Energy Policy: Comprehensive Energy Legislation (H.R. 6) in the 109th Congress

Energy Policy: Comprehensive Energy Legislation (H.R. 6) in the 109th Congress

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 July 29, 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
Climate Change
Arctic National Wildlife Refuge (ANWR) and Outer Continental Shelf (OCS)
Electricity Restructuring
Fuel Economy
Renewable Energy and Fuels
Energy Efficiency and Conservation
Energy Tax Policy
The President’s Hydrogen Fuel Initiative
Nuclear Energy
LEGISLATION

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Energy Policy: Comprehensive Energy Legislation (H.R. 6)
in the 109th Congress
SUMMARY
Conferees on H.R. 6, the Energy Policy
Renewable Energy. The Senate bill
Act of 2005, agreed on a final bill July 26,
included a “renewable portfolio standard”
2005 (H.Rept. 109-190). On July 28, the
(RPS) requiring utilities to generate at least
House approved the conference report (275-
10% of their electricity from renewable energy
156). Senate approval (74-26) of the confer-
sources by 2020. An RPS is not included in
ence report followed the next day, July 29.
the conference bill.
Ethanol and MTBE. The House bill
Climate Change. The Senate bill would
included a “safe harbor” provision to protect
have established a credit-based deployment
methyl tertiary-butyl ether (MTBE) refiners
program for technologies to reduce green-
from product liability suits, while the Senate
house gas intensity and establish programs to
bill did not. A proposal was made to establish
deploy technologies in developing countries.
a trust fund to assist with cleanup in return for
The House bill had no climate change provi-
immunity from lawsuits, but the proposal
sions. The conference bill creates a committee
drew criticism. No “safe harbor” provision
to develop a national climate change strategy.
appears in the conference bill. The conference
bill would repeal the Clean Air Act require-
Tax Provisions. The Administration’s
ment for oxygenated gasoline that led to
FY2006 budget request called for a limit of
increased use of MTBE, and would require
$6.7 billion in energy tax credits. The tax
refiners to use renewable fuels (presumably
incentive provisions of the House-passed H.R.
mostly ethanol). The House bill had set a goal
6 had an estimated cost of $8.1 billion. The
of 5 billion gallons per year by 2012 and the
Senate tax provisions in H.R. 6 were valued at
Senate bill would have required 8 billion
$14.1 billion over 11 years, and included more
gallons. The conference bill gradually builds
incentives for conservation and renewables
the requirement to 7.5 billion gallons by 2012.
than the House bill. The conferees agreed to
a package that includes $11.5 billion in net
ANWR. On April 28, 2005, the House
energy tax incentives over 11 years.
and Senate approved a final budget resolution
implicitly calling for the Arctic National
Outer Continental Shelf. The Senate
Wildlife Refuge (ANWR) to be opened to
bill would have required an inventory of oil
provide oil and gas leasing revenue. The
and natural gas resources on the Outer Conti-
House bill had included ANWR language, but
nental Shelf (OCS). The House bill did not
none appears in the conference bill.
call for a resource study. The conference bill
contains the Senate-mandated inventory.
Electricity Restructuring. The confer-
ence committee came to an agreement on a
Siting of LNG Terminals. Provisions to
large part of the electricity title on July 21,
permit the Federal Energy Regulatory Com-
2005. The title includes provisions on
mission (FERC) to decide on the siting of
PUHCA repeal, repeal of the mandatory
liquefied natural gas terminals have been
purchase requirement under PURPA, merger
opposed by some as an override of states’
review authority for FERC, electric reliability,
rights. An effort to eliminate this language
and siting of transmission lines.
from the conference bill was unsuccessful.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Conferees on H.R. 6, the Energy Policy Act of 2005, began meeting July 14, 2005, and
reached agreement on a final bill July 26, 2005 (H.Rept. 109-190). On July 28, the House
approved the conference report (275-156). Senate approval (74-26) of the conference report
followed the next day, July 29. (For a side-by-side comparison of the House and Senate
versions of H.R. 6, see CRS Report RL33006, Omnibus Energy Legislation, 109th Congress:
Side-by-Side Assessment of House and Senate Versions of H.R. 6, coordinated by Mark Holt
and Carol Glover.)
