13.1 -i - PBS · f DOE Review of Agency Actions Affecting Energy Statutory Larmuaae- Title I -...

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Deep Water Royalty Relief Should be Extesded

The recently exl_red pro_rmm was a peat successThe DeepwaterRoyalty Relief Act of 1995 was extremely mccessfui in promoting exploration inwaterdepthsgreaterthan 200 meters in the Gulf of Mexico. Annual deepwate_roil jwoduclionhasincreasedfromsome 60,000 barrelsperdayto close to 450,000 ban_|s per day underthe Act.

h/h_ is proposLngsharp c_rta/_ents Ls _ajw_mWith tiN:cximmuSonof theAct in 2000, MM$ has great latitude in deciding administrativelywh=troyalty relief, if any, to grant in futmc lease saks. Under this authority,MMS is proposing to

.shmply reducethe automatic suspensionvohnnes at all depths, and to completely eliminate themin the 200 to 800 meter range, hs lieu of automatic mmpcnsions,MMS _ to c_pand theseopc of its discretionary rclicf progrmn, allowing any nmrginalpost-2000 lease to apply fordiscretionary _ relief. It justifies this reduction in the _egram on seve_! grounds,including:(a) that the installationof infraslr_tme alreadyin place and ]earningflora pestdevelopmenthave so improvedthe economics of prospectiveprojects that less relief is justified,and (b) Omtm'land gas lmces are now farhigheTthanfizy were m thepast, _ h_e_ _ r_mso. tin.reducing them:ed for such relieg

TI_ prrmLq_.sof these cutl_cks art unfoui_led _'*'_-_NeitheroftlzcscV_emiscsisjustified. For example,movcnx_tsintou]Wadccpwaterswill_-quircnew"pioneering"efforts,andnew somccsof developmentrisk, fromthosefacedin projectstodate. There is no reason to presumetheserisksto be sma]]cxthan those faced to date.Furthermore,while it is true that the establishmentof infrastructureat properties developed to ....date inqnoves the ecmm_cs of new leases in their vicinity, the adequacy of that existinginfiastmctme hinges largely on the size anddistributionof the remaining_m___scoveredresourcebase, which is currently in the process of very significant reassessngnt by both indusu7 andMMS itself. Finally, wldlc it is tTucthat cmr_t prices are at recent highs, it is only two years .since they Wereat historic lows. Price volatili/y is the markof this industry,and there is no basisfor presun_ng that recent price increasesI'e permanent.Moreover, there is no reason for ;_govcmngnt concern that high prices will generatea winoYaHto industrysince both the previous

_- . and Woposcd programsprovide price thresholdsabove whichroyalty suspension does not apply

Amydiscretionary reHcf program willbehem_ discountedMMS offers an expanded discretionaryrefiefprogram as a substitutefor the automatic volmneswhich had been provided by the Act. While industry anticipates improvements in theadrmniswationof the cuncnt system, which has been so cumbenome as to prodece only 7applications and 4 apwovais since 1995, until an acceptable track record is established, thepromiseofdiscretimmy relief will tendtobc heavily discountedby prospectivebidde/s.

Cmbmcks i_ royalty relief arepoorly 6mealDeepwater oil and gas m'ebecoming an increasinglyimportantshare of ore- domestic energyprospects. An industry _mson:d study by Advanced Resomces International indicates thatcontinuationof the system of royalty relief providedby theAct would stimulate development ofan incrementalone nn'Dionbarrelsof oil equivalentperday ofdomestic oll and gas supply withinthc nc_t dccadc. This new supply is dcspcratclyne_kd. It is a poor time to bcgin _educingthcincentives to realizationof thatpotential.

13.1 -i

DOE002-0141

Obtained and made public by the Natural Resources Defense Council, March/April 2002

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DOE Review of Agency Actions Affecting Energy

Statutory Larmuaae- Title I - General Provisions to Enhance Domestic Production

The Energy Potty and ConservationAct (42 U.S.C. 6201 et seq.) is amended as fok)ws:

"All federal agencies shall Include in any proposed major federal actions that couldsignificantly affect energy supplies, distribution, or use, a statement on:

(i) the energy Impact of the proposed action,(ii) any adverse energy effects which cannot be avoided should the proposal be

implemented, and(ill) alternatives to the proposed action.

Prior to taking final action on any such major federal action, the agency shall consultwith, and obtain the concurrence of, the Secretary of Energy. The Department of Energyis clirecta¢l to establish an office within the Department to review agency aclJons forenercjy |mlliacts, and make recommendaUons to the Sectary. The Secretary shallfinaliz e aH Department review decision within a reasonable Ume certain, but in no casemore than 180 days."

Notes

1. The draft language is modeled on NEPALButother models couldbe used; provisionscontemplatingconsultationbetween lead agency and anotheragency appear in CZMA,CAA, etc. Depending on the soughtafter result,wouldan executiveorder be sufrcient_e.g.,old execulJveorder on regulatorytaking)?.

2. One thresholdqt,_'lJon: What kinds of agency actionsare covered? Under NEPA "majorfederal acti_s" embraces agency programmaticdecisions(e.g., DOI 5-year OCS leasingprogram}as well as company specificdecisions(e.g., leases, permits,etc.). Individual

• co_panies are likelyto balk at another linkin the decisionmaking chain for their permitapplicationsand the 5ke, especiallywhere they have market competitors. Industrymorelikelyto embrace a process which creates a hurdle for agency poFcyiniSalivesthat are notenergy-relatedat their core (e.g.. EPA environmentalregulalionsaffecting fuels, facilitysiting). Bottomline:any new legislation coulddefine "major federal action" any way desiredand need not adoptthe NEPA dermiSonas it has been construed so expansivelyby thecouds.

3. Another lhreshold question:How muchauthorityshouldDOE have?As drafted, thelanguage above quietlyrequires DOE conoJnence, in effect givingDOE veto power.Avariationwouldbe to cleete a presumptionof concurrence,rebutfable only if the acti_inifating agencyprovides compelrmgmasons for rejedJngany DOE recommendationsinwhole or inpart. Yet another, even rn_er, vadaSonwouldrequire only that the lead agencyconsultwithDOE withoutrequiring,even presumplively,any DOE recommendations.

4. ArK_herthresholdquestion;How muchdetail shouldbe prescribedin the DOE reviewprocess?For example, should the processincludetime limits(perhaps with a default)?Require forDOE recommendations,whichif satisfiedwouldearn concurrence?Outlinea

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processbywhichtheleadagencydealswithDOErecommendations?Provideforjudicialreview?.

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Deep Water Royalty Relief Should be Extended

The rece_dy _r_d program was = grelt _cessThe Decp_ter Royalty Relief Act of 1995 was exuer_ly successful m promoting _oration inwaterdepths 8reater than 200 meters in the Gulf of Mexico. Annual dccpwat_ oil productionhasHgrcascd fromsolrg 60,000 bftel$ pc[ day to ¢1o_ to 450,000 ban_s perday under theAct.

MMS isproposing sharp c_. eats_ thatprogramWith theexpiration ofthe Act in 2000, MMS has great latitude in deciding administrativelywhatroyalty relief, if any, to grant iR fut_ ie_ sales. U_a this authority,MMS is Woposing tosharplyreduce the automatic suspemion _Imn_ at all dept_ and to ¢_mpletdy eliminate tlgmin the 200 to 800 meter rang_ In lieu ofaetmmtic suspension_ MMS.I_ to expand thescope of its discretionaryt_ief wogrmn, allowing any maxginal poM-2000lease to app]y fordiuxetionary royalty reli¢£ It justifies thi= rcdu_on b the Wognm o_ several grounds,including:.(a) that the installation of infiastnghm: already in place and learning flora past

_eloI_ t ._vc so _ rig ¢cce_'¢s ofwoslg_vc Ixojccts that ]casrdi©fis justified,(b) _ff_atm] and gas Wices are now far higherthan they were in the past, and lik¢_ _ r_mso, furtherreducing theneed for such relief.....

Theprem_ o/these cu_ac_ a_ unfoundedNeitherof thesepremisesisjustified,For example,movementsintoultradecpwaterswill rcquk¢new"piorgering"efforts,andnew somcesof dcvclo_memrisk, fromthosefacedin projectstodate. There is no reasonto prestm_ theserisks to be smaller thanthose faced to date.F_e, wlfile it is true that the establishngntof infrastructureat Wope_es developedtodate imta_ves the economics of new leases in their vicinity, the adequacy of that existinsinfrastructurehinges largely on the size and distribution of the remaining mglismvctrA rcsourccbase, wbich is cunently in the process of very significant rcasses,s_mat by both industry andMMS itself, lrmally, wln'leit is true that maJ_/,t prices are at recent highs, it is only two yearssince they were at historic low=. Price volatility is the markof this induswy, and there is no basisfor prestanmg that _t price hg_tscs are pcnnmumt. Moreover, there is no reason forgoverrmmatconcern that high prices will generate a windfall to industrys/nee both the weviousariaproposedprogramsprovide price thresholds above which royalty suspension does not apply.

Any dl_cret_nary relief program will be lt_m,_ discountedMMS offers an expanded discretionaryrelief programas a substitute for the automatic volumeswhich had been provided by the Act. Wlu_© industry m6cipat_ imwovements in theadn_islration of the cmrent system, which has been so _ as to produce only 7applications and 4 approvals since 1995, until an acceptable track record is established, theprom/scof d/scrctionaryrelief will tendto be heavily d/scounted by prospective bidders.

CutbaeAs in ro_=l_ relief are poorly timedD¢¢p_tcr oil andgasa_ becomingaa inc_:asinglym_portantshareof our domesticenergyprespecm An industry sponsored study by Advanced Resmaces latemafional indicates thatcontinuationof the system of royalty relief provided by the Act would stimulate development ofan in_zc_tal one n,a'_ionbands of oil equivalentper day of domestic oil and gas supply withinthe next decade. This new supply ig desperatelyneeded..It is a poor time to begin reducing theincentivesto realizagon of thatpotential.

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The StrategicPetroleum Reserve(SPR) is the Nation's first line of defense against an

interruptionin petroleumsupplies. It is an emergency supply of crude oil stored in huge

undergroundsalt caverns along the coastline of the Gulf of Mexico.

Decisions to withdrawcrude oil from the SPRduringan energy emergency arc madeby the

President.In the event of an energy emergency,SPR oil would be distn'butedby competitive

sale. Although used for emergencypurposesonly once to date (during OperationDesert Stormin

1991), the SPR's currentsize - nearly565 huron banels - and theU.S. government'sstated

policy to withdrawoil early in apotential supply emergency make the SPRa significant

deterrentto oil importcutoffs and akey tool of foreign policy.

Origias

Theneedfo_ nationaloil storagereservehasbeenrecognizedforat leastfive decades.

Secretaryof_e InteriorHaroldIckesadvocatedthestockpifingof emerg_-cycrudeoll in 1944.PresidentTruman'sMineralsPoScyCommissionproposeda strategicoil supplyin 1952.

President Eisenhower suggested an oil reserveafterthe 1956 Suez Crisis. The CabinetTask

Forceon Oil Impe.qControl recommendeda similarreserve in 1970. The 1973-74 oil embargo

underscoredthe need for a strategicoil reserve. The cutoffofoil flowing into the United States

frommanyArabnations sent economic shoekwaves throughoutthe Nation. In the aftermathof

the oil crises, the United States establishedthe SP1LCongress passed the Energy Policy and

Conservation Act, 42 USC 6201 et seq. (EPCA), in 1975 to attemptto address numerous energy

security'issues. EPCA containeda provisionto create and fill a StrategicPetroleum Reserve

(SPR) "capableof reducingthe impactof severe energy sui_ly disruptions.'"Congress set a goal

to storea 90-day supply of crudeoil (one billion barrelsof crude oil in 1975).

l_esident Ford signed EPCA on December22, 1975. The Gulf of Mexico was a logical choice

foroil storage sites since more than 500 saltdomes areconcentratedalong the coast, and it is the

locationofrnany U.S. refineries anddistn]>utionpoints for tankers,barges andpipelines. In April

1977, the governmentacquiredseveralexistingsalt caverns to serve as the first storage sites.

