Washington Energy Update

January 21, 2013, saw the United States inaugurate its 44th President and only the 21st President elected to a second term. President Barack Obama’s relatively brief swearing in speech, however, sent Washington into a tailspin given his unexpected, but renewed, emphasis on taking steps to address climate change. The White House has afterwards clarified that despite the President’s climate change reference, the Administration does not anticipate sending up legislative text to Congress for its consideration nor does it believe legislation of this nature will pass in the 113th Congress. The White House has, instead, emphasized its efforts to address the threat of climate change through administrative regulation. There is speculation in Washington that mention of climate change action is a give to the environmental community who could be disappointed if the President decides to approve the Keystone Pipeline.

Meanwhile, despite the imminent March 1, 2013, sequester deadline and the not long ago negotiated fiscal cliff deal, many in Washington believe that Congress is likely to ignore this important date and instead focus on the expiration of the FY 2013 Continuing Resolution (CR; PL 112-175), which has been funding the government since October 1, 2012. If the sequester were to take place, overall spending would be cut by $85 billion with the exact reductions determined by the Office of Management and Budget once the sequester is triggered. The current CR is set to expire on March 27, 2013. The reasons for the focus on the CR vs. sequester expiration are: 1) the 2012 end of year negotiations resulted in $24 billion less in automatic sequester cuts than originally intended as part of the Budget Control Act of 2011 (PL 112-125); and 2) the CR will provide for new opportunities to address cuts in government spending. Washington insiders continue to suggest that a new CR or series of CR’s will fund the government until the end of the fiscal year.

Questions Remain Regarding Energy Bill Prospects in the 113th Congress

Even though it has been more than five years since the enactment of omnibus energy legislation and there is new leadership of the Senate Energy and Natural Resources (ENR) Committee, it remains unclear whether any significant energy legislation will reach the President’s desk during the next two years. At this juncture, whether Senator Ron Wyden (D-OR), Chair of ENR, which has jurisdiction over the Department of Energy and various energy programs, will move legislation is very much an open question. Importantly, Senator Lisa Murkowski (R-AK), the senior ENR Republican, is set to release her long awaited, all-encompassing energy plan this upcoming week. Her initiative, which is anticipated to focus on energy “production, efficiency, transmission and vehicles,” could propel Chairman Wyden to describe his energy bill direction more concretely. It should also be noted that Murkowski’s energy marker is her perspective alone, and may not necessarily guarantee buy-in from her GOP colleagues.

Congress Likely to Review the Biofuels Mandate Amid Stakeholder Pressure

Regardless of whether Congress considers an all encompassing energy plan, one aspect likely to see consideration is the biofuels mandate. First enacted in the Energy Policy Act of 2005 (PL 109-58) and later modified in the Energy Independence and Security Act of 2007 (EISA; PL 110-140), the Renewable Fuel Standard (RFS) remains a contentious topic among impacted stakeholders. At this juncture, and given the time that has passed since EISA’s enactment, Congress believes it is appropriate to examine the RFS’s impacts. To that end, the leadership of the House Energy and Commerce Committee, which has fuels jurisdiction in the House, has indicated that it will begin an examination of the RFS, with hearings focused on E15 and blend wall impacts likely to begin during or after the second quarter of the year. While legislation to repeal the RFS is unlikely to advance given the political dynamics surrounding the mandate, the House Energy and Commerce Committee’s interest in the subject suggests that RFS reform legislation could see movement on the House side during this Congress. On the Senate side, it remains unclear whether Senator Barbara Boxer (D-CA), Chair of the Environment and Public Works Committee, which has traditional fuels jurisdiction, will undertake a review similar to that of her House counterparts. It is also possible that the Senate Energy and Natural Resources Committee could undertake a more general overview of the biofuels program. Senator Wyden, ENR Chair, has in the past expressed concerns with the existing RFS and is more supportive of a low carbon fuel standard as a potential replacement to the RFS.

In other fuels related news, the U.S. Court of Appeals for the DC Circuit (Court) last Friday vacated the Environmental Protection Agency’s (EPA) 2012 cellulosic ethanol mandate. EPA’s 8.65 million gallon projection for 2012 was much lower than the EISA mandate requirement, but one that the Court viewed as lacking a “neutral” assessment. Under EISA, refiners are required to blend cellulosic ethanol into their gasoline or purchase waiver credits from the Agency if they are unable to blend the alternative fuel. Up until late last year, cellulosic fuel was commercially unavailable, and what little became available was exported to Brazil. In a victory for the biofuels sector, the Court also rejected petitioner’s argument and upheld the broader 2012 advanced biofuels standard.

With Key Splits, Liquefied Natural Gas (LNG) Exports a Forefront Issue This Congress

The export of natural gas is likely to remain a contentious issue during the 113th Congress. Democratic and Republican Senate ENR leadership, for example, remain at odds regarding natural gas exports. Senator Wyden has indicated a need to take a more precautionary approach and scrutinize the effect of potentially limiting natural gas exports in order to preserve domestic supplies. He was most recently, in a January 10, 2013, letter to Department of Energy (DOE) Secretary Chu, critical of the macroeconomic study commissioned by DOE, which found that exports of LNG would have a positive net effect on the US economy, claiming that the report relies on out-of-date information. His Republican counterpart, Alaska native Lisa Murkowski, on the other hand, as recently as late last week, submitted a letter to Secretary Chu expressing support for the findings of the DOE-commissioned study and claiming that the “public interest” would be advanced by the exports. By law, DOE could limit or prevent LNG export approval to countries with which the US does not have a free trade agreement, such as Japan, unless the “public interest” threshold is met.

Other policy makers, and impacted stakeholders, have also recently weighed in on the debate. Close to 110 U.S. House Members signed a letter addressed to Secretary Chu in support of LNG exports. The Marcellus Shale Coalition, which represents more than 300 companies that are part of the natural gas supply chain, also sent Chu a letter echoing sentiments similar to Senator Murkowski’s. Alternatively, critics of unrestricted natural gas exports who are concerned about domestic economic impacts have organized, including a new coalition, America’s Energy Advantage, which is composed of various chemical companies who use natural gas as their feedstock, and other organizations.

For more information regarding this Washington Energy Update, please contact Rick Boucher (202.736.8290, rboucher@sidley.com), Roger Martella (202.736.8097, rmartella@sidley.com), Sean Moran (213.896.6057, sean.moran@sidley.com), or Catherine Karen (202.736.8368, ckaren@sidley.com).

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