The most controversial difference between the House and Senate energy bills in the
108th Congress was the inclusion in the House bill of a “safe harbor” provision, which would
protect methyl tertiary-butyl ether (MTBE) refiners from product liability suits. Conference
Chairman Barton, after proposing a compromise July 22 that found little support, agreed to
accept a conference bill without the safe harbor provision.
BACKGROUND AND ANALYSIS
(Note: The House and Senate 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 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
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. In late June 2005, crude oil prices exceeded
$60/barrel for the first time.
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
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].
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High crude oil and gasoline prices have been frequently referenced in the debate. 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.
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.
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].
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 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.
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
called for a limit of $6.7 billion in energy tax credits. The estimated cost of the provisions
in H.R. 6 was $8.1 billion over 11 years. The Senate Finance Committee tax provisions
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added to the Senate version of H.R. 6 included more incentives for conservation and
renewables than the House bill, and were estimated to cost $14.1 billion over 11 years.

The House legislation would have opened 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 defeated (200-231). The House legislation included 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 played a significant role in the defeat of the conference bill at the end of the
first session of the 108th Congress.
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 the House version of H.R. 6.
The Senate Committee on Energy and Natural Resources ordered reported
comprehensive energy legislation on May 26, 2005, and the bill was introduced as S. 10
(S.Rept. 109-78) on June 9. Floor debate began June 14, and the text of S. 10 was
substituted for H.R. 6. Cloture was approved (92-4) on June 23. Work was largely
completed on the bill on June 24, with final passage (85-12) on June 28.
The comprehensive energy bills passed by the House and Senate were similar, but with
important differences. A general summary follows of issues that have gained attention in the
energy policy debate, including a summary of some of the major provisions in the House and
Senate versions of H.R. 6, as well as the bill reported from conference on July 26, 2005. The
House approved the conference report (H.Rept. 109-190) on July 28; Senate approval (74-26)
of the conference report followed the next day, July 29. Background about the debate in the
108th Congress is included where helpful.

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 have
provided 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.
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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 Provisions in H.R.
6, 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, most of it probably ethanol.
Consumption of ethanol in gasoline in 2004 was 3.4 billion gallons. Under the renewable
fuel standard in the House version of H.R. 6, the amount required to be consumed would
have been 3.1 billion gallons in 2005 and 5.0 billion gallons by 2012. This would still have
been 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.
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. The Senate version of H.R.
6 did not contain the safe harbor provision. The Senate bill also would have increased the
renewable fuels/ethanol mandate from 5 billion gallons by 2012, in the House bill, to 8
billion gallons by 2012.
On July 22, Conference Chairman Barton introduced a compromise plan that would
retain the safe-harbor provision, but would set up a fund for cleanup to which federal and
state goverments and MTBE producers would contribute. However, the plan did not gain
support among opponents to the safe-harbor provision, and he abandoned the attempt to
include the measure in the conference bill. The conferees set the renewable fuels mandate
at 7.5 billion gallons by 2012.
Climate Change. Unlike the Senate-passed bill, the House legislation did not contain
provisions addressing climate change. The Senate bill would have, among other provisions,
established a credit-based deployment program for technologies to reduce greenhouse gas
intensity; support would have included direct loans, loan guarantees, lines of credit, and
production incentive payments. It would also have established grant and loan programs to
deploy in developing countries technologies that have been developed or demonstrated in the
United States. The Senate bill also included language expressing that Congress should enact
a program to control and reduce greenhouse gas emissions prior to the end of the first session
of the 109th Congress. The Senate rejected a proposal to establish mandatory caps on carbon
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dioxide emissions, as well as an amendment that the United States should reduce risks posed
by climate change by participating in a negotiated binding international agreement.
Title XVI of the conference bill contains a modification of the Senate version with
respect to establishing a new governmental structure to develop a national response strategy
to promote technologies and practices to reduce greenhouse gas intensity, coordinate federal
climate change activities, and identify barriers to technologies that improve carbon intensity.
However, the Senate bill’s extensive credit-based deployment program for less carbon-
intensive technologies was replaced in the conference report by a demonstration program
based on the Research and Development cost-sharing provisions contained in Title IX. The
Senate’s Climate Change Technology Deployment in Developing Countries provisions were
adopted by conference basically unchanged. The Sense of the Senate resolution on climate
change was deleted.
