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Senate Debuts Omnibus Energy Package
Before a packed crowd of the Who’s Who in Washington, D.C.energy circles, Senate leaders yesterday formally introduced theirlong-awaited comprehensive legislation aimed at boosting domesticsupplies of conventional energy fuels and improving energyefficiency and conservation efforts in the nation.
The bill, which is titled the National Energy Security Act of2001, is very broad-based, focusing on increasing supplies ofnatural gas, crude oil, electricity, coal, hydroelectric sourcesand nuclear energy to reduce the nation’s dependence on foreign oilto less than 50% by 2010, said co-sponsor Sen. Frank Murkowski(R-AK).
Trade associations representing major gas producers,independents, interstate gas pipelines and local distributorsroundly supported the omnibus Senate energy bill.
The legislation was expected to be solely a Republican effort,but Murkowski managed to enlist the last-minute support of aDemocrat who has been prominent on major energy issues over theyears, Sen. John Breaux of Louisiana. With Breaux on board asco-sponsor, Murkowski is hoping to gain Democratic backing for themost controversial provision in the bill, which calls for drillingin the coastal plain region of the Arctic National Wildlife Refuge(ANWR).
“There’s other Democrats supporting it [the legislation],” otherthan Breaux, said Murkowski, chairman of the Senate Energy andNatural Resources Committee, during a press briefing on CapitolHill Monday. “We hope through a process of education we can addresstheir [Democrats’] concerns” about ANWR. Breaux was absent fromyesterday’s briefing, but “he’s 100% on board,” said an aide to thesenator.
Democrats in the Senate are widely opposed to any legislationthat would permit drilling for oil and natural gas in the Alaskarefuge. Several Republican senators, those mostly representing NewEngland states, also object to the start-up of exploration anddrilling activities in ANWR.
But for Murkowski, ANWR is a ‘must’ for any energy legislation.”If you’ve going to have meaningful legislation that addressessupply, you better go find where the oil [and gas] is likely tooccur, and that [ANWR] is where it is,” he said.
The Murkowski-Breaux bill specifically calls for the secretaryof the Department of Interior to “establish and implement acompetitive, and environmentally sound, oil and gas leasing programfor the exploration, development and production” of resources inthe 1.5 million-acre Arctic coastal plain region of ANWR. It seeksstrict environmental protections, and would earmark a portion ofthe bid bonuses from leases for funding of research into renewableenergy sources.
In addition to ANWR, the comprehensive measure proposes a numberof other actions to promote production of oil and gas. It seeks toamend the Deep Water Royalty Relief (DWWR) program, which expiredlast year, to further encourage oil and gas drilling in remoteareas of the Outer Continental Shelf (OCS), provide for fasterrecovery of capital costs for costly deep-water drillingactivities, promote in-kind payment of royalties owed on productionfrom federal oil and gas leases, allow producers to forego royaltypayments during periods of low energy prices, turn over theregulation of oil and gas leases on federal lands to the states,and offer a number of tax credits and incentives to encourageproduction from small oil and gas wells.
As for the tax provisions, the measures calls for a $3/barreltax credit on marginal oil production and a 50 cents per Mcf taxcredit for natural gas produced from marginal wells. The creditswould apply only when prices dip below $18/barrel for oil or $2/Mcffor gas, and can be carried back 10 years. The bill also proposesto repeal the 65% net income limit for percentage depletion of oiland gas wells operated by independent producers, repeal the current50% 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 vesselsand structures in excess of 10,000 gross tons.
“I think if you go through this bill you’ll find that theincentives that are offered are primarily designed for the smallindependent, the stripper wells to try and encourage more domesticproduction,” said Murkowski. “This isn’t a tax bill in the sense offavoring Big Oil…We didn’t feel [that] was necessary. Big Oil isdoing quite well,” he told reporters.
Murkowski said he has requested a scoring of the tax provisionsof the legislation, but it hasn’t been completed yet. “It’s on theway.”
While Murkowski and other Senate leaders yesterday pointed outthe need to open up more public lands to drilling activity, therewasn’t a single provision in the bill — other than ANWR — thatcalled for improved access for producers. The senators estimatedthat 213 Tcf or more of natural gas supply currently is subject toland 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 thecertification process for new natural gas pipelines. Specifically,it requires the Federal Energy Regulatory Commission (FERC) toreport to Congress within six months on an improved process forcertifying pipelines (with recommendations for legislation), theDepartment of Energy (DOE) and FERC to establish an interagencytask force to expedite environmental review and permitting of gaspipelines, and each federal agency issuing rights-of-way fortransmission lines or pipelines to report to FERC and DOE withinone year on the ability of existing corridors to support new oradditional capacity.
On the electricity side, the Murkowski-Breaux legislation callsfor DOE to report annually to Congress on the availability andcapacity of domestic generation to maintain the power grid, the DOEsecretary to carry out a power plant improvement initiative thatwill demonstrate commercial applications of coal-based technologiesto new and existing generation plants, increased federal fundingfor the continued use of nuclear energy to fuel generation, and thecreation of an industry-run, FERC-overseen organization to setenforceable reliability rules for the interstate electrictransmission grid.
The Senate energy measure also provides for a number of taxcredits for generators that retrofit existing coal-fired plants orbuild new facilities using advanced clean-coal technology.
The Murkowski-Breaux bill will be referred to the Senate Energyand Natural Resources Committee for hearings. When asked when hethought the full Senate would take up the legislation, Murkowskisaid, “we’ve got a long way to go.” But Senate Majority LeaderTrent Lott, who also has signed on to the measure, said he hoped toget quick action on it.
“I’m looking forward to working with leaders on both sides ofthe aisle to get this legislation out of committee on the floor ofthe Senate, and hopefully passed sometime this summer,” Lott noted.
“Of course, there will be input from the administration [on thebill] over the next month of six weeks. They perhaps will want toenforce certain aspects of this bill or will have other ideas,”Lott said.
But Murkowski isn’t expecting major changes from the Bushadministration. “I suspect it’s so comprehensive there isn’t muchthat’s not in it that they would have put in it,” he said toreporters.
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