Democrats May Resurrect Ousted GOP Rep's Energy Plan

WASHINGTON Jan 10, 2007 (Dow Jones Newswires)

The November elections left former House Resources Committee Chairman Richard Pombo, R-Calif., without a seat in the U.S. Congress. But one of his important bills - a plan to fix flawed 1998 and 1999 oil drilling leases - might live on.

House Democratic lawmakers might resurrect the ousted Republican's plan in the new 110th Congress, leaving some Democrats, or at least their aides, baffled.

Democratic leaders this month plan to quickly pass a priority energy bill that would repeal oil subsidies and set up a fund for renewable energy. The yet-to-be-released proposal is part of the Democrats' plan to address a variety of campaign issues during the first 100 hours of the new legislative session.

And Democratic leaders might include in that energy bill some variation of Pombo's plan for a "conservation of resources" fee - even though two top Democrats, Reps. Edward Markey, D-Mass., and Maurice Hinchey, D-N.Y., have a competing plan on oil royalties.

Asked earlier this week why Democratic leaders are considering the Pombo plan, Hinchey spokesman Jeff Lieberson replied: "That's a good question. I really don't know."

The conservation fee as envisioned by Pombo and other GOP lawmakers would be imposed on energy companies that drill in the Gulf of Mexico's deep waters but forgo paying royalties to the federal government in times of high energy prices.

Lawmakers in both parties have argued that oil firms need to pay their fair share to drill in federal lands offshore. And Democrats have made clear they want the bill to fix the error that allows oil companies drilling in federal waters to escape paying royalties.

The energy bill is "done," according to a spokesman for House Speaker Nancy Pelosi, D-Calif., but won't be unveiled until Friday. It will be considered on the House floor next week.

Although the spokesman wouldn't release details about the bill, another Democratic aide predicted that the bill would include both the Pombo and Markey-Hinchey proposals to give lease holders a menu of options from which to choose. The thinking is that Democratic lawmakers from states like Texas where several major oil firms are based will be more likely to support the energy bill if that kind of hybrid provision is included, the aide said.

The Markey-Hinchey proposal would bar oil companies that don't renegotiate their flawed drilling contracts from winning new drilling leases in the Gulf of Mexico. The proposal enjoys bipartisan backing and won enough support to be added to Pombo's offshore drilling bill, although the broader bill failed to advance.

Still, a former aide to Pombo suggested that Republicans and possibly Democrats would find the Pombo proposal more palatable than the Markey-Hinchey proposal. "I think Republicans would support it and so would a good percentage of common-sense Democrats because it does solve the problem in the most equitable way possible," said Brian Kennedy, who now works in House Republican Leader John Boehner's press office.

$9 Per Barrel

Congress, through the Deep water Royalty Relief Act, made way for oil companies drilling in the more risky, costly areas of the Gulf of Mexico to escape royalty payments. But that program drew strong criticism last year when news reports highlighted that even in the midst of soaring oil and gasoline prices, several large energy firms were avoiding royalty payments.

The Department of Interior said the problem stemmed from dozens of flawed 1998 and 1999 drilling contracts that failed to include price triggers.

Under the conservation fee proposal Pombo introduced last year, oil companies that drill in the Gulf of Mexico and don't pay royalties when oil prices exceed $40.50 per barrel would suffer a $9 per barrel fee on production that occurs under the flawed leases.

The provision was included in a broader bill to open new areas to offshore drilling. However, that bill failed to advance last year and was dealt a serious death blow when Pombo, the chief sponsor of the legislation, failed to win re-election. Environmentalists, who argue that Pombo has worked to gut the Endangered Species Act and criticize his efforts to open Alaska's Arctic National Wildlife Refuge to drilling, campaigned against the lawmaker and helped put him at a disadvantage.

'Equally Unfavorable'

Boehner spokesman Kennedy said it makes sense to consider the Pombo plan. Alternatives such as the Markey-Hinchey plan, "could cost the taxpayers court fees and breach of contract cases" if oil companies were to legally challenge the legislation.

Although oil companies argue that the Markey-Hinchey proposal goes against the laws of contract sanctity, Lieberson of Hinchey's office disagreed.

"I think we've made a clear case that sanctity of contract is not an issue," he said.

Meanwhile, the oil industry stands strongly opposed to both proposals.

"We see them as equally unfavorable," said Erik Milito, a senior attorney for oil industry lobbying group American Petroleum Institute. Under both proposals, existing leases would be changed by subsequent law, he said.

Copyright (c) 2007 Dow Jones & Company, Inc.

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