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Vote on Bipartisan Senate Energy Bill Set for Tuesday

The Senate last week wrapped up two weeks of debate on the omnibus energy bill and is scheduled to vote on the bipartisan package Tuesday morning, setting the stage for Congress to pass a national energy policy for the first time in more than a decade, assuming all goes well this summer in the House-Senate conference on the measure.

As lawmakers put the finishing touches on the broad measure last Thursday, world crude oil prices hit a record high of $60 a barrel and natural gas futures remained near $7.50/Mcf. The bill is expected to do little to lower energy prices in the near term.

A favorable vote by the Senate would be a significant victory for President Bush, who has called on Congress to deliver an energy bill to the White House before leaving for an August recess. The House and Senate likely will begin reconciling their versions of the energy bill in conference sometime in July, which observers inside and outside Capitol Hill concede will be a difficult task.

Energy analyst Christine Tezak of Stanford Washington Research Group doubts Congress will be able to meet the president's deadline. "Even if conferees are chosen quickly, we do not think it's likely that a reconciled bill will be voted on by the House and Senate by President Bush's target date of Aug. 1."

An "optimistic scenario" would have the House-Senate conference wrapped up by the end of the August recess (Labor Day), to be followed by an up-or-down vote on the conference report by both houses sometime in September and then signed by the president soon afterward.

The bill awaiting a Senate vote (HR 6) includes a $10.65 billion package of energy incentives, mostly for renewable fuels, conservation and energy efficiency; would remove roadblocks for natural gas transportation, liquefied natural gas (LNG) terminaling and storage; reinforces FERC's exclusive authority over the siting of LNG terminals; calls for an inventory to be conducted of all Outer Continental Shelf (OCS) oil and gas resources; promotes the sharing of OCS revenues with states for coastal impact assistance; increases the civil and criminal penalty authorities for FERC; prohibits market manipulation; repeals the Public Holding Company Act of 1935; and requires utilities to produce 10% of their electricity from renewable energy by 2020.

Probably the biggest disappointments for the oil and natural gas industry are that the bill does nothing to relax the 24-year-old congressional moratorium on oil and gas drilling in much of the OCS, or provide producers with increased access to public lands onshore. The Florida delegation, which opposes drilling at all costs, was extremely instrumental in blocking Senate plans to give non-producing coastal states the opportunity to opt out of the moratorium. The delegation, led by Sen. Bill Nelson (D-FL), vowed to filibuster the bill if a proposal to overturn the moratorium was offered on the Senate floor.

The Senate bill and House bill that passed in April have substantial differences, which could prove difficult to resolve in conference. Some of the more intractable issues are likely to be the House's provision on product liability protection for the producers of the gasoline additive methyl tertiary butyl ether (MTBE), the Senate's mandate for 10% of electric supplies to be sourced from renewable energy by 2020, the Senate's provision on conducting an OCS inventory, and the differences in the House and Senate language with respect to FERC's jurisdiction over the siting of LNG facilities.

In what was good news for the energy bill, reports were circulating late last week that Rep. Joe Barton (R-TX), chairman of the House Energy and Commerce Committee, was going to be able to pull the most fractious issue -- MTBE -- off the energy bill and put it in the pending transportation bill, according to Tezak. "Getting this contentious provision off the energy bill could help passage of the measure significantly," she said.

While success in conference is not assured, Tezak estimates there currently is a 60% chance that an energy bill will be enacted this year. "Our optimism is tempered by the fact that judicial nominations could yet derail the Senate's ability to move a conference report this fall."

The Senate won some major battles last week that were favorable to the energy industry. Foremost, the Senate last Wednesday defeated an amendment that would have given state governors the authority to veto the siting of onshore LNG terminals.

By 52 to 45, the Senate agreed to table the amendment, which was offered by Dianne Feinstein (D-CA) and co-sponsored by several coastal state senators, that would have provided state governors with the same authority to veto, approve or attach conditions to onshore LNG terminals, as they currently have for offshore LNG facilities under the Deepwater Port Act (DPA).

This was a major victory for the energy industry because existing language was retained in the broad energy bill that gives the Federal Energy Regulatory Commission "exclusive jurisdiction" over the siting of new LNG terminals. It also preserves the states' authority under various federal laws to hold up projects that they oppose.

The existing language was sponsored by Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, and Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the panel.

The vote was a setback for California and coastal states in the Northeast, which have objected to the siting of proposed LNG facilities in their areas and/or the lack of a significant state voice in the siting process.

The siting of LNG terminals is a "federal role under our Constitution," said Bingaman. Giving state governors the right to veto onshore LNG projects "would turn the...process on its head," and would discourage investment in LNG projects.

Under Feinstein's amendment, state governors would have been permitted to veto an LNG project after the National Environmental Policy Act (NEPA) and environmental impact statement (EIS) processes were completed at FERC, Bingaman noted. Governors could take this action without participating in the NEPA process at the agency.

Feinstein and other critics opposed the Domenici-Bingaman provision on LNG siting because they claimed it gave FERC all of the authority and left the states with little or no role in the project-approval process. But Sen. Lamar Alexander (R-TN) reminded the states that they could thwart projects using their authorities under the federal Clean Air Act (CAA), Clean Water Act (CWA) and Coastal Zone Management Act (CZMA). State governors have "plenty of tools in [their] arsenal," he said.

"I happen to think the Domenici-Bingaman proposal [strikes] the right balance," giving FERC sole authority over the siting of LNG facilities, while preserving states' rights under the CZMA, CWA and CAA, Alexander noted.

"This may be the most important provision in the bill" because it could lower $7/Mcf natural gas prices to $5/Mcf, he said. "Our biggest challenge is the price of natural gas," even more than the price of gasoline, Alexander believes. "If we do not bring in natural gas...the price of natural gas may be $13 in this country."

"I do not oppose LNG sites in California," Feinstein said, adding that "clearly this nation is on its way to using LNG." But she argued that "states must have a role in siting LNG facilities in order to protect the welfare of their citizens."

LNG terminal projects should be sited where they pose the least danger to the public, not just where they make the most economic sense, Feinstein said. She noted that it was "nonsensical" to award states veto power over the siting of offshore LNG facilities, but not over onshore LNG terminals.

Outgoing FERC Chairman Pat said Wood said he met with Feinstein earlier in the month "and my conclusion was you really do already have this [veto power] on the onshore. It's not a pure governor's veto. It's actually one under the federal statutes that I think is very clear and time tested." What the senator is "interested in actually already exists," he said at a media briefing sponsored by Energy Daily last Wednesday.

Responding to a reporter's question, Wood noted that he didn't endorse the Feinstein amendment "and she didn't directly ask me to." He thinks the "current law on that -- on the state role issue -- is very robust for the states for the things that she's interested in."

Wood recently sent a letter to the senator in which he said, "I think the current law really satisfies the concerns that you and I talked about. So I don't think a change is needed in that regard."

"There is no intention in our legislation that local authority be usurped" with respect to LNG terminals, Domenici assured Feinstein and other colleagues representing coastal states.

Two controversial LNG projects -- the proposed 4.4 Bcf Weaver's Cove LNG terminal near Fall River, MA, and KeySpan LNG's proposed conversion of its existing 600,000 bbl LNG storage terminal in Providence, RI, to an import terminal -- and the Sandia Laboratories' findings on LNG hazards were referred to often during the debate last Wednesday.

The KeySpan LNG project "poses serious risks to the state of Rhode Island and...Massachusetts," complained Sen. Jack Reed (D-RI), a co-sponsor of the Feinstein proposal.

But Bingaman countered that a FERC final EIS issued in late May found that the KeySpan LNG project fell short of the current federal safety standards, and may not go forward as a result. This shows that "FERC is doing its job," he said, adding that the agency is not trying to put LNG facilities in locations where it may be unsafe.

Earlier in the week, the Senate drove back an attempt by coastal state senators to strike a provision from the energy bill that directs the federal government to carry out an inventory of the oil and natural gas resources on the OCS.

By 52 to 44, pro-drilling forces in the Senate last Tuesday defeated an amendment, offered by Sens. Mel Martinez (R-FL) and Nelson, to strike language from the energy bill to conduct a seismic survey inventory of oil and gas resources in all OCS areas, including those in coastal areas where drilling has been banned by Congress for the past 24 years. The victory for supporters of cataloguing offshore resources came a week after they lost out in a Senate battle on their larger goal of relaxing the drilling ban.

It was a major win for the energy industry and Sen. Mary Landrieu (D-LA), who added the OCS inventory provision during mark-up of the energy bill by the Senate energy panel in late May. She had the backing of Domenici and Bingaman.

