Bush Lite: The Daschle-Bingaman-Enron bill is spoiled by energy industry special interests

February 2002

Public Citizen
Critical Mass Energy and Environment Program

Background

There are several features of the energy legislation up for debate in the U.S. Senate, currently numbered as Amendment 2917 to S. 517, that would contribute to the nation s energy security, safeguard the environment and give consumers a break. Proposed fuel economy standards for the auto industry would be increased to 35 miles per gallon, reducing oil consumption by 2.53 million barrels per day in 2020. Provisions to promote and reward energy efficiency and conservation in homes, businesses and industrial applications mark progress toward energy policy that is cleaner, safer and more affordable. Establishment of modest national renewable energy requirements, along with other provisions to support wind, solar and other renewable forms of energy, are also steps in the right direction toward ultimately weaning the nation from polluting, finite energy sources.

Unfortunately, the sweeping energy bill crafted by Senate Majority Leader Tom Daschle and Senate Energy Committee Chairman Jeff Bingaman also mirrors many of the misguided energy policies that were announced last year in the Bush administration s energy plan. That plan, adopted in legislative form by the Republican-controlled House last August, was developed in secret meetings with energy industry special interests. The Bush administration, spearheaded by Vice-president Dick Cheney, is going to court in an effort to assure that the public never learns exactly who influenced the plan, and what specific motives or financial opportunities may have driven those who were privileged enough to play such a strong hand in shaping public policy. But notwithstanding the administration s stonewalling and disregard for the public s right to know, it is clear that the Bush-Cheney energy plan was heavily influenced by fatcat energy industry tycoons, for fatcat energy tycoons. And the administration s proposals reflect a heavy dose of influence by former Enron CEO Ken Lay.

As does the Daschle-Bingaman energy bill. Even in the wake of the Enron fiasco, as politicians publicly sound the call for closer monitoring and oversight of the energy industry, the Senate bill would further deregulate energy markets and erode consumer protections. Public skepticism about special-interest influence on policy is palpable, contributing mightily to the landmark passage of campaign finance reform in the House earlier this month. Yet the Daschle-Bingaman-Enron bill piles tax breaks on energy corporations and even uses direct subsidies to promote polluting fossil fuels and dangerous, dirty nuclear power. In the aftermath of Sept. 11, the public looks to policy makers to chart energy policies that are sensible, clean and in the long-term best interests of the nation s prosperity and security. Instead, the Senate energy bill embraces the politically and financially entrenched polluting technologies of yesteryear. The Senate bill contains some provisions that would be welcome developments for national energy policy. But despite public statements in praise of renewable energy and conservation, the totality of the legislation backed by Senate Democrats is the energy policy equivalent of "Bush lite," reflecting the enormous influence of energy industry campaign contributions and lobbying expenditures.

And that influence is enormous indeed. During the 2000 campaign cycle, the electricity and nuclear, mining and petroleum industries combined gave a breathtaking $58.6 million to candidates for federal office and national campaign committees, according to the Center for Responsive Politics. The lion s share of those contributions, $44.4 million, or about 76 percent, went to Republicans. But Democrats still managed to garner more than $13.6 million from the energy giants (a small portion of contributions were made to independent or third-party campaigns).

In return for bankrolling campaigns, energy industry contributors win access to elected officials. The size of energy industry campaign contributions is truly staggering. But those contributions might be viewed as a cover charge, the cost of opening doors and ultimately influencing politicians, because the money spent on campaign contributions is only a fraction of what the energy industry spends on lobbying elected officials. In 1999 alone, the most recent complete data available, the oil and gas, mining, and electricity and nuclear industries dropped a whopping $140.6 million to lobby federal officials.

It comes as little surprise, then, that the energy legislation put forth by the Senate Democrats, while not as industry-friendly as legislation favored by their Republican colleagues in Congress, nonetheless caters to entrenched special interests at the expense of the environment, consumers and sound public policy. Increased fuel efficiency standards, the promotion of renewable energy and other provisions in the Democratic bill that are features of a wise energy policy need to be pursued. But those positive measures should be taken up by Congress on their own merits, and not saddled with the errant, Enron-influenced, Exelon-tested and Exxon-approved provisions such as those detailed below.