Conslructionbegan in June 1977, and the firstoil was soon delivered to the SPR.

Current Status

Today,the SPR holds morethan 565 millionbarrelsof crude oil, the Jargestemergency oll

stockpilein the world. Together,the facilities andcrude oil representmore than a $20 billion

national investment.

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Fill was suspendedin FY 1995 to devote budget resources to refurbishing the SPR equipment

andextending the fife of the complex throughat least the firstquarterof the next century. In

1999, fiHwas resumed in ajoint initiafivcbetween the Departments of Energy andthe Inter/orto

supplyroyalty oil fromFederaloffshore tractsto the StrategicPetroleum Reserve.

Proposal

Presidentshave made findln_ that increasing oil imp,ozls can threatenthe Nation's national

security, l_e historyofthe last 30 yearsdemonstratesthat e_ergy price andsupply volatility can

result in significant, de|eteriom economic conditions.

Underthe OuterContinentalShelf Lands Act andthe Mineral Leasing Act_the Secretaryofthe

Interioris authozize¢lto takethe federal govcznmentshareof oil and gas productionextracted

fromfedezai landsas apercentage shareof the commodity produced. Further,those statutes

permit the InteriorSecretaryto transferthe federal government's production share to the

Secretaryof Energy or Defense, as well as to other agencies.

In 1998, duringa period of lethargic crudeoil markets, the Secretaries of Energy and Interior

entered into an agreementfor the federal shareof crudeoil productionto be deposited, directly

or indire_ y, into the StrategicPetroleum Reserve ratherthanbeing sold into the market, with

the proceedsbeing deposited into the U.S. Treasury.

This programagreementsuccessfully added to the volumes stored in the SPR. The programwas

suspendedwhen the Secretaryof Energy found that the federal shareof oil production would be

betterdtilized to be sold into domestic marketsto augment supplies flowing to domestic

refineriesas world suppfies tightened and upwardpri(_evolatility pervaded energy markets.

Language

At theappropriateplace insert the following:

The Secretaryof the Interiorshall enter into an agreementwith the Secretaryof Energyto

transfertitle to the federal shareof crudeoil productionfrom federal lands foruse at the

discretion of the Secretaryof Energy in tiding the Strategic Petroleum Reserve duringperiods of

crudeoil marketstability. The Secretaryof Energymay also use the federal share of crudeoil

producedfrom federal lands for otherdisposal within the Federal Government, ashe may

determine,to.carryout the energy policy of the United States.

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fTransition Policy issue Paper ..

Royalty in Value

Dr_.dption: Underlhe lermseffedeml oil a_dgas leaseagreem_tsand ctm_rdsl_u_es,me fede_gov_nent can take b roya_ share of oi and gas _ "m value" (money)or "m kind"(pmduc,on). When my-a_ is taken in va_Be,thopointof vabetionis the_ _ _ _ _ _ _whereme oi or gas wasproduced.On Mamh15, 2g00, I1_ MM$ rmarR:ednew01 valuationregulaSomwhichbecameeffedivoon Sel)lember1, 2000. The goahiof the flew ndesas arliculatedby MMS w_re.certainty, simK,ci_ _'_I blmess. The find re_ul=_s wen, Immedla/_ ch,_len_ by the oa and gasinduslryin twocaseslied intheD.C. _ Coud. bldustryslrcltg_opposeslhe newrulesone numberof0,o.nUs."., mostimparla_bein0,_att.y _ expanc_obiga.o_onoaanUga_lesse__werenol Pmlof ondare greaterIhanUiekexis.lingle41seebrlgalionswilh IheOovemment.Amongolherthings,1henew_ imposevaluationawayrmm lhe lease,a "dutyto marker, ;,-,;,easedc=ds ofbansp(xtalkm,and¢onlaklolliate resolevaluationissues.In a recentD.C. DislriclCoud case, JudgeRoyr,eLambe_relecaedMMS"_ o'utytomaker.rOummnL_ Idso_; ,h._ _ s_t_,"as explainedabove,thecourtfindstl_t an impEoddutyto market(townslrmml_ _ _is_ _ _tm'msoflhe_leases." Tldedecisioflhambeenappealedbylhe MMStoU_eFederolCkoL_ IflheDisV¢lCoudrulessimiadyin I_ chaleng_ to _'_eoi valuelionrules, the MMSwouMmen_ _nKluir_ b re-wn_e_e ndesto co.Sxm to Judge_'s opinion.RKO_er.lhe oil _ rules emrelevanlto n_ly token inkind(RB0 aslhe bendlnalk formeasuringthe cost/1)eneffiofRIK iniliaUveswl be meastTiedagai_t royallylake, in valueandthus,Ihe.bai-for RIK will_ _ _ _ _ RW

Sbdus: The Senateand HouseheldnumeroushearingsonMMS' proposedoil valuationruleslasty_araridimposeda multi-yearmoratoriumpriorto _ rulesgoingFinalinMarch. TheMMS is intheprocessofimplementingthe new rules arid _ inlefl_ personnel. As a-scussed_bove, Ihe industryhas

Key Issues/Decisions: Shouldthe MMS obtaina legalop'mion5ore the new DOI Solicitorregarcrm9v_luationawayfromthe lease and _ on Ihe dutyto market issue? Should_ _erd

ina reviewof._'Emjes? Should.UleMM_ havefurtherpor_'ydiscussionsregardingdecisionsusingan. indexinomelhodology11oapproximstelease value and the issuanceof valuationdetermkh_fions?ShouldDOI revisitltmissueof comparablesalesandtendering?

_ -- " _ 1 * Obtaina legal_ fromlhenewDOIsolicitorregardingthe Department'spositionon 5hedutyto marketandI_e beslmethodiologtesto obtainvalueat Ihe lease.

• Aftera reviewof Judge_'s _ obtaina legaloplnion_romthe newDOI solicilorregardingoHandgaslranspodationissuesand¢onsk_rwhetherto_e Iheappeal.

• Consider_ lhegas transportationn.4es'onappealto_ FederalCircuitandtheoilv_uaSonrule_beingchalen0edinligI-JoftheD.C. DistrictCourtdecision.

T_ming/Milestones:First100d0ys.

