The Senate Energy and Natural Resources Committee Thursday voted out a comprehensive energy bill, which provides for the repeal of the Public Utility Holding Company Act (PUHCA), grants tax breaks and incentives for all forms of energy, and promotes conservation, energy efficiency, and electricity reliability. It is expected to go to the Senate floor later this month.

The bill also would remove roadblocks for natural gas transportation, liquefied natural gas (LNG) terminaling and storage, and reinforce the authority of the Federal Energy Regulatory Commission over siting of LNG import terminals. The vote was 21-1.

Racing through the remaining “Incentives” and “Oil and Gas” titles Thursday morning, the Senate committee completed its mark-up of the wide-ranging bill. It is expected to go to the Senate floor after the Memorial Day recess which extends through next week. There are likely to be floor fights over attempts to undermine FERC’s authority over LNG terminal siting and over an amendment to allow states to opt out of the Outer Continental Shelf oil and gas drilling moratorium.

Sen. Diane Feinstein, D-CA, postponed offering in committee an amendment to allow the states to share equally with FERC LNG terminal siting authority, saying she would offer it on the floor. Six governors, led by California Governor Arnold Schwarzenegger, issued a statement supporting concurrent state and federal LNG siting authority.

Meanwhile FERC Chairman Pat Wood also issued a statement Wednesday saying the bill doesn’t give FERC any more authority, nor the states any less than they have now. It reaffirms FERC’s Natural Gas Act authority.

But, “in addition to any state and local permits that may apply, the states have been delegated federal authority under the Coastal Zone Management Act, the Clean Water Act and the Clean Air Act. The states, acting under the authority delegated them with any of these three federal statutes, can effectively veto any proposed LNG terminal, regardless of this commission’s approval of the project.”

Wood said he did not see in the energy bill’s LNG language “where the states’ robust regulatory authority will be affected, except to set a reasonable and statutorily supported timeline for the states to act. Given the highly adverse economic impacts of the recent tripling of natural gas prices, and the prospects for even more severe price increases if this country doesn’t expand its natural gas supply options, setting such a timeline for state action is more than a reasonable approach.”

The U.S. House in late April approved a similar version of the energy bill (see Daily GPI, April 22), including numerous incentives for oil and gas production and transportation. Two of the same sticking points in failed attempts to enact an energy bill in previous years remain to be resolved in conference. The House has approved drilling in the Arctic National Wildlife Refuge and the Senate has not, and the House bill contains defective product liability protection for MTBE manufacturers, while the Senate’s does not.

There was new language in the Senate bill regarding FERC’s authority to review utility mergers, in the wake of the repeal of PUHCA. It was not immediately clear if the language increased or decreased the Commission’s authority over mergers, which it shares with state commissions and the Securities and Exchange Commission. However, the American Gas Association (AGA) expressed concerns the bill “would expand FERC’s authority to review and rule on utility mergers, including natural gas utility mergers, and to set a public interest standard.” While it applauded the bill as a whole, AGA said it would work to persuade senators to strike that provision during floor debate.

A new Section 203 for the Federal Power Act would require FERC to approve a public utility’s acquisition of generation facilities that are subject to FERC jurisdiction for ratemaking purposes. It applies to transactions valued in excess of $10 million and requires FERC to consider factors such as effects on markets, rates, and regulation when evaluating whether a transaction is consistent with the public interest.

It requires FERC to make an additional finding that a transaction will not result in cross-subsidizations of associate companies to the detriment of the utility and calls for the agency to adopt rules for the expeditious consideration of merger applications.

The bill instructs the Department of Interior to make an assessment of oil and gas resources in the Outer Continental Shelf (OCS), a measure that is surely to draw fire from senators who represent coastal states, particularly Florida. They see this as the first step to removing a wide-ranging congressional moratorium barring oil and gas drilling on most of the OCS. A similar provision has been included in previous energy bills, and always was struck.

One section provides for a coastal impact assistance program, calling for the distribution of $500 million annually to the coastal states and political subdivisions not under federal leasing moratoria to be used on coastal impact projects. The program would run from fiscal 2006 to 2011.

It codifies FERC’s Hackberry policy, which treats LNG facilities as the functional equivalent of natural gas production facilities, over which the Commission has no open-access jurisdiction, and allows them to charge market-based rates for terminal services. It also allows FERC to grant new storage capacity market-based rate treatment, notwithstanding the fact the applicant may have market power, if (1) it is in the public interest, (2) it is needed storage capacity, and (3) customers are adequately protected.

Another section establishes FERC as the lead agency for National Environmental Policy Act (NEPA) purposes and provides FERC authority to set schedules for required Federal authorizations. Agencies with jurisdiction over natural gas infrastructure are encouraged to coordinate their proceedings with the timeframe established by FERC. If a schedule deadline is not met, the President may issue a decision.

It increases penalties under the Natural Gas Act and Natural Gas Policy Act, bans attempted market manipulation and sets penalties and calls on FERC to establish an electronic information system to provide information about the price or transportation costs of natural gas in interstate commerce.

The bill would amend the Coastal Zone Management Act by establishing a 270-day period in which the Secretary of Commerce must close the decision record. There are caveats, however. The Secretary may stay the 270-day clock for up to 60 days, and he would have 90 days after the record is closed to issue a decision or explain why it cannot, in which case the Secretary has an additional 45 days to issue a decision. In total, this section allows for 1 year and 100 days for the Secretary to complete action on an appeal of a consistency determination.

One title of the bill, referred to as the Indian Tribal Energy Development and Self Determination Act of 2005, substitutes for Title 26 of the Energy Policy Act of 1992, assisting Indian Tribes in the development of Indian energy resources by increasing Tribes’ internal capacity to develop their own resources. It provides grants, low-interest loans, loan guarantees and technical assistance, and streamlines the approval process for Tribal leases, agreements, and rights-of-way so that outside parties have more incentive to partner with Tribes in developing energy resources.

Included in this title are provisions creating an Office of Indian Energy Policy and Programs within the Department of Energy. It makes the Dine Power Authority, a Navajo Nation enterprise, eligible for funding under this title. It also instructs the Secretary of Interior to develop an Indian energy resource development program to provide grants and low-interest loans to tribes to develop and utilize their energy resources and to enhance the legal and administrative ability of tribes to manage their resources. It provides for research programs and a loan guarantee program for energy projects using new technology. The guarantees would be limited to no more than $2 billion at any one time.

The Indian title also establishes a process by which an Indian tribe, upon demonstrating its technical and financial capacity and receiving approval of their Tribal Energy Resource Agreement, could negotiate and execute energy resource development leases, agreements and rights-of-way with third parties without first obtaining the approval of the Secretary of the Interior.

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