The vote was a setback for environmentalists and senators from coastal states, who contend the inventory study is an attempt to undermine the congressional moratorium on drilling off Florida, and the West and East Coasts. Martinez and Nelson signaled, however, that their fight was not over yet. They said they would try to reach a compromise with Congress that would allow Florida to opt out of the inventory.

At the start of the debate on the energy bill, Florida's senators had successfully brokered an agreement in which Domenici and Bingaman pledged to oppose all efforts to relax the moratorium on oil and gas drilling in the OCS or open up Lease 181 in the eastern Gulf of Mexico. The Florida senators had threatened to filibuster and prevent a vote on the entire bill if they did not get coastal protections. The provision on inventorying of OCS oil and gas resources was not part of the deal (see NGI, June 20).

The Senate approved a similar provision calling for an OCS inventory in the 108th Congress, but it eventually wound up on the cutting-room floor during the House-Senate conference on the broad energy bill. The OCS inventory language could face a similar fate this year.

"This is not a drilling amendment. This is a security amendment," and a "good stewardship amendment," argued Landrieu in favor of keeping her provision in the energy bill. The American public has a right to know "what [oil and gas] resources are there for them if they should need them," she said.

"Nothing is going to happen to the [coastal] states," or the congressional moratorium if an OCS inventory is conducted, Domenici said. "We ought to know what's there. Some decision [about drilling] can be made in the future."

Sen. Nelson, a major opponent of drilling off the coast of Florida, countered that the federal government already knows "what's out there" in terms of oil and natural gas. Interior Department's Minerals Management Service conducts updates every year, he said, adding that the next one is due out this summer.

An OCS inventory is the "first step to drill. It's the proverbial camel's nose under the tent. Once the camel's nose is under the tent, it's going to collapse and there is going to be drilling all along the continental shelf," Nelson argued. Martinez agreed that an inventory was a "precursor" to overturning the moratorium on drilling.

"We believe inventorying is a step on a slippery slope" toward lifting the ban on drilling on much of the OCS, echoed Sen. Jon Corzine (D-NJ).

In other developments, the Senate last Thursday approved a bipartisan amendment as part of the energy bill to provide $1 billion in coastal impact assistance funds over four years to six coastal states with oil and natural gas production on the OCS.

The amendment, offered by Domenici, was approved by voice vote after the Senate agreed to waive provisions in the Budget Act, which Sen. Judd Gregg (R-NH), chairman of the Senate Budget Committee, claimed Domenici's proposal violated. The Senate voted 92 to 4 to waive the budget provisions after Gregg raised a procedural motion to block the amendment.

The Domenici measure calls for $250 million annually in direct spending to be provided between 2007 and 2010 to four Gulf Coast states (Texas, Louisiana, Mississippi and Alabama), California and Alaska, with Louisiana receiving the lion's share to restore its coastlines. Louisiana is expected to receive about $540 million over the four-year period, or 54% of the total $1 billion.

The Senate action was a win for Louisiana and the other producing coastal states, but a setback for the Bush administration which had opposed the bipartisan measure.

Louisiana's Landrieu and David Vitter, who co-sponsored the amendment, argued that Louisiana was entitled to the coastal impact assistance funds, given that the state had contributed more than $155 billion in OCS-related revenues to the U.S. Treasury since the early 1950s and had received little in return. Other co-sponsors included Bingaman and Sen. Trent Lott (R-MS).

This is a "small initial step to correct [the] injustice" and capture a small percentage of the royalties for the host state, said Vitter on the Senate floor. He noted that the loss of Louisiana's coastline and wetlands was "directly related" to the oil and gas activity off the state's shores. He and Landrieu further assured offshore drilling opponents that the proposal would do nothing to overturn the moratorium on drilling in much of the OCS or provide incentives to encourage more offshore drilling.

As for the coastal impact funds' impact on the federal budget, Vitter said that Domenici worked "extremely hard" to make sure that this would not "bust the budget."

Gregg countered that there was "no nexus" between Louisiana's receding coastline and the oil and gas drilling activity off of its shores. "The amendment as proposed has no relation to energy production," and has no place in an energy bill.

"This bill uniquely benefits [6] states at the expense of the Treasury," and excludes other states that have environmental issues, some directly tied to energy production, Gregg said.

He noted that Louisiana was already receiving a "fair amount of money" from the federal government, approximately $1.43 for every $1 forwarded by the state to the Treasury. "I don't think they should get another dedicated stream of money." Gregg said the proposal was "highway robbery," and an "attempt to raid the Treasury." It's a "grab at the federal Treasury."

