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FROM THE HILL: Energy Policy #1

House Advances Energy Policy Legislation

Estimated Read Time: 1 min. 30 secs. for summary

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The U.S. House of Representatives has passed its energy policy legislation by a mostly partisan-split vote. The bill, H.R. 1, Lower Energy Costs Act, is the combination of 20 different bills which increase sales of oil/gas leases, reduce existing royalty payments and modify permitting for certain energy projects. The bill seeks to rescind portions of the new tax requirements imposed under the Inflation Reduction Act of 2022 (“IRA”). The summary and Congressional Budget Office cost-estimate provided below reflect the adopted House Floor Amendments. In the Senate, Majority Leader Schumer (D-NY) has stated the bill is “dead on arrival,” however, members of both the House and Senate Democrat caucus have been negotiating on provisions similar to some found in HR 1 which may become the framework for a more bipartisan bill later in the year. Specific repeals of the IRA provisions may also be included in the debt ceiling legislation that is expected in the near future.


Beyond energy provisions, the bill contains a few water provisions including permitting and regulatory modifications for water supply projects.


Summary of Legislation (to Floor Manager’s Amendment, as provided by Bloomberg Government)


NEPA Permitting Process

Under the National Environmental Policy Act (NEPA), federal agencies are required to evaluate the environmental and related social and economic effects of their major proposed actions, including making decisions on permitting applications, adopting federal land management actions, and building highways and other publicly-owned facilities.


A proposed federal action may be “categorically excluded” from environmental reviews required under NEPA when it generally doesn’t have a significant environmental effect. If an exclusion doesn’t apply, an agency can prepare an environmental assessment to determine whether the action could cause significant effects.


If the environmental assessment determines that the effects would be significant, a more rigorous review or environmental impact statement must be prepared.


The measure would streamline and set target timelines for NEPA reviews for all economic sectors.


Major Federal Actions: The measure would specify activities that wouldn’t be considered a major federal action under NEPA, including:

  • Adding a battery or other energy storage device to an existing or planned energy facility, if it’s physically located within the facility.

  • Drilling certain geothermal exploratory wells.

  • Any repair, upgrade, or minor addition to existing transmission and distribution infrastructure, including for transmission and distribution lines, transformers, and routine fire mitigