Order Code IB10143
CRS Issue Brief for Congress
Received through the CRS Web
Energy Policy: Comprehensive
Energy Legislation (H.R. 6)
in the 109th Congress
Updated May 31, 2005
Robert L. Bamberger
Resources, Science, and Industry Division
Carl E. Behrens
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

---

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
109th Congress
Ethanol and MTBE
Arctic National Wildlife Refuge (ANWR)
Electricity Restructuring
Fuel Economy
Renewable Energy and Fuels
Energy Efficiency and Conservation
Energy Tax Policy
The President’s Hydrogen Fuel Initiative
Nuclear Energy
LEGISLATION

---

IB10143
05-31-05
Energy Policy: Comprehensive Energy Legislation (H.R. 6)
in the 109th Congress
SUMMARY
The Senate Committee on Energy and
Language in the House-passed bill would
Natural Resources reported comprehensive
authorize opening of the Arctic National
energy legislation on May 26, 2005. The
Wildlife Refuge (ANWR) to exploration and
committee agreed to some electricity pro-
development. An amendment to delete the
visions, including language that would repeal
ANWR provisions from H.R. 6 was defeated
the Public Utility Holdings Company Act
(200-231). Previously, on March 17, the
(PUHCA), but provide for oversight of acqui-
Senate approved a budget resolution assuming
sitions in the utility sector. The Energy Policy
$2.5 billion of revenue over the next five years
Act of 2005 (H.R. 6) passed in the House
from leases in ANWR. An amendment to
would repeal PUHCA, but does not include
remove the ANWR language from the resolu-
oversight provisions. While the House-passed
tion had been rejected the previous day (49-
bill would require refiners to use 5 billion
51). The House version of the budget resolu-
gallons of biofuel by 2012, the Senate-
tion had not included ANWR. However, on
reported bill calls for 8 billion gallons. An
April 28, the House and Senate approved a
amendment in the Senate committee to permit
final budget resolution with reconciliation
states to opt out of federal moratoria on new
instructions requiring that the Senate Commit-
offshore drilling was withdrawn. However, a
tee on Energy and Natural Resources and
provision to require an inventory of oil and
House Committee on Resources find $2.4
natural gas resources on the Outer Continental
billion in savings through FY2010, implicitly
Shelf (OCS) was adopted. The House-passed
calling for authorization of opening ANWR.
bill also makes no changes to the moratoria,
No ANWR provision appears in the bill re-
but does not call for a resource study. The
ported in the Senate.
draft of the Senate bill as it went into markup
is posted, with amendments, on the commit-
The Senate Finance Committee will mark
tee’s website at [http://energy.senate.gov/
up energy tax provisions in June. The Admin-
public/index.cfm?FuseAction=IssueItems.
istration’s FY2006 budget request calls for a
View&IssueItem_ID=3]. The text of the bill,
limit of $6.7 billion in energy tax credits. The
as reported, may be available soon.
tax incentive provisions of the House-passed
H.R. 6 have an estimated cost of $8.1 billion.
The House passed H.R. 6, the Energy
The Senate tax provisions are expected by
Policy Act of 2005, on April 21, 2005 (249-
some to include more incentives for conserva-
183). The bill includes a “safe harbor” provi-
tion and renewables than the House bill, and
sion to protect methyl tertiary-butyl ether
to exceed the level in the House bill.
(MTBE) refiners from product liability suits.
A close vote on an amendment to drop the
Provisions to permit FERC to decide on
language failed (213-219). However, opposi-
the siting of liquefied natural gas terminals are
tion to this provision in the Senate played a
opposed by some policymakers as an override
significant role in the defeat of the conference
of states’ rights. It is a controversial issue. An
bill in the 108th Congress. The bill reported
amendment to eliminate these provisions from
from the Senate committee does not include a
H.R. 6 had insufficient support (194-237). The
safe-harbor provision.
provisions in the Senate-reported bill are
milder.
Congressional Research Service ˜ The Library of Congress

---

IB10143
05-31-05
MOST RECENT DEVELOPMENTS
The Senate Committee on Energy and Natural Resources reported comprehensive
energy legislation on May 26, 2005. The committee agreed to some electricity provisions,
including language that would repeal the Public Utility Holdings Company Act (PUHCA),
but provide for oversight of acquisitions in the utility sector. The Energy Policy Act of 2005
(H.R. 6) passed in the House would repeal PUHCA, but does not include oversight
provisions. While the House-passed bill would require refiners to use 5 billion gallons of
biofuel by 2012, the Senate-reported bill calls for 8 billion gallons. An amendment in the
Senate committee to permit states to opt out of federal moratoria on new offshore drilling
was withdrawn. However, a provision to require an inventory of oil and natural gas resources
on the Outer Continental Shelf (OCS) was adopted. The House-passed bill also makes no
changes to the moratoria, but does not call for a resource study. The draft of the Senate bill
as it went into markup is posted, with amendments, on the committee’s website at
[http://energy.senate.gov/public/index.cfm?FuseAction=IssueItems.View&IssueItem_ID=3].
The text of the bill, as reported, may be available soon.
The House passed H.R. 6, the Energy Policy Act of 2005, on April 21, 2005 (249-183).
The legislation includes a “safe harbor” provision to protect methyl tertiary-butyl ether
(MTBE) refiners from product liability suits, which was retained after a close vote on an
amendment to drop the language (213-219). In the 108th Congress, there was opposition to
this provision in the Senate. It is unclear how its inclusion may affect Senate passage of an
energy bill in the 109th Congress. House Republicans have indicated that a compromise will
be sought to satisfy the other body. Language in the House-passed bill would also authorize
opening of the Arctic National Wildlife Refuge (ANWR) to exploration and development.
An amendment to delete the ANWR provisions from H.R. 6 was defeated (200-231). On
April 28, the House and Senate approved a final budget resolution with reconciliation
instructions requiring that the Senate Committee on Energy and Natural Resources and
House Committee on Resources find $2.4 billion in savings through FY2010, implicitly
calling for authorization of exploration and development in ANWR. The bill reported from
the Senate Committee on Energy and Natural Resources does not include any ANWR
provisions.
BACKGROUND AND ANALYSIS
(Note: The House has designated the Energy Policy Act of 2005 in the 109th Congress
as H.R. 6, the same number as the energy bill considered in the 108th Congress. References
in the introduction and elsewhere to H.R. 6 in the 108th Congress are designated by [108]
following the bill number.)
Since the time of the Arab oil embargo in 1973-1974, the United States and other major
energy consumers have achieved greater efficiencies in energy use in all sectors of the
economy.1 However, national and world energy demand continues to grow, and domestic
1 For a more thorough review of energy policy since the mid-1970s and a broader framework for the
current debate, see CRS Report RL31720, Energy Policy: Historical Overview, Conceptual
(continued...)
CRS-1

