Two Senate Energy Bills

On July 30, the Senate Energy and Natural Resources Committee voted to send to the full Senate two energy bills that originated in the Committee. One, the Energy Policy Modernization Act of 2015 (EPMA) is broad in its substantive scope, incremental in its approach, and received bipartisan support in the Committee.

The other, the Offshore Production and Energizing National Security Act of 2015 (OPENS Act) focuses on petroleum, would reverse a longstanding federal ban on export of crude oil and make substantial changes in the outer continental shelf oil and gas lease program. The latter bill (in Committee, at least) received party line support from Republicans and opposition from Democrats. 

I. The Energy Policy Modernization Act of 2015: “Something for Everyone” Legislation

EPMA was jointly introduced by Senator Lisa Murkowski of Alaska, Chair of the Energy and Natural Resources Committee, and Senator Maria Cantwell of Washington, the Ranking Member. It was reported out of Committee on an 18-4 vote, with ten Republicans and eight Democrats voting in support.

The legislation reflects the incremental approach to development of energy policy in other bills that have become law over the past two years – dating back to when Senator Murkowski was the Ranking Member and Senator Ron Wyden (D-Or) was the Chair. Two bills from 2013, the Hydropower Regulatory Efficiency Act and the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act, garnered bipartisan support for sensible reforms that removed regulatory obstacles to development of hydropower resources. But where those bills were narrowly focused, EPMA is sprawling.

EPMA’s provisions defy easy summarization; the Committee’s section-by-section analysis covers 18 pages and the bill itself exceeds 350 pages. Whether the legislation is intended to promote an “all of the above” national energy policy or simply to gain congressional support the old-fashioned way – by including something on everyone’s wish list – the result is a bill that addresses nearly every energy resource in some manner.

EPMA is divided into five titles, the first four of which are focused on energy issues:

• Title I, “Efficiency,” includes subtitles addressing Buildings, Appliances, and Manufacturing, respectively. Title I is dominated by provisions related to energy use in federal buildings, requirements for studies, and reauthorization of existing programs. For example, the Weatherization Assistance Program under Section 422 of the Energy Conservation and Production Act (ECPA) would be extended through fiscal year 2020 with an authorized appropriation of $350 million annually.

• Title II, “Infrastructure,” addresses cybersecurity, the Strategic Petroleum Reserve, trade, electricity and energy storage, and computing. The latter category sets forth perhaps the most ambitious goal: the development of two or more “exascale” computing systems – systems capable of an “exaFLOPS” (a billion billion calculations per second). The bearing on energy policy is left to the imagination, although one can imagine many energy control applications. The most significant provision with respect to “trade,” Section 2201, would require the Secretary of Energy to issue a final decision on any application for export of natural gas to non-free trade countries within 45 days after FERC or the Maritime Administration has concluded environmental review under the National Environmental Policy Act (NEPA) for the associated liquefied natural gas export facility.

• Title III, “Supply,” is devoted almost entirely to renewable energy, including hydroelectric, geothermal, marine hydrokinetic, and biomass. The only provision specific to fossil fuels is Section 3101, which amends and reauthorizes a statute concerning research into the commercial viability of methane hydrate as an energy source. Although production of methane from methane hydrate remains largely theoretical, the potential is immense:

  Methane hydrate is a cage-like lattice of ice inside of which are trapped molecules of methane, the chief constituent of natural gas. If methane hydrate is either warmed or depressurized, it will revert back to water and natural gas. When brought to the earth’s surface, one cubic meter of gas hydrate releases 164 cubic meters of natural gas.

  While global estimates vary considerably, the energy content of methane occurring in hydrate form is immense, possibly exceeding the combined energy content of all other known fossil fuels.

• Title IV, “Accountability,” offers a smorgasbord of requirements for studies, reports and information gathering.  

Title V, by contrast, would permanently reauthorize the Land and Water Conservation Fund and the Historic Preservation Fund and would establish a new National Park Service Maintenance and Revitalization Conservation Fund. Authorization for both the Land and Water Conservation Fund and the Historic Preservation Fund will expire by statute on September 15, 2015. Title V is an outlier in EPMA: its only relationship to the “modernization” of energy policy is the funding source. The two existing funds are statutorily authorized to receive revenue from rentals, royalties and other sums paid under leases under the Outer Continental Shelf Lands Act. Under EPMA, the new National Park Service Maintenance and Revitalization Conservation Fund likewise would receive a portion of the revenue -- $150 million per fiscal year -- under Section 9 of the Outer Continental Shelf Lands Act. The Fund could be used only “for high-priority deferred maintenance needs” of the National Park Service “that support critical infrastructure and visitor services.” Use of the Fund for land acquisition would be prohibited.

For such wide-ranging energy legislation, little in EPMA directly addresses nuclear energy. Section 3501 would require the Department of Energy to submit a report to Congress on “assessing the capability of the Department to host privately funded fusion and fission reactor prototypes up to 20 megawatts thermal output and related demonstration facilities at sites owned by the Department.”