Public Citizen urges the defeat of the Daschle energy bill, and calls on Congress to support truly meaningful energy policy reforms based on significantly increased fuel economy standards, an ambitious renewable energy portfolio, and aggressive energy conservation measures. The relatively modest forward-thinking proposals in the Daschle-Bingaman bill do not compensate for the destructive promotion of dangerous nuclear power, dirty fossil fuels and an even further deregulated energy market that unfortunately is also part and parcel of the legislation.

The analysis that follows describes in further detail some of the specific ways the Daschle-Bingaman bill follows the wrong course on energy policy. Meantime, there is a further political reality that also needs to be addressed with regard to the energy debate in Congress. The House, as mentioned earlier, has already passed an energy bill even more foul than the legislation on tap in the Senate, laden with even more energy industry giveaways, and tailored to an even more accelerated production of polluting fossil fuels and expensive, risky nuclear power plants. The Bush administration and key congressional Republicans have signaled that if the Senate manages to pass a bill, there will be a vigorous attempt to load up as much of the House legislation s pernicious provisions as possible in a conference committee. "I hope we can get it in conference," Senate Minority Leader Trent Lott told a U.S. Chamber of Commerce breakfast recently, "and produce a bill that is worth having."

That Republican strategy, coupled with the substantial faults already contained in the Democrats bill, does not bode well for consumers or the environment.

Daschle-Bingaman Energy Bill: Amendment 2917 to S. 517 "Energy Policy Act of 2002"

I. Electricity deregulation

PUHCA repeal

The Daschle-Bingaman bill contains provisions that could enhance access to the electricity transmission grid for renewable energy sources. But those modest positive steps pale in significance compared to the continued Enronic deregulation of energy markets that would occur if this bill were to become law.

Title II, Subtitle B of the Daschle-Bingaman bill repeals the Public Utility Holding Company Act of 1935, an important federal regulation placing ownership restrictions on electricity holding companies to ensure that energy corporations only make investments in interconnected electricity markets, taking advantage of economies of scale to maximize savings and efficiencies for consumers. PUHCA restricts the ability of companies to make investments which would divert resources away from their primary responsibility: serving electricity consumers.

PUHCA has been seriously weakened over the years due to industry-led efforts to blow loopholes through it. In 1992, holding companies were permitted to invest in foreign operations, diverting resources away from their American consumers. And in 1994, Enron s power marketing trading operations successfully won an exemption from PUHCA, opening the door for dozens of other firms to operate outside PUHCA s consumer protections.

Rather than strengthening PUHCA by closing these harmful loopholes, Daschle has caved to industry and GOP pressure and chosen to scrap the entire concept of consumer protections. In the wake of the Enron fraud, consumers need more government protection not less.

Daschle replaces PUHCA s consumer protections with federal and state "access to books and records" of energy companies (Sections 224 and 225). This is a meaningless replacement, because merely having access to energy company records does nothing to protect consumers, because it places no restrictions on company abuses until after the fact. In addition, the Enron fraud has exposed the severe weaknesses in the transparency of our nation s accounting and disclosure laws. Providing state and federal regulators with non-transparent energy company records is useless, and unnecessarily exposes consumers to even more risk.

The fact is, had PUHCA s two main loopholes been closed and the SEC properly enforced the act s regulations, PUHCA would have prevented Enron s collapse and possibly helped lessen the severity of California s energy crisis.

FERC review

In Subtitle A, Sections 202 and 203 clear up the Federal Energy Regulatory Commission s responsibilities over utility mergers and orders FERC to exercise more care when approving of market based rates normally, two marginally positive provisions. But the minimal benefits these provisions would normally bring are undermined by PUHCA repeal and by several institutional limitations at FERC.

Section 202 clarifies that FERC has the authority to block and review all utility company mergers. This is important because improved federal review is necessary due to the dangers increased market share, achieved through utility consolidation, pose to consumers.

Section 203 mandates that FERC take more care when authorizing a power generator or power trader the ability to charge market-based rates (rather than regulated cost-based rates). This is important because the lack of competition in America s deregulated wholesale electricity markets has resulted in power companies with market-based rate authority to price-gouge consumers a leading cause of the California energy crisis. Without competition and with no federal or state regulatory oversight, market-based rates translate to monopoly-based rates.

