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Congress Gets Moving (Again) on Energy Legislation

House Energy and Commerce Committee Chairman Joe Barton, R-TX, announced at the end of last week he will hold a full committee markup starting this Tuesday on the book-length Energy Policy Act of 2005, at the same time a key Senate energy leader set Wednesday for the announcement of broad stand-alone natural gas legislation directed at bringing down prices.

Backing off from earlier threats to run the slightly revised version of last year's failed legislation straight through to the floor, Barton decided "an open process is the best process. I hope we can produce a bipartisan bill because this is the Congress where we are going to enact comprehensive energy legislation." The draft bill is available on the home page of the House committee.

At the same Friday, Sen. Lamar Alexander, R-TN, who has been working with Senate Energy Committee Chairman Pete Domenici (R-NM), on a Senate version of an energy bill, scheduled a press briefing for April 6 to announce a stand-alone natural gas bill. A spokesman for Alexander said it would be "a broad piece of legislation," but was not aimed at splitting up overall energy legislation. It could be decided as the committee moves along to either include it in the overall energy bill or move it as stand-alone legislation.

In a February speech Alexander said "I care about the price of natural gas because it's hurting Tennessee." He noted that the high gas prices have affected Eastman Chemical, a major employer in the state, driven up fertilizer prices for Tennessee's agricultural community and taken a toll on manufacturers. "It's a jobs issue for me."

Alexander said at the time he and Domenici will determine what approach to take with natural gas within the "next couple of months. We don't know yet" if the Senate will stick with a comprehensive energy bill approach. A committee spokesperson said Domenici supported the natural gas legislation, which is expected to include much of what will also appear in comprehensive energy legislation.

Domenici, meanwhile also signaled Friday that he's actively working on a comprehensive Senate bill. "Senator [Jeff] Bingaman [D-NM] and I are making very good progress on a new bipartisan and comprehensive energy policy. We are working together on bipartisan legislation that will provide significant incentives for conservation, energy efficiency, new technologies and greatly increasing domestic production of all types of energy -- including renewable sources. The fact of the matter is that the bill will not, as some wrongly profess as truth, be overwhelmingly focused on oil and gas production."

Back on the House side, the committee mark-up announcement contained the following one-liner: "U.S. light crude closed today at $55.70 a barrel."

It said opening statements on the House draft will begin on Tuesday at 4 p.m., continuing with the debate and mark-up through the following days, as necessary.

"Oil prices are at record highs and every day we grow more dependent on foreign sources of oil," Barton said. "The Energy Policy Act of 2005 will put Americans to work developing our resources and expanding production for the good of the nation. From conventional and unconventional sources together, we have abundant resources that we can develop in an environmentally friendly way."

Comprehensive energy legislation has been considered by both houses of Congress at least four separate times in recent years, but all attempts foundered over disagreements on key items.

Provisions in the wide-ranging House draft bill would increase oil and gas production, mandate electricity-transmission reliability standards, offer incentives for clean-coal technology and for wind, solar, geothermal and hydroelectric power, and funding to develop hydrogen-fueled vehicles, and provide new efficiency benchmarks for a number of household appliances.

Among the myriad items affecting natural gas are new royalty collection rules and incentives, expedited permitting for drilling, removal of roadblocks to natural gas transportation, liquefied natural gas (LNG) terminaling and storage, and mandating drilling in the Arctic National Wildlife Refuge (ANWR). It also includes a mandatory price reporting provision for natural gas.

Initial plans had called for the bill, which is similar to last year's measure, to go straight to the floor for a quick vote (see NGI, Feb. 14).

The bill includes an extensive oil and gas section from a measure to require that all oil and gas royalty collection be in kind (RIK) rather than in cash, to an examination of mitigating the state of Hawaii's reliance on oil with encouragement for renewables projects or LNG.

On the subject of royalty in-kind (RIK), the bill strays from the current program in place where only a portion of royalties are paid in kind to the Minerals Management Service (MMS), looking to all but do away with cash payments from producers. The Interior Department currently is taking RIK in the Gulf of Mexico and is working on a five-year plan to expand the program, having found that the government nets more than it would by taking royalties in cash.