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Royalty in Kind

Descr_ion: Urger _ termsc_ federaloJandgaslease agreementsandcunerdstalutes,thefederalgovernmentcan take ns royanyshareof oa end gas production".1 vakm" (mceey) or "u_(produc6on). In FY2000 federal_ l_oughl5.2 billiondollarsto the U.S. Treasury. Industrystno,_Vsupportsthe_Serdgovenm_ takingitsroya,_ in kinUbecauseofnIK's m/ai_, s_-.prx_y.adminis_ costs savings._ of (nspu/esar_ _ r_ga_n a.d po_m.a_for _ncn.3sedrevenuesIo the U.S. Treasmy.Enabik_ legislationto pe_vide_ federal9ovenwnentIhe atdhor_ andflexJbRyto ftdlyknplementRIKwillincreasethe pr0babiityof successof RIKandresultm_ _ ioew pubr,:asnoted.

Background:Somefederalroyallyhas beentakenin kindbybheSe(;rela_sinceIhe early1920"s. Thepdncipa/RIKixogrm before_S96wasb'_e:_m_lRdner RK OilProgrm. Sincet'mt Ikr,e. meMldShassuccess_lymanagedRIKplot _s forbo_ oi andgas. _ hea_.gs havebeenheldinmeHouseandSenateduringthe lastfouryearsonIhebenefitsof RIK The Stele of Texastes_,_dbeforeb'_eHouse.RIm_=es Comm#leein 1997b'latRIKwasa svccess_ sok,6onto t,e problemsassociatedM'thtakingIhe State's9esroy'_'tkminvalue. AlbertaCanadaalso_'bTmdthatRIK wasa success_wayto rnaneg_lheCrown'sroyaR_s.The stateof Wy_min9 is b,.qldk_on its successfulRIK _ andis "proacUvely_ itsRIK dcd. TheDOIhaspu_uedRIKduringlhelastsixyea_ andhas_ anumberof significantPilotprogramsto ascertain.lhefeas_ily _ofRIK.The agency statesthat # hasachievedsignificantcos!-savin_andrevemm_lml lhroughils RIKPgelprograms.

3tatus: CunenOy,inadd,ionto the SmallReOrderRIKprogram.MMShasfour.mul6-ye_rRIKprograms.;nplace-(1) a Wyomingo_RIKPilol,(2)a _late of Tex_s8(g}gas RIK Pilot, (3) an _ gasPJKPlot.(4) anclan OCS oil RIKPBoLAfuilevakmtionofC_e'Wyomingp_otisexpectedsoon.RIKolhasbeenusedextens_ly to fill the StrategicPetroleumReserveand in b_o pilotprogr_ns, RIK gas has beensuccessfullyusedin federalfaclities.CurrenUy.MMSt_kesover40% of federalroyallyoil inkind.andover15%ofroya_ gasinkk_.

Discussion:.Enablinglegislationis requiredto providethe federalgoven'u'nentthe aulhodtyto fullyimolemeNRIK and to pay for RIK service5such as lransporta_k_and lYocessk_g?RIK shouldbeconsideredparl of.a compll_ns_ire narwhalenergystrategyand a permanenttool for the MineralsManagementSer_ce toUSe_nftdtglingilsmission.

En_:4"mglegislationw_ aJowthedel_sdmenttopayforcostsassociatedwi_ RIKsuchaslranspodalionandpro_s___sing,providecertainlyto1he_l,_____e.theSlatesandb_efederal_)verment. provideforcooperationwilhthestates,andavoid_ problemsthatadsewhenroyaltyistakenInval_.

Legislativeaction:EnactattacheddraftbilldevelopedbySenateEnergyStaffmodifyingtheauthodzin9acts.

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Transition Policy Issue Paper --

poncy ConsidomUons

Description.- Since 19e2,. the M'mrds ManagementService of the Departmentof Inter_r hasUnderg(menumerousstudiesand inlllatlv_ on the agency's_ 8rid organizatk_ In 1992. _eMMSk-_'Ututedsignificardchangesunderthe Vk:e-Pmside_sreinyentlng9ovenvnentinJtiaUves.These

have_ tos_g.ira_changes._ _ _ currenUy=x_ wayaswel assSmincantcapaal_ cq _aUon systems. _ of Congress_ U_ir ov_sightcapadty,rah_ serk_ quesUmsmgard_ _ or0an_sdkx_ms_ _RbUvescomk,_ _ meFY 20011xx_get In_, b'_YqueslbnedwholhorMMSr_xlded_ ixop_ humanresourcesto_s team h_ing 0+e_s RIKprojects. ,Oe_ _ tOn_ the dep_nn_nthavefaSe.withinthe catego_ ofrev.;_ nqiu_dJonsinto"plainEngflsh'. Taken in totat, the inlUaU_s commenced

1992 have andam en_ signn_ ctwnges wi_'VnS_e M_ra_ Mma0emu_ Servr.e of theDepstm_ of Hedor.

Status: Manyiniliai_es am cunen_ underwayandothersare plannedfor Sheimmediatefuture.MMSis cur_nUy.ndemo_oroeniza_j resV.c_rinoandis_Uno anew_ systom.OtherU'a_ngand_ reormnizalkmir,iUaavesare ,rx_rxr_ as wel. Thesechan_,s _n md _knpactoil andgaskssees on Umbunk_ theyimlx_ _ a myriedof waysk,_d_ng _ _¢

re_p_rnenls, es_med_ _ _ _ of oil valuation rules, or ,m,isingexb_ k,ase_rms. _dthereiss_ar_as,_on_r_. - ........

Key IssuesA)ecis_ns:Am the _ structweYreinventin9govemrnentinitiates of IdldSfullyand cost-effectivdymeetingOre goalsof Iknolycol_ of revenues,simplicityand certaintyfor thefederal 9ovemment,f_hestates, bibes and lessees?Has MMS allocatedadequate resourcesform_n_jernerdof theRIKprograms?

OptJOllS:

- No change. This wouldpermit _ time r1___J___-_ryto performa thorou_ reviewof lhe_entM chan9_ thatam occtkrlk_andere plannedwithinthe corerevenuecollectionanddisbursement__ endtheir.impactonpoliciesof theMineralsMer'k1_m_ent_ice.

Timing/Milestones:The m_.ven_nggoverrrnent_in Englishinitiattve_impact the core of all MMS_nilia_ivesandIhereforemuslbe rev_'ed withinthefirst100daysof thenowa(_ninistrotion.

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Page 1 6/10/2001

Executive OrderEnergy Policy

March .._, 2001

Bythe authorityvestedin me as Presidentof theUnited States bythe Constitutionandthe lawsof the United States of America, inorderto helpthe Federal Govemmentcoordinatea nationaleffortto ensurereliableand affordablesuppliesof energyforallAmericans,it is herebyorderedas follows:

Section 1. Policy. It is criticalthat the UnitedStatesdevelopan energy policythatincreasesdomesticproductionof energyin an environmentallyresponsiblemanner,andpromotesdevelopmentof new technologiesthat can conservefossilfuelsand reduceenergy-relatedpollution.Furthermore,giventhe projected25 percent increaseindemandfor motorvehicle fuelsby 2020 inthe UnitedStates, it is critical that the UnitedStates developan energypolicythat expeditesthe expansionof facilities criticaltoproduction,transportation,and manufacturingof oil,naturalgas, and petroleumproducts.

It is imperativethat agenciesconsiderthe energyimplicationsof environmentalandotherregulatoryactionsto avoidunintendedandinordinatecomplicationsin energyproductionand supply. The followingprinciplesshouldguideagency decisionsthatmay affect energymatters:

(a) Energyisa central partof theglobaleconomy inwhichsupplyanddemandare bestsatisfiedthroughfree marketsand private sectorinitiatives.Governmentpoliciesthat minimizeinterferencewith a free-marketsystemwillcontributeto fewer supplydisruptionsand,consequently,willhelpmoderatepricevariability.

(b) U.S. nationalsecurityand economicvitalityare enhancedby diversifyingenergysourcesand increasingdomesticsupplies.

(c) Governmentpoliciesshouldcreatea predictableoperatingand investmentenvironmentforenergysuppliers.

(d) Environmentalconcemsmustbe addressedbutfree-market-basedincentives,ratherthan govemmentalcommandandcontrol,providethebestfoundationforcost-effectivesolutions.

(e) Technologycan help increasesupplies,lowercostsand improveenvironmentalperformanceand energyefficiency,meritingbothprivateinitiativeandgovernmentsupport.

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Obtainedand made public by the Natural ResourcesDefenseCouncil, March/April2002

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Section 2. Consultation with Secretary of Energy Required. All federal agenciesshall includeinany regulatoryactionthat couldsignificantlyand adverselyaffectenergysupplies,distribution,or use, a detailed statementon (i) the energy impactof theproposedaction,(ii)any adverseenergy effectswhichcannotbe avoided shouldtheproposa!be implemented,and(iii) alternativesto the proposedaction. Priorto takingsuchregulatoryaction,the agencyshallconsultwith,and obtainthe concurrenceof, theSecretaryof Energy. The agencies'actions directedby this ExecutiveOrder shallbecarriedoutto the extentpermittedby law.

Section 3. Existing Regulations. To ensurethat all existingrules, regulations,andagencypoliciesare consistentwith the President'sprioritiesand the principlesset forthinthisExecutiveorder, withinapplicablelaw, each agencyshallwithin90 days of thedateof thisExecutiveorder,submitto the Directorof theOffice of Management andBudgeta programunderwhichthe agencywillperiodicallyreview itsexistingrules,regulationsand policiesto determinewhetherany suchrules, regulationsor policiescouldsignificantlyandadverselyaffect enen3ysupplies,distribution,or use andwhether,afterconsultationwiththe Secretary of Energy,any such rule, regulationorpolicyshouldbe modifiedor eliminatedso as to makethe agency's regulatoryprogramingreateralignmentwiththe President'sprioritiesand the principlesset forthinthisExecutiveorder. Any rules,regulationsor policiesselectedforreview shallbe includedintheagency'sannua!plan.The agencyshallalsoidentifyany legislativemandatesthatrequirethe agency to promulgateor continueto imposeregulationsthat the agencybelievesare inconsistentwiththe policiesset forthin thisExecutiveorder.

Sec. 4. Resolution of Conflicts. To the extent permittedbylaw, disagreementsorconflictsbetween the Secretaryof Energyand otheragencyheads that cannotberesolvedbythe Secretaryof Energyand the otheragency head shallbe resolvedby thePresident,or by theVice Presidentactingat the requestof the President,withtheSecretaryof Energyandthe other relevantagency head (and, as appropriate,otherinterestedgovernmentofficials).Vice Presidentialand Presidentialconsiderationofsuch disagreementsmay be initiatedonlyby the Secretary of Energy,the head of theissuingagency, or by the head of an agencythat has a significantinterest intheregulatoryaction at issue.Suchreviewwillnotbe undertakenat the requestof otherpersons,entities,or theiragents.

Section 5. Definitions.

(a) "Agency,"meansany authorityof the UnitedStates that is an "agency"under44 U.S.C. 3502(1).

(b) "Regulation"or "rule"means an agencystatementof general applicabilityandfutureeffect,whichtheagencyintendsto have the forceand effect of law,thatisdesignedto implement,interpret,or prescribelawor policyor to describetheprocedureor practicerequirementsof an agency.

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(c) "Regulatoryaction"means any substantiveaction byan agencythatpromulgatesor is expectedto lead to the promulgationof a rule, regulationorpolicy,including,butnot limitedto, noticesof inquiry,advance noticesofproposedrulemaking,noticesof proposedruiemaking,and guidance documents.

Section 6. Judicial Review. Thisorderdoesnot create any rightor benefit,substantiveorprocedural,enforceableat lawor equityby a partyagainstthe UnitedStates, its agenciesor instrumentalities,its officersor employees,or any otherperson.

