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Senate Passes Energy Legislation

Electricity

On Tuesday, June 28, the Senate passed comprehensive energy policy legislation known as the Energy Policy Act of 2005, by a vote of 85 to 12. The House of Representatives passed similar legislation on April 21, 2005. Final action by the Senate marks the conclusion of a bi-partisan process by the Senate Energy and Natural Resources Committee and floor debate covering a wide span of issue areas in current and future U.S. energy policy.

Both bills will be referred to a Conference Committee where the differences between the two bills will be resolved. Conferees should be appointed by the Senate and the House shortly and it is presumed that Representative Joe Barton (R-TX), Chairman of the House Energy & Commerce Committee, will chair the Conference Committee. While the White House and Congressional leaders are pushing for final energy legislation by the end of July, it is more likely that the process of reconciling the House and Senate versions will proceed slowly with work completed this Fall. Highlights are as follows:

Electricity
The Electricity Title of the Senate bill:

Makes reliability standards mandatory;
Requires open access transmission by utilities that are not currently regulated by the Federal Power Act;
Increases the penalties that may be levied under the Federal Power Act;
Creates new prohibitions on market manipulation;
Allows utilities to continue to use their transmission systems to serve their customers (so called “native load protection”);
Vacates the Standard Market Design proposed rulemaking issued by the Federal Energy Regulatory Commission (FERC);
Repeals PUHCA and increases FERC’s merger review authority;
Repeals the mandatory purchase and sale requirements of PURPA upon a finding of access to competitive energy markets; and
Establishes a national renewable portfolio standard (RPS) under which certain investor-owned utilities and public power entities will be required to generate 10 percent of their electricity from renewable sources by the year 2020.

Natural Gas
The Natural Gas Title of the Senate bill:


Gives FERC the exclusive jurisdiction to authorize the siting, construction, expansion and operation of liquefied natural gas (LNG) import terminals;
Allows proprietary ownership of LNG facilities;
Allows natural gas companies to charge market-based rates for storage and storage related service for new natural gas storage capacity;
Provides for royalty relief for production from “marginal property” and for oil and gas drilling from deep water wells and deep wells in shallow waters;
Creates a pilot project in Wyoming, Montana, Colorado, Utah, and New Mexico designed to improve coordination of federal permits for oil and gas use authorizations on federal lands;
Increases requirements for the sharing of information and data by gas companies;
Increases criminal penalties that may be assessed under the Natural Gas Act (NGA) and Natural Gas Policy Act (NGPA) up to $1 million per day, increases civil penalties under the NGPA up to $1 million per day, and creates new civil penalties under the NGA;
Establishes a Coastal Impact Assistance Program that will provide $250 million per year from 2007 to 2010 for coastal states that have significant production and are not subject to moratorium (Louisiana, Texas, Mississippi, Alabama, California, and Georgia) for coastal restoration activities; and
Requires an inventory of oil and gas reserves in the Outer Continental Shelf (although the Senate did not include provisions that give Governors authority to allow OCS drilling).

Hydropower Provision
The hydropower provision of the Senate bill modifies the hydropower relicensing process under the Federal Power Act by requiring that federal resource agencies with authority to impose mandatory conditions on licenses (i.e. conditions that FERC must accept) approve more cost effective alternative conditions submitted by hydroelectric facility license applicants, so long as the proposals meet the agency’s conditions for environmental protection.

Alternative and Renewable Fuels
The Alternative and Renewable Fuels section of the Senate bill:

Contains a renewable fuels standard that mandates an increase in the use of fuels such as ethanol and biodiesel to 8 billion gallons by 2012;
Repeals the Clean Air Act’s requirement that reformulated gasoline contain 2 percent oxygenate; and
Bans the use of methyl tertiary butyl ether (MTBE) over four years.

Climate Change
The Climate Change section of the Senate bill:

Added, by amendment on the floor, provisions that create a voluntary program of financial incentives for the demonstration and deployment of low-carbon-intensity technologies;

The available incentives include direct loans, loan guarantees, standby default and interest coverage, and power production incentive payments.
Includes a “Sense of the Senate” provision expressing a commitment to enact a mandatory, comprehensive greenhouse gas reduction program so long as the program does not “significantly harm the economy.”

Energy Research and Development and Incentives for Innovative Technologies
The extensive research and development components of the bill:


Authorize R&D programs in renewable energy, climate change, natural gas, oil, coal, biomass, hydropower, and nuclear power as well as energy conservation and efficiency;
Provide for continued research and development of clean coal technology programs, authorizing $200 million annually to be applied to clean coal research in coal-based gasification technologies; and
Establish a loan guarantee program to provide incentives for “innovative energy technologies” defined as technologies that avoid, reduce or sequester air pollutants or greenhouse gases and employ improved technologies in comparison to those in commercial use.
Eligible projects include: renewable systems, advanced fossil energy; technologies (including coal gasification); hydrogen fuel cell technology; advanced nuclear energy facilities; carbon capture and sequestration practices (including agricultural and forestry); efficient electrical generation and transmission technologies; and efficient end use technologies.

Nuclear Power
The bill reauthorizes the Price-Anderson Act for commercial nuclear power plants and Department of Energy contractors for 20 years and increases the indemnification for DOE contractors to $500 million.

Tax Provisions
A $14 billion tax title includes provisions to encourage the purchase of hybrid-electric and alternative-fueled vehicles, production credits for electricity generated from clean coal technology units, credits for investment in clean coal technologies, and tax incentives for renewable energy, energy efficiency programs, oil and natural gas production, Indian reservations, and electricity restructuring initiatives. Provisions include:

A three year extension (through 2008) for the Section 45 renewable energy production tax credit, and expansion of Section 45 to include incremental hydropower, ocean energy and fuel cells as qualifying resources;
$1 billion in bond authority to finance rural electric cooperative, municipal government and tribal investment in renewable and clean coal electricity projects;
A 20 percent investment tax credit for clean coal facilities and coal gasification units producing fuels and chemicals;
A tax credit for energy efficient new homes and energy efficient appliances;
A tax credit for fuel cell vehicles, hybrid vehicles and alternative fuel vehicles;
A tax credit for alternative fuels; and
A four year extension of the biodiesel tax credit.

Curt Rich & Janet Woodka
Martindale-Hubbell

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