December 2015 Vol. 70 No. 12
Washington Watch
Oil Export Bill Moving Forward
House passage of an oil export bill for the first time in 40 years puts pressure on the Senate to follow suit. The House bill (H.R. 702) is narrowly focused on the oil export issue. However, the Senate bill (S. 2011), awaiting action on the Senate floor, is broader and encompasses provisions on oil and gas leases from the Outer Continental Shelf and construction on Indian lands. H.R. 702 repeals Section 103 of the Energy Policy and Conservation Act which gives the President the ability to restrict exports of petroleum products, natural gas, petrochemical feedstocks and coal in the event of unforeseen circumstances to protect the national interests of the country.
The House passed its bill by a vote of 261 to 159 on Oct. 9 with 27 Democrats voting for the House bill. The Senate Energy Committee passed its bill on Sept. 9 by a vote of 12-10, along partisan lines. However, there are at least two Democrats in the Senate who do support the bill.
Democratic support will be important since President Obama has indicated he would probably veto the bill. After the House passed its bill, the Obama administration issued what is called a “Statement of Policy” which said it “strongly opposes” the bill. The SAP said the president’s advisors would recommend a veto if the bill passes Congress though it did not make any promises about President Obama’s ultimate decision. The administration says the legislation is not needed at this time. It thinks Congress should be focusing its attention on a transition to a low-carbon economy.
The administration SAP essentially means the Senate would need 60 votes to override a veto. That would necessitate six Democrats voting for the bill if all 54 Senate Republicans voted “aye.”
Democrats have been loath to support an end to the oil export embargo because some business and consumer groups fear it would result in higher oil and gasoline prices. Carlos Pascual, senior vice president, IHS, a consulting firm and a Fellow at the Center on Global Energy Policy at Columbia University, says, “The risk most feared is increasing the domestic price of gasoline.” He cites two IHS studies and a few others which all argue “on firm economic grounds that this risk is misplaced. The price of gasoline should decrease.”
However, the business community is clearly split. The National Association of Manufacturers, for example, supports ending the ban. The Industrial Energy Consumers of America (IECA) opposed H.R. 702 because it wants to retain the President’s ability to restrict exports. However, the IECA says is not opposed to crude oil exports as long as the volume of exports is in the public and national interest.
Shippers Press For Pipeline Rate Reviews, Refunds
Natural gas consumers led by the Industrial Energy Consumers of America (IECA) have started a political campaign to encourage the Federal Energy Regulatory Commission (FERC) to get tough on pipeline rates.
It is a two-pronged attack. One path seeks to convince the FERC to resume mandatory three-year reviews of interstate natural gas pipeline rates. The other aims to persuade Congress to amend Section 5 of the Natural Gas Act to provide FERC with refund authority. The letter sent to Congress states that FERC Chairman Norman Bay and past Chairmen Cheryl LaFleur, Jon Wellinghoff and Joseph Kelliher have all openly acknowledged the problem of pipeline overcharges and the need for Congress to pass legislation to address it. Wellinghoff, in an e-mail, acknowledges the accuracy of that statement.
Tamara Young-Allen, spokesman for the FERC, says the commission, which must ensure that pipeline rates are “just and reasonable,” has made no decision on whether it will or will not respond to the letter. The agency does have the authority to file rate cases independently and has done so in the past. Former FERC Chairman Wellinghoff sent a letter to leaders of the Senate Energy Committee in 2013 in which he said the agency had done 10 rate reviews between 2009 and 2013. In seven of those instances, pipelines signed consent decrees committing them to lower rates.
“At that rate, pipeline rates would get reviewed every 10 years,” complains Paul Cicio, president of the IECA. Shippers can file rate cases themselves, of course. But that can be a costly process, and FERC’s inability to order refunds for past overcharges serves as a double disincentive, according to Cicio.
Cathy Landry, spokeswoman for the Interstate Natural Gas Association of America (INGAA), says if FERC were able to order refunds a pipeline could be punished for charging the rate FERC had previously approved. “Such a change in long-standing law would introduce significant financial uncertainty for regulated pipelines,” she adds. “From the start of a section 5 proceeding until its completion at some undetermined date, a pipeline would no longer know its FERC-approved rate, and would be unable to calculate its revenues with certainty. This significant level of business risk and uncertainly would ultimately be reflected in the cost of capital across the entire pipeline sector, leading ironically to higher rates for service.”
There doesn’t appear to be a groundswell in Congress favoring pro-refund legislation. No bill has been introduced. Dan Schneider, press secretary to the House Energy and Commerce Committee, home to Chairman Fred Upton (R-MI), the committee chairman who was one of the recipients of the letter, says no legislation has been introduced there. Robert Dillon, spokesman for Sen. Lisa Murkowski (R-AK), chairman of the Senate Energy and Natural Resources Committee, did not respond to an inquiry on whether Murkowski favored retroactive pipeline refunds.
The IECA and its allies believe the FERC needs to crack down on pipeline rates based on a report produced in 2015 by the Natural Gas Supply Association (NGSA). The report analyzed the cost recovery of 32 major interstate natural gas pipelines that represent 80 percent of the market. The study shows that from 2009 to 2013 pipelines over-collected approximately $3 billion more than they would have collected on a very generous average 12 percent return on equity allowed by FERC.
INGAA’s Landry responds, “As NGSA notes in the 2015 report, there has been a downward trend in the overall average return of the pipelines reviewed, to 12.6 percent in 2013, the most recent year reflected in the analysis. Seven of the pipelines had rates of return below 10 percent in 2013, including two below 5 percent.”
The NGSA did not sign on to the IECA letters to FERC Chairman Bay and Energy Committee chairmen and ranking members in Congress. “We support reviews of pipelines’ rates when the data suggests that they are over-earning,” states Daphne Magnuson, spokeswoman for the NGSA. “FERC can use Form 2s to help monitor the data and use that information as a guidepost to determine if there is a need to initiate a review.”
She adds, “NGSA is also interested in establishing a refund-effective date when FERC determines that there has indeed been over-earning, since currently there are no refunds, just a change in rate going forward. Interestingly, there are refunds on the electric side – it’s just a gas thing that we don’t get refunds.”
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