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The NaUonal Energy Security Act of 2001Morck6. 2001Page2 of 3

The National Energy Security Act of 2001 recognizes thatnuclearenergy, which supplies 20 percentof U.S. electricity andtwo-thirdsof all the country'semission-free electricity, must be expanded toassureadequategeneratingcapacity. Towardthatgoal, the bill includes nuclear-relatedprovisions inseveral areas:

Studies

II Requires the Nuclear Regulatory Commission (NRC) to reportwithin six months on the stateof thenuclear induslry, the potential for increased electricity generation at nuclear power plants andany im-provements in process for extending the operatinglic_.ses of today's plants or licensing new nuclearplants.

m Requires DOE to reportannuallyon the regional availability andcapacity of domestic energysourcesto maintainthe electric grid. The reportmustreconnnend options for increasingthe use of non-emitting sources, such as nuclearenergy.

• Requires DOE to conduct an independent studyof innovative financingtechniques that would facili-tate cons_ction of new electricity supply tcchnologics with higher initialcapitalcosts, including ad-wm3ceddesign nuclearplants. Financing techniques may include federal loan guarantees, federalpriceguarantees, special tax considerations and direct federal investment.

/ Office of Spent Fuel Research

_,_ • Establishesa DOE Office of Spent Nuclear FuelResearch to investigate innovative technologies fortreatment,recycling and disposal of used nuclearfuel andhigh-level radioactivewaste. Annual re-ports to Congressare required.

Price_AndersonAct Extension

• Extends the Price-Andersonno-fault insurancelaw, which incursno cost to the federal govermnentor taxpayers, for an additional I0 years. The bill adopts the recommendationsof the N-RCand DOEfor ensuringthatimmediate and substantialcompensation is available to the public in the event ofan incident at a commercialnuclear power plantor DOE facility.

Nuclear Production Incentives

• Authorizes the Secretaryof Energy to make incentive payments to increase emission-free elec_cityproduction at nuclearpower plants. The bill authorizespaymentof one-tenth of a cent for each idlo-watt-hour producedin excess of the previous calendaryear, with payments capped at $2 million perplant, per year, forup to 15 years.The bill authorizes$50 million annuallythrough2015.

• Authorizes DOE to pay owners of nuclearplants up to 10 percentof the cost of capital improvementsdirectlyrelated to increasing electrical outputby at least 1percent.No single facility could receivemore than$1 million, or more than a single payment. The bill authorizes$20 million annually for theprogram.

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TheIMs_JonalEnerl_ Secml_ Adtof 2(141

Page2of3

TheNatiomd_ _-cur_yActof2001n:cogmiz_lb'_tnuclc_encr_,whichaq_Iks 20perce_of U.S. electricityandtwo-thirdsof all thecmmbfS e_=_a-_e electricity,must be e0qpandcdtoassmeadequategeneratingcapacity.Towaidthatgoal,thetn'llincludesnuclem'-relatedprovisionsinseveralammm:

m l_qubestl_Nudear_ C=,=,,d=ion(Np.o to_,l.wiu'dn sixmo,-,_l_ontheseaeeoftlJenuclearin(1Losuy,thepotcmhd forincreasedelectricitygenendionatnuclear]powerplantsandanyira-inovementsin processforextendingtheoperatinglicenscsof today'splantsorliccrmingnew nuclearplants.

• l_quir= IX)E to.pint mmml)ym _ _mal avaibb_lityand_acityofdome_ic mt-rgymtm:es- to maintaintheelectricgrid.Thereportmust_ vptio_ for_reasing tl_ u,_ofmm.

emittingsomces,suchas nuclear__,mes__.

m RequiresDOEtoconductan_lepend_ studyofirmovadvcfmamcingtedmiqucsUSatwouldfacu_i-tareconsu-octionof newdec_city supplytcclmologicswithhigherinitialcapitalcosts, includingact.vanccddeign nuclearplants.F'umncmgtechniquesmayincludefederalloanguarantccs,federalpriceguarantees,specialtaxconsiderationsanddirectfcde_l invesUncnt.

omk_orspoutFumhs_m_m EstaMishcsaDOEOffice of SpentNuclearFuelResearchto investigatemnovatiw_eclmolog_csfor

b'eatment,recyclinganddispoemlof usednuclearfuelandhigh-levelradioactivewaste.Annualre-pa_ toC_gr¢_ arcnXl_

144DOE002-0154


,

_ UaUo_ _s_ S_u_ AcI M_01

Page3 of3

DOE Research & Deveiopmedm Audmrizcs:560million mmuallyfor DOE's Nuclear Energy Research Zni_live (NERi), allowing new

Rh.D projec_ _o_e lmmchedmd exisSng irojects to be continu_ The NERI programis =mi_ _long-termP,ND effort dutaddresscs potentialbarriersto expandeduse ofauclear encnrgy,whetheritis economics, polifera6_ or used fuel mmmgma_

m Authorizes510 tam'IlionforDOE's Nuclear F._,ygyPlant CT6mization (NEPO) progrmn.DOE andj,rivateindus_ sharemecostof J_.Daimedatincrmsingwoduct_ atnuclearpower_ _out_mpromislngred'cry.NEFOrcscmchix'ogramsfocusonboostingd_ereliability=ridFroduc_tyof nuclearplants and supp_ efforts to achieve license _ throughmamgcmcnt of the lung-term effects of plantal_g.

• Authorizes$25 million for a new Nuclear Encro Technology Development (NETD) programfora rmdmap to design and deveJopa new nuclc_ pOwe_rplant in theUnited States.

"ira(Codeelmmges• Permits remountspaid for _mq_-my storase of used nucle_ fuel to Ix:h'catcdas a ded-_'Sbleoperat-

ing ¢xpmse, rau_Jcrallanas t capitalized cast.

as Permitsnon-ut_ity owners of nuclearpla_ts to deduct amounts l_id into a nuclear plantdecommis-sior_g fund. Specifically, the bill allows deductions whether the decozmmmoning fundrecoverscosts throughUa_1_nal cost-of-service rates, market-basedrates, cr in transi_on charges duringthechangeoverto = competitiveelectricmark_hce. Tax-free trm_cr ofdecommissioning funds fromregidatcdutility¢ompmicsmnewownasis alsopermitted.

