Congress Passes Energy Legislation

Today, Congress overwhelmingly approved “The Energy Policy Act of 2005."  This final action marks the conclusion of a bi-partisan process that addresses a wide span of issue areas in current and future U.S. energy policy.

Culminating a six year effort, Congress passed comprehensive energy legislation and will send it to the President for signature. Today, the Senate overwhelmingly approved H.R. 6, “The Energy Policy Act of 2005,” by a vote of 74 to 26. On Thursday, the House approved the bill by a vote of 275 to 176. This final action by the Congress marks the conclusion of a bi-partisan process that addresses a wide span of issue areas in current and future U.S. energy policy.

Once enacted into law, the focus on energy policy will shift to the various agencies responsible for implementing these new laws. The legislation directs the agencies to conduct a significant number of studies on various sectors of the energy industry. In addition, many of the provisions are not self-implementing and will require agencies to develop rules and procedures for their application.

Van Ness Feldman worked extensively on the provisions in this bill and are available to provide more extensive analysis and strategy recommendations upon request. Highlights of the legislation are as follows:

Electricity

The Electricity Title of the bill:

• Makes reliability standards mandatory;
• Includes new authority for transmission siting and provides for incentive rates for transmission infrastructure;
• 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 and expands the scope of those penalties;
• Creates new prohibitions on market manipulation and restrictions on corporations and persons found to have engaged in such;
• Allows utilities to continue to use their transmission systems to serve their customers (so called “native load protection”);
• Repeals PUHCA and increases FERC’s merger review authority; and
• Repeals the mandatory purchase and sale requirements of PURPA upon a finding of access to competitive energy markets.

Natural Gas

The Natural Gas Title of the bill:

• Gives FERC the exclusive jurisdiction to authorize the siting, construction, expansion and operation of liquefied natural gas (LNG) import terminals;
• Codifies FERC’s policy allowing LNG terminals to determine their own economic relationships where the application is filed prior to 2015;
• Allows states to conduct safety inspections on LNG terminals;
• 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;
• Allows oil refiners to use a consolidated and streamlined permitting process at EPA;
• 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.

Hydropower Provision

The hydropower provisions of the 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 alternative conditions submitted by hydroelectric facility license applicants or others that are more cost effective or which result in improved efficiency, so long as the proposals meet the agency’s conditions for environmental protection. The provisions further provide incentives for new hydropower at existing dams and for increasing efficiency at existing facilities.

Alternative and Renewable Fuels

The Alternative and Renewable Fuels section of the bill:

• Contains a renewable fuels standard that mandates an increase in the use of fuels such as ethanol and biodiesel to 7.5 billion gallons by 2012;
• Repeals the Clean Air Act’s requirement that reformulated gasoline contain 2 percent oxygenate;
• Does not ban the use of methyl tertiary butyl ether (MTBE) and allows for prospective claims to be considered in Federal District Courts; and
• Creates loan guarantee programs for commercialization of technologies that convert cellulosic biomass to ethanol.

Climate Change

The Climate Change section of the bill creates a voluntary program of financial incentives, which include direct loans, loan guarantees, standby default and interest coverage, and power production incentive payments for the demonstration and deployment of low-carbon-intensity technologies.

Energy Research and Development and Incentives for Innovative Technologies

The extensive research and development components of the bill:

• Authorizes R&D programs in renewable energy, climate change, natural gas, oil, coal, biomass, and nuclear power as well as energy conservation and efficiency;
• Provides for continued research and development of clean coal technology programs and authorizes $200 million annually to be applied to demonstration of advanced coal-based power technologies; and
• Establishes a loan guarantee program to provide incentives for commercial deployment of “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. Further authorizes the construction of nuclear reactor at the DOE Idaho National Laboratory which will generate both electricity and hydrogen and creates a federal loan guarantee program to encourage the design and deployment of innovative technologies including advanced nuclear power plants.

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 and electricity restructuring initiatives. Provisions include:

• A two year extension (through 2007) for the Section 45 renewable energy production tax credit, and expansion of Section 45 to include incremental hydropower and Indian coal;
• $800 million in innovative new bond authority to finance rural electric cooperative, municipal government and tribal investment in renewable electricity projects;
• 15-20 percent investment tax credits 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.