Guest Blog of the Week: Prospects for Climate & Energy Legislation in Late 2010—Part III

   By Meredith Irvin and Erin Book, Managing Directors, SNR Denton

In a week-long blog series, Meredith Irvin and Erin Book will summarize the main climate and/or energy proposals that are currently being discussed as we head into the final working days of the 111th Congress.

Today’s blog discusses:  Oil Spill Legislation and the Senate Majority Leader’s Proposal

The BP oil spill in the Gulf of Mexico, to some extent, has shaped recent energy legislation offerings, but it has not drastically impacted this year’s outcome of cap and trade or RES legislation.  Many believe that even without the distraction of spill, the seemingly insurmountable obstacles to passing a cap and trade scheme or an RES would have still blocked comprehensive legislation this year.  The oil spill has, however, become the focus of any energy legislation that will likely move this year.

As the debate and uncertainty of energy legislation raged on after Congress returned from the July 4 break, Senator Reid (D-NV) was rumored to be closer to a path forward on energy legislation.  However, Reid subsequently announced that he would not put forward an energy and climate proposal that includes any form of a cap and trade scheme.  Instead, Reid offered a bill that addresses the oil spill and includes incentives for energy efficiency and fuel efficiency.  This news arrived after the utility industry seemed willing to negotiate a utility-only proposal if provided adequate time to do so.

The package, which includes four titles, addresses the oil spill, provides incentives for energy efficiency in homes, encourages natural gas vehicles and related infrastructure, and boosts the Land and Water Conservation Fund.  Despite pressure from environmentalists and Members on both sides of the aisle, the bill does not contain an RES nor any form of a cap and trade scheme.

Though the pared-down Senate energy bill was not brought to the floor of the Senate before they adjourned for the August recess, the House did manage to pass a similar, oil-focused bill off the floor before leaving for the break.  The House measure (Consolidated Land, Energy, and Aquatic Resources Act, H.R. 3534) was passed with an amendment offered by Representative Melancon (D-LA) that exempts some companies from the deepwater drilling moratorium if their rigs meet new safety requirements imposed by the Department of the Interior.  Given the opposition from both Republicans and moderate Democrats, the oil spill provisions were the deal-breaker for getting an energy bill passed in the Senate before the August break.  After a week of internal debate over competing Senate oil spill bills, a final draft was released that, like the House legislation, eliminated the current $75 million liability cap for companies responsible for a spill, including BP and the current spill.  That language is significantly more stringent then bipartisan legislation that Chairman Bingaman passed out of the Senate Energy and Natural Resources Committee in July.

A controversial provision in the House bill was a mandate that 10 percent of offshore drilling royalties go to a new ocean conservation fund.  Also contentious was a proposal that increases financial responsibility requirements to $300 million, which in some cases may be adjusted, for offshore oil facilities.  The legislation blocks some companies operating in the gulf from winning new federal leases unless they agree to new royalty limits in existing leases.

A notable component of the House bill is that it precludes BP from participating in a lease sale for seven years.  The provision is narrowly drafted to apply only to companies that have had more than ten fatalities at its exploration, development and production facilities and refineries, and prohibits a company from requesting a new lease within seven years of such an occurrence.

For additional information on Energy Law, see David J. Muchow and William A. Mogel, Energy Law and Transactions, and the Energy Law page.