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IN A NUTSHELL: This Monday, a House-Senate conference committee completed work on a 1,200-page compromise bill that quickly passed the House the following day and awaits Senate action. President Bush has already indicated that he will sign the measure if presented to him. Details of the compromise were released on Friday after 71 days of closed-door negotiations that excluded Democrats but exposed internal rifts among House and Senate Republicans. The final bill does not reflect a comprehensive national energy policy -- indeed it is in some sense more notable for what it does not include than what it does -- but its many provisions address a wide variety of energy-related issues important to the many constituencies that senators and representatives must serve. And a number of the provisions will affect geoscientists.

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The House passed its version of comprehensive energy legislation, H.R. 6, in April of this year. The closely divided Senate spent the last week of July debating their version, S. 14, but that debate quickly became bogged down by nearly 400 proposed amendments and a partisan fight over President Bush's judicial nominees. Rather than leave town for the August recess without a vote, Senate Minority Leader Tom Daschle (D-SD) and Senate Majority Leader Bill Frist (R-TN) brokered a deal under which this year's bill was traded for last year's Democrat-sponsored bill (S. 517 in the 107th Congress). That "ticket to conference" bill passed 84-14 and set the stage for a conference committee of House and Senate members to iron out differences and come up with a final version.

Alas for Senate Democrats, the passage of their bill also marked the end of bipartisan involvement in the process. Republican conferees spent 71 days negotiating over a wide variety of competing provisions in the two different versions passed by the House and Senate (with Senate Republicans working from the provisions in S. 14). They emerged late on Friday, Nov. 14th, with a nearly 1,200-page conference report (H. Rpt. 108-375) describing the final bill. Democrats had their first chance to see the report over the weekend, having been shut out of negotiations that had instead showcased the extent to which competing interests and ideologies exist within the majority party. Delays resulted from particularly lively disagreements between the chairmen of the House and Senate tax-writing committees, who could not agree on the scope of tax incentives included within the bill as they sought to satisfy their own constituencies.

The conference committee approved the measure on Monday, Nov. 17th, and the House passed it the following day by a 246-180 vote. Senate debate has already begun and could wrap up by the end of this week.

The final bill reflects a whirlwind of conflicting political, regional and economic pressures. Senate Energy and Natural Resources Committee Chairman Pete Domenici (R-NM), who was in charge of the conference process, told the Washington Post: "We had to write one law for the country, a country with many strong regional and ideological differences on energy policy. We can’t do what can’t be done." Rather than a single national strategy, the final package contains dozens of pieces that reflect diverse visions of the nation’s energy future and, perhaps more importantly, enough "sweeteners" to discourage a Senate filibuster.

Arctic Gas, Not Arctic Oil

In many ways, what is most notable about the bill is what it does not include. When President Bush first called for a national energy policy three years ago, a key goal was to reverse the increasing U.S. dependence on crude oil imports. But the final bill does not include some of the key actions that were supposed to help achieve that goal. First and foremost, exploration in the Arctic National Wildlife Refuge (ANWR) was left out of the bill. Indeed, opposition to oil and gas drilling was so strong that a provision was dropped that would have accounted for and taken stock of offshore energy resources in areas currently under moratorium. The conference report does provide federal financial support for a proposed $20 billion trans-Alaska gas pipeline – a major potential source of new natural gas supplies. But these incentives may not be enough to get the project off the ground, and some analysts predict that the gas will not make it to the lower 48 states for at least 10 more years, regardless of the financial scenario.

Oil and Gas Research and Production Incentives

Although the bill does not mention ANWR, there are plenty of other provisions that deal with encouraging domestic oil and gas production. The bill requires the Secretary of Energy to research, develop, demonstrate and find commercial applications for oil and gas exploration and production including gas hydrates, reservoir life and extension, transportation and distribution infrastructure, ultraclean fuels, heavy oil and oil shale, related environmental research and compressed natural gas marine transport.