(For additional information, see CRS Report RL32953, Climate Change: Comparison
and Analysis of S. 1151 and the Draft “Climate and Economy Insurance Act of 2005,” by
Brent Yacobucci and Larry Parker, and CRS Report RL32955, Climate Change Legislation
in the 109th Congress, by Brent Yacobucci.)

Arctic National Wildlife Refuge (ANWR) and Outer Continental Shelf
(OCS). 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 supported opening
ANWR to exploration and development. The budget projected 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
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Resources did 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. There
was no effort to add ANWR language to the Senate version of H.R. 6. 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.)
The Senate version of H.R. 6 required an inventory of oil and natural gas resources on
the Outer Continental Shelf (OCS). An amendment to strike this language from the bill was
defeated on June 21 (44-52). The House-passed H.R. 6 also made no changes to existing
OCS leasing moratoria, but did not call for a resource study. The OCS inventory remained
in the conference bill.
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.
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;
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! repeal of Public Utility 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
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 did the version of
H.R. 6 in the 109th Congress passed by the House. The Senate bill also included PUHCA
repeal language, but in markup a provision to give FERC additional merger review authority
was added. The House-passed merger review provision gave FERC jurisdiction over
transmission transactions. FERC merger review authority would also apply to natural gas
utilities and generation-only transactions. In addition, the bill passed by the Senate required
FERC to determine that cross-subsidization would not result from a merger.
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Most other electricity provisions in the House- and Senate-passed bills were 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, 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.
The conference committee came to an agreement on a large part of the electricity title
on July 21, 2005. In the conference bill, PUHCA would be repealed, and FERC’s merger
review authority is strengthened. In addition, language is included that is intended to prevent
cross-subsidization. The mandatory purchase requirement under the Pubic Utility Regulatory
Policies Act (PURPA) would be repealed. An Electric Reliability Organization would be
able to promulgate mandatory, enforceable reliability standards for the electric industry that
include cybersecurity protection. Included in the conference report, but not in either the
House- or Senate-passed versions of H.R. 6, is a Sense of Congress that FERC should
carefully consider the states’ objections to the locational installed capacity (LICAP)
mechanism for New England.
(For additional information, see CRS Report RL32925, Electric Utility Provisions in
House-Passed H.R. 6, 109th Congress, by Amy Abel, and CRS Report RL32728, Electric
Utility Regulatory Reform: Issues for the 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,
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
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current technologies that have been used to enable vehicles to have more size and power
without reductions to baseline fuel economy.3
The Energy Policy Act of 2005 passed by the House on April 21, 2005, included
provisions strongly similar to language that appeared in the omnibus energy legislation
reported from conference during the 108th Congress. The legislation would have authorized
$2 million annually during FY2006-FY2010 for the National Highway Traffic Safety
Administration (NHTSA) to carry out fuel economy rulemakings. It also expanded the
criteria that the agency would take into account in setting maximum feasible fuel economy
for cars and light trucks. The new criteria required NHTSA to consider occupant safety and
automotive industry employment in its determination of the maximum feasible fuel economy.
The Senate bill added more factors that NHTSA would need to consider in setting maximum
feasible fuel economy standards. These included the extent to which meeting higher CAFE
standards might divert resources from developing advanced technologies.
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).
The Senate bill would have provided NHTSA with $5 million annually to conduct
CAFE activities for each fiscal year, FY2006-FY2010. The bill required NHTSA to
promulgate new car and light truck standards within a few years. An amendment to raise the
CAFE standards to 40 mpg for passenger cars by MY2016, and 27.5 for light-duty trucks,
was rejected (28-67).
The Senate bill included language to require the Administration to develop a plan to
reduce U.S. oil consumption by 1 million barrels daily by 2015 from projected consumption
levels. The amendment would not have created any new authorities. Rather, it gave the
Administration the latitude to use currently existing authorities, including CAFE. A similar
provision was rejected as an amendment to the committee print marked up by the House
Energy and Commerce Committee in mid-April 2005, and was not in the bill passed by the
House. During debate on the Senate bill, an amendment that would have further required a
40% reduction in oil imports (7.6 mbd) by 2025 was rejected (47-53).
