In a startling disclosure last week, an aide to Conference Committee Chairman Pete Domenici (R-NM) signaled that the broad-based energy bill being negotiated on Capitol Hill may not be finished this year. While some saw this simply as a negotiating tactic, others said that if headway wasn’t made this week on the remaining contentious items, the bill could be in jeopardy.

House-Senate members of the conference panel “haven’t made a lot of progress” over the past two weeks on four thorny issues — electricity, incentives for the Alaska natural gas pipeline, ethanol and the tax package, Marnie Funk told NGI. If negotiators aren’t able to resolve the controversial items within the next two weeks, the energy bill may spill over into January and February, she noted.

This is “enough of a possibility that I wanted to put it out there.” Meanwhile, she said conferees “are trying very hard to get this [bill] done” this session.

Some Capitol Hill aides saw Funk’s comments as part of a Senate strategy to bring parties to the negotiating table. “They may be firing a [warning] shot across the bow at the House folks. I think they’re just trying to rattle the House guys to get serious” about ironing out the differences on the four outstanding issues, said one aide. “These are major; they are crucial parts of the bill.”

But Funk was “just not out there hip-shooting,” he noted, adding a delay in the energy bill negotiations was a “real possibility.”

At this stage, “we believe that in general, talk of delaying the conference into next year is a negotiating tactic,” agreed energy analyst Christine Tezak of Charles Schwab. But if certain issues, particularly ethanol, “aren’t resolved by early [this] week and a conference report sent to the respective floors by month’s end, we believe that chances of the overall bill’s survival would drop well below 50%.”

Tezak said she believes if lawmakers reach agreement on the “two E’s” (electricity and ethanol), “that will provide enough momentum to smooth out the remaining issues” — Alaska pipeline incentives and the tax package.

Negotiations on the bill were interrupted last week while the Senate was in recess. Senators are due to return Tuesday. But the House wants to recess at the end of the month, which would give House-Senate conferees only a narrow window of opportunity to complete the bill this year.

Last Thursday, shortly after Funk leaked the news of a possible delay, Domenici issued an announcement that he planned to call a conference session on the bill this week. “I hope that a conference meeting can occur and am working toward that objective.”

Some energy experts fear delay would doom the bill. If it is not passed before the end of the session, it would have a hard time making it through the Congress in an election year.

A legislative analyst in the natural gas sector said he was told by Senate staff that there was an “outside possibility” that energy legislation could be deferred until 2004. But the staffers indicated this “was not the most likely” scenario, he noted. “It was not their impression or belief that it is going to take until January or February” to finish an energy bill.

Meanwhile, Senate Democrat leaders were trying to win support for the construction of a long-line Alaska natural gas pipeline along the “southern” route through Alaska, as well as a production tax credit to spur construction of the line. Whether to include a production tax credit in the energy bill is one of the key sticking points in the House-Senate negotiations.

An Alaska pipeline to the Lower 48 states is critical to bridge the widening gas supply-demand gap in the United States, which is on the “brink of a major natural gas shortage that has serious price implications for businesses, households and the U.S. economy,” wrote Senate Minority Leader Tom Daschle (D-SD), Minority Whip Harry Reid (D-NV) and Sen. Jeff Bingaman (D-NM), the ranking minority member of the Senate Energy and Natural Resources Committee, in a “dear colleague” to senators.

Both the Senate and House energy bills, which are being reconciled in conference, mandate that the Alaska pipeline follow the “southern” route, which runs along the existing oil pipeline from the Alaska North Slope to Fairbanks, then parallels the Alaskan Highway into Canada to existing distribution facilities in Alberta, and then would turn southward to the Lower 48 states.

But the real fight in Congress isn’t over the pipeline route; it’s over financial subsidies to promote the project’s construction. The energy bill passed by the Senate in July would offer Alaska gas producers a tax credit (52 cents/MMBtu) in the event gas prices fall below a certain floor ($3.25/MMBtu), but the Republican-led House generally is opposed to the tax credit and other proposed subsidies.

“We believe that…some modest fiscal incentives are necessary and warranted. This pipeline project would be the largest private construction project ever undertaken in North America. The magnitude and duration of the operation underscores the need to bring some certainty to the price of the commodity,” the three senators said. “It is highly unlikely that the Alaska gas pipeline will be built without the Senate commodity risk provision, or something comparable to it.”

The “dear colleague” letter was in response to a “continuing campaign to change the way the pipeline [is being] incentivized” in the energy bill’s tax title, which still is being worked on by the Senate Finance Committee and House Ways and Means Committee, said Bill Wicker, a Democratic spokesman for the Senate energy panel. Objections to financial subsidies for an Alaska pipeline are coming from the House side, particularly the Ways and Means Committee, and from coalitions of small gas producers, he noted.

The Bush administration is against a tax credit for the pipeline as well, but it backs an 80% loan guarantee to finance the $20 billion Alaskan pipeline. “The administration strongly opposes the price-floor tax credit provisions in the Senate bill and any similar provision because it would distort markets, could undermine fiscal responsibility and would likely undermine Canada’s support of the pipeline and set back broader bilateral energy legislation,” Energy Secretary Spencer Abraham said in a recent letter to Domenici.

The three senators disputed the administration’s claims. “In fact, given future price projections, it is unlikely that the commodity risk provision will ever become operative, which the Congressional Budget Office acknowledged by giving this provision a zero score,” they wrote.

On the House floor last week, Rep. Lois Capps (D-CA) offered a motion to direct conferees on the energy bill to strike a provision calling for the federal government to inventory oil and natural gas resources in the Outer Continental Shelf (OCS). The motion also directed conferees to remove a proposal 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. The House postponed a vote on the motion until Wednesday.

Conference committee negotiators “[are] trying to run roughshod over the will of the House,” which purged the OCS inventory proposal from its energy bill passed in April, and which reached a “bipartisan compromise to impose reasonable time frames” for the Commerce secretary to decide appeals under the CZMA, Capps said.

The provision supporting an OCS inventory has 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 adopts the 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 energy industry favors the Senate’s accelerated timetable for CZMA appeal rulings, but Capps claims it would weaken state coastal zone protection laws.

Capps and other coastal state lawmakers are widely opposed to an inventory of OCS resources, calling it “just the first step” towards overturning the congressional and presidential moratoria, which have banned drilling off the West, East and Florida coasts for more than a decade. The inventory is “merely the tip of an iceberg” to “force open the doors to massive exploration” in these offshore areas, said Rep. Robert Etheridge (D-NC).

But the energy conference report calls for only an offshore resource inventory to be conducted, countered Rep. Joe Barton (R-TX). “It does not say it [the moratorium] should be lifted…We owe it to the nation to know what our resources are.” Pressed as to why the OCS inventory provision was even in the conference report, Barton said, “when it [the energy bill] got to conference, somebody had a better idea. A light bulb went on.”

During the debate last Wednesday, Capps submitted a bipartisan letter that was signed by 100 members of Congress who backed the removal of the OCS inventory provision from the final energy bill. Rep. Peter Deutsch (D-FL) offered a letter from 24 of the 25 members of the Florida delegation urging Congress to strike the inventory proposal.

In a related development, Florida Gov. Jeb Bush called on Republican and Democratic congressional leaders to expunge the OCS inventory provisions from the final comprehensive energy bill that is being negotiated on Capitol Hill.

“Allowing this inventory would violate the spirit of the moratoria, and I am concerned it would encourage drilling activities” offshore Florida, he wrote in a letter to Senate Majority Leader William Frist (R-TN), Daschle, House Speaker Dennis Hastert (R-IL) and House Minority Leader Nancy Pelosi (D-CA).

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