But the marginal consumer benefits of Sections 202 and 203 are severely undermined for various reasons. First, the repeal of PUHCA will result in an astronomical increase in the number of utility mergers. FERC has never opposed consolidation of the industry. With the ownership restrictions removed through PUHCA repeal, this act transfers all the consumer protection authority away from Congress and on to FERC. With Enron s collapse, consumers need more protections on the books, not less. The Section 202 provision provides insufficient consumer protections because it leaves far too much discretion with FERC.

While Section 203 orders FERC to take more care before bestowing market-based rate authority onto power companies, it does nothing to order FERC to actually improve the official methodology the Commission uses to make that determination. FERC has recently placed its long-standing market-based rate authority methodology under review, but has replaced it with an interim calculation with no concrete plan for a permanent methodology that would more effectively evaluate a company s ability to command market share and manipulate prices. Lacking a short- and long-term plan to protect consumers with a market-based rate methodology that actually works, FERC is unfit to continue granting this authority. Rather than simply ordering FERC to exercise more caution, a more consumer-friendly provision would temporarily repeal and suspend all market-based rate certification, and return to cost-based regulations until a long-term plan for the future of America s energy markets is agreed upon.

Independent access

There are only two positive provisions in the electricity section of the Daschle-Bingaman bill. Sections 205 and 206 take concrete steps to curtail discriminatory access practices on the part of corporate transmission line owners. Throughout America s deregulated electricity markets, independent power producers typically renewable energy providers are denied access to the transmission grid, and therefore denied the ability to sell or deliver their power to consumers. They have been denied such access because the owners of the transmission lines usually large energy corporations with their own generation facilities have financial incentive to deny access to companies lacking the ability to negotiate large contracts more favorable to the transmission line owner. These two sections are a good first step to addressing this serious problem.

II. Nuclear power

Nuclear "revival"

Media reports have hailed the arrival of the Bush-Cheney team as signaling an earnest "nuclear revival." Although the American public decided long ago that nuclear power was too dangerous, too dirty and too expensive to be a desirable source of energy, high-profile support from a pro-nuclear White House has raised the spectre that the industry could be poised for a comeback.

Judging from the Daschle-Bingaman energy bill and its shameless promotion of this unpopular energy source, Senate Democrats have either capitulated to the administration s call for increased reliance on nuclear power or, worse, genuinely support the revival of nuclear power.

Title XII of Daschle s bill would allocate $1.3 billion over four years to "enhance nuclear energy," including hundreds of millions of dollars specifically to help the nuclear power industry build new power plants, and extend the lifetimes of the 103 reactors that are already operating in the U.S.

The nuclear power industry, in league with the Nuclear Regulatory Commission, is already in the midst of a feverish attempt to relicense nuclear reactors, extending the original 40-year operating periods of now-aging nuclear power plants by another 20 years. Section 1241 allocates federal money to "support research related to existing& reactors to extend their lifetimes," fostering the nuclear industry s dangerous relicensing agenda.

Section 1245 directs the Energy Secretary to "develop a technology roadmap to design and develop new nuclear power plants in the United States." As it happens, the Energy Secretary is way ahead of or perhaps on the same page with the Senate Democrats. The Energy Department has already unveiled a "Roadmap to Deploy New Nuclear Power Plants in the United States by 2010." In keeping with the corporate-friendly cronyism that has come to characterize the Bush administration s energy policies, the DOE's plan to increase and accelerate the nation s reliance on risky nuclear power was crafted by a committee dominated by nuclear power executives.

Daschle and his Democratic colleagues in the Senate are exhibiting no more independence from the well-heeled nuclear lobby than their Republican counterparts or, for that matter, the administration.

Nuclear waste

Earlier this month, Energy Secretary Spencer Abraham recommended that the White House designate Yucca Mountain in Nevada as a repository for high-level nuclear waste, even though the suitability of the site has been cast in sharp scientific doubt. The president accepted the recommendation, sparking a flurry of bipartisan objections a strong reminder that even a flawed nuclear waste solution like Yucca Mountain is far from reality, let alone a genuine, scientifically sound solution.

Yet Daschle, who less than one year ago told Nevadans "I think the Yucca Mountain issue is dead," has presented an energy bill that promotes the generation of even more nuclear waste by subsidizing the development of new nuclear plants.