The conference bill authorizes $3.5 million annually during FY2006-FY2010 for the
National Highway Traffic Safety Administration (NHTSA) to carry out fuel economy
rulemakings. It also requires a study to explore the feasibility and effects of a significant
reduction in fuel consumption by 2014, and requires NHTSA to adjust its test procedure for
measuring fuel economy to take into account differences in vehicles and driving habits since
3 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].
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the test was designed. Some of these factors include higher speed limits, faster acceleration,
differences in the ratio between city and highway driving, and use of air conditioning.
(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
authorized $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) expanded 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, a Renewable Portfolio Standard (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).
The Senate bill would have mandated a federal RPS, which would require investor-
owned utilities to generate at least 10% of their electricity from renewable energy sources,
such as wind, solar, geothermal, or new hydroelectric facilities, by 2020. Proponents of an
RPS note a growing number of states with an RPS and argued that an RPS could reduce
electricity bills. Opponents raise concerns about the exclusion of existing hydropower
facilities and resource limits for the southeastern United States.
The conference bill does not include the Senate RPS measure.
(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 Brief IB10041, Renewable Energy: Tax Credit, Budget and
Electricity Production Issues, by Fred Sissine.)
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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. H.R. 6, as passed by the House on
April 21, 2005, reauthorized many programs, set a new goal for reducing federal facilities’
energy use, extended Energy Savings Performance Contracts (ESPC), established several
standards for products and equipment, and could have terminated cogeneration purchase
requirements. Overall, many of the non-tax energy efficiency provisions in H.R. 6 were
similar to the comprehensive bill considered in the 108th Congress. H.R. 6 also included
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 also provided an $18 million residential
solar tax credit. However, critics of the bill argued that, to achieve the goal of reducing the
cost of the measure, provisions favoring conventional fossil fuel production were retained
while many incentives to promote conservation and efficiency were dropped.
The Senate version of H.R. 6 included stronger standards for products and equipment,
and a major oil savings provision requiring development of a plan to reduce U.S. oil
consumption by 1 million barrels daily by 2015 from projected consumption levels. Also, the
tax package in the Senate bill had about $5.4 billion in tax incentives for energy efficiency,
including $3.7 billion for equipment and $1.7 billion for vehicles.
The conference bill does not contain the Senate oil savings provision.
(For more information, see CRS Report RL32860, Energy Efficiency and Renewable
Energy Legislation in the 109th Congress, and CRS Issue Brief IB10020, Energy Efficiency:
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 energy tax provisions of H.R. 6 (109th Congress) as passed by the House included
an $8.1 billion, 11-year tax reduction of energy taxes, weighed almost entirely toward fossil
fuels and electricity. The Senate version of H.R. 6 included a $14.1 billion, 11-year tax title
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aimed less toward fossil fuel production and more toward energy conservation and
alternative fuels than the House measure.4 (For more information, see CRS Issue Brief
IB10054, Energy Tax Policy, by Salvatore Lazzari.) Joint Committee on Taxation estimates
of the revenue effects of the tax provisions of the Senate bill were released on June 23; see
[http://www.house.gov/jct/x-47-05.pdf].
The tax package added to the conference bill on July 27, Title XIII, includes $11.5
billion in net energy tax incentives over 11 years. (The gross tax cut would be $14.55 billion,
minus $3 billion in tax increases.) It provides about $1.3 billion for energy efficiency and
conservation, including a deduction for energy-efficient commercial property, fuel cells, and
micro-turbines, and $4.5 billion in renewables incentives including a two-year extension of
the tax code §45 credit, renewable energy bonds, and business credits for solar.
A $2.6 billion package of oil and gas incentives includes seven-year depreciation for
natural gas gathering lines, a refinery expensing provision, and a small refiner definition for
refiner depletion, according to sources. A nearly $3 billion coal package would provide
84-month amortization for pollution control facilities and treatment of §29 as a general
business credit. More than $3 billion in electricity incentives leans more toward the House
version, including provisions providing 15-year depreciation for transmission property,
nuclear decommissioning provisions, and a nuclear electricity production tax credit. It also
provides for the five-year carry-back of net operating losses of certain electric utility
companies.
