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Broad Energy Bill Clears Senate Panel; Floor Action Expected in Fall

Ending 12 weeks of mark-up, the Senate Energy and Natural Resources Committee last Wednesday voted out sweeping energy legislation that would expand the production and consumption of renewable fuels, drilling in the eastern Gulf of Mexico (GOM), oversight of energy markets and the national electricity transmission grid.

By a 15-8 vote, the Senate energy panel passed the American Clean Energy Leadership Act of 2009, which includes six bipartisan bills and five other bills that were either sponsored by Democrats or Republicans. The measure -- the first energy-exclusive bill approved by a committee in this Congress -- now heads to the Senate floor.

Of note is the fact that Democrats Mary Landrieu of Louisiana and Robert Menendez of New Jersey voted against the bill, but for different reasons. Landrieu didn't think the measure went far enough to encourage offshore drilling and frowned on its lack of a royalty-sharing language, while Menendez -- a vocal critic of offshore drilling -- said it didn't go far enough to spur the production of clean energy.

"Floor action on the Senate energy package may be delayed until the fall when Senate Majority Leader Harry Reid (D-NV) has indicated he would like to bring up energy and climate legislation together," said energy analyst K. Whitney Stanco of Washington Research Group.

However, combining both climate change and the energy package could doom both this year in Congress. "If energy provisions are addressed separately from climate change, we believe enactment of [the energy bill] is likely in 2009," Stanco said.

Even without climate change, the energy bill will face problems on the Senate floor. Sen. Bill Nelson (D-FL), an avowed opponent of drilling near the Florida shoreline, has threatened to filibuster the omnibus energy bill, which advances many of President Obama's energy priorities, if a proposal allowing drilling close to the Florida coastline stays in the legislation (see NGI, June 15).

The Senate bill includes an amendment, offered by Sen. Byron Dorgan (D-ND), that would would permit oil and natural gas activity in the eastern GOM 45 miles off of Florida's west coast and even closer off the Florida Panhandle (10 miles) in the gas-rich Destin Dome. The proposal does not include language that would allow coastal states, which open their shores to production, to share revenues with the federal government -- an omission that has been criticized by Landrieu and other senator and producers.

The Dorgan amendment shrinks the no-drill buffer zone for Florida by 64% to 45 miles (or less) from 125 miles. The 125-mile, no-drill buffer zone for Florida was established in an energy bill passed by Congress in December 2006 (see NGI, Dec. 25, 2006). The narrow buffer zone could set a risky precedent for states like New Jersey, which could be affected by coastline drilling off of nearby states, Menendez said.

"The committee took a positive step forward by passing this bill which recognizes the importance of additional offshore oil and natural gas development and Canadian oil to our nation's energy and economic security," said Jack Gerard, president of the American Petroleum Institute, which represents major producers.

"As the bill moves forward to the full Senate, we hope a resolution can be found to ensure that coastal states are compensated for hosting development off their shores," he said.

Independent Petroleum Association of America CEO Barry Russell echoed the sentiment. "The Senate energy panel's action...sends a clear message to the American people and to independent energy producers across the county: more domestic energy production is critical to reducing the prices at the pump and shattering our dependence on foreign, unstable sources of oil," he said.

Senate Energy Committee Chairman Jeff Bingaman (D-NM) was forced to accept a watered-down renewable electricity standard (RES) during mark-up, which could be challenged on the Senate floor. The RES would require sellers of electricity to obtain 15% of their supplies each year from renewable energy resources or from energy efficiency improvements by 2021. Utilities that sell less than 4 million MWh/year would be exempt.

"Renewable advocates and environmental groups would like to see the targets increased during floor debate and we expect to see amendments on the Senate floor which would increase the overall targets. [But] it is unclear whether 60 votes could be mustered in the Senate to raise the targets," Stanco said.

"We look forward to working with Sen. Bingaman and other supporters to strengthen the RES so that it will get new jobs created," said Denise Bode, CEO of the American Wind Energy Association.

"There'll be some challenges for the bill because of the delicate political balance that the bill is in right now," said Martin Edwards, vice president of legislative affairs for the Interstate Natural Gas Association of America. With some issues, such as oil and gas development, nuclear and the RES, it "will be very difficult to thread the needle and get sufficient votes to move forward."

Karen Harbert, CEO of the U.S. Chamber of Commerce's Institute for 21st Century Energy, said that while the RES was flawed, the overall bill had promise. "This is not a perfect bill. It does not include oil and gas revenue sharing for states, and it contains a renewable electricity mandate that excludes some renewable resources like nuclear and doesn't recognize significant regional differences across our country, but overall this legislation is a positive step."

Sen. Lisa Murkowski of Alaska, the ranking Republican on the Senate energy panel, indicated that she will support the bill on the Senate floor as long as two proposals, which sponsor Sen. Maria Cantwell (D-WA) withdrew last Monday, stay out of the bill. One of the proposals would halt existing drilling in the Arctic until environmental impacts were determined, while the second would impose restrictions on discharges from drilling in Alaska, which Murkowski fears could include carbon emissions.

"While I support this bill in its present form, we simply must do more to increase our domestic production and use of nuclear energy. I will continue to press for those provisions on the Senate floor," Murkowski said. While Republicans were out-gunned in committee, she noted that they managed to pass some oil- and gas-friendly proposals, including one that would increase the federal loan guarantee for the developers of an Alaska pipeline to $30 billion from $18 billion.

The bill is not all good news for natural gas. It includes an amendment, offered by Sen. Debbie Stabenow (D-MI), that would repeal mandatory royalty relief for deepwater oil and natural gas leases, reversing the policy spelled out in the Energy Policy Act of 2005. It would give the Interior Department secretary the discretion to offer producers royalty relief, as opposed to it being mandatory in all cases.

Democrats have pushed to scale back or eliminate royalty relief for producers for years, while Republicans have countered that it is needed to encourage producers to venture into the deep waters of the GOM. The provision is a major setback for producers.

The bill also calls on the administrator of the Energy Information Administration to develop a plan to collect information on the ownership of all commercially held oil and natural gas inventories in the country (see NGI, April 6).

The committee voted down a Cantwell amendment that would make natural gas shippers eligible for retroactive refunds when they have been overcharged by pipelines. She indicated that she plans to reoffer the amendment on the Senate floor.

With respect to electricity issues, the measure would expand the backstop authority of the Federal Energy Regulatory Commission by giving the agency the jurisdiction to site high-voltage transmission (345-kV or more) facilities when a state fails to act within one year from the filing of an applications, imposes conditions that would "unreasonably interfere" with a project or denies an application.

The bill responds to an appellate court decision earlier this year, which rejected FERC's interpretation that its backstop siting authority extended to cases where state regulators denied applications for electric transmission project applications.

To shield gas and electricity customers from harm, the legislation also would give the agency the authority to issue orders to natural gas and electricity companies to "cease and desist" from violations or threatened violations.

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