---

IB10143
05-31-05
oil production in the United States continues to decline as the more accessible resources of
crude from U.S. fields in Alaska and elsewhere have been tapped. As a consequence, the gap
between U.S. production and consumption has had to be covered by increased oil imports.
These imports, roughly 6 million barrels per day (mbd) daily after the Arab oil embargo, now
exceed 10 million mbd to satisfy U.S. oil consumption of nearly 21 mbd.2
As with any commodity, the price of crude oil and petroleum-based products can be
volatile. In the last few years, a number of factors have contributed to sharp increases in the
price of oil. Demand for petroleum by developing nations and the Far East had put pressure
on current world production and refining capacity. Attacks upon Iraqi pipelines supplying
oil to world markets, and a general uncertainty about stability in the Middle East, have also
contributed to nervousness in world oil markets. Inventories of crude and some petroleum
product inventories were already below year-earlier levels, and were continuing to decline
or hold steady, raising the specter of home heating oil shortages if winter 2004-2005 proved
to be a cold one. A major factor contributing to high prices was Hurricane Ivan, which
rampaged through the Gulf Coast in mid-September, and temporarily shut down more than
70% of U.S. offshore crude production, affecting crude oil deliveries to refineries. Inventory
levels of crude oil and petroleum products declined.
Some of the decline in domestic production has been partially offset by growing
production from “deep water” fields in the Gulf of Mexico that now exceeds 900,000 barrels
daily, or roughly 60% of all production from the Gulf. Deep water production is projected
to reach 2.25 million barrels daily by 2010. The Minerals Management Service of the
Department of the Interior has estimated potential deep water reserves of 56 billion barrels.3
By mid-March 2005, crude prices exceeded $50/barrel and, for the most part, have
remained at that level or higher into the latter part of April. Prices have not met or exceeded
in real terms historic highs for oil prices. While energy policy touches on many problems
other than fossil fuel supply and demand, the price of oil — gasoline and home heating oil
in particular — is often the lever that spurs policymakers to discuss national energy policy
and to seek legislative initiatives to increase the supply of conventional fuels, promote the
development and use of alternative and renewable fuels, push for improvements in efficiency
of energy consumption, assure greater reliability in the electric utility sector, and review
existing and possible new incentives in the tax system to promote change in how the nation
uses energy. Not surprisingly, national energy policy received significant attention during
the 108th Congress.
Comprehensive energy legislation was reported from conference in the 108th Congress
in November 2003 and approved by the House shortly thereafter, but was not approved by
the Senate. Discussion of breaking out less controversial provisions was resisted by the
House and Senate leadership. They argued that the bill that had been crafted was a careful
balance of competing visions; breakup would leave more controversial provisions without
1 (...continued)
Framework, and Continuing Issues.
2 U.S. Department of Energy, Energy Information Administration, at [http://www.eia.doe.gov/pub/
oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/tableh1.pdf].
3 [http://www.gomr.mms.gov/homepg/offshore/deepwtr.html].
CRS-2

---

IB10143
05-31-05
leverage for compromise. The main exception was that some energy tax incentives were
extended or adopted in the Working Families Tax Relief Act of 2004 (P.L. 108-311) and the
American Jobs Creation Act of 2004 (P.L. 108-357).
Major concerns in the Senate were the cost of H.R. 6 [108] — estimated at around $31
billion over 10 years — and a provision insisted upon by the House that would have
protected producers of methyl tertiary-butyl ether (MTBE) and renewable fuels from liability
for personal injury, property damage, and cleanup. Early in the second session of the 108th
Congress, a comprehensive bill (S. 2095) with a cost of roughly $14 billion was introduced
in the Senate, but did not reach the floor. Another controversial issue has been establishment
of a renewable portfolio standard (RPS) that would require utilities to use more renewable
fuel sources to generate electricity. Language to open up the Arctic National Wildlife Refuge
(ANWR) to oil and gas development was not included in H.R. 6 [108].
Similar language is in the Energy Policy Act of 2005, passed by the House on April 21,
2005. At his confirmation hearing on January 19, 2005, before the Senate Committee on
Energy and Natural Resources, Energy Secretary Samuel Bodman indicated that he would
press for passage of an energy bill that would include provisions to open ANWR to leasing
and development. The FY2006 budget transmitted to Congress by the Bush Administration
supports opening ANWR to exploration and development. The budget projects bonus bid
revenues at $2.4 billion, half of which would accrue to the federal government and the
balance to Alaska. On March 9, 2005, the Senate Budget Committee issued a budget
resolution that assumes $2.5 billion of revenue over five years from leases in ANWR, and
would allocate $2.0 billion in mandatory spending to comprehensive energy legislation and
$4.5 billion for energy tax incentives. On March 16 the Senate rejected an amendment by
Senator Cantwell to strike the ANWR provisions, by a vote of 49-51. The next day the
Senate passed the budget resolution (S.Con.Res. 18). The House version of the budget
resolution (H.Con.Res. 95) passed on March 17 did not include ANWR provisions, but they
are a part of the Energy Policy Act of 2005 passed by the House on April 21, 2005. On April
28, the House and Senate approved a final budget resolution with reconciliation instructions
requiring that the Senate Committee on Energy and Natural Resources and House Committee
on Resources find $2.4 billion in savings through FY2010, implicitly calling for
authorization of exploration and development in ANWR.
Little in the conference version of H.R. 6 [108] would have addressed price and supply
issues in the near term — largely because there are very few policy options to address price
volatility. Many policymakers have characterized the Energy Policy Act of 2005 passed by
the House on April 21, 2005, similarly. In public remarks during the latter part of April 2005,
the President acknowledged that the bill would not affect energy prices in the near-term.
However, to the extent that production and refining capacity exists, high prices can
encourage additional supply. The Low Income Home Energy Assistance Program (LIHEAP)
can provide financial support to households overwhelmed by high prices. In the event of a
price increase caused by a shortfall in physical supply of crude or home heating oil, the
Strategic Petroleum Reserve (SPR) and the Northeast Heating Oil Reserve (NHOR) might
be tapped.
It is difficult to achieve widespread consensus on national energy policy. Constructing
a balanced energy policy that will not undermine other competing and equally legitimate
CRS-3

---

IB10143
05-31-05
policy goals is a complex undertaking. There is controversy about the impacts of energy
development on the environment, and policymakers have different positions about the extent
to which tradeoffs should be risked. Because of the regional diversity of the United States,
some policy options are not perceived to serve all regions of the nation advantageously.
These considerations help to explain why the time-consuming crafting of a comprehensive
bill in the 108th Congress was perceived to represent a fragile balance between competing
interests.
The fashioning of comprehensive energy legislation is also made more difficult by the
very price volatility that renews interest in national energy policy. A review of the course
of energy prices since the time of the Arab oil embargo and first oil price shock in 1973
reveals that it is a more proximate characterization to see this 30-year period as one of
general price and supply stability that is periodically broken by shorter episodes of supply
disruption and price volatility. It is not so much that energy policy has failed to be responsive
to crises; rather, during lengthy periods of stability and declining prices for conventional
fuels, it has proven difficult to sustain certain policy courses that might help shield the nation
from the occasional episodes of instability.
109th Congress. On April 13, 2005, several House committees finished markup of
their respective portions of comprehensive energy legislation — the House Committee on
Energy and Commerce, the Committee on Resources, and the Committee on Ways and
Means. For the most part, attempts by the minority to significantly amend the language of
the committee bills were unsuccessful. Debate on the Energy Policy Act of 2005 (H.R. 6)
began April 20, 2005, and the legislation was passed (249-183) the following day. Some of
the major features of H.R. 6 are discussed below. Overall, the Energy Policy Act of 2005 as
passed by the House and the comprehensive legislation reported from conference in the 108th
Congress, but not enacted, are very similar. Important differences are the ANWR language,
fewer energy tax incentives, and inclusion of a refinery revitalization program that was
passed by the House (H.R. 4517) during the 108th Congress, but not by the Senate.
One of the major issues has been the cost of legislation providing energy tax credits.
The bill that went to conference in the 108th Congress (but was not enacted) included more
than $30 billion in tax credits. Some energy tax incentives were subsequently extended or
adopted in the Working Families Tax Relief Act of 2004 (P.L. 108-311) and the American
Jobs Creation Act of 2004 (P.L. 108-357). The Administration’s FY2006 budget request
calls for a limit of $6.7 billion in energy tax credits. The estimated cost of the provisions in
H.R. 6 is $8.1 billion over 11 years. The Senate Finance Committee will mark up energy tax
provisions in June. The Senate tax provisions are expected by some to include more
incentives for conservation and renewables than the House bill, and to exceed the level in the
House bill.

The legislation reported from the House Committee on Resources (and now a part of
H.R. 6) would open the Arctic National Wildlife Refuge (ANWR) to exploration and
development. An amendment on the floor of the House to delete ANWR from H.R. 6 was
also defeated (200-231). The legislation includes a “safe harbor” provision to protect methyl
tertiary-butyl ether (MTBE) refiners from product liability suits, which was narrowly retained
after a close vote on an amendment that reached the floor to drop the language (213-219).
In the 108th Congress, this provision was included in the bill that was reported from
conference. However, there was opposition to this provision in the Senate and it had a
CRS-4

---

IB10143
05-31-05
significant role in the defeat of the conference bill at the end of the first session of the 108th
Congress. It is unclear how its inclusion may affect Senate passage of an energy bill in the
109th Congress. House Republicans indicated that a compromise will be sought to satisfy the
other body.

On February 10, 2005, the House Science Committee reported H.R. 610, which includes
less controversial research and development provisions that were part of comprehensive
legislation debated in the 108th Congress. That legislation, approved by voice vote, would
authorize roughly $44.1 billion over five years for research of deep sea drilling, clean coal
technology, nuclear energy, fusion technology, and high-performance computers. The bill
also would authorize funding to improve energy efficiency of vehicles and buildings. These
provisions are also a part of H.R. 6.
Overall, the Energy Policy Act of 2005 as passed by the House and the comprehensive
legislation reported from conference in the 108th Congress are very similar. Important
differences are the ANWR language, fewer energy tax incentives, and inclusion of a refinery
revitalization program that was passed by the House (H.R. 4517) during the 108th Congress,
but not by the Senate. An amendment to drop the refinery program was defeated (182-248).
Provisions that permit the Federal Energy Regulatory Commission to decide on the siting of
liquefied natural gas terminals are opposed by some policymakers as an override of states’
rights. An amendment to eliminate these provisions from H.R. 6 had insufficient support
(194-237).
In an address on energy policy on April 27, 2005, President Bush, proposed that new
refineries be built on the site of closed military facilities, and that federal tax credits on the
purchase of hybrid vehicles be extended to vehicles burning clean diesel fuel. The President
offered the services of the Administration to assist in helping to reconcile controversial
issues that might be standing in the way of enacting legislation.
The Senate Committee on Energy and Natural Resources reported comprehensive
energy legislation on May 26, 2005, which has not yet been introduced. The committee
agreed to some electricity provisions, including language that would repeal the Public Utility
Holdings Company Act (PUHCA), but provide for oversight of acquisitions in the utility
sector. The Energy Policy Act of 2005 (H.R. 6) passed in the House would repeal PUHCA,
but does not include oversight provisions. While the House-passed bill would require refiners
to use 5 billion gallons of biofuel by 2012, the Senate-reported bill calls for 8 billion gallons.
An amendment in the Senate committee to permit states to opt out of federal moratoria on
new offshore drilling was withdrawn. However, a provision to require an inventory of oil and
natural gas resources on the Outer Continental Shelf (OCS) was adopted. The House-passed
bill also makes no changes to the moratoria, but does not call for a resource study. The draft
of the Senate bill as it went into markup is posted, with amendments, on the committee’s
website at [http://energy.senate.gov/public/index.cfm?FuseAction=IssueItems.View&Issue
Item_ID=3]. The text of the bill, as reported, may be available soon.


A general summary follows of issues that have gained attention in the energy policy
debate, with a summary of some of the major proposals included in the energy bill passed
by the House. Background about the debate in the 108th Congress is included where helpful.

CRS-5

---

IB10143
05-31-05
Ethanol and MTBE. Of the many issues left unresolved in attempts to pass a
comprehensive energy bill in the 108th Congress, a primary stumbling block was the effort
to promote ethanol as an automobile fuel, and the related problem involving the gasoline fuel
additive MTBE. The provision, referred to as the “safe harbor” provision, would provide
protection from product liability lawsuits for producers of MTBE and renewable fuels.
The roots of the controversy lie in the Clean Air Act Amendments of 1990, which
mandated that “reformulated” gasoline required in some localities to improve air quality
contain 2% oxygen. This requirement could be met by adding ethanol to gasoline, but it
could also be achieved by adding a substance called methyl tertiary butyl ether (MTBE),
which had been produced in small quantities for many years as an octane enhancer. Because
MTBE was cheaper than ethanol and was easier to mix and transport, many refiners began
using it to meet the new standards.
However, as its use spread, it became apparent that MTBE tended to escape easily from
its fuel carriers and storage tanks, and contaminate water supplies, imparting a taste and odor
that was unpalatable even in small quantities. This development led to moves to restrict and
prohibit the use of MTBE. It also led a number of communities to sue refiners for the cost
of decontaminating their water supplies. At the same time, evidence began to accumulate
that oxygenating gasoline was not necessary to achieve the air quality benefits of
reformulated gasoline. (For additional information, see CRS Report RS21676, The
Safe-Harbor Provision for Methyl Tertiary Butyl Ether (MTBE), by Aaron Flynn, and CRS
Report RL32865, Renewable Fuels and MTBE: A Comparison of Selected Legislative
Initiatives, by Brent D. Yacobucci, Mary E. Tiemann, and James E. McCarthy.)
The omnibus energy bills in the 108th Congress addressed this changing situation by
repealing the oxygenation requirement in the Clean Air Act, but adding a new mandate that
gasoline have an increasing amount of renewable fuel, presumably ethanol. Consumption
of ethanol in gasoline in 2002 was 2.1 billion gallons. Under the renewable fuel standard in
H.R. 6, the amount required to be consumed would be 3.1 billion gallons in 2005 and 5.0
billion gallons by 2012. This would still be a small proportion of the total amount of
gasoline consumed, which was close to 150 billion gallons in 2004, but was expected to
stimulate the ethanol industry and the agricultural sector that supplies it. It was opposed by
oil industry interests, who complained of the mandated increase in consumption of ethanol,
which receives a substantial tax credit. Some suggested that it would raise prices locally,
despite the subsidy.
The measure was in the original House version of H.R. 6 [108], and remained in the
conference bill, where it was a major factor in the failure of the Senate cloture motion. It was
dropped from S. 2095 in an attempt to get the bill through the Senate, but on the House side
supporters of MTBE producers declared opposition to any bill that did not contain a safe
harbor provision.
In the 109th Congress, H.R. 6, as reported by the House Committee on Energy and
Commerce on April 13, 2005, retained the safe harbor provision, and also the ethanol
mandate; an amendment to remove the safe harbor provision was defeated in committee.
When H.R. 6 reached the floor of the House, opponents raised a point of order on the safe
harbor provision. The motion was defeated by a six-vote margin. In the Senate, the bill
voted out by the Energy and Natural Resources Committee May 26 does not contain the safe
CRS-6

---

IB10143
05-31-05
harbor provision. It also increased the renewable fuels/ethanol mandate from 5 billion
gallons by 2012, in the House bill, to 8 billion gallons by 2012.

Arctic National Wildlife Refuge (ANWR). Domestic oil production continues to
fall. Some argue that the nation should be seizing the opportunity to develop the oil and
natural gas resources that remain untapped. The potential Alaskan resources are high on this
list, with estimates of technically recoverable resources there ranging from a 95% probability
of 4.3 billion barrels to a 5% probability of 11.8 billion barrels. However, some argue that
drilling for oil in ANWR will have unacceptable environmental consequences on wildlife
and vegetation, and that the land should be left undisturbed.
The legislation passed by the House during the 108th Congress would have opened up
ANWR, but the Senate bill did not. Once it became apparent that there were insufficient
votes in the Senate to pass an energy bill with ANWR provisions, the managers decided to
leave ANWR out of the final conference bill.
The FY2006 budget transmitted to Congress by the Administration supports opening
ANWR to exploration and development. The budget projects bonus bid revenues at $2.4
billion, half of which would accrue to the federal government and the balance to Alaska. On
March 9, 2005, the Senate Budget Committee issued a budget resolution that assumes $2.5
billion of revenue over five years from leases in ANWR, and would allocate $2.0 billion in
mandatory spending to comprehensive energy legislation and $4.5 billion for energy tax
incentives. On March 16 the Senate rejected an amendment by Senator Cantwell to strike
the ANWR provisions, by a vote of 49-51. The next day the Senate passed the budget
resolution (S.Con.Res. 18).
The House version of the budget resolution (H.Con.Res. 95) passed on March 17 did
not include the ANWR provisions; however, the final version of the resolution passed by
both Houses on April 28, 2005, instructs the Senate Committee on Energy and Natural
Resources and the House Committee on Resources to find $2.4 billion in savings through
FY2010. Reconciliation legislation is not subject to Senate filibuster. Consequently, the
comprehensive energy bill reported from the Senate Committee on Energy and Natural
Resources does not include language authorizing exploration and development of ANWR
as does the Energy Policy Act of 2005 (H.R. 6) passed by the House on April 21, 2005. An
amendment to strip the language from the House bill during the House debate was defeated
(200-231).
(For additional information, see CRS Issue Brief IB10136, The Arctic National Wildlife
Refuge: Controversies for the 109th Congress, by Lynne Corn.)
Electricity Restructuring. Since the early 1990s, the electric utility industry has
experienced a major transformation. Formerly the nationwide electricity system consisted
of vertically integrated utilities with defined service areas, which they were responsible for
supplying with power to meet demand. The rates they charged were set for the most part by
state utility commissions, as were some other activities. Most power generating capacity was
owned by the utilities themselves, as were transmission lines and power distribution systems.
Utility commissions determined rates based not only on the cost of power but also on the
need to fund additional plants to meet future power demand.
CRS-7

---

IB10143
05-31-05
Starting in the 1980s, a number of unregulated entities began producing power for sale
to utilities at wholesale, and in 1992 the Energy Policy Act (EPACT, P.L. 102-486) removed
some of the regulatory barriers to such unregulated electricity generation. At present many
regulated utilities have sold their generating capacity and become essentially transmission
and distribution entities, and an increasing share of generating capacity across the nation is
owned and operated by companies not regulated as utilities. Many states have joined in
Regional Transmission Organizations (RTOs) to distribute independently produced power
to local utilities, but the details of these systems vary widely. The principle behind the
restructuring has been that power produced by a competitive market of independent
generators should be cheaper than that produced by a regulated monopoly.
Most state restructuring plans have not immediately met initial expectations, and many
have faced serious problems. In California in particular, a combination of several factors,
including demonstrated manipulation of the market by some independent power producers,
resulted temporarily in power shortages and extremely high prices to some consumers. The
California experience slowed down the process of restructuring in many other states, and also
raised barriers to an effort in the Congress to produce a uniform national restructuring
system. A massive power failure in much of the Northeast in 2003 added demands for
improving the reliability of power transmission systems between regions. As a result of
these various developments, the electricity provisions of major energy policy bills have been
a source of major controversy. The main issue is not whether utility restructuring should take
place; it is the federal role in guiding a restructuring process that is already taking place.
The major legislative issues in electricity restructuring are:
! enforceable standards for transmission system operation and reliability;
! repeal of Public Utilities Holding Company Act (PUHCA), which utilities
say they need in order to operate in the new competitive market, but which
critics fear will threaten consumer interests;
! the role of the Federal Energy Regulatory Commission (FERC) in setting
rules for marketing independent power production; and
! access to utility-owned transmission lines by independent producers.
Measures to improve the reliability of the transmission grid have gathered wide support,
and all the major energy legislation contained reliability provisions. However, as the broad
energy legislation foundered in the 108th Congress, a split developed between those who
wanted to push a stand-alone reliability bill and those who insisted on keeping it in the
comprehensive bill.
PUHCA was enacted in the 1930s to keep speculation in utility stocks and finances
from affecting the utility’s ability to provide power to its service area. Utilities are under
regulation from the Securities and Exchange Commission (SEC) and can invest in non-utility
activities only if SEC finds that it will improve efficiency and service to utility customers.
Advocates of PUHCA repeal argue that the statute is outdated and burdensome to utilities
in the new competitive environment, and point to the abuses that led to the bankruptcy of
Enron. The company had declared itself exempt from PUHCA regulation, and its self-
declaration was not challenged until after the abuses were discovered, when an SEC
administrative judge denied it. (For details, see [http://www.sec.gov/spotlight/enron.htm#
enron_exempt].) Because these events occurred with PUHCA still on the books, repeal
CRS-8

---

IB10143
05-31-05
advocates contend that the statute is ineffective. But PUHCA repeal still has many
opponents, who point out that utilities are still responsible for distributing power to
customers, and their ability to do so could be adversely affected by unregulated and
unsupervised activities and investments.
Until the restructuring and rise of unregulated power generators, FERC had the rather
minor role in the power industry of regulating wholesale interstate transfers of power.
Restructuring has thrust FERC into a much more important role of regulating the distribution
of power from generators, some of them out of state, to utilities. FERC’s activities during
and following the California crisis have been highly controversial. In addition, FERC has
proposed a rulemaking on “standard market design” (SMD) to create wholesale power
markets that would allow sellers to transact easily across transmission grid boundaries
(FERC Notice of Proposed Rulemaking, Docket No. RM01-12-000, 18 C.F.R. Part 35, July
31, 2002). This proposal has also raised concerns in some states that have resisted or delayed
restructuring.
These issues were dealt with differently in the various bills considered in the 108th
Congress. All the major bills contained some reliability measures, but issues of consumer
protection, of market design and the role of FERC, and numerous other questions remained
unresolved. All the major bills in the last Congress repealed PUHCA, as does the version
of H.R. 6 in the 109th Congress passed by the House. However, in the bill introduced for
markup by the Senate Energy Committee, the PUHCA repeal provision was not included.
Chairman Domenici said in opening remarks to a markup session May 19th that he supported
PUHCA repeal but that he had not yet reached agreement with Senator Bingaman on
language regarding mergers of utilities.4 The bill approved by the committee May 26 did
include an agreement on the issue: It would repeal PUHCA and replace it with new FERC
authority over utility mergers.
The electricity provisions in the House-passed H.R. 6 are essentially those contained
in the electricity title as approved by the conference committee on H.R. 6 in the 108th
Congress. Amendments to make major changes in this title of the bill were rejected during
markup by the House Energy and Commerce Committee. One feature of that title, Sec. 1242
in the Committee Print, providing for “participant funding” of transmission projects, raised
opposition from a number of interested parties as being inflexible and potentially inequitable,
and was dropped in markup. (For additional information, see CRS Report RL32925, Electric
Utility Provisions in House-Passed H.R. 6, 109th Congress, by Amy Abel.)
Fuel Economy. Gasoline and diesel fuel consumption account for roughly 50% of
U.S. total petroleum consumption. Many argue that higher requirements for new vehicle fuel
economy could go far in reducing automobile fuel consumption or holding consumption
levels steady in future years. One of the first initiatives designed to have a significant effect
on vehicle fuel demand was passage of corporate average fuel economy standards (CAFE)
in the Energy Policy and Conservation Act of 1975 (EPCA, P.L. 94-163). Under the
standards, the average fuel economy of all vehicles of a given class that a manufacturer sells
in a model year must be equal to, or greater than the standard. In the years since enactment,
4 U.S. Senate. Committee on Energy and Natural Resources. Chairman Domenici’s Opening
Remarks. May 19, 2005.
CRS-9

---

IB10143
05-31-05
there have been periodic calls for stiffening or broadening the applicability of CAFE
standards — especially as consumer demand has turned more to light-duty trucks and sport
utility vehicles (SUVs), for which CAFE standards are set at a lower level than for passenger
automobiles. The standard for passenger automobiles is 27.5 miles per gallon (mpg).
The 107th Congress lifted a prohibition on expenditure of appropriated funds by the
National Highway Traffic Safety Administration (NHTSA) to undertake CAFE rulemakings.
The lifting of the prohibition on NHTSA was a significant development, restoring the ability
of NHTSA to perform analysis and rulemaking as it had until the rider was first imposed for
FY1996. On April 1, 2003, NHTSA issued a final rule to boost the CAFE of light-duty
trucks by 1.5 mpg by 2007. The rule sets the interim standards at 21.0 mpg for model year
(MY) 2005, 21.6 mpg for MY2006, and 22.2 for MY2007, and is the first increase in CAFE
since MY1996.
A study by the National Commission on Energy Policy released in early December 2004
recommended that Congress instruct NHTSA to raise the standards to take advantage of
current technologies that have been used to enable vehicles to have more size and power
without reductions to baseline fuel economy.5
The Energy Policy Act of 2005 passed by the House on April 21, 2005, includes
provisions strongly similar to language that appeared in the omnibus energy legislation
reported from conference during the 108th Congress. The legislation would authorize $2
million annually during FY2006-FY2010 for the National Highway Traffic Safety
Administration (NHTSA) to carry out fuel economy rulemakings. It also would expand the
criteria that the agency takes into account in setting maximum feasible fuel economy for cars
and light trucks. The new criteria require NHTSA to consider occupant safety and
automotive industry employment in its determination of the maximum feasible fuel economy.
All but one of the CAFE amendments offered during the House debate on H.R. 6 were
defeated. The latter included an amendment to raise the CAFE standard for passenger
automobiles to 33 miles over ten years (177-254). Another concern about the CAFE program
has been that consumers have noted that in-use fuel economy rarely meets rated fuel
economy, despite an adjustment that is made to the fuel economy ratings that appear on
stickers posted to new cars. An amendment directing the Environmental Protection Agency
(EPA) to weigh additional factors in this adjustment was approved (346-85).
Interest has continued in studying whether the CAFE standards and program should be
restructured. Among the issues have been the definitions and regulations for passenger cars
and light duty trucks. Critics argue that the current system encourages manufacturers to
nudge larger passenger vehicles into the light truck category and penalizes manufacturers
who serve the market for the heavier vehicles in the light truck category. One bill introduced
in the House (H.R. 705) would require that standards gradually apply to vehicles up to
10,000 pounds gross vehicle weight (GVW). Basing CAFE on vehicle attributes was offered
as another policy option. NHTSA has the latitude to make changes in the CAFE program,
5 National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to
Meet America’s Energy Challenges, December 2004. See [http://www.energycommission.org/
ewebeditpro/items/O82F4682.pdf].
CRS-10

---

IB10143
05-31-05
and one report at the end of March 2005 indicated that NHTSA was close to issuing a
rulemaking making changes to the structure of the CAFE program. An amendment on the
floor that would have required a reduction in U.S. oil demand by 1 million barrels below
projected demand in 2013 was defeated (166-262). Though similar language was added to
the Senate version of the energy legislation in the 108th Congress, and while it would have
extended latitude to the President to use any means to achieve the goal, critics argued that
it would compel an increase in CAFE standards.
However, the provision has been added to the comprehensive bill approved by the
Senate Committee on Energy and Natural Resources, with a target year of 2015 to achieve
the one million barrels per day savings. The bill reported from the Senate Committee on
Energy and Natural Resources includes language only to provide NHTSA with $2 million
annually to conduct CAFE activities during each of FY2006-FY2010. (For additional
information, see CRS Issue Brief IB90122, Automobile and Light Truck Fuel Economy: The
CAFE Standards, by Robert Bamberger.)
Renewable Energy and Fuels. Policymakers have debated for a number of years
the role that renewable fuels might play in displacing U.S. oil consumption. Skeptics have
argued that the production of some renewable fuels will consume more energy than will be
produced. However, others argue that the nation needs to develop alternative fuels and that
the economics and energy intensity of producing these fuels will become competitive once
a market for renewables can be established.
As noted above (see “Ethanol and MTBE”), a major feature of the energy bills of the
108th Congress was a requirement that an increasing amount of gasoline contain renewable
fuels such as ethanol. An amendment to H.R. 6 agreed to on the floor of the House would
authorize $300 million annually during MY2006-MY2015 to encourage production of
advanced diesel and hybrid vehicles and to provide consumer incentives for their purchase.
The program would be subject to appropriated funds. Another amendment that was approved
(239-190) would expand the types of renewable fuels under other provisions in H.R. 6 that
would qualify for grants for the construction of production facilities. For a discussion of
previously enacted tax cuts relating to renewables and alternative fuel, see the section on
energy tax policy below.
For retail electricity suppliers, an RPS sets a minimum requirement (often a percentage)
for electricity production from renewable energy resources or for the purchase of tradable
credits that represent an equivalent amount of production. In the 109th Congress, two bills
(H.R. 983 and S. 427) would establish an RPS. The Senate Committee on Energy and
Natural Resources held a hearing on RPS on March 8, 2005. Regional differences in the
availability of renewable resources, particularly resource availability in the southeastern
United States, were a key issue at the hearing. In its markup of the energy legislation on
April 12, 2005, the House Committee on Energy and Commerce rejected an amendment to
add an RPS (1% in 2008, increasing by 1% annually through 2027)(17-30). Proponents
noted a growing number of states with an RPS and noted that EIA reports show an RPS
could reduce electricity bills. Opponents raised concerns about the exclusion of existing
hydropower facilities and resource limits for the southeastern United States. (For information
on renewable energy and fuels proposals in the 109th Congress, see CRS Report RL32860,
Energy Efficiency and Renewable Energy Legislation in the 109th Congress, and CRS Issue
CRS-11

