Long-awaited Senate action on comprehensive energy legislation, which appeared briefly on the floor last Friday, is expected to spark a lengthy and contentious debate in the lower chamber when it re-emerges after the week-long Presidents Day recess.

Beginning Feb. 26, the Senate will take up S. 517, which is a revised version of the Democratic energy bill (S. 1766) that was introduced in December by Majority Leader Tom Daschle (D-SD), Sen. Jeff Bingaman (D-NM) and several other senators. The new measure largely mirrors its predecessor, but it does have a couple of important changes, such as a provision calling for a significant boost in the corporate average fuel economy standards.

The bill was put on the Senate calendar late last Thursday and brought to the floor early Friday. “There was no real activity on the bill. Most of the nitty gritty will start when they come back” from recess, said a spokesman for the Senate Energy and Natural Resources Committee.

Senate action early in the session may mean that a comprehensive bill could finally emerge from Congress this year, but one Capitol Hill observer cautioned the energy industry not to get its hopes up high. “This is a very complicated political issue,” said Martin Edwards, director of legislative affairs for the Interstate Natural Gas Association of America (INGAA).

There could be as many as 200 amendments offered to the energy bill, he said. And, some of the amendments that will be proposed — such as one calling for oil and natural gas drilling in the Arctic National Wildlife Refuge (ANWR) — are likely to be very divisive.

“There will be a showdown in the Senate at least once, if not twice” over exploration and production in ANWR, Edwards predicted.

An amendment to open up ANWR to drilling is not contained in the Democratic bill, but some Republicans — led by Sen. Frank Murkowski of Alaska — are likely to push to change that. The House energy bill, which was passed in August 2001, contains a provision to give producers access to a part of the Arctic refuge.

Also, expect a number of Enron-related amendments to creep into the bill. “I don’t think there’s any doubt about that,” Edwards told NGI. Last week, three West Coast Democratic senators introduced legislation to give the Commodity Futures Trading Commission (CFTC) oversight over derivative transactions (where there’s no delivery) of energy commodities on multilateral markets and private online trading platforms, and would give the Federal Energy Regulatory Commission additional authority to regulate bilateral energy transactions and other energy transactions that the CFTC cannot regulate.

Sens. Dianne Feinstein of California, Maria Cantwell of Washington and Ron Wyden of Oregon plan to offer the measure as an amendment to the energy bill.

Moreover, the $14.5 billion energy tax package, which the Senate Finance Committee voted out last Wednesday, will be offered as an amendment to the legislation. The tax measure would provide $4 billion in credits and incentives for the oil and gas industry. A key issue going forward will be whether lawmakers can find offsets to fund the tax incentive program.

Specifically, the tax package would provide incentives for production from marginal wells (or wells that produce less than 25 boe/d). It will offer a new credit of 50 cents/Mcf if gas prices fall below $2/Mcf, and a $3/bbl credit for production from marginal wells if oil prices fall below $18/bbl. The credit would be good for production up to 1,095 boe. The measure also offers benefits to local gas distributors and gathering companies.

A key provision in the revised Democratic bill would give a huge financial carrot to the company or companies that are first in line to build a long-line natural gas pipeline to deliver more than 30 Tcf from Alaska’s North Slope to the continental United States.

It proposes to award a loan guarantee of up to $10 billion to the “entity” that submits an application before November 2002 to build the Alaska gas pipeline. Although the measure won immediate praise from the pipeline industry last year, it is likely to come under fire from some Republican senators who are against the federal government giving any kind of assistance to pipeline sponsors.

The provision was drafted by Sen. Bingaman, an avowed proponent of an Alaska pipeline. He believes it would go a long way to reduce the nation’s growing dependence on imported liquefied natural gas, which is a key concern of his.

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