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House-Passed Energy Bill Offers Tax Breaks, Opens ANWR and Clarifies LNG Siting

The House last Thursday passed by a wide margin far-reaching energy legislation after beating off attempts by Democrats to expunge provisions that award FERC sole authority over the siting of liquefied natural gas (LNG) terminals, offer oil and gas producers royalty relief, open up the coastal plain of the Arctic National Wildlife Refuge (ANWR) to exploration and production activities, and provide manufacturers of the gasoline addition methyl tertiary butyl ether (MTBE) liability protection from lawsuits for groundwater contamination. The Republican-crafted bill was a major victory for President Bush, who has backed drilling in ANWR as part of his national energy policy.

By a vote of 249 to 183, House Republicans -- with the aid of 41 Democrats -- prevailed in their drive to push through The Energy Policy Act of 2005 (HR 6), an amalgamation of four different committee bills that offers $8.1 billion in tax breaks and incentives, and promotes electricity reliability, conservation, energy efficiency, environmental safeguards, renewable fuel production and traditional energy production initiatives, as well as removes roadblocks for natural gas transportation, LNG terminaling and storage and would open a 2,000-acre area of ANWR to drilling. Twenty-two Republicans voted against the omnibus energy bill.

It was the fifth time in four years that the House passed broad energy legislation, according to Rep. Lee Terry (R-NE). "The other body now needs to do its job so we can get this to the president."

The White House said the bill was "largely consistent" with the key objectives of the president's national energy policy, but it took issue with the tax breaks for oil and natural gas producers in the 1,000-page bill. President Bush "doesn't believe that with the price of oil at $55 [a barrel] that oil and gas companies need any [financial] incentives at this point" to explore for oil and gas, said White House spokesman Scott McClellan last Thursday. The president does think that incentives for renewable fuels and increased energy efficiency are "appropriate."

Citing his agreement with the president, Rep. Raul Grijalva (D-AZ) proposed removing a provision to suspend collection of royalty payments from Outer Continental Shelf (OCS) oil and gas production in the Gulf of Mexico, but it was shot down in the House by 227 to 203. Grijalva called the proposed royalty holiday "corporate welfare" for the oil and gas industry, and added "there is no rational justification" to give companies "special treatment."

But Rep. Bobby Jindal (R-LA) argued that Grijalva's proposal would block investment in exploration and production in deep waters, robbing the Treasury Department of revenues and limiting domestic energy supply. The bill offers a number of incentives for oil and gas producers: it continues royalty relief for ultra-deep gas production below the ocean floor in the OCS; reauthorizes the Deep Water Royalty Relief Act providing royalty relief for new oil and gas leases issued from 1995 through 2000 in water deeper than 200 meters in the Gulf; authorizes the Department of Interior to provide royalty relief for frontier areas offshore Alaska; and offers royalty incentives for onshore production on federal lands.

The House rejected by 237 to 194 a high-profile amendment, sponsored by Reps. Michael Castle (R-DE) and Edward Markey (D-MA), to delete a provision giving FERC the primary authority over the siting of LNG terminals. "I support natural gas. I support liquefied natural gas," but the bill "tramples on the rights" of states and localities with respect to the siting of LNG terminals, Castle said on the floor. "We are taking the absolute wrong step...I think that we [states] need to do more than just consult" with the federal government on LNG siting.

"I'm not aware of any major accident" involving LNG terminals and tankers that would justify alarm by the states, said Rep. Joe Barton (R-TX), chairman of the House Energy and Commerce Committee. He noted that he tried to craft the bill's language so that states would have a "stronger role, not a weaker role." He further noted that he would be open to further strengthening of the states' role in conference committee.

"I actually think the bill is better than what was passed by the House last year" because it invests the Federal Energy Regulatory Commission with lead authority over the siting of LNG facilities, said Martin Edwards, vice president of legislative affairs for the Interstate Natural Gas Association of America.

He noted that the House measure also contains several pro-pipeline provisions, including requiring states to base their appeals of energy project approvals on the record established during a FERC proceeding. The measure is aimed at shortening the process whereby states can appeal a FERC certificate ruling to the Department of Commerce, claiming that a project is inconsistent with their rights under the Coastal Zone Management Act.

"The provisions on improving the process for natural gas pipeline reviews and permitting will allow for more efficient and timely decision-making" for pipeline projects, Edwards said.

The American Gas Association, which represents local distribution companies, said the House legislation would promote the expansion of gas distribution systems by changing the depreciation period for new gas distribution facilities to 15 years from 20 years. The new bill also would treat natural gas gathering pipelines as seven-year property.

Despite two significant challenges attempts by House Democrats, the final bill contains controversial language to protect manufacturers of MTBE from product liability lawsuits, and phases out production of MTBE by 2015, a measure that was strongly supported by House Majority Leader Tom DeLay (R-TX) and Barton, and widely opposed by House Democrats.

By 219 to 213, House Republicans last Thursday narrowly defeated an effort by Rep. Lois Capps to eliminate the MTBE provision from the measure. She argued that it violated the Unfunded Mandates Act of 1995 because it would impose mandates on states and localities without providing adequate federal funding. Instead, she said it would transfer the costs of the MTBE cleanup from producers to the states.

House Minority Leader Nancy Pelosi (D-CA) urged Congress to strike the "disgraceful MTBE giveway" to producers. She estimated it would cost $12-$63 billion to clean up the groundwater and drinking water contamination in the states caused by the gasoline additive.

The "unanswered question" raised by the narrow vote on MTBE is whether this gives the Senate more leverage on the House to remove the provisions in the conference committee on the bill, said Christine Tezak, an energy analysts with Standford Washington Research Group. "It appears that there may still be insufficient votes to forestall a filibuster again in the Senate if a conference report includes those liability provisions. If Tom DeLay's star fades as the year grinds on, the possibility increases that MTBE provisions could be dropped in conference, in our view."

On the first day of debate last Wednesday, the House by 231 to 200 voted to keep a provision that opens the coastal plain of ANWR to oil and gas drilling; approved a manager's amendment to add a provision on natural gas market reform from the HR 6 conference report of the 108th Congress to this year's bill; and rejected a substitute electricity amendment seeking to deter and punish fraud and manipulation in the natural gas and electricity markets, increase penalties for Federal Power Act violations, and authorize FERC to refund all electricity overcharges.

Nearly all of the Democratic attempts (about 22 amendments) to reshape the bill were defeated on the floor. The bill that was approved last week is very similar to the energy legislation that the House adopted in the 108th Congress, but which stalled in the Senate.

The Senate, which has yet to release a draft of its energy bill this year, is expected to be the most important part of the process. Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, has indicated that a Senate energy bill will be voted out of his panel in late May. This could lead to a Senate floor vote in June, and a House-Senate conference committee on the bill in July.

President Bush last week called on the Senate to take "swift" action so that he can sign an energy bill into law by August. "I look forward to working with Chairman Barton in conference to meet the president's call for an energy bill on his desk by August," Domenici said.

The conference committee will seek to reconcile critical differences in the House and Senate energy bills -- such as drilling in ANWR and shielding MTBE producers from product liability claims for groundwater and drinking water contamination. Neither ANWR nor MTBE are expected to be in the Senate energy bill. MTBE liability protection likely will be a primary sticking point in conference, and could result in the collapse of the bill again. The conference on the energy bill is expected to be very difficult.

With the House nearly split on MTBE and Senate opposition running high, Barton said last week that he has been meeting with lawmakers from both houses to negotiate a compromise on the divisive issue.

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