Price-Anderson

Title V, Subtitle A of the Senate Democrats bill reauthorizes portions of the Price-Anderson Act, effectively letting Department of Energy contractors off the hook in the event of a "nuclear incident," the incompetence or misconduct of those contractors notwithstanding. If waste is ultimately shipped to Yucca Mountain, those DOE contractors will be transporting the deadly material through communities in 44 states and putting tens of millions of people at risk. But under the Democrats energy bill, contractor liability will be capped, and the shippers will be responsible for only a relatively small portion of the potentially gigantic financial consequences of a radioactive waste release. The private insurance industry has always refused to provide comprehensive coverage for enterprises related to atomic energy, and DOE contractors have long enjoyed indemnification courtesy of the U.S. Congress. But the Democratic bill makes bad policy worse: in the past, contractor indemnification would have to be reauthorized periodically. The Daschle-Bingaman bill shields DOE contractors from liability indefinitely.

Tax breaks

A sweeping package of tax breaks for energy suppliers has cleared the Senate Finance Committee and will be rolled into the Daschle-Bingaman energy bill. The package bestows a tax break worth an estimated $1 billion to non-regulated "merchant" operators of nuclear power plants, extending those "competitive" energy marketers a perk that was originally established to protect consumers captive to regulated monopolies. The tax break is yet another example of the Senate Democrats parroting their Republican colleagues and bestowing public largesse on the nuclear power industry.

III. Fossil fuels

Promotion of mining and drilling

Unlike its ghastly counterpart passed by the House, the Daschle-Bingaman bill does not open up the Arctic National Wildlife Refuge for drilling. But the Senate Democrats professed passion for putting the public s interest and environmental protection ahead of oil and coal industry profits is conspicuously absent in much of the rest of the Daschle energy bill.

Section 1232 of the legislation would bestow $1.8 billion on industry over the next decade to promote "coal-based technologies." This initiative mirrors the coal corporate welfare program that won approval in the House Energy bill last year. States and the federal government have been throwing taxpayers money at "clean coal" projects for years, with little to show for it. Over that same period, multinational coal corporations have been consolidating, merging, and using larger and larger equipment and fewer and fewer miners, achieving economies of scale and healthy financial returns. The coal conglomerates do not need, nor do they deserve, another handout from the American taxpayer especially one that is designed to further the nation s reliance on dirty fossil fuels.

Section 1231 of the Democrats bill calls for allocating more than $2 billion for research to promote oil and gas production both on- and offshore, and for "core fossil research and development."

Taking yet another cue from the House-passed bill, the Senate legislation establishes a program to subsidize industry research in ultra-deepwater drilling (Section 1234). The Senate bill does not allocate a specific dollar cost to the taxpayer for this environmental nightmare in the making, appropriating instead "such sums as may be necessary." When passed in the House, the program s price tag was estimated at $900 million.

Royalties "in-kind"

The oil industry s historic exploitation of taxpayer resources on public lands would be promoted and accelerated under the Daschle legislation. Section 610 allows the industry to make royalty payments "in kind," which is to say by depositing oil produced on federal lands to the Strategic Petroleum Reserve. Currently, producers pay royalties in the form of a percentage of the value of the oil. The in-kind program effectively makes the federal government an oil marketer, and raises a host of administrative and tax fairness questions.

The in-kind program is yet another provision that can also be found in the House energy bill, and earlier analyses of the provision estimated that the federal government could lose money. Actually, the federal government would not be the only entity that would lose money under the program. Typically, about one-half of the royalties paid by energy companies for resources developed on federal lands is returned to the states where the resource was produced. Those state shares of federal royalty payments often soar into the hundreds of millions of dollars per year, and constitute a leading source of revenue for several energy producing states. In most instances, the states in turn earmark the federal mineral royalties toward education funding. Education, like the environment, is an issue for which politicians are eager to shout their support. But Section 610 of the Democratic energy bill is silent on the fiscal impacts to states (and by extension, schools) if oil companies are no longer paying substantial portions of mineral royalties that the companies would otherwise be paying.

Tax breaks

The tax break package that emerged from the Senate Finance Committee, and that will be rolled into the Democratic energy bill, grants an estimated $3.2 billion to the oil and gas industry over ten years.

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