Energy Legislation: Smaller is Better

Energy Legislation: Smaller is Better

Nov 17 - Spokesman Review

Lobbyists left behind when Congress failed to pass President Bush's energy bill will probably have a chance to catch up next year. Passage of the legislation was one of the administration's major unmet priorities during its first four years. With imports of $50-per-barrel oil widening the nation's trade gap and compromising national security, there will be more pressure than ever to get the legislation enacted, its controversial provision to allow oil drilling in the Alaska Natural Wildlife Refuge included.

The energy legislation, like so many other administration bills manhandled by Congress, started with a hefty enough price tag, about $9 billion, then became a $23 billion pork chop condemned by almost everyone who did not have a fork. Every energy producer or technology, no matter how small or exotic, got a subsidy, credit or some other form of federal assistance. Arizona Sen. John McCain, everybody's favorite maverick, didn't call it the No-Lobbyist-Left- Behind-Act for nothing.

Fortunately, the House and Senate were never able to reconcile their two different versions of the bill, which was set aside almost a year ago. The United States may still need energy legislation, but in pieces, not an omnibus bill bloated by costly amendments.

Two provisions that made their way around the stalemate could be constructive. One renewed one-cent-per-kilowatt tax credits for new wind power turbines. That subsidy helped assure the economic viability or many of the wind farms that have sprung up in the Northwest. Wind now generates about 1 percent of the region's electricity, and developers want to add still more capacity. As the technology improves and the cost of natural gas erodes the economics of running gas turbines, wind investments will look like a wiser and wiser investment.

But natural gas is not finished yet. The second energy bill provision to survive was a federal guarantee of up to $18 billion in loans to finance construction of a pipeline that would connect Alaska's North Slope with markets as far away as Chicago. Oil companies have been forced to pump billions of cubic feet of gas recovered from oil wells back into the ground because there has been no way to ship it south. Exxon Mobil Corp., BP PLC and ConocoPhillips and their political allies have tried for 20 years to find a financially feasible way to get that gas to market. The math just didn't work out through the 1980s and 1990s, when deregulation drove natural gas prices, if not the commodity itself, south.

As any homeowner knows, those days are gone with the Alaskan summer. Gas prices have tripled in recent years, greatly improving the economics for a pipeline. But not quite enough as far as the oil companies and Alaskans were concerned. They got the loan guarantee appended to a must-pass defense construction bill. Must because the military needed the money, and must because Republican Sen. Lisa Murkowski was in a desperate re-election fight. The bill passed. She won.

Why do companies that made $12.2 billion in just the third quarter need a loan guarantee? Well, they also have more than $30 billion in long-term debt between them. Another $18 billion on top of that was a deal-breaker for pipeline construction.

The State of Alaska, on the other hand, may take a piece of the project because officials think there may be money made. They passed on the oil pipeline years ago, and lament the huge profits they left on the table. One feasibility study estimated the state could make $236 million annually on its pipeline investment alone, bringing total revenues to $1 billion. Or the state could settle for royalties and taxes and let the oil companies take all the risk.

If construction goes forward, it may well be a decade before anyone in the Lower 48 heats their home with Alaskan gas. In the meantime, the Northwest will continue to rely heavily on supplies from Canada, where officials seem unconcerned their neighbor to the north will hurt the gas market.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, says many Alberta and British Columbia gas fields will have passed their peak years of production. The Alaskan gas will fill pipelines to the United States that otherwise would not be used to capacity.

"We see business growth strong enough to need all the production," Stringham says, adding that some North Slope gas will likely end up in the Northwest and California.

Which, in theory, makes all of us potential beneficiaries. And maybe the pipeline will be a money-maker, the loans will be repaid, and the taxpayers will remain on the sidelines as the oil companies profit.

There are other pieces of energy legislation worth passing. An electricity reliability bill sponsored by Sen. Maria Cantwell, D- Wash., would be especially useful. More offensive provisions, like one indemnifying ground water polluters, deserve condemnation, not passage. If the country is lucky, a more fiscally responsible second- term Bush administration will put a stop to the more expensive and foolish ideas packaged into the bill shelved last year.

Business columnist Bert Caldwell can be reached at (509) 459- 5450, or at bertc@spokesman.com .

For far more extensive news on the energy/power visit: http://www.energycentral.com .