Senate Ushers in Omnibus Energy Legislation

Before a packed crowd of the Who's Who in Washington, D.C. energy circles, Sen. Frank Murkowski (R-AK) and other Senate Republicans last week touted their omnibus energy legislation as both "sound" and "well balanced." The mix of tax credits, incentives, royalty relief and other measures offered in the bill, they vowed, will reduce the nation's dependence on foreign oil to less than 50% by 2010 by increasing domestic production of conventional energy fuels and improving energy efficiency and conservation.

"The time has come for a sound energy plan...that uses the fuels of today to yield the technology of tomorrow," said Murkowski, the chief architect of the bill. "We really have an energy crisis in this country...With the economy running on perhaps the largest joy ride in history, policymakers just simply overlooked [the need] to check the fuel gauge in the process, and truly the engine is sputtering."

The long-anticipated bill, which is titled the National Energy Security Act of 2001, offers something for everybody, but it has a specific bent toward traditional energy sources. It was roundly supported by trade associations representing major producers, independent producers, interstate gas pipelines and local distribution companies, as well as by groups representing major consumers, such as high-tech users.

But it also drew a cadre of critics --- both on and off Capitol Hill --- who hotly contest a provision in the bill that seeks to open up the coastal plain region of the Arctic National Wildlife Refuge (ANWR) to oil and gas drilling. In fact, two bills were introduced in the Senate and House last week to fight back any efforts to allow an E&P invasion of the Arctic coastal region.

"President Bush through Sen. Murkowski is coming to Congress and asking us for authorization to permit drilling in the Alaska refuge. The answer we're giving them [with these bills] is 'no, it should not be drilled, It should be set aside as wilderness," said a press aide for Rep. Edward J. Markey (D-MA), who co-sponsored the opposition House legislation with Rep. Nancy L. Johnson (R-CT). Sen. Joseph Lieberman (D-CT) introduced the companion bill in the Senate. The measures seek to permanently protect the coastal plain by adding it to the National Wilderness Preservation System.

Democrats in the Senate widely oppose any legislation that would permit drilling in the Alaska refuge. Several Republican senators, mostly those representing New England states, also object to the start-up of exploration and drilling activities in ANWR.

But for Murkowski, ANWR is a 'must' for any energy legislation. "If you're going to have meaningful legislation that addresses supply, you better go find where the oil [and gas] is likely to occur, and that [ANWR] is where it is," he said during a press briefing on Capitol Hill last Monday. "I think that when we [Congress] get into the discussion and debate we'll recognize that through technology we can have a manageable footprint [in ANWR] and protect the environment and the ecology."

The Senate's omnibus energy package bill specifically calls for the secretary of the Department of Interior (DOI) to "establish and implement a competitive, and environmentally sound, oil and gas leasing program for the exploration, development and production" of resources in the 1.5 million-acre coastal plain region of ANWR. It seeks strict environmental protections, and would earmark a portion of the bid bonuses from leases for funding of research into renewable energy sources.

President Bush, a supporter of drilling in ANWR, set the wheels in motion last week to possibly begin oil and gas leasing in the Arctic coastal region by 2004. He authorized DOI to begin a study of the environmental impact of drilling in the Arctic region, and to have it completed by 2004. But the final decision on whether to open up the coastal region will rest with Congress, not the Bush administration.

The Senate legislation was touted as a bi-partisan measure, as Murkowski managed to enlist the last-minute support of a Democrat, Sen. John Breaux of Louisiana. With Breaux on board as a co-sponsor, Murkowski is hoping to allay Democrat concerns about the controversial ANWR provision. But the bill still is largely a Republican effort, with its co-sponsors including Senate Majority Leader Trent Lott (R-MS), Sen. Larry Craig (R-ID), Sen. Pete Domenici (R-NM), Sen. Craig Thomas (R-WY) and Sen. Chuck Hagel (R-NE).

"There's other Democrats supporting it [the legislation]" other than Breaux, Murkowski, chairman of the Senate Energy and Natural Resources Committee, told reporters. "We hope through a process of education we can address their [Democrats'] concerns" about ANWR. Breaux was absent from last Mondays's briefing, but "he's 100% on board," said an aide to the senator.