II. The Offshore Production and Energizing National Security Act of 2015: A Turnabout in Petroleum Policy?

On the same day the Energy and Natural Resources Committee voted on EPMA, the Committee voted out a separate bill with a much narrower focus, more significant change to established energy policy, and lacking bipartisan support. The Offshore Production and Energizing National Security Act of 2015 (OPENS Act) would repeal a nearly 40-year ban on exports of U.S. crude oil and would make substantial changes to the oil and gas leasing program on the Outer Continental Shelf. It passed out of Committee on a 12-10 party-line vote.

A. The export ban: has it run its course?

The export ban was enacted as part of the Energy Policy and Conservation Act of 1975 (EPCA) in reaction to the oil embargo of 1973 by Arab nations belonging to the Organization of Petroleum Exporting Countries. EPCA’s energy policy initiatives have proven to be enduring: in addition to the export ban, EPCA created Corporate Average Fuel Economy (CAFE) standards and the Strategic Petroleum Reserve.

The ban on export of crude oil produced in the United States is not without exceptions. Most notably, legislation signed into law by President Clinton in 1995 reversed a ban on export of crude oil from Alaska’s North Slope; that ban was put in place in 1973 as part of the Trans-Alaska Pipeline Authorization Act.

Most recently, the U.S. Commerce Department informed members of Congress earlier this month that it intends to approve a limited program through which Mexico’s national oil company, PEMEX, will be able to trade heavy Mexican crude for light crude produced in the United States. PEMEX has sought approval to trade up to 100,000 barrels per day. Mexico’s crude production has declined and has shifted from light crude toward heavier crude, leaving the nation’s refineries short of the light crude for which they were designed. Refineries in the U.S. Gulf region are generally better suited to processing heavier crudes, rather than the light crudes produced in increasing volumes from U.S. shale plays.

Nonetheless, the ban on crude oil exports has largely remained intact. With U.S. crude oil production soaring from 5,350 thousand barrels per day (bbd) in 2009 to 8,715 thousand barrels per day in 2014, however, pressure to modify or repeal the ban has been mounting.

Since speaking to the Energy Security Initiative at Brookings in January 2014, Senator Murkowski has been an open advocate for repeal of the ban on crude oil exports.

Section 501(a) of the OPENS Act would sweep the 40-year ban aside in one sentence:

Notwithstanding any other provision of law, to promote the efficient exploration, production, storage, supply, and distribution of energy resources, any domestic crude oil or condensate (other than crude oil stored in the Strategic Petroleum Reserve) may be exported without a Federal license to countries not subject to sanctions by the United States.

B. The Outer Continental Shelf: expanding opportunities and sharing revenue

The OPENS Act would expand and enhance opportunities for oil and gas leases on the outer continental shelf in the Gulf of Mexico, in a new “Nearshore Beaufort Sea Planning Area” and in the “South Atlantic Planning Area” off the coast of Virginia, North Carolina, South Carolina and Georgia. The Secretary of the Interior would be required to implement, with some modifications, the Proposed Final Outer Continental Shelf Oil & Gas Leasing Program (2017-2022). The Secretary also would be required to make available for leasing “any outer Continental Shelf planning area in the Gulf of Mexico that – (i) is estimated to contain more than 2,500,000,000 barrels of oil; or (ii) is estimated to contain more than 7,500,000,000,000 cubic feet of natural gas.”

For such required lease sales that are not part of the Proposed Final Outer Continental Shelf Oil & Gas Leasing Program (2017-2022), analysis under NEPA would be restricted: the Secretary would not be required to identify any non-leasing alternatives to the proposed action, and would only be required to consider one preferred leasing action and one alternative leasing proposal.

The OPENS Act also would expand a precedent from Section 105 of the Gulf of Mexico Energy Security Act of 2006 requiring that revenue from certain oil and gas leases in the Gulf of Mexico be shared with Gulf states. Sections 104, 203 and 305 of the OPENS Act expand the revenue sharing concept respectively within the Gulf, Alaska and the four states adjoining the South Atlantic Planning Area.

III. Conclusion

The legislative future of both bills is uncertain. Although bipartisan support for EPMA in the Energy and Natural Resources Committee bodes well for passage by the Senate, it remains to be seen whether the plethora of new or reauthorized loan and grant programs, pilot programs, studies and new agency offices authorized by EPMA’s “something for everyone” approach will win favor in the more conservative House.  (Marten Law, 8/26/2015)

Judge Blocks EPA Streams & Wetlands Rule

Federal Judge Ralph Erickson of the District Court for the District of North Dakota acted late Thursday to block the Obama administration’s controversial water pollution rule over small waterways like streams and wetlands, hours before it was due to take effect.  Judge Erickson found that the 13 states suing to block the rule met the conditions necessary for a preliminary injunction, including that they would likely be harmed if courts didn't act and that they are likely to succeed when their underlying lawsuit against the rule is decided.

Read Judge's Ruling

The decision is a major roadblock for the Environmental Protection Agency (EPA) and the Army Corps of Engineers, who were planning Friday to begin enforcing the Waters of the United States rule, expanding federal jurisdiction over small waterways like streams and wetlands.

