Pombo Alters Revenue Sharing at Last Minute to Sway Votes

E&E Daily

Sponsors of offshore drilling legislation made several key changes last night in an attempt to gain votes today on the House floor, reducing the amount of federal production revenues steered toward coastal states and scrapping plans to cut royalties on shallow water oil and gas production.

Undeterred, several Florida members will seek greater coastal protections when the House debates the "Deep Ocean Energy Resources Act of 2006" today. They will offer an amendment to block leasing 125 miles from their shores.

Taking the lead role in revising the bill at the 11th hour was House Resources Committee Chairman Richard Pombo (R-Calif.), who offered a so-called manager's amendment yesterday that he said would bring down the 10-year cost of the measure. The version the Resources Committee approved last week would have cost $11 billion over 10 years, according to a Congressional Budget Office estimate published this week. Pombo said a CBO estimate of his amendment would bring the bill's costs to $3.6 billion over 10 years, but it is not clear if that claim reflects every change to the bill made yesterday.

The bill's costs have been a major flash point for debate. A preliminary Minerals Management Service cost estimate of the version that cleared the Resources Committee last week pegged the cost at $69 billion over 15 years. The bill's costs stem mostly from establishing a system under which production revenues in federal waters -- which almost all go to the federal government -- would be shared with states where offshore leasing occurs.

The new version of the bill seeks to trim the costs by altering the complex revenue-sharing plan. Among the multiple changes: the managers amendment would substantially change a provision that shares receipts from leases in federal waters within 12 miles of state shores.

While the bill that cleared committee requires the federal government share 75 percent of revenues from these leases with states, the manager's amendment would delay this sharing for current leases in areas where production is already allowed. It would instead begin at 25 percent and remain at that level until 2010, when it would begin increasing at 5 percent each year to reach 50 percent. It can then go higher, but cannot exceed 75 percent under the intricate formula.

It also limits the overall percentage of production revenues shared from tracts beyond 12 miles in already-leased areas. The phased-in revenue share peaks at 42.5 percent under the manager's amendment, down from 50 percent in the original bill.

House fiscal conservatives do not appear to have problems with the measure. Rep. Jeff Flake (R-Ariz.), an active fiscal conservative, yesterday said members of the Republican Study Committee are not opposing the bill over the revenue-sharing issue. But others say it takes far too much money from federal coffers for the benefit of only four states where offshore production is currently allowed -- Louisiana, Mississippi, Alabama and Texas.

The bill also shares money with states where new offshore leasing could occur under the weakened drilling bans. Pombo has argued in response to criticism by suggesting that leasing in new areas -- even if the revenue is shared with the states -- would help offset the other costs of the measure.

The bill also steers several billion dollars into new educational, alternative energy and other programs, such as training for petroleum and mining engineers.

The base legislation is designed to increase domestic oil and gas production by scrapping long-standing coastal oil and gas drilling bans. It lifts all leasing bans beyond 100 miles from state shores. Between 50 and 100 miles, leasing is also allowed unless states seek to block it. And all leasing would be permanently banned within 50 miles of state shores unless states opt-out of the restrictions. Current bans essentially cover both coasts, much of the eastern Gulf of Mexico and part of Alaska.

Potential royalty cuts jettisoned

Sponsors also removed a one-sentence provision in the bill that would have required the Interior Department to set a uniform royalty rate for all new OCS leases. Currently, production in shallow waters -- 400 meters or less -- is subject to a higher royalty rate than deep water production.

The intent of the measure was that Interior would apply the lower rate uniformly to spur greater activity in shallow Gulf of Mexico areas, where production has been declining (Greenwire, June 23). CBO said this week the provision would have reduced royalty collections by $500 million over the first 10 years, assuming Interior applied the lower rate.

Rep. Ed Markey (D-Mass.) called the provision a "$500 million giveaway to big oil." He was set to offer an amendment to remove it, rendered unnecessary when Pombo took it out of the bill yesterday.

'Price threshold' plan altered

The bill also seeks to collect payments from Gulf of Mexico deepwater producers that hold 1998 and 1999 leases. These leases allow royalty waivers yet lack "price thresholds" that end the subsidy when prices reach certain limits.

The bill authorizes the Interior Department to renegotiate the leases with producers to allow thresholds. It allows price thresholds for these leases in 2006 dollars of $40.50 per barrel of oil and $6.75 per million British thermal units of natural gas.

But until yesterday, the bill would have allowed industry to negotiate to have these new price thresholds apply to all deepwater leases issued between 1996 and 2000 -- not just the flawed 1998 and 1999 contracts. That is significant because these thresholds are, in fact, higher than the thresholds in the current contracts from 1997, 1997 and 2000.

CBO had estimated that most companies would renegotiate to allow the new thresholds, thereby reducing royalty collections by $1.2 billion over 10 years. The managers amendment allows only the flawed 1998 and 1999 leases to have these thresholds.

Across the Hill, several senators are today expected to introduce royalty relief amendments to the fiscal 2007 Interior Department spending bill, sources said. More details were not available at press time. The full Senate Appropriations Committee is scheduled to mark up the bill today.

Florida seeks greater protections

The House Rules Committee, meantime, agreed to allow debate today on an amendment by Rep. Michael Bilirakis (R) to block leasing within 125 miles of state coasts unless the state seeks leasing. Six other Florida members were listed on the Rules Committee Web site as backing the amendment.

Florida GOP members have been split on whether to back Pombo's plan, with Democrats opposing it.

The altered bill contains other measures to attract support from Florida lawmakers. It now places into law a prohibition on leasing east of the so-called military mission line in the Gulf of Mexico. Some Florida lawmakers have expressed concern that drilling east of the line, which is roughly 235 miles from Tampa Bay, could affect military training.

The Rules Committee late last night also listed the amendments that would be ruled in order, and thereby subject to debate today. Markey will be able to offer an amendment that strikes the entire bill beyond the fixes to the royalty relief program. Also to be offered is an amendment by Rep. Jay Inslee (D-Wash.) that provides $20 million per year in 2007-2011 for grants for renewable energy from ocean waves, currents and thermal resources, well above what the original bill provided.

The Rules Committee also allowed an amendment to be offered by Rep. Tom Davis (R-Va.) which authorizes $150 million of OCS receipts each year between 2007 and 2016 to fund capital and preventive maintenance projects for the Washington Metropolitan Area Transit Authority.

Greenhouse gases, 'peak oil' ruled out of order

Some amendments were not accepted by the committee. Rep. Tom Udall (D-N.M.) sought to offer a plan that creates a cap-and-trade program for greenhouse gas emissions, but that request was rejected.

Udall and Rep. Roscoe Bartlett (R-Md.) also wanted to attach a "Sense of Congress" resolution calling for quick action to address "peak oil" through faster development of renewable fuels and other steps.

Rep. Sherwood Boehlert (R-N.Y.) told the committee that they should not report a rule at all, alleging the bill was undergoing changes too late to allow proper review.

"Members have not had a chance to read pretty significant legislation," Boehlert said. "This is not the way to legislate."

Boehlert spoke in the process of seeking Rules Committee permission to offer a floor amendment to increase vehicle fuel efficiency standards, but the measure was not ruled in order.

Copyright 2006 E&E Daily. All Rights Reserved. Visit E&E Publishing for a free trial.