With a sea change about to take place in Washington politics, the oil and natural gas industry and public utilities — hoping for the best but bracing for the worst — have pledged to work with the new administration and Democratic leaders on Capitol Hill.

Nicolette Nye, a spokeswoman for the National Ocean Industries Association (NOIA), said the group was prepared for Congress to reinstate restrictions on offshore oil and gas drilling regardless of the outcome of the elections. “We were expecting there would be attempts [by Congress] to bring restrictions back no matter which way the elections went,” she said. Nye expects the upcoming Congress to introduce legislation that will reinstate restrictions on the federal Outer Continental Shelf (OCS) “in some form.”

Democrats, who typically object to policies supporting oil and gas, Tuesday increased their control in the Senate by gaining five seats and maintaining their existing ones. This, along with two independents who often vote with Democrats, brings the majority control to about 56-57. Senate Democrats were within grasp of attaining the veto- and filibuster-proof 60 majority, but this was expected to elude them.

House Democrats, who totaled about 235 prior to the elections, were projected to gain 20 seats, increasing their majority to 58%. The results give Democrats their largest caucus since 1994, when they held 259 seats but lost control to the GOP, according to Congressional Quarterly.

The American Petroleum Institute (API), which represents major producers, is keeping its fingers crossed that neither President-elect Barack Obama nor the new Congress will reimpose the bans on OCS development.

“We’re hopeful that the groundswell of public support [for offshore drilling] will translate into meaningful energy policy,” said Rayola Dougher, API’s senior economic adviser. “The public wants to see development offshore…We don’t want to see any backsliding or restrictions.”

She believes that Americans “are just tired of partisan bickering” over energy within Congress and between the administration and Capitol Hill. “We hope it [production] will proceed full steam ahead” under the Democrats.

Dougher said API also hopes that Obama doesn’t resurrect the windfall profits tax on producers. “We want affordable fuel…If you tax the industry more than it is now, it will mean less investment, less supply.”

The Natural Gas Council (NGC), which represents four natural gas groups, warned that such a tax would be passed along to American consumers and would negatively impact investors.

The slide in crude oil and natural gas prices should make the windfall tax a less attractive option for the new president, Dougher said. She noted that the tax was last imposed in 1980, and resulted in less domestic production and more imports.

But in their “Washington Energy/Environment Bulletin,” energy analysts Christine Tezak and K. Whitney Stanco of Stanford Group Co. wrote that they believe a windfall profits tax may happen. “With tax receipts down in a recession and significant profits still likely, we think that windfall profits and other tax issues for conventional energy companies remain real possibilities,” they said.

On a more optimistic note the NGC said natural gas could turn out to be one of the biggest winners of Tuesday’s elections.”President-elect Obama has announced his support for increasing American natural gas production as part of his energy agenda. We will work with his administration to ensure new supplies of…natural gas,” said Barry Russell, president of the Independent Petroleum Association of America, one of the members of the council.

Obama in August signaled that he would be open to allowing drilling off certain coastal states as part of a larger compromise on energy policy, a shift in his position against increased development of the OCS (see Daily GPI, Aug. 5). But many producers aren’t convinced that Obama will keep his campaign pledge to support expanded offshore drilling.

“That was total lip service,” Kevin Book, an analyst at Friedman Billings Ramsey & Co in Arlington, VA, told Bloomberg News. Stanford’s Tezak and Stanco aren’t so sure. “We’re not expecting substantive change to existing offshore drilling (that window may have passed), but onshore policies may be up for reconsideration,” they said.

In July President Bush lifted the presidential ban that placed the East and West Coasts and parts of the eastern Gulf of Mexico off limits to leasing and drilling activity (see Daily GPI, July 15). And the congressional moratorium on leasing in those areas expired on Sept. 30, leaving the OCS free of restrictions for the first time in decades (see Daily GPI, Sept. 30). Producers are waiting on the sidelines to see if Obama and the new Congress will reinstate partially or fully the bans.

On the electric side, the outcome of the elections “hasn’t changed our basic equation and challenges” of getting more electricity transmitted and delivered, said Ed Legge, a spokesman for Edison Electric Institute (EEI), which represents investor-owned power utilities.

“We think some kind of climate change regulation is coming,” he said, adding that EEI believed this before the election. The group supports a renewable portfolio standard (RPS) at the state level, but EEI’s not sure where Obama stands on the issue. Tezak and Stanco believe that a national RPS should be “relatively easy to pass in a heavily Democratic Congress.”

As for transmission, “we need more of it and we need a better working system,” Legge said.

He said the EEI favors a broad mix of energy resources for generating electricity, including nuclear and renewable fuels. “We believe you can’t take anything off the table right now” to keep power flowing affordably.

“We believe that we are in step or maybe a step ahead of where they’re [the Democrats] headed. Clearly on climate we have been working that issue very aggressively and supporting climate legislation. We believe the probability of climate legislation in the next session of Congress is very high. The only question is whether it will be in ’09 or ’10,” said Duke Energy CEO James Rogers during a third quarter earnings conference call Wednesday.

“We anticipate that ‘cap and trade’ will be the basis of federal climate change legislation. There will likely be a strong push for legislation,” but it “won’t necessarily be quick — the debate will center on how many allowances will be allocated and how many will be auctioned, and whether some parts of the country bear heavier burdens than others,” said Tezak and Stanco.

“With respect to renewables, that’s going to be a key part of any kind of legislation that comes out of Washington, and there as you know we’ve [Duke] invested in wind, with 5,000 MW under development. We think that they will be pushing more and more for wind. We think that given the credit crunch we’re well positioned to take advantage of that market and we think the margins will actually go up because so many of the players will not be able to access capital,” Rogers said.

Secondly, “we think there will be a push on solar, and as you know we have several innovative proposals pending here in North Carolina. Energy efficiency will be a centerpiece in any legislation…There will be greater emphasis on the smart grid and on projects like coal gasification as well. We believe there will be a stronger emphasis on nuclear because that’s the only option that you can generate electricity with zero greenhouse gases,” Rogers said.

He expects energy and climate to be among the top national issues that Obama will address in the next 18 months.

The rumor mills have been relatively quiet about who Obama will select to be chairman of the Federal Energy Regulatory Commission. Suedeen Kelly, a Democrat who has the most experience at FERC, and Commissioner Jon Wellinghoff, who was backed by Senate Majority Leader Harry Reid (D-NV), are two possible candidates. There’s always the possibility that Obama could bring in his own pick.

FERC Chairman Joseph Kelliher, a pick of President Bush, has served as head of FERC since July 2005. He has not disclosed his future plans.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.