Vitter argued "nothing could be further from the truth" than Gregg's contention of no linkage between oil and gas production and Louisiana's dwindling wetlands and coastline. He noted that 50 years of activity off of Louisiana's coasts have resulted in coastal erosion. "It's been scientifically proven."

Landrieu estimated that Louisiana receives $50 million a year from the federal government, which she said was a "drop in the buck" compared to the more than $155 billion in OCS revenues that the state has generated for the United States since the early 1950s.

No other state, with the exception of Wyoming, contributes more energy production-related revenues to the U.S. Treasury than Louisiana, according to Landrieu. "The people in Louisiana are entitled to the money that we [forward] to the general fund."

Louisiana, Mississippi and other Gulf Coast states get only 1% of the royalties from production in their states, while other states get up to 50% of the royalties, said Lott. "We're prepared to do the dirty work. We're prepared to take the risks... But we do think we should get a share of the royalties." He noted that the Budget Committee allocated $2 billion for the energy bill, and that Domenici's amendment calling for states to share $1 billion was within that range.

Gregg questioned whether the coastal impact funds would be used for things other than wetlands. This money will be used "primary and almost exclusively for the restoration of [the] wetlands," Landrieu countered.

The nearly day-long debate on the Domenici amendment evolved into a wider discussion on expanded drilling on the OCS. Sen. George Allen (R-VA) indicated that he would prefer that individual coastal states have "more prerogatives" to choose whether or not to opt out of the existing congressional moratorium and drill off their shores.

"That's just something I'd like to see ultimately allowed," he said.

Sen. John Warner (R-VA), a strong proponent of expanding domestic energy production, offered an amendment on the floor last Wednesday to allow non-producing coastal states to petition the federal government to opt out of the existing moratorium. The amendment came under immediate attack, which caused Warner to withdraw it.

Alexander filed a similar amendment last Thursday, but he did not offer it on the Senate floor. Nelson of Florida quickly sought assurances from Domenici, manager of the energy bill, that no more OCS-related amendments would be proposed as part of the wider energy bill. Domenici agreed later that the Senate would propose "no further amendments related to the OCS or OCS moratorium [or] natural gas and oil exploration" in the energy bill.

Meanwhile, the wind power industry scored a major victory last Wednesday night after the Senate voted down a proposal advanced by Alexander and other lawmakers that would have blocked wind power facilities located in or close to certain designated areas, such as national parks, from being eligible for federal tax credits. The proposed amendment was defeated 63-32.

"What I would like for us to do in the Senate is recognize our responsibility to the American landscape and say at least we're not going to subsidize putting these windmills in between us, our grandchildren and children and a view of the Grand Canyon, a view of the Statue of Liberty, a view of the Great Smoky Mountain National Park, a view of Cape Cod," Alexander said prior to the vote on the amendment.

"I hope that my colleagues, whether they support wind power or whether they are skeptics of wind power, will agree with me that we should not put these gigantic steel towers in between us and our most scenic treasures," Alexander said. During his remarks, Alexander had a chart placed next to him on the Senate floor entitled, "Not Your Grandmother's Windmill."

But Bingaman said that the amendment "moves in the direct opposite direction of the legislation that is before us," referring to the comprehensive energy legislation in the Senate. The amendment "says that 'we're going to make it more and more difficult for people to proceed with development of wind power projects.'" He took issue with the amendment's proposal to designate "highly scenic areas," saying such areas were "fairly broadly defined."

The Senate also addressed a number of climate change-related amendments last week tied to consideration of the broader energy bill.

By a vote of 60-38, the Senate rejected an amendment offered by Sens. John McCain (R-AZ) and Joe Lieberman (D-CT) that would have, among other things, required power plant carbon dioxide emissions to return to their 2000 levels or lower by 2010.

But on Tuesday, the Senate easily passed a bipartisan climate change-related amendment that was offered by Sen. Chuck Hagel (R-NE) and several other lawmakers. That amendment, passed by a vote of 66-29, offered a comprehensive, voluntary approach to addressing the issue of climate change both domestically and internationally.

Also, the Senate backed an amendment offered by Bingaman expressing the sense of the Senate that greenhouse gases are causing average temperatures to rise; human activity is a substantial cause of those gases; mandatory steps will be required to address the problem; and Congress should enact a comprehensive and effective national program of mandatory, market-based limits and incentives on emissions of greenhouse gases that slow the growth of such emissions without harming the economy.

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