The EPA believes the injunction only applies in the thirteen states that filed for it: Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota and Wyoming.  In all other respects, the rule is effective on August 28, according to the EPA.

The Obama administration says the rule is necessary to protect small waterways from pollution or harm, as called for under the Clean Water Act.

As a preliminary injunction, Erickson’s ruling is designed only to last as long as the litigation persists, and can be overturned.

The 13 states, led by North Dakota, are participating in just one of 10 lawsuits against the water rule. In total, 29 states, along with business interests representing energy, developers, farmers and others are suing.

The cases have been consolidated into one lawsuit at the Court of Appeals for the Sixth Circuit in Cincinnati, but Erickson argued that he could still issue his injunction. Multiple litigants had requested injunctions in their lawsuits, and most had been dismissed and deferred to the Sixth Circuit.  (The Hill, 8/27/2015)

Fitch Report Says Hazy Outlook for U.S. Nuclear Power

According to Fitch Ratings, cost and retirement of some plants will likely keep a cap on U.S. nuclear development into the mid term.   Last year, the U.S. Energy Information Administration forecast that nuclear generation will drop by approximately 10,800 MWe by 2020 on the low cost of natural gas and an expected lack of growth in electricity demand. Fitch believes this number could grow if more plant operators find upgrades and local political pressure too costly to continue operations. 

The total cost to complete the Vogtle nuclear power plant expansion has risen to approximately $17 billion. Similarly, construction costs for the new units at the V.C. Summer plant have risen to approximately $12.4 billion. Both projects are approximately three years behind schedule. They are using a modular construction technique and technology developed by Westinghouse, the AP1000 PWR, which was designed to be less costly and faster. Four AP 1,000 reactors under construction in China have also experienced cost overruns and delays. In our view, the change in expectations about this technique could join other forces in keeping expansion down. 

These pressures shut Dominion Resources' Kewaunee plant, Duke Energy Corp.'s Crystal River plant, Edison International's San Onofre plant, and Entergy's Vermont Yankee plant. Exelon's Oyster Creek is scheduled for retirement in 2019. Approximately eight additional merchant units, with an aggregate capacity of 6,334 MW, are also at risk of early retirement. 

By comparison only five new units are currently under construction and a license has been issued for one other, according to a report published last month by the Nuclear Energy Institute. Although a further 10 units are under active Nuclear Regulatory Commission review, their status remains uncertain. Plant age could also play a role in preserving current generation. Of the 99 nuclear units in operation, 73 have received 20-year license extensions beyond their original 40-year operating licenses. An additional 19 applications for license extension are pending and the remaining units are likely to be filed over the next several years.  (Fitch Ratings, 8/20/2015)

EPA Proposes Methane Reduction Rules For Natural Gas Wells

Methane Molecule Formula

Today, the U.S. Environmental Protection Agency proposed rules aimed at cutting methane emissions from oil and natural-gas drilling, part of a broader Obama administration goal to cut such emissions from the sector by up to 45% over the next decade from 2012 levels.  The rules are aimed in particular at cutting methane emissions from new oil and natural-gas wells, requiring companies to install technology to prevent methane—a potent greenhouse gas—from inadvertently leaking and to monitor their operations for possible leaks.  The agency is expected to complete the rules in 2016, after a public- comment period.

EPA Headquarters

The EPA’s rules are by far the biggest part of an administration-wide goal of cutting U.S. methane emissions from the oil and gas sector by 40% to 45% by 2025. Earlier this month, the EPA issued final rules cutting carbon emissions from power plants 32% by 2030 based on emissions levels from 2005.

Methane, which is the primary component of natural gas, has a warming effect on the planet more than 25 times greater than carbon dioxide, according to the EPA. Oil and gas companies sometimes inadvertently emit methane during the production and transmission process. By capturing the methane, companies both cut down on the emissions and are able to capitalize on additional product, since methane is the primary component of natural gas.  (WSJ, 8/18/2015)

President Obama Issues New Climate Change Regulations

The Obama administration has issued a climate change rule for power plants that requires electricity generators cut their carbon dioxide output 32 percent by 2030, from a 2005 starting point.

The Environmental Protection Agency is asking states to formulate plans to reach specific carbon reduction goals assigned to them.  If the states do not submit plans — as multiple conservative states have threatened — the EPA will write and impose its own strategies upon them.

The administration estimates that the climate benefits, in addition to benefits from reducing other pollutants from power plants, would result in a net $46 billion benefit to the nation by 2030, along with thousands of avoided premature deaths and asthma attacks.

Compared with the carbon limits the EPA proposed last year, the final rule is 9 percent more stringent than the 30 percent cut originally envisioned.

It delays the first round of carbon goals to 2022 from 2020, a move the White House said would result in far more renewable energy such as wind and solar and less natural gas replacing coal, which is currently the dominant fuel for electricity.

And despite the added stringency, the rule is predicted to avoid little more than 0.01 degrees Celsius in global warming, since the United States’s emissions are only a small part of the world’s.

The new plan also includes incentives for states to comply early, with matching grants for reductions before the deadlines.  (The Hill, 8/2/2015)