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Energy Bill Raises Fears About Pollution, Fraud
Critics Point to Perks for Industry

By Michael Grunwald and Juliet Eilperin
Washington Post Staff Writers
Saturday, July 30, 2005

Last month's Supreme Court decision expanding the power of local governments to seize private homes sparked a bipartisan backlash in Congress. The House overwhelmingly passed a resolution declaring "grave disapproval," and some of Capitol Hill's staunchest liberals and conservatives agreed to push for stricter limits on eminent-domain powers.

But that rarely seen consensus on property rights quickly melted away in the fine print of the energy bill that Congress passed yesterday. The bill gave the federal government new eminent-domain powers to clear paths for power lines -- a long-standing demand of the nation's electric utilities. The utilities said they were being thwarted by not-in-my-back-yard opposition, so the politicians came to their rescue.

The provision was just one example of how the energy bill, touted as a way to reduce dependence on foreign oil or moderate gasoline prices, has been turned into a piƱata of perks for energy industries.

"Every industry gets their own little program," said Myron Ebell of the free-market Competitive Enterprise Institute. "There's pork in there for everybody."

The bill exempts oil and gas industries from some clean-water laws, streamlines permits for oil wells and power lines on public lands, and helps the hydropower industry appeal environmental restrictions. One obscure provision would repeal a Depression-era law that has prevented consolidation of public utilities, potentially transforming the nation's electricity markets.

It also includes an estimated $85 billion worth of subsidies and tax breaks for most forms of energy -- including oil and gas, "clean coal," ethanol, electricity, and solar and wind power. The nuclear industry got subsidies for research, waste reprocessing, construction, operation and even decommission. The petroleum industry got new incentives to drill in the Gulf of Mexico -- as if $60-a-barrel oil wasn't enough of an incentive. The already-subsidized ethanol industry got a federal mandate that will nearly double its output by 2012 -- as well as new subsidies to develop ethanol from other sources.

The final bill dropped most of the controversial amendments that blocked passage of earlier versions, including authorizing oil drilling in the Arctic National Wildlife Refuge, relieving the petroleum industry of liability for the gasoline additive known as MBTE and exempting some communities from clean-air standards. Eco-friendly measures to tighten fuel-efficiency standards for automobiles and take a stand against global warming were deleted as well. What's left, said Rep. Edward J. Markey (D-Mass.), is "a smorgasbord."

For example, it exempts oil and gas companies from Safe Drinking Water Act requirements when they inject fluids -- including some carcinogens -- into the earth at high pressure, a process known as hydraulic fracturing. Betty Anthony, director for exploration and production at the American Petroleum Institute, said states already regulate the process, but residents of Alabama, Virginia, West Virginia and other states have complained that it has polluted groundwater in their communities.

Meanwhile, the measure will streamline Bureau of Land Management drilling permits -- even though the Bush administration already has granted a record number of permits on BLM land. Lawmakers also authorized seismic blasting in sensitive marine areas to gauge offshore oil reserves -- despite a moratorium on drilling in many of those areas. And the bill will exempt petroleum well pads from storm-water regulations under the Clean Water Act. Anthony said the provision makes sense because the wells are already exempt, but critics question why the oil and gas industry, which has seen record profits in recent months, should be exempt from any aspect of environmental law.

"This bill will allow America's most profitable companies to pollute our water supplies," said David Alberswerth of the Wilderness Society. "They're the kings of Capitol Hill."

House Majority Leader Tom DeLay (R-Tex.) also managed to insert at least $500 million in subsidies over a 10-year period -- with the option to double the amount -- for research into deep-water oil and gas drilling, a grant that many lawmakers expect to go to the Texas Energy Center in DeLay's home town of Sugar Land. The bill also includes royalty relief for deep-water drilling projects, a strategy that helped jump-start production in the Gulf during the 1990s.

"If you don't provide the relief, nothing will happen," said John Felmy, the American Petroleum Institute's chief economist. "The start-up costs are just too massive."

The bill's most far-reaching provision may be the repeal of the Public Utility Holding Company Act of 1935, which has blocked the owners of utilities from owning other companies and has prevented mergers in the electricity industry. Utility officials and other proponents of repeal say it will attract capital, helping utilities build transmission lines and generating plants that will prevent blackouts.

Consumer advocates warn that the repeal will trigger a flurry of mergers and acquisitions by banks, oil firms and even foreign countries, leading to increased rates and Enron-style frauds. Supporters point out that the electricity industry will still be regulated by a slew of state and federal agencies. But both sides agree the obscure provision will transform the industry, thrusting as much as $1 trillion in utility assets into the global marketplace.

"This will be one of the biggest economic changes in the country in 70 years," said Lynn Hargis of the liberal consumer group Public Citizen.

The bill's biggest winner was probably the nuclear industry, which received billions of dollars in subsidies and tax breaks covering almost every facet of operations. There were subsidies for research into new reactor designs, "fusion energy," small-particle accelerators and reprocessing nuclear waste, which would reverse current U.S. policy. Rep. Ralph Hall (R-Tex.) even inserted a $250,000 provision for research into using radiation to refine oil.

The bill also included $2 billion for "risk insurance" in case new nuclear plants run into construction and licensing delays. And nuclear utilities will be eligible for taxpayer-backed loan guarantees of as much as 80 percent the cost of their plants.

There has not been a new U.S. nuclear plant in decades, but the industry's supporters say that jump-starting construction will help reduce greenhouse-gas emissions. John Kane of the Nuclear Energy Institute said the federal subsidies for his industry are "simply an effort to get over that first hurdle."

The bill passed the Senate, 74 to 26. All Maryland and Virginia senators voted for the bill yesterday, except Paul S. Sarbanes (D-Md.). In the House on Thursday, the majority of area representatives approved the bill, which passed 275 to 156 . Voting against it were Reps. Roscoe G. Bartlett (R-Md.), Benjamin L. Cardin (D-Md.), Elijah E. Cummings (D-Md.), James P. Moran Jr. (D-Va.) and Chris Van Hollen (D-Md.).

During the debate over the bill's numerous subsidies, taxpayer groups questioned why thriving energy companies need federal aid to produce energy. But the bill's defenders say it is not realistic to expect newer and cleaner technologies to succeed their own. "They need a jump-start," said Tom Kuhn, president of the Edison Electric Institute.

Sometimes, they need more than one push. In the 1990s, then-Sen. Frank H. Murkowski (R-Alaska) helped persuade Congress to spend $117 million on an "clean coal" plant in Healy, Alaska, but the factory was quickly mothballed. A potential buyer recently declared it "fatally flawed by faulty design and unproven experimental technology." Now Murkowski's daughter, Sen. Lisa Murkowski (R-Alaska), has helped secure an additional $80 million in loan guarantees to convert the "clean coal" plant into something that works.

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