domestic production last year.

Rep. John Dingell (D-Mich.), chairman of the full energy committee, will be a roadblock to House CAFE legislation. He doubts tougher CAFE standards are feasible and says they would throw the auto industry into depression.

The barrier to ANWR leasing in the House is the proenvironment interior committee, which has primary jurisdiction. Its new chairman, Rep. George Miller (D-Calif.), opposes ANWR leasing as zealously as former Rep. Morris Udall (D-Ariz.) did the past few sessions.

NONCRISIS ATMOSPHERE

Unlike the Carter administration bills of the early 1980s and some smaller bills since then, the Senate committee's comprehensive energy bill is not being considered in a crisis atmosphere.

Proponents had hoped the Persian Gulf war would add urgency to the legislation. But the war is scarcely mentioned now on Capitol Hill.

Some observers, including DOE's Watkins, are concerned that if omnibus legislation is not passed this session it may a dead issue next session.

AEI's Bergman said, "I don't think we will have another opportunity, absent a crisis. There doesn't seem to be an outcry in the U.S. for an energy policy. Even during the Persian Gulf war there was a feeling we were there for oil, but this was not translated into demand for an energy policy."