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Democratic Energy Agenda: Very Big, Most Likely Slow

Congress doesn't usually pursue new energy legislation unless the industry or its markets is in the throes of some sort of crisis. This legislative season is perhaps a little different, unless, of course, one considers the advent of Democratic control of both houses to be a crisis as well.

"Energy and the environment are at the very, very, very top of the Democratic agenda in Congress," George Baker, principle with Williams & Jensen, a lobbying-focused law firm based in Washington, DC, told a Houston audience Thursday. But Baker wasn't trying to scare attendees at the University of Houston Global Energy Management Institute's fifth annual Energy Trading & Marketing Conference. Congressional Democrats, he said, have "a far greater appreciation that they cannot do stuff that is going to wreck the economy..." In fact, he even predicted comity in the halls of Congress.

"The reality is things are going to be a lot more conversational," Baker said. "There's going to be a lot of good, hard work between the Repubs. and the Democrats on this energy and environment agenda. Don't assume too much and, certainly, don't assume the worst for your business."

During his talk Baker paid particular attention to the traction environmental worries have gained among the electorate. Indeed, energy and the environment are now linked in the minds of the public and politicians.

"There has been real movement in the body politic on the issue of energy and the environment," Baker said. "When you look all around you see the signals. The Democrats certainly have figured this out...They're sensing this is something really important. They want to capture the value of where they think the American people have moved.

"There's been a wider acceptance of the global warming threat. People read the papers and they see the polar bear is now an endangered species and they hear about the melting ice caps and their reaction is to that perception of threat."

Indeed, the shift in attitudes was reflected at least somewhat in the President's State of the Union address earlier in the week. "[President Bush] has made some statements with respect to energy, which are compromises he probably wouldn't have made a couple of years ago."

While Bush has given a modest nod to energy reform, Democrats have embraced it as a cause celebre. Hence, the push by House Speaker Nancy Pelosi to get an energy and global climate change bill through House committees and onto the floor of the chamber by July 4, what Pelosi is billing as "Energy Independence Day," Baker said."That is an enormous undertaking."

Still, old school energy patch denizens shouldn't be shaking in their boots just yet. Baby steps are likely to come well before any drastic change.

"What I'm expecting is not very much in this first bill," Baker said. "I do expect them to try to meet this [July 4] deadline, but it won't be the end-all. It could be a first down payment on their energy agenda, so don't get too concerned about this. I would expect largely it will be a matter of transportation fuels that we're going to see [affected]." For starters, whatever comes out of the House has to go through the Senate, where Democrats enjoy only the slimmest of majorities. And lawmakers are about to set upon energy reform at a time when commodity prices are relatively stable, which is a good thing, given the experience of previous, crisis-inspired reforms.

"In energy, one of the problems of the past is we only respond with legislation during a crisis, and the thing that's produced sort of assumes that the crisis will continue in perpetuity," Baker said. "What happens is they pass the legislation and then the market gets back to some stability... but you've still got this Rube Goldberg structure. Witness what they did back in the '70s with the Fuel Use Act, prohibiting utilities from burning natural gas..."

This time around, Baker said Congress won't be taking up the Arctic National Wildlife Refuge debate again, and there almost certainly won't be any tax legislation favorable to the oil and gas industry. "There's a perception that we don't need to be subsidizing the major oil companies.

"I don't see more offshore development in the Atlantic or pacific coasts," Baker continued. "I think the controversy about that is really strong. They did the compromise [legislation] in the Gulf [of Mexico last year] (see Daily GPI, Dec. 12, 2006), but I don't think that extends to the East or West coasts."

While many in the industry are up in arms over the recent passage of HR 6 by the House (see Daily GPI, Jan. 19), Baker said the oil and gas industry has "oil patch Democrats" to thank that it isn't worse for them than it is. After all, the bill doesn't include a windfall profits tax or other less onerous but still significant tax items.

"All these tax items, while they dodged the HR 6 bullet, let me tell you folks, they're still on the table, so don't think this is over," Baker said. The Senate won't consider HR 6 immediately, but the chamber could come up with its own energy package that includes some of what was left out of the House bill, he said.

And the House's "pay-as-you-go" rule, which specifies new spending must be balanced by cuts or new revenue, could be a catalyst for tapping energy industry coffers. "These oil and gas tax provisions are really attractive bait for that, so get ready," Baker warned.

As for comprehensive global warming legislation, don't hold your breath. Baker said there is "substantial doubt in many communities in Washington" that there will be any global climate legislation soon. And after this year the debate will be taking a backseat to presidential politics.

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