Lawmakers Reach Deal on Energy Overhaul

Congressional negotiators completed work Tuesday on a sweeping overhaul of energy policy that would provide billions of dollars in tax breaks to promote domestic production of oil, coal, natural gas and nuclear energy, as well as conservation efforts.

The bill would extend daylight saving time, nearly double the amount of ethanol that must be added to the nation’s gasoline supply, authorize a survey of offshore oil and gas resources and give federal regulators exclusive say over the location of liquefied natural gas terminals.

The measure, long sought by President Bush, is expected to pass the House and Senate later this week.

Still, heated debate is likely on many of its elements, with critics finding fault with what’s in the bill -- and what’s not.

They complained that it doesn’t do enough to encourage conservation, gives tax breaks and subsidies to profitable oil and gas companies and includes measures that would roll back environmental protections to promote drilling.

Even some of the measure’s supporters acknowledged that it might not significantly reduce U.S. dependence on foreign oil.

Bush has pushed for an energy bill since 2001, but the measure gained momentum this year after gasoline prices hit a record high.

And its chances of passage improved this week after House Republican leaders dropped a provision that would have shielded from lawsuits producers of MTBE -- a gasoline additive that has contaminated water supplies in several states, including California.

The bill deals with just about every facet of energy, from promoting production from traditional fossil fuels to exploring energy from new sources such as ocean waves. It also reflects lawmakers’ parochial interests.

Even as their session stretched past 2 a.m. Tuesday, negotiators were adding items to the bill, such as a provision that would authorize $9 million for a federal program to convert Hawaiian-grown sugar to ethanol fuel.

The bill’s supporters said the measure would, over the long term, help reduce the volatility of energy prices.

The bill also includes measures inspired by the 2000-01 electricity crisis in California and the 2003 blackout in the Northeast.

Tom Kuhn, president of the Edison Electric Institute, a utility association, said the bill’s completion comes “at a time when U.S. electric companies from coast to coast are struggling to meet record demand for electricity in the midst of a punishing heat wave.” He said its provisions would encourage new investment in electricity grids, in part by repealing a Depression-era law that has limited utility mergers. .

The bill’s total package of tax breaks was expected to be $11.5 billion -- higher than the $6.7 billion recommended by the Bush administration.

Among the most contentious provisions is the one that would give the Federal Energy Regulatory Commission final say over the location of liquefied natural gas terminals. It grows out of a dispute between California officials and federal regulators over how much authority the state should have in approving a proposed terminal in Long Beach.

The White House-backed provision was opposed by governors from a number of states where the terminals have been proposed. The provision’s supporters said it would prevent delays in building facilities needed to meet the economy’s need for natural gas.

Another controversial provision -- the survey of offshore oil and gas resources -- drew opposition from a bipartisan group of coastal-state lawmakers. They warned that it could be a prelude to efforts to allow states to opt out of a long-standing moratorium on new drilling in most U.S. coastal waters.

One of the bill’s major shortcomings, some critics say, is that it would not increase the fuel-efficiency standards for cars and trucks

“The energy bill does little to nothing to reduce our dependence on Middle East oil,” said Sen. Bill Nelson (D-Fla.).

Sen. Jeff Bingaman of New Mexico, ranking Democrat on the Senate Energy and Natural Resources Committee, acknowledged that he did not think the bill went far enough in improving the nation’s energy situation but said he planned to vote for it.

“The bill will help over the long term,” he said. “But there’s a lot more that could be done, that should be done, if the political will is there to do it.”

His proposal to require 10% of the nation’s electricity to be generated from renewable sources, such as solar and wind power, was dropped from the bill in the face of opposition from the White House and the utility industry, which contended that it could increase consumer costs.

Rep. Henry A. Waxman (D-Los Angeles) complained that the bill provided more than $3 billion over 10 years in tax breaks and direct spending to the oil and gas industry and authorizes at least an additional $1 billion of subsidies.

Rep. Edward J. Markey (D-Mass.), complaining about the subsidies, noted that Bush has said that with oil prices so high, “energy companies do not need taxpayer-funded incentives to explore for oil and gas.”

Industry officials and congressional sponsors of the assistance defended it as necessary to encourage drilling in high-risk areas.

“It’s harder and harder to find energy,” said Rep. Joe L. Barton (R-Texas), chairman of the House Energy and Commerce Committee. “So if we’re going deeper and deeper [in the Gulf of Mexico], where the technology is much more difficult, it’s only fair to have some incentives to encourage that.”

The bill would provide royalty relief for drilling in deep water in the Gulf of Mexico and for energy production off the Alaska coast. The American Petroleum Institute estimates that the oil industry pays about $8 billion a year in royalties to the U.S. government for oil and gas production, most of it for deep-water production in federal waters.

For energy companies pondering multibillion-dollar investments in exploration and production rigs, the savings on royalty payments “could be the marginal difference between whether to do it or not,” said John Felmy, chief economist for the petroleum institute, the oil industry’s trade group in Washington.

But David Pursell, a principal with the consulting firm Pickering Energy Partners in Houston, said the bill would not provide enough incentive for oil and gas companies to substantially boost production.

“Nine times out of 10, [oil companies] are going to have a dry hole,” yet the bill’s royalty relief affects payments paid on oil and gas that’s actually produced, he said. “So by giving royalty relief on 10% of the wells, it doesn’t impact my decision to take on the risk” of an expensive exploration project.

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The bill’s highlights

An energy bill could get final votes in the House and Senate this week and then go to the White House for President Bush’s signature. Key elements of the bill, along with items that were dropped in recent days:

Incentives

* Offers about $11.5 billion in tax breaks and incentives over five years, mostly to boost oil and natural gas production, with lesser amounts for nuclear, coal, wind and solar power.

Oil and gas

* Requires a delay of at least 141 days in a U.S. government review of the $18.5-billion bid for American oil giant Unocal Corp. by Chinese-

government-owned oil company CNOOC Ltd.

* Offers energy companies federal royalty relief for drilling in deep waters in the Gulf of Mexico.

* Requires an inventory of offshore oil and natural gas resources, including areas off Florida where drilling is banned.

* Gives the Federal Energy Regulatory Commission, not the states, exclusive authority to approve liquefied natural gas import terminals.

* Expands the Strategic Petroleum Reserve by 300 million barrels to 1 billion barrels.

* Bans oil drilling in the Great Lakes.

* Dropped language requiring the federal government to find ways to cut U.S. oil demand or to require better fuel mileage on new sport utility vehicles and other gas guzzlers.

* Dropped language to open the Arctic National Wildlife Reserve to drilling, but this is expected to be added to a separate government funding bill later this year.

Motor fuel

* Requires the use of 7.5 billion gallons of ethanol a year as a gasoline additive by 2012, almost double the current use.

* Gives makers of the fuel additive methyl tertiary-butyl ether, such as Exxon Mobil Corp., transition assistance of $250 million a year through 2012 to switch to other additives. Phases out use of MTBE.

Utilities and nuclear power

* Repeals a Depression-era law, the Public Utility Holding Company Act, which prevents certain utility mergers.

* Offers $2 billion in federal insurance to cover delays in building six nuclear power reactors.

* Imposes reliability operating standards on utilities to protect the U.S. electric grid from blackouts.

* Extends expiring accident insurance protection for owners of nuclear power plants by 20 years.

* Spends $1.3 billion for an experimental Idaho reactor that would also produce hydrogen fuel.

* Permits power lines across federal public lands, overriding federal agency objections to siting decisions.

* Dropped a proposal that would have required U.S. utilities to generate 10% of their electricity from renewable sources, such as windmills, by 2020.

Miscellaneous

* Moves the start of daylight saving time in 2007 from the first Sunday in April to the second Sunday in March and extends it by one week to the first Sunday in November.

* Increases funding to develop low-emission power plants fueled by coal.

Source: Reuters

Los Angeles Times