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Capitol Hill Action on Energy -- Much Ado About Nothing

There was a lot of talking on Capitol Hill about energy legislation last week, but in the end lawmakers made no substantive progress on energy policy before heading home for their month-long August recess. Last minute bills and threats, however, indicated they would be back to do it all over again in a short September session, before going off to get re-elected, or not.

Democrats and Republicans in both houses were deadlocked over amendments to anti-energy speculation legislation, with Republicans ratcheting up the pressure for Congress to lift the ban on oil and natural gas drilling in the much of the Outer Continental Shelf (OCS). But the Democratic leadership, particularly in the House, refused to schedule a vote on OCS access legislation, despite repeated calls by President Bush to do so before the recess. Republicans countered by blocking the votes on the speculation measures.

House Speaker Nancy Pelosi (D-CA) was unrelenting in her opposition to more OCS drilling, even though some Democrats are reconsidering their position on the issue and more Californians are supporting offshore exploration and production.

The eye-popping second quarter profits of oil producers -- ExxonMobil ($11.68 billion), Royal Dutch Shell ($11.56 billion) and Chevron ($6 billion) -- only served to sharpen Democrats' opposition to opening more OCS lands for oil and gas drilling (see related story). And to elevate the partisanship even further, Democrats last week launched a new website -- www.BoughtByBigOil.com -- that reports Republicans, including Minority Leader Mitch McConnell (R-KY), have received $22.4 million in contributions from major oil and gas producers since 1989.

Democrats also plan to start running ads nationwide in the next few weeks, linking Republicans in competitive races to oil and gas companies, Congressional Quarterly Today reported. The ads will underscore that Republican lawmakers have voted to keep tax breaks for producers while voting against tax breaks to promote the development of alternative energy.

The website and ads will drive even a bigger wedge between Democrats and Republicans, raising the question of whether Congress will be able to do anything on energy legislation when it returns on Sept. 8. Anti-energy speculation legislation and a package to extend tax breaks for renewable energy will be on the Senate's plate. It's unclear whether there will be enough support for the Senate energy bills to pass, as Republicans assuredly will continue to clamor to add proposals to expand exploration and production in the OCS.

The House will face a similar energy agenda when its returns. But the success of its anti-speculation bill could be tied to some concession by Democrats on OCS access, which seems unlikely. After experiencing a narrow defeat last Wednesday, the House Democratic leadership is expected to take another shot in September at passing its bill (HR 6604) aimed at curbing excessive speculation in the energy and agriculture markets.

By 276-151, House lawmakers fell just short of the two-thirds vote required to pass the anti-speculation bill under the chamber's suspension rules, which establish a higher hurdle for passage while limiting debate and barring amendments. The bill's defeat under the suspension rules came as no surprise, said energy analysts Christine Tezak and K. Whitney Stanco of Stanford Group Co. In September, House leaders are likely to bring up the bill again under different rules that would require just a simple majority for passage.

However, under that strategy, Republicans could offer amendments to the speculation bill, including one that would seek to expand oil and gas activity in the federal OCS. Democrats could argue that any offshore amendment to the speculation bill is non-germane.

The two energy analysts noted that the Commodity Futures Trading Commission (CFTC) has promised a report on market speculation by Sept. 15. "Therefore, we expect that action on anti-speculation measures will resume in the second half of September, as Congress hurtles towards its planned Sept. 26 recess to hit the campaign trail."

The House speculation bill, which applies to agricultural as well as energy commodity futures seeks to require foreign boards of trade to share trading data and adopt speculative position limits on contracts that trade U.S. commodities similar to U.S.-regulated exchanges; directs the CFTC to set trading limits for all energy and agricultural commodities to prevent excessive speculation; calls for the CFTC to hire a minimum of 100 additional full-time employees to enforce anti-manipulation measures and prevent fraud; and authorizes the CFTC to take action if it finds disruption in over-the-counter markets for energy. It is minus a natural gas study or increased data collection from the industry by the Energy Information Administration, which had been in the Senate bill.

"This bill tries to put the referees back on the field," said House Majority Leader Steny H. Hoyer of Maryland.

On the Senate side, partisan bickering over amendments, including one on offshore drilling, stalled its speculation bill (S. 3264). Senate Majority Leader Harry Reid (D-NV) last week made a concession to the Republicans, offering them the chance to make four GOP-backed amendments to the speculation measure. Republicans initially rejected the offer, but later accepted it.

However by then, Reid had withdrawn his offer. Because Senate Republicans last Wednesday blocked a bill to extend tax breaks for renewable energy (S. 3335), Reid said his offer to allow the GOP amendments to the energy speculation bill was off the table. Proponents of the Senate tax break extenders package fell nine votes short of the 60 needed to end debate and bring up the bill for a final vote. Only four Republicans joined Democrats in voting for cloture (51-43).

The four Republican amendments proposed new OCS drilling; the development of oil shale in western states; construction of new nuclear facilities; and a broader piece of legislation (S. 2958) that, among other things, would allow coastal states to petition the federal government for an exemption from the moratorium on offshore drilling, and open up the coastal plain of the Arctic National Wildlife Refuge to oil and gas leasing.

"We're not going to be in a position to legislate any more, it appears, on the speculation bill," Reid said on the Senate floor. "It appears Republicans have rejected our offer to do something [compromise] on the extenders package."

In other action, a coalition of House lawmakers, led by Reps. John Peterson (R-PA) and Neil Abercrombie (D-HI), last Thursday introduced a bipartisan, comprehensive energy bill that seeks to lift the congressional moratorium on oil and natural gas drilling in closed areas of the OCS.

Specifically the coalition bill would open waters 25 miles and beyond from shorelines to exploration and production, but would give coastal states the option to pass legislation banning activity between 25 miles and 50 miles offshore. Beyond the 50-mile limit, all waters would be open to drilling. The measure also would repeal the 125-mile moratorium on natural gas and oil production in the eastern Gulf of Mexico.

The coalition, which includes about 26 House lawmakers, estimates that repealing the congressional moratorium would result in $2.6 trillion in additional royalties, with 30% ($780 billion) going to the federal treasury and another 30% going to producing coastal states, with the remainder earmarked for different reserve funds (conservation, environment restoration, renewable energy and carbon capture/sequestration and nuclear waste) as well as the low-income energy assistance program.

The odds that the legislation will be scheduled for debate on the floor when the House returns in September are remote, given that Pelosi is dead set against expanding production in the OCS.

On the Senate side, a coalition of five Republicans and five Democrats -- known as the "Gang of 10" -- last Thursday unveiled comprehensive, bipartisan legislation that would open additional offshore acreage in the Gulf of Mexico to drilling, and allow Virginia, North and South Carolina and Georgia to opt into leasing off their shores. It appeared to be the first real attempt at a compromise in that it left some of the most contentious states, such as New Jersey and California, off the list.

The Energy Reform Act of 2008 would bar production 50 miles from shore, and would require all new production to be used domestically. It also would create a commission to make recommendations to Congress on future areas that should be considered for leasing. And the bill would provide for revenue sharing with states that allow leasing off their coastlines.

In addition to the OCS access, the measure lays the groundwork to transition the nation's motor vehicle fleets to fuels other than gasoline and diesel, and includes provisions on conservation and consumer tax credits.

The "Gang of 10" includes Sens. Kent Conrad (D-ND), Saxby Chambliss (R-GA), John Thune (R-SD), Lindsey Graham (R-SC), Blanche Lincoln (D-AR), Mary Landrieu (D-LA), Johnny Isakson (R-GA), Bob Corker (R-TN), Mark Pryor (D-AR) and Ben Nelson (D-NE).

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