Details of the tax title show that four revenue offsets were retained in the conference
report: reinstatement of the Oil Spill Liability Trust Fund; extension of the Leaking
Underground Storage Tank (LUST) trust fund rate, which would also be expanded to all
fuels; modification of a §197 amortization, and a small increase in the excise taxes on tires.
The offsets total roughly $3 billion compared to nearly $5 billion in the Senate-approved
H.R. 6.
The President’s Hydrogen Fuel Initiative. 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 $3.3 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 the House
4 U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of the Chairman’s
Amendment in the Nature of a Substitute to the “Energy Policy Tax Incentives Act of 2005,” JCX-
47-05, June 16, 2005.
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version of H.R. 6. The Senate bill also includes a number of programs and provisions to
further hydrogen fuel research.
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. The conference report would provide strong incentives for the
construction of new nuclear power plants — including production tax credits, loan
guarantees, insurance against regulatory delays, and extension of the Price-Anderson Act
nuclear liability system. The Energy Information Administration (EIA) has previously
concluded that the 1.8-cents/kilowatt-hour tax credit in the conference bill would stimulate
construction of new commercial reactors.5 Primarily because of high construction costs, no
nuclear plants have been ordered in the United States since 1978, and all orders since 1973
have been cancelled.
The tax credit would be available for up to 6,000 megawatts of new nuclear capacity
for the first eight years of operation, up to $125 million annually for each 1,000 megawatts.
That capacity limit could accommodate five or six new commercial reactors, or it could be
allocated among a greater number of reactors (with the tax credit pro-rated accordingly) by
the Secretary of Energy. Nuclear power plants would also be eligible for federal loan
guarantees for up to 80% of construction costs. Both the nuclear tax credits and loan
guarantees originated in the Senate-passed version of H.R. 6.
Because the nuclear industry has often blamed licensing delays for past nuclear reactor
construction cost overruns, the conference report would authorize the Secretary of Energy
to pay for up to $500 million in costs resulting from Nuclear Regulatory Commission (NRC)
delays for the first two new reactors and up to $250 million for the next four. This provision
was proposed by the Bush Administration and is similar to language in the Senate-passed
bill.
Reauthorization of the Price-Anderson Act nuclear liability system has been one of the
top nuclear items on the energy agenda and is widely considered to be a prerequisite for new
nuclear plant construction. 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 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
5 Energy Information Administration, Analysis of Five Selected Tax Provisions of the Conference
Energy Bill of 2003, February 2004.
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commercial reactors ran out at the end of 2003, but it continues in place for existing reactors.
Both the House- and Senate-passed versions of H.R. 6 would extend the authorization of
Price-Anderson for both commercial plants and DOE contractors through 2025, and the
conference report would do the same.
Several provisions dealing with security at nuclear power plants were also included in
the conference report. NRC would be required to conduct “force on force” security exercises
at each nuclear power plant at least once every three years (as is its current policy), and
would be required to revise the “design basis threat” that nuclear security forces must be able
to defeat. Another measure would authorize NRC licensees, including guards at nuclear
plants, to carry weapons, preempting some state restrictions. The conference bill would
require fingerprinting of nuclear plant workers for criminal background checks. The security
provisions are based on similar sections in the House-passed bill.
Authorization of $1.25 billion for the design and construction of a nuclear-hydrogen
cogeneration plant at the Idaho National Laboratory would be provided by the conference
bill. The purpose would be to explore production of hydrogen fuel from nuclear energy as
an alternative to natural gas, which is currently the main source of hydrogen. Similar
authorizations were included in both the House- and Senate-passed versions of the bill. (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
House 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). The Senate passed its own version of the bill on June 28, 2005 (85-12).
Differences were resolved by conference committee July 26. The House passed the
conference report (H.Rept. 109-190) July 28. The Senate approved (74-26) the conference
report the next day, July 29.

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
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fuel economy standards for automobiles of up to 10,000 pounds gross vehicle weight; to
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.
S. 10 (Domenici)
Energy Policy Act of 2005. Includes provisions on electricity regulation and reliability,
energy research and development, alternative fuels, and energy access to public lands.
Introduced as an original bill and reported June 9, 2005, by the Committee on Energy and
Natural Resources (S.Rept. 109-78). Ordered reported May 26 by a vote of 21-1. Text
substituted for H.R. 6 June 14.
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.
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