The Bush administration has endorsed the construction of an Alaskan natural gas pipeline, but not the tax subsidies that the Senate has offered in its omnibus energy bill as “carrots” to get the proposed line up and running and serving the Lower 48 gas markets within the next decade.

“The administration strongly opposes the price-floor tax subsidy provision in the Senate bill and any similar provision because it would distort markets, could cost well over $1 billion in annual lost revenue, and would likely undermine Canada’s support for construction of the pipeline and, thus, set back broader bilateral energy legislation,” Energy Secretary Spencer Abraham wrote in a letter to Rep. W.J. “Billy” Tauzin (R-LA), chairman of the House-Senate conference committee overseeing efforts to reconcile the two houses’ energy bills (H.R. 4).

To guarantee construction of the Alaska line, the Senate energy bill proposes to give producers a credit if prices fall below $3.25/Mcf for natural gas supplies delivered over the envisioned pipeline, and offers a loan guarantee of up to $10 billion to the “entity” that submits an application to build the pipeline before a date-certain. These measures are supported by Senate Majority Leader Tom Daschle (D-SD), and Sens. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee, and Frank Murkowski (R-AK), the ranking Republican on the committee.

“The administration urges conferees to develop alternative provisions to bring the [Alaska] gas to market without resorting to similar provisions that would distort markets, could undermine fiscal responsibility, and might jeopardize the expeditious construction of a natural gas pipeline,” Abraham said in the June 27 letter, outlining the White House’s position on key issues in the two energy bills.

House and Senate conferees met for the first time on June 27 to begin the task of reconciling their distinctly different energy bills. The negotiations are expected to last throughout the summer and into the fall. Tauzin and Bingaman, however, have vowed to have an energy bill passed and on President Bush’s desk by the end of the congressional session.

Abraham emphasized the administration’s continued support for drilling in the Arctic National Wildlife Refuge (ANWR). “A national energy policy cannot rely solely on conservation,” he told Tauzin, adding that “the effective way to reduce our energy independence is to enact the House ANWR provision.”

Reopening ANWR to oil and gas exploration and production is expected to be the most hotly debated issue in conference. Key Senate conferees, Bingaman and Sen. Joseph Lieberman (D-CT), have said they will block any attempt to include ANWR in the final conference report, while House negotiators favor opening 2,000 acres in ANWR to drilling.

Abraham said the Bush administration also finds the tax packages proposed in the Senate and House energy bills to be excessive. While Bush’s plan calls for tax incentives of $9.5 billion over 11 years primarily for alternative and renewable fuels, conservation, energy efficiency and emissions-free energy, the House seeks to offer tax benefits of $36.5 billion and the Senate proposes a total of $20.6 billion over 10 years.

The House tax title sets aside about $7.5 billion for oil and gas producers. The Senate’s tax package is slanted more toward energy conservation, efficiency and renewable fuels. Still, it offers about $4-$5 billion in tax credits and incentives for independent producers.

Abraham called on House-Senate negotiators to give FERC more authority to punish market abusers. “To protect consumers against unethical individuals and companies in this industry, the president has proposed increasing criminal penalties for violating the Federal Power Act from $5,000 to $1 million [total], from $500 per day to $25,000, and prison terms from two years to five. We strongly urge the conferees to include these provisions in the final bill,” he said.

The Senate energy bill proposes both enhanced criminal and civil penalty authority for FERC as well, but the House bill — which was passed before the Enron scandal surfaced — does not tackle the issue.

In addition, he called for conferees to “modify” the electricity title in the Senate bill to coincide with the Bush administration’s objectives — establish mandatory and enforceable reliability rules that will reduce the chances of power outages; repeal the Public Utility Holding Company Act; and reform the Public Utility Regulatory Policies Act in an “innovative and competition-friendly manner.”

Abraham cited the administration’s distaste for the renewable portfolio standard (RPS) mandate in the Senate bill, saying the issue would be “best left to the states.” The Senate’s RPS proposal would require electric producers to generate 10% of their power from renewable sources by 2019. Rather than an RPS mandate, the Bush administration said it favors extending the current tax credit for renewable energy production by three years.

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