In addition to ANWR, the omnibus measure contains a number of provisions to promote production of oil and gas both onshore and offshore in the Lower 48 states. It seeks to amend the Deep Water Royalty Relief (DWWR) program, which expired last year; further encourage oil and gas drilling in remote areas of the Outer Continental Shelf (OCS); give producers faster recovery of capital costs for costly deep-water drilling activities; provide in-kind payment of royalties owed on production from federal oil and gas leases; allow producers to forego royalty payments during periods of low energy prices; turn over the regulation of oil and gas leases on federal lands to the states, and offer a number of tax credits and incentives to boost production from small oil and gas wells.

As for specific tax relief, the measure calls for a $3/barrel tax credit on marginal oil production and a credit of 50 cents per Mcf for natural gas produced from marginal wells. The credits would apply only when prices dip below $18/barrel for oil or $2/Mcf for gas, and can be carried back 10 years. The bill also proposes to repeal the 65% net income limit for percentage depletion of oil and gas wells operated by independent producers, repeal the current 50% net income limit on percentage depletion of oil and gas wells, expensing of geological and geophysical expenditures, and a 10% investment tax credit for U.S.-built oil and gas drilling vessels and structures in excess of 10,000 gross tons.

"I think if you go through this bill you'll find that the incentives that are offered are primarily designed for the small independent, the stripper wells to try and encourage more domestic production," said Murkowski. "This isn't a tax bill in the sense of favoring Big Oil...We didn't feel [that] was necessary. Big Oil is doing quite well," he told reporters.

Murkowski said he has requested a scoring of the tax provisions of the legislation, but it hasn't been completed yet. "It's on the way."

While Murkowski and other Senate leaders last week decried the amount of public lands that are off-limits to drilling activity in the Lower 48 states, there wasn't a single provision in the bill that called for improved access to onshore and offshore areas for producers. The senators estimated that 213 Tcf or more of natural gas supply currently is subject to land restrictions in the Overthrust Belt, eastern Gulf of Mexico, off the East Coast and in western states.

The measure also focuses on several proposals for improving the certification process for new natural gas pipelines. Specifically, it requires FERC to report to Congress within six months on an improved process for certifying pipelines (with recommendations for legislation); the Department of Energy (DOE) and FERC to establish an interagency task force to expedite environmental review and permitting of gas pipelines; and all federal agencies that issue rights-of-way for transmission lines or pipelines to report to FERC and DOE within one year on the ability of existing corridors to support new or additional capacity.

It further requires the Department of Transportation to develop a research and development (R&D) program to ensure the integrity of natural gas and hazardous liquid pipelines, and directs DOE to conduct a comprehensive five-year program of R&D to improve the reliability, efficiency, safety and integrity of gas pipelines, distribution lines and for distributed energy resources.

On the electricity side, the Senate bill does not seek to give FERC authority over the siting of transmission facilities, which some thought would be included. It does have a number of provisions dealing with power generation. It calls for DOE to report annually to Congress on the availability and capacity of domestic generation to maintain the power grid; DOE to report to Congress within nine months on innovative financing techniques to encourage new power generation technologies; the DOE secretary to carry out a power plant improvement initiative that will demonstrate commercial applications of coal-based technologies to new and existing generation plants; increased federal funding for the continued use of nuclear energy to fuel generation; and the creation of an industry-run, FERC-overseen organization to set enforceable reliability rules for the interstate electric transmission grid. The Senate measure also provides for a number of tax credits for generators that retrofit existing coal-fired plants or build new facilities using advanced clean-coal technology.

Murkowski said he didn't expect the Bush administration to recommend major changes in the bill. "I suspect it's so comprehensive there isn't much that's not in it that they would have put in it." Lott believes the White House will provide some input on the legislation in the "next month or six weeks." It "perhaps will want to enforce certain aspects of this bill or will have other ideas," he said.

A high-level staff official with the White House national energy policy task force said last week it plans to forward specific policy recommendations for energy legislation --- rather than propose its own energy bill --- to Capitol Hill sometime in early April. In addition, the task force will recommend executive actions and regulation agency actions. The staff official indicated the Cabinet-level task force probably would have a different take on some of the energy issues than Murkowski, but he declined to identify which ones (see related story, this issue).

The omnibus legislation will be referred to two committees for hearings --- the Senate Energy and Natural Resources Committee and the Senate Finance Committee. When asked when he thought a bill would reach the full Senate, Murkowski said, "we got a long way to go." But Lott said he hoped to get quick action on it. "I'm looking forward to working with leaders on both sides of the aisle to get this legislation out of comittee on the floor of the Senate, and hopefully passed sometime this summer."

Susan Parker

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