• Allows rapid,seven-year depreciationof new power plants, including nuclearplants, to foster in.yc_'tmentin new cl_ power supply.

ammcat_ o_state cJea=Jarmopmu- • Clarificsthat State lmpkznentafien Plans(SIP) under the Clean AirA_t should rcco_i_ the in-

creased use of ani_free sources ofeleCerkity gez_ationasquali6ed air polluti_n cemtrolmess*m'es. This wouldmakeactivitiestoincreasetheuseofemission-freesources,includ_n_exlmndingproduction at nuclear plmts cr lmildin.gnew ones, eligible for CAA eumomic incentive propmns.Curv:ntly,such hr,entives axeavailable only to activities that prevent and ca_l airendssions.

OwUook

Murkowski lms set a goal of achieving Semte passage of theNES Act of 2001 by tlds smnmer. Theb_]'sbelnccd eppr_chto_ dcct_ci_ _ fimud cnaZ7sourcc_thcckctric_ criminCalifouda, r/sing p_c_s for oil andnatural ga=rmticowide and th=n=Szationof the impact ofldgh energyprices on the U.S. cx_uom_ have czdmnccdthebill's prespec_.

145

DOE002-0155


P. 1,"3

f

i ill i

Date: Monday, April 02, 211111

To: U.S. Department of EnergyJoe KelllherPhone: _6-1060Fax: 202.586-7210

From: The Dubersteln Group, Inc.Henry CandyPhone: 202-728-1100Fax: 202-728-1123

Pages: ___3

Subject: Joe: From GM - please take a look and giveme your thoughts. I have been speaking wit_ Andrewabout thh.and have shared.it with him. Trying toprovide constructive suggestions on CAI_, including adiscussion on alternatives.

J

146

DOE0O2-0156


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DOE002-0158


_

Kelliher

From: Jim Ford [email protected]] _._ ('J_J

Sent: Thursday,March 22, 2001 8:41 AMTo: KeUiher,JosephSubject: RE: Recommendationson NationalEnergyPolicy

We do have more. I'll get back to you with supplementary material as

soon as possible. Curious as to whether any of the other suggestionswe've made - particularly the short-term administrative'measures

recommended in the first e-mail I sent you - have any traction. By the

way, I heard some word yesterday that the NEP development group may haveproduced a draft. Can you sehd any light on that?

..... Original Message .....

From: Kelliher, Joseph [mailto:[email protected]]Sent= Wednesday, March 21, 2001 4=38 PMTo= 'Jim Ford'

Subject: RE= Recommendations on National Energy PolicyImportance: High

Do you have more detail on the CZMA issue? Your description suggeststhat legislation is not needed, and that changing the regulations would

suffice. Is that true? Also, please explain in more detail how the

current regulations relating to consistency impede offshore development,it is not clear what the problem is. Thanks.

..... Original Message .....

From= Jim Ford [[email protected]]Sent= Tuesday, March 20, 2001 2:51PM

To: Kelliher, Joseph

Subject: Recommendations on National Energy PolicyImportance= High

Hi, Joe. As we discussed, attached are a set of papers on nationalenergy

policy recommendations. Much of it is designed to be self-explanatory.The

last document is a suggested executive order to ensure that energy

implications are considered and acted on in rulemakings and otherexecutive

actions. This draft has DOE as the coordinator. Probably also need tomake

energy a major portfolio item for a senior White House aide.

Let me know if you have questions or additional info needs. Thanks.

Jim Ford682-8210

[email protected]

149


f

Kelliher, Jose

From: Rrdh,MichaelJ. [[email protected]]

Friday,March23,20019:43AM l / *'7-')To: Kelliher,Joseph /\ ,jSubject: NSRandEnergyStrategyImportance: High

ANa_.a__m_Sh_..

Good morning.

This is the document I told you was in "the works" on NSR in relation tothe

national energy strategy. As promised, it is attached.

I hope this is helpful. After talking with you yesterday, the lastthing

you need is another issue to deal with. Thanks for your consideration.

Again, I look forward to lunch on Tuesday.

Best regards,

Mike

1

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f

A National EnergyStrategy Should Include Reform of EPA's NewSource Review Program

The Federal Clean AirAct establisheda "New SourceReview" permit6ngprogramfor industrialfacilitiesthat undergo"modifications"as defined inthe Actand bythe EPA couldtriggera processcalled"New SourceReview'. Thispermittingprocessrequiresa detailed reviewbythe EPA of modificationsas Wellas possiblerebofittingof additionalpoflutioncontrolequipmenton the facility. In1980, EPA adoptedrulesto implementthe NSR programand these rules wereamended in 1992 for facilitiesinthe elacfficutilityindustry.

EPA's historical interpretation allowed plants to be maintained an.,_repaired.These rule_J-v¢l_" todcaLinteqxe_vegenerally_bei_tcotlststentwith the intentof the statute,only focusingon changesor modifications thatincreased a facility'smaximumachievableemissionrate and not merely on morehoursof operation. The rulesalso excludedfrom scrutinyroutine repair andreplacement of equipmentand efficiencyimprovementsatfacilities from thedefinitionof what constitutesmodif'mation.In a proposed,but never finar=ed,1996 rule and in recent legalactionsEPA has re-interpretedthese regulationsinextremeways that not onlyplaces in legaljeopardypast work conductedatfacilitiesbut also threatensthe safe, reliableand efficientoperation of energyproductionfaciStiesacrossthe country.

EPA's new in,.terpretatlonmakes m.aintenanceand repair subject to NSR.EPA's re-interpretationof the NSR rulesdiscouragesany repairor replacementproject that mightmake an electricutilitygeneratingunitmore available tooperate - projectsthat improvethe safety, efficiencyor reliabilityof the unit.These are the typesof projectsthat are necessaryfor utilitiesto operate theirunitsin a manner consistentwiththeirduty to providea refiablesupplyofelectricityto theircustomersandto assuresafe operationsfor their employees.;"rojects,like these, that onlyallowunitsto operate more hourshave never beenconsideredprojectsthat _gger NSR modificationrequirementsunless they alsoincrease the designcapacityof the unit to emit pollutants(i.e., increase themaximum achievableemissionrate). EPA's new interpretationbdngsintoquestionany projectthat could enable a unitto operate more hours in the futurethan it had in the past.