---

IB10143
05-31-05
Brief IB10041, Renewable Energy: Tax Credit, Budget and Electricity Production Issues,
by Fred Sissine.)
When it appeared that passage of an energy bill was unlikely in the 108th Congress, a
number of renewable energy tax credits were added to other legislation and enacted as part
of the Working Families Tax Relief Act of 2004 (P.L. 108-311) and the American Jobs
Creation Act of 2004 (P.L. 108-357). For details, see the “Energy Tax Policy” section,
below.
Energy Efficiency and Conservation. Over the years that energy policy has been
debated, some have argued that improvements in the efficiency of energy use could reduce
demand sufficiently to eliminate the pressure to discover new reserves of conventional fuels
and to build more electric generation and transmission facilities. Energy efficiency is
increased when an energy conversion device, such as a household appliance, automobile
engine, or steam turbine, undergoes a technical change that enables it to provide the same
service (lighting, heating, motor drive) while using less energy. The energy-saving result of
the efficiency improvement is often called “energy conservation.” The energy efficiency of
buildings can be improved through the use of certain materials such as attic insulation,
components such as insulated windows, and design aspects such as solar orientation and
shade tree landscaping. Further, the energy efficiency of communities and cities can be
improved through architectural design, transportation system design, and land use planning.
Thus, energy efficiency involves all aspects of energy production, distribution, and end-use.
Energy efficiency and conservation issues have continued to be part of the debate over
comprehensive energy legislation in the 109th Congress. The Energy Policy Act of 2005
passed by the House on April 21, 2005, would reauthorize many programs, would set a new
goal for reducing federal facilities’ energy use, would extend Energy Savings Performance
Contracts (ESPC), would establish several standards for products and equipment, and could
terminate cogeneration purchase requirements. Overall, many of the non-tax energy
efficiency provisions in H.R. 6 are similar to the comprehensive bill considered in the 108th
Congress. H.R. 6 also includes language that would provide a total of $8.1 billion in energy
tax incentives, including $397 million in tax credits for energy efficiency. The bill would
also provide an $18 million residential solar tax credit. However, critics of the bill argue
that, to achieve the goal of reducing the cost of the measure, provisions favoring
conventional fossil fuel production have been retained while many incentives to promote
conservation and efficiency were dropped. (For more information, see CRS Report
RL32860, Energy Efficiency and Renewable Energy Legislation in the 109th Congress, and
CRS Issue Brief IB10020, Budget, Oil Conservation, and Electricity Conservation Issues,
by Fred Sissine).

Energy Tax Policy. Some argue that the historical volatility of energy prices has
been a disincentive to make investments in new energy-related technologies and
infrastructure that might boost production of conventional fuels and encourage homeowners,
for example, to invest in systems that would reduce energy consumption for heating, cooling,
and water heating. Tax policy has been one option to encourage both supply and demand-
reduction efforts.
The Senate Committee on Finance is scheduled to begin markup in June of a tax title
to be incorporated into comprehensive energy legislation reported from the Senate
CRS-12

---

IB10143
05-31-05
Committee on Energy and Natural Resources on May 26, 2005. The Senate tax provisions
are expected by some to include more incentives for conservation and renewables than the
House bill, and to exceed the level in the House bill.
Roughly $8.1 billion in energy tax cuts over 11 years have been incorporated into the
Energy Policy Act of 2005, which was approved by the House on April 21, 2005. The failed
comprehensive legislation H.R. 6 (108th Congress) would have cut energy taxes by about
$23.5 billion over 10 years; about $5 billion in energy tax incentives were part of the
American Jobs Creation Act of 2004 (P.L. 108-357) enacted on October 22, 2004. That
leaves roughly $10.4 billion in energy tax cuts from the 108th Congress that have been
dropped from the House energy bill. Of the $8.1 billion in tax incentives in that bill, $7.5
billion are for traditional energy sources such as oil, natural gas, and power and electricity
transmission. Among other provisions, natural gas gathering lines would be provided a
seven-year recovery period, while the statutory recovery for natural gas lines and for certain
assets used in the transmission of electricity for sale and related land improvements would
be shortened from 20 years to 15 years. The bill would also expand utilities’ ability to
recover the cost of adding air pollution control equipment by changing the in-service date for
eligible coal-fired power plants from 1976 to 2005. The Administration’s FY2006 budget
request calls for a limit of $6.7 billion in energy tax credits. A higher proportion of the
credits called for in the Administration’s budget were targeted to conservation and efficiency
than in the Energy Policy Act of 2005, as passed by the House.
With the expiration of some existing energy tax incentives, the 108th Congress enacted
retroactive extension of several provisions as part of the Working Families Tax Relief Act
of 2004 (P.L. 108-311). This law retroactively extended four energy tax subsidies: the
renewable tax credit, suspension of the 100% net income limitation for the oil and gas
percentage depletion allowance, the $4,000 tax credit for electric vehicles, and the deduction
for clean fuel vehicles (which ranges from $2,000 to $50,000). The tax credit and the
suspension of the 100% net income limitation had each expired on January 1, 2004; they
were retroactively extended through December 31, 2005. The electric vehicle credit and the
clean-vehicle income tax deduction were being phased out gradually beginning on January
1, 2004. P.L. 108-311 arrests the phase-down — provides 100% of the tax breaks — through
2005, but resumes it beginning on January 1, 2006, when only 25% of the tax break will be
available.
P.L. 108-357 contains several energy-related tax breaks:
! expansion of the renewable electricity credit to open-loop biomass,
geothermal, solar, small irrigation power, and municipal solid waste
facilities, and creation of a production tax credit for refined coal;
! liberalization of the tax treatment of electric cooperatives under a
restructured electricity market;
! treatment of certain Alaska pipeline property as seven-year depreciation
property (rather than 15 years under prior law) and extension of the 15%
enhanced oil recovery credit to Alaska gas processing facilities;
! reform of the tax subsidies for fuel ethanol — basically replacement of the
excise tax exemption with an equivalent immediate tax credit — and
expansion of the credit to include biodiesel (at a higher rate for biodiesel
CRS-13