The provision states that "all royalty accruing to the United States shall, on the demand of the Secretary of Energy, be paid in oil or gas." The MMS would then sell the product for "not less than the market price." The caveat is that the Interior Department would have to report each year through 2015 on its net revenues and whether they are estimated to be greater than or equal to the benefits to the nation had royalties been taken in-value.

The energy bill proposes that royalty production should be put in "marketable condition" by the lessee, meaning that oil and natural gas used in RIK payments should be "sufficiently free from impurities" and "otherwise in a condition that the royalty production will be accepted by a purchaser under a sales contract typical of the field or area in which the royalty production was produced." The provision makes clear that the MMS should pay the costs of transportation and processing.

The proposed legislation would put royalty relief for deep wells in the shallow waters of the Gulf of Mexico on a fast track. It would direct the Interior Department to complete its rulemaking for royalty relief for deep gas. In addition, within six months Interior would be directed to issue regulations suspending royalties for not less than 35 Bcf of production from ultra deep wells (20,000 feet or more) leased before Jan. 1, 2003 in shallow waters (less than 200 meters) in portions of the Gulf. The regulations would be retroactive to the date the proposed rules are first published in the Federal Register.

For deepwater production the legislation specifies that royalty suspension volumes shall be increased to not less than five million boe for each lease in water depths between 400 and 800 meters, nine million boe for depths of 800-1,600 meters and 12 million boe beyond 1,600 meters.

Included in the efforts to increase energy supply are changes requiring a new rule to allow subtractions from royalties for the costs of environmental studies performed by lease operators or applicants.

While royalty relief as a production incentive for marginal wells is prescribed only when oil prices go below $15/bbl and gas prices are below $2/MMBtu, the legislation directs the secretary of Interior to develop new regulations defining marginal wells and setting new royalty relief amounts within 18 months of passage of the bill. Development of those regulations should include consideration of the following: oil and gas prices and market trends; production costs; abandonment costs; federal and state tax provisions and the effects of those provisions on production economics; other royalty relief programs; regional differences in average wellhead prices; national energy security issues; and other relevant matters.

The language on natural gas market transparency differs from earlier proposals and from recent suggestions offered by the Federal Energy Regulatory Commission. It would direct FERC to issue rules requiring all jurisdictional entities to "timely report information about the availability and prices of natural gas sold at wholesale in interstate commerce to the Commission and price publishers."

The bill states producers would not have to report sales of their own production, nor could FERC condition access to pipeline transportation on fulfilling the reporting requirements. Producers, processors or users who have a de minimis market presence would not be required to report.

Responding to committee requests for suggestions last month, FERC had said price reporting had improved greatly and asked for "permissive" authority to install more stringent measures if it became necessary (see NGI, Feb. 14). However, as currently written, the bill's language would require, rather than allow, mandatory reporting.

Other portions of the legislation would respond to FERC's request for clarification of its civil authority over false reporting and deceptive trading activities and increased penalty limits for violations.

Another interesting section of the proposed bill calls for a study of the state of Hawaii's energy infrastructure, assessing its short- and long-term prospects for crude oil supply disruption and price volatility. The study also should encompass the technical and economic feasibility of displacing the oil with renewables and/or LNG for electricity generation.

Regarding leasing and permitting, the bill would direct the Interior Secretary to review all aspects of his department's leasing and permitting process and management practices and report in six months on actions taken to improve or expedite activities. It calls for improved consultation and coordination with the states, development of best management practices to ensure timely action on oil and gas lease applications for permits to drill; and improved enforcement of lease operation rules. It also would set time limits for leasing processes.

The secretaries of interior and agriculture would be required within six months of enactment to sign a memorandum of understanding, to coordinate leasing and drilling activities on public lands and National Forest System Lands, establishing administrative procedures and lines of authority and eliminating duplication of effort. The bill calls for Interior to establish a federal permit streamlining pilot project with the cooperation of other affected federal agencies and states -- notably Wyoming, Montana, Colorado, Utah and New Mexico.

The legislation also calls for inter-agency studies on energy facilities rights-of-way and corridors on federal lands, and reporting to Congress on designations of existing rights-of-way and potential corridors, first in 11 contiguous western states within one year, and in the rest of the states within four years.

Other miscellaneous provisions would do the following:

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