EPA'snew interpretation defines "routine" very narrow..l¥:EPA's modificationrequirementsalsodo not applyto repairor replacementactivitiesthat are "routine"in the utilityindusl_j. In the final daysof the ClintonAdministration,EPA publishedin the Federal Registera noticeannouncingaRegionV NSR applicabgitydetermination,affirmedbyAdministratorBrowner,involvinga turbinerepairproject at DetroitEdison'sMonroe Power plant. In thatdetermination,EPA establisheda 24 factor test that couldrender virtuallyany

151DOE002-0161


f:.°

project that improvedemciency orreliabilityat an existingerecldcutilityboiler' "nonroutine"and thereforepotentiallysubjectto NSR permittingrequirements.

This determinationcreates a serious regulatoryimpedimentto utilitiesundertakingthe type of projectsthat providethe only shod-termhope ofexpandingexistinggeneratingcapacity(i.e., efficiencyimprovements)and ofmaintainingthe ava_abilityof e_dstinggeneration(i.e., reliabilityimprovementprojects}. The UtilityAirRegulatoryGroup(UARG) has rded a "protective"petitionto reviewthatdecisioninthe D.C. Circuit.

EPA's new Interpretation threatens electricity reliability and efficiency.EPA's currentinterpretationof the NSR rulesare counterto the need for theimportant safe, retable and efrctent operationof electricuBity generatingunitsacross the nation. Esped'ailyin the energyshortWesternU.S., the abilitytomaintain and operate generationcouldbe compromisedbyEPA's currentpositio_ s " , -" : "-ter_uncuand repair of eiectric ulJJityplants suchhas been performedin the industryover the last seventy-f'n_eyears isnot lawful underEPA's currentinterprelation.

A National Enerav' S.trateuy should reaffirm EPA's historical interpretation__A NationalEnergyStrategythat is focused on increasingsupplyshouldfindwaysto resolve the inconsistencybetween the Strategy'sgoals and EPA's currentNSR interpretation.This couldbe accomplishedby EPA's confirmationof the,_stodcal approachto the NSR modificationrequirementswhichwould excludefrom NSR review projectsfloatare routinerepairandreplacement and allowutilitiesandother industriesto moveronsardwith needed projectsso longas theprojectsdo not increasethe maximumachievableemissionrate of a unit. ThisreaffirmalJonof historicalinterpretationswouldinsurethe reliable supplyofelectricenergyandwouldnot negativelyimpactair quality.

152DOE002-0162


f

Kelliher

From: StephenSayle[[email protected]] _Sent: Thursday,March22,20014:58PMTO: Kelliher,JosephSubje_. tomr.commissioner

,r the

\

I will follow up with a short statement on above tomorrow. Call me withquestions

I


f

,,K,e!!iher,Joseph

From: Stephen Sa)te [ssa:y_ckdkoGn)up.com]S_¢ Fdday, March 23, 2001 1&18 AMTo: Kellihe¢, Joseph

Subject: might not have lime to mad. May be useful background

Political

The threshold question is whether a multipo]lutant strategy wou2ddetract or

enhance a National Energy strategy. I will not go into the downsides,hut

they revolve around attention that any pollutant plan would garner andLake

away from core energy issues. But let me give you at least some reasonsto

include such language.

.-- I-- t_--will ue a lot o_ taik about how increaslng generationwill result in increased emtissions. If some action is not taken oncontrolling em/ssions-that will become a negative, at least t_ some.

Secondly, if Bush is serious about pushing a utility omissions plan, itwill

have a whole lot greater chance to pass as part of the Energy bill asopposed to being a stand-alone bill.

Depending on how the pollutant plan is written, it will gain supportfrom

some in industry if it provides regulatory certainty. In addition, ifNSR

is reformed/eliminated for new and old generators, we believe it wouldactually spur new generation, by removing economic incentives thatencourage

capital to remaln in very old coal generation.

Discussion

Remember that the purpose of most pollutant plans is to reduce em/ssions

from so-called grandfathered plants. That is the multi-pollutant (NSRreform-emissions reductions etc) only applies to these old plants. Tounderstand why, you ueed a refresher course on how the Clean Air Acttrea ts

old and new sources. Recognizing that it was econom/cally impossible to

treat old and new sources the same; The CAA set up a two-tiered system.Old

sources would have to install the Best Rchievable Control Technology(_);

new sources a much more strlngent Lowest Achievable Emissions Rate(LAER).

The caveat was if old sources made major modifications to thelrfacilities,

they too would fall under NSR and LAER. The thought was that in thenear

future major modifications would be made and all these old facilitieswould

soon be cleaned up.

But that didn't happen. Facilities had economic incentive not to makemajor

modifications, and did just enough maintenance to keep these plants openbut

not enough to trigger NSR. They thought. Last year, EPA started takingmany of the_e utilities to court saying that the changes they made were

I

]54

DOEO02-0164


fact major moc_fications and that they should have to retrofit with LAER ""technology.

So the system is totally screwed. Oid facilities are not cleaning up,so

EPA is going after them through the courts on a case-by-case basis,which is

very inefficient. Meanwhile, LAER is so restrictive that there may neverbe

a new coal powered plant built in our lifetime, and it's difficult (although it is happening} even to get gas-flred generators permitted.

Our idea was, we would start to clean up old plants, and loosen somewhatLRER standards on new plants. This will make it easier for all newgeneration, coal and gas to come on board.

Because enviro's wouldn't like the fact that "ccerend and control" NSRis

gone, we will trade it off with a declining emissions cap. And so thatold

generatlon wlll not have to /_aediately adopt expensive new techr_IQgyw_

w_ll set up a tracting program with circuit breakers to make sure itdoesn 't

get to expensive. Thls' would give them the option to decide when tostop

buying credits and put on new pol/lution control technology and providesome

encouragement for capital to migrate to new generation.

Finally, we wanted to reward efficiency, so allocations would be madeyear-to-year based on output.

Obviously, this is a dream list. Not all wlll be done. But perhaps_ome of

these ideas co,lid be floated and adopted. This is my work, and may notcover other questions you have so feel free to shoot away.

2

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DOE002.0165


13.1 -i - PBS · f DOE Review of Agency Actions Affecting Energy Statutory Larmuaae- Title I -...

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