Several new clauses were included in the conference report that have not been seen since last year. There are new marginal property production tax incentives for oil and gas wells that produce an average of less than 25 barrels per day. This is in addition to the royalty relief those properties also receive. The bill also includes an increased tax credit for coalbed methane extraction.

The bill establishes a 10-year, $2-billion R&D program for obtaining natural gas from ultra-deep waters of the Gulf of Mexico and from unconventional sources onshore such as coalbed methane. Envisioned as an academic-industry-government partnership, the program will, according to sponsor Rep. Ralph Hall (D-TX), "go a long way toward filling the projected gap in natural gas production and consumption that will exist between now and 2015."

Many bill provisions are highly specific, reflecting the interests that were brought to bear on the process. For example, Texans successfully included a "Sense of the Congress" resolution that addresses oil and gas development under Padre Island National Seashore. As with some other units of the National Park System, Padre Island was set aside with an understanding that subsurface resource could continue to be developed in an environmentally sensitive manner. The resolution underscores the National Park Service's obligation to allow such development, stating: "any regulation of the development of oil, gas, or other minerals in the subsurface of the lands constituting Padre Island National Seashore should be made as if those lands retained the status that the lands had" before the park was created in 1962.

Geoscience Data Preservation

One provision in the final energy package with a direct impact on geoscientists is the National Geological and Geophysical Data Preservation Program Act. This provision authorizes a cooperative program between state geological surveys and the Department of the Interior to archive geologic, geophysical, and engineering data, maps, well logs, and samples; provide a national catalog of such archival material; and provide technical and financial assistance related to the archival material. The legislation authorizes $30 million over 5 years for this effort, but as is the case with nearly all other programs created in the bill, such spending levels will only come to pass if the money is provided in annual appropriations bills.

Renewable/Alternative Energy and Energy Efficiency

The final bill does not include a renewable portfolio standards provision, which would have required large utilities to steadily increase their use of energy from renewable sources such as wind and solar power. The bill also does not require improvements in the fuel efficiency of cars and trucks (the Corporate Average Fuel Economy standards). Instead, the final legislation mandates that any future fuel efficiency requirements take into consideration the impact on auto industry jobs, among other new factors, before requiring a higher performance standard.

Tax incentives to promote wind power generators, energy-efficient homes and hybrid passenger cars were among the conservation "sweeteners" added to the bill. Also included were funds to power government buildings by state-of-the-art photovoltaic cells, incentives for developing new energy-efficient traffic lights and $6.2 million to promote bicycles as a way to conserve energy. Hill leaders are touting these and other measures saying they will save enough electricity between now and 2020 to make it unnecessary to build 130 new 300-megawatt power plants. Senate Democrats countered in their "Parade of Horribles" press release by pointing out that these energy savings only add up to about three months of U.S. energy consumption.

Geothermal energy will get a small boost in the form of royalty relief and a slightly streamlined permitting process. Congress will also require the Departments of Agriculture and the Interior to identify areas with geothermal potential on federal lands, review management plans and consider leasing these lands. To carry out this provision, the departments must establish an administrative procedure for processing the lease applications and a joint database retrieval system for tracking lease and permit applications in order to minimize the problems that arise because different departments oversee different federal lands.

Research-related provisions in the bill provide DOE's Office of Science with a 65 percent increase over the next five years. Although dominated by physics, the office does support fundamental geoscience research as well.

Clean Coal and Carbon Sequestration

Rather than address climate change head-on with greenhouse gas reporting provisions as Democrats had sought in S. 517, the conferees instead decided to fund additional research into coal mining and coal-related technologies -- placing special emphasis on research and development that explores the "minimization of contaminants in mined coal that contribute to environmental concerns." The Secretary of Energy was further directed to find innovations for existing power plants, research the integrated gasification combined cycle, advanced combustion systems, turbines for synthesis gas derived from coal, carbon capture and sequestration and joint project permeability enhancement in coals for natural gas production and carbon dioxide sequestration.

MTBE and Ethanol

In earlier versions of the energy bill, the Senate sought to ban the fuel additive MTBE and replace it with ethanol as a means of achieving Clean Air Act mandates. Environment and Energy Daily reported that the ethanol provisions in the energy bill, a major sticking point during conference negotiations, add 5 billion gallons per year of ethanol and other renewable-based fuel to the nation’s gasoline supplies, starting at 3.1 billion gallons in 2005 and ramping up to 5 billion gallons by 2012. At the same time, the bill phases out MTBE use by 2015 and authorizes funds for producers making the transition from MTBE to other additives. On the surface it appears the Senate succeeded in turning out MTBE; however, bill language allows governors to override the phase out for their individual states and the president to do so for the nation. There is also a provision that grants liability protection to MTBE producers from September 5, 2003. This would nullify at least one lawsuit that was recently filed in New Hampshire.

Reforming the Electricity Grid

In the wake of the August 14th power blackout, the Federal Energy Regulatory Commission has been trying to create independent regional organizations to oversee transmission. The conference report effectively negates those efforts and instead creates mandatory reliability rules for the nation’s electricity transmission networks. It also gives federal regulators the right to use their authority to create rights-of-way for new transmission lines needed to relieve congestion.

Also in the electricity arena, the legislation’s most far-reaching feature may be the repeal of the 1935 Public Utility Holding Company Act, which limits utility industry mergers. The act’s repeal is a top priority for the electric power industry and the Bush administration. The Washington Post predicted that "if the bill passes, a wave of mergers and acquisitions could follow."

The nuclear power industry, which has not received a new plant license since 1978, will receive a boost. The bill provides more than $100 million a year in production tax credits for about a half-dozen new plants using advanced designs. Looking to the future, the bill also authorizes US participation in the International Thermonuclear Experimental Reactor project, which is a step down the road toward fusion energy.

A Jobs Bill

Shortly after releasing the conference report for lawmakers to review, Senator Domenici released a statement calling the Energy Policy Act of 2003 a "jobs bill" that will create nearly 1 million new jobs. Specifically he touted that the construction of the Alaska Natural Gas Pipeline would create more than 400,000 direct and indirect new jobs. The substantial investment in clean coal technology will garner 62,000 jobs. The mandated natural gas and oil-related research will create “10,000 research jobs in the fields of math, engineering, physics and science at an estimated annual salary of $125,000.” Further, incentives for geothermal energy will create between 750 and 1,000 direct jobs and even more indirect jobs. This jobs-based approach is a significant departure from the original rationale behind developing a coherent national energy strategy, but it underscores the economic concerns that are certain to dominate in the coming election year.

With the House having already passed the final bill, it awaits only Senate action before heading to President Bush, who has indicated that he will sign it into law. A number of Democratic senators have already signaled that they would support the bill -- at least 9 are needed to close off debate should a senator threaten to filibuster, assuming that all 51 Republicans vote in favor of the bill. But such party unity is in no way guaranteed with at least 6 Republican senators indicating concerns, particularly regarding MTBE liability. Ultimately, senators must decide -- in the words of Sen. Byron Dorgan (D-ND), who supports the bill because of its ethanol subsidies -- "Is there more good than bad here?"

Update prepared by Emily M. Lehr and David Applegate, AGI Government Affairs Program

The Conference Report is available in PDF format at:
http://energy.senate.gov/legislation/energybill2003/energybill2003.cfm

Senate Energy and Natural Resources Committee majority press releases:
http://energy.senate.gov/news/news_rep_bydate.cfm

Senate Energy and Natural Resources Committee minority press releases:
http://energy.senate.gov/news/news_dem_bydate.cfm

Sources: Environment & Energy Daily, Greenwire, House Science Committee, L.A. Times, New York Times, Senate Energy and Natural Resources Committee website, Thomas legislative database, and Washington Post.

Please send any comments or requests for information to the AGI Government Affairs Program.

Posted November 20, 2003

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