---

IB10143
05-31-05
made from virgin oils); liberalization includes allowance of the credits
against the alternative minimum tax;
! creation of a new tax credit for oil and gas from marginal (small) wells; this
credit is triggered when oil prices are below $18/barrel ($2/mcf for natural
gas), which means that currently it would provide no benefits;
! repeal of the general fund component (4.3¢/gal.) excise tax on diesel fuel
used in trains and barges;
! a $2.10/barrel tax credit for production of low-sulfur diesel fuel and
“expensing” of (basically, faster depreciation deductions for) the capital
costs to produce such fuels; both tax subsidies are subject to limits.
(For more information, see CRS Issue Brief IB10054, Energy Tax Policy.)
The President’s Hydrogen Fuel Initiative. Demand for hybrid vehicles that can
operate on both gasoline and electric power has been strong. More hybrid models are
scheduled to be introduced in the coming years. However, some see the hybrid vehicle as
a “bridging” technology until research and development produces an economically practical
fleet of hydrogen vehicles, and an infrastructure for fueling them.
In January 2003 President Bush announced a new research and development initiative
for hydrogen as a transportation fuel. A goal of the Hydrogen Fuel Initiative, and previously
established FreedomCAR initiative, is to produce hydrogen-fueled engine systems by 2015
that achieve double to triple the efficiency of today’s conventional engines at a cost
competitive with conventional engines.
Over five years, the Administration is seeking a total funding increase of $720 million.
These initiatives would fund research on hydrogen fuel and fuel cells for transportation and
stationary applications. The 108th Congress for FY2004 appropriated approximately $50
million for the initiatives ($20 million less than the Administration request) above the
FY2003 level, and for FY2005 an additional $25 million above the FY2004 level. The
Energy Policy Act of 2005 (H.R. 6) would authorize $4 billion during the period FY2006-
FY2010. The comprehensive legislation in the 108th Congress would have set goals for the
production of hydrogen-fueled passenger vehicles. No goals are included in H.R. 6.
Critics of the Administration initiative suggested that the hydrogen program was
intended to forestall attempts to significantly raise vehicle CAFE standards, and that it
relieves the automotive industry of assuming more initiative in pursuing technological
innovations. In addition, they argue that hydrogen-fueled vehicles may ultimately be
infeasible, and that attention and funding should be focused on other research areas. On the
other hand, supporters argue that it is appropriate for government to become involved in the
development of technologies that are too financially risky to draw private sector investment.
At issue for these policymakers will be whether the federal initiative and level of funding is
aggressive enough. (For additional information, see CRS Report RS21442, Hydrogen and
Fuel Cell R&D: FreedomCAR and the President’s Hydrogen Fuel Initiative.)
Nuclear Energy. Reauthorization of the Price-Anderson Act nuclear liability system
has been one of the top nuclear items on the energy agenda. Under Price-Anderson,
commercial reactor accident damages would be paid through a combination of private-sector
insurance and a nuclear industry self-insurance system. Liability is capped at the maximum
CRS-14

---

IB10143
05-31-05
coverage available under the system, currently about $10.9 billion. Price-Anderson also
authorizes the Department of Energy (DOE) to indemnify its nuclear contractors.
Authorization of the system for new commercial reactors ran out at the end of 2003, but it
continues in place for existing reactors. Congress in the FY2005 Defense Authorization Act
(P.L. 108-375) reauthorized the act for DOE contractors through 2006. The Energy Policy
Act of 2005 (H.R. 6), passed by the House on April 21, 2005, would extend the authorization
of Price-Anderson for both commercial plants and DOE contractors through 2025. The bill
passed by the Senate Energy and Natural Resources Committee would extend Price-
Anderson through 2016.
Several provisions dealing with security at nuclear power plants were also included in
the House-passed bill. One measure would authorize Nuclear Regulatory Commission
licensees, including guards at nuclear plants, to carry weapons, preempting some state
restrictions. Another would require fingerprinting of nuclear plant workers for criminal
background checks.
Another provision authorizes $1.3 billion for the design and construction of nuclear-
hydrogen cogeneration projects at the Idaho National Laboratory and at existing reactors.
The purpose would be to explore production of hydrogen fuel from nuclear energy.
Currently, natural gas is the main source for hydrogen fuel. The bill approved by the Senate
Energy and Natural Resources Committee includes a similar authorization. (For more
information, see CRS Issue Brief IB88090, Nuclear Energy Policy.)
LEGISLATION
H.R. 6 (Barton)
Energy Policy Act of 2005. Introduced April 18, 2005. Among other provisions, the bill
would open up the Arctic National Wildlife Refuge (ANWR) to exploration and
development, includes a “safe harbor” provision to protect methyl tertiary-butyl ether
(MTBE) refiners from product liability suits, would establish a “refinery revitalization”
program, and would permit the Federal Energy Regulatory Commission (FERC) to decide
on the siting of liquefied natural gas (LNG) terminals. Passed by the House on April 21, 2005
(249-183).
H.R. 610 (Biggert)
A bill to provide for federal energy research, development, demonstration, and
commercial application activities, and for other purposes. Would authorize roughly $44.1
billion over five years for research of deep sea drilling, clean coal technology, nuclear
energy, fusion technology, and high-performance computers. Would authorize funding to
improve energy efficiency of vehicles and buildings. Introduced February 8, 2005, and
referred to several House committees. Reported favorably by voice vote from the Committee
on Science, February 10, 2005.
H.R. 705 (Gilchrist)
Automobile Fuel Economy Act of 2005. To amend Title 49, United States Code, to
require phased increases in the fuel efficiency standards applicable to light trucks; to require
fuel economy standards for automobiles of up to 10,000 pounds gross vehicle weight; to
CRS-15

---

IB10143
05-31-05
increase the fuel economy of the federal fleet of vehicles, and for other purposes. Introduced
February 9, 2005, and referred to House Subcommittee on Energy and Air Quality.
H.R. 1103 (Johnson)
Fuel Efficiency Truth in Advertising Act of 2005. Would direct EPA to update its test
procedures for light-duty vehicles for the purpose of calculating vehicle fuel economy.
Introduced March 3, 2005, and referred to House Committee on Energy and Commerce.
H.R. 1541 (Thomas)
Enhanced Energy Infrastructure and Technology Tax Act. To amend the Internal
Revenue Code of 1986 to enhance energy infrastructure properties in the United States and
to encourage the use of certain energy technologies, and for other purposes. Introduced April
12, 2005. Ordered to be reported (26-11), April 13, 2005.
H.R. 6 (Tauzin) [108th Congress]
Enhances energy conservation and research and development, provides for security and
diversity in the energy supply for the American people, and for other purposes. Introduced
April 7, 2003. Passed House (247-175) April 11, 2003. Senate version passed (84-14) July
31, 2003. Reported from conference, November 17, 2003. Passed House (246-180)
November 19, 2003. Motion to invoke cloture failed in the Senate (57-40), November 21,
2003.
CRS-16

---