The staffs of House and Senate Republican negotiators were expected to work throughout Friday night to “hammer out the details” of the remaining sticking points to a broad energy bill in time for a final conference committee session possibly as early as Monday.
At press time Friday, reports were widespread on Capitol Hill that GOP negotiators’ staffs had resolved or were close to working out the hot-button electricity transmission and ethanol portions of the energy legislation, but still were said to be “far apart” on the tax package, a Senate committee aide told NGI. “It would appear that they’re getting a lot closer on these issues,” electricity and ethanol.
He said he expected the discussions on the energy bill to continue into late Friday. “We don’t expect to receive the text [of the bill] until sometime Saturday.” Staff began working around-the-clock last week after Senate Majority Leader Bill Frist (R-TN) and House Speaker Dennis Hastert (R-IL) put pressure on the lead negotiators to complete their work on the energy bill.
While many energy items were able to be ironed out at the staff level, some issues — such as financial incentives for a proposed Alaska gas pipeline — have become so contentious that they “clearly will have to be worked out” by key House and Senate lawmakers on the conference committee, the aide noted. Another provision with an uncertain future is a provision in the energy bill calling for the federal government to inventory oil and natural gas resources in the Outer Continental Shelf (OCS).
Of all the incentives being discussed last week, probably the most controversial was a proposed tax credit for gas produced in Alaska and transported over the proposed 3,600-mile Alaska pipeline. Alaska producers contend the tax credit is critical for the construction of the long-line gas system from the North Slope to the Lower 48 states, but top energy negotiators on Capitol Hill, the Bush administration and independent producers oppose the price supports.
Opponents of the tax credit included Chairman Bill Thomas (R-CA) of the House Ways and Means Committee, who was negotiating the tax title of the energy bill, and Sen. Pete Domenici (R-NM), manager of the bill. Domenici was said to support the position of independent producers, who the Energy Information Administration estimated would lose about $60 billion between 2010 and 2025 due to displaced demand for their gas caused by deliveries from Alaska.
“The betting on the street is it [the production tax credit] won’t make it into the bill, but I’m not willing to say that yet,” said Don Duncan, vice president for federal and international government affairs for Alaska producer ConocoPhillips. It’s “not dead yet,” although he conceded it “may end up that way.”
Other incentives that reportedly were on the negotiating table last week were a loan guarantee for 80% of the construction costs of the Alaska pipeline up to $18 billion, accelerated depreciation of certain sections of the line, and a Section 29 tax credit to spur production of heavy oil and coalbed methane in Alaska. It was not clear Friday whether these incentives and the producer tax credit would make it into the final energy bill, or be left on the cutting room floor.
The proposal at the center of the controversy would provide producers a 52 cents/MMBtu tax credit in the event Alaska gas prices fall below $1.35/MMBtu at the wellhead (excluding transportation and processing costs). It effectively would create a floor price of $1.35/MMBtu at the well for gas transported over the proposed Alaska gas pipeline, providing producers with a “penny-for-penny” credit up to a maximum of 52 cents if wellhead prices fall below the established floor.
In order to get the proposed tax credit “off the dime” in Congress, Duncan said ConocoPhillips and Alaska producer BP proposed a “payback provision,” which would require Alaska producers to return credits if delivered gas prices climbed to the $4.70 level. This reportedly also was being weighed by energy bill negotiators.
“We don’t think we’re ever going to need to use this [tax credit],” Duncan noted, but Alaska producers want it as a fall-back. They will be producing gas “3,600 miles away from their markets. If the wellhead price drops, [they] still will have to flow the gas through the pipeline. They can’t shut it in” like producers in the Lower 48 states can, he said.
ConocoPhillips “[has] sent messages to the conferees that without the wellhead provision [tax credit], we are not willing to move forward” on the $20 billion pipeline, Duncan said.
The company “will not commit company resources to move forward with this pipeline without the wellhead [tax credit] provision,” he said, adding the risk was too great for it and other Alaska producers. If the tax credit gets the go-ahead, Duncan noted that ConocoPhillips, BP and ExxonMobil would be part of a “conglomerate of interests” that would construct the line.
“Since Day One, we’ve said this [tax credit] is the one that means the most” of all of the incentives proposed for the pipeline, he noted. “If it [the tax credit] doesn’t happen, we will [turn] our interests to LNG.”
If the tax credit isn’t part of the final energy bill that emerges from conference, “I would be [especially] concerned about [Sen.] Ted Stevens of Alaska holding up the entire bill,” Duncan noted. Both Stevens and Sen. Lisa Murkowski, the junior senator from Alaska, have been campaigning hard for the tax credit.
Unlike ConocoPhillips, Alaska producer ExxonMobil “consistently has not been in support of incentives tied into a price floor” or any other federal subsidies for the pipeline, said spokesman Bob Davis. The company believes “the project should stand on its own without any artificial supports.”
In other developments, the House last Wednesday voiced its opposition to a provision in the energy bill calling for the federal government to inventory oil and natural gas resources in the Outer Continental Shelf (OCS).
By a vote of 229 to 182, House lawmakers voted out a motion, sponsored by Rep. Lois Capps (D-CA), to instruct House-Senate conferees to strike the proposed OCS inventory from the broad energy bill. It was not known Friday whether this provision still was part of the measure.
The motion also directed conferees to remove a proposal from the bill that would require the secretary of the Department of Commerce to respond in an accelerated fashion to appeals under the Coastal Zone Management Act (CZMA) whenever states object to activities in waters near their coastal boundaries.
Capps and other lawmakers from coastal states fear that an OCS inventory, which also would catalog oil and gas resources in offshore areas where drilling has been banned for years, would be the first step towards overturning the congressional and presidential moratoria on exploration and production activity off the West, East and Florida coasts.
A provision supporting the OCS inventory surfaced in the draft conference report on the energy bill, even though neither the House nor the Senate energy measures included language to this effect. The report also included Senate language that would set a much firmer deadline for the Commerce secretary to rule on CZMA appeals than was recommended in the House bill — 270 days from the time an appeal is published in the Federal Register.
The natural gas industry favors the Senate’s accelerated timetable for CZMA appeal rulings, but Capps claims it would weaken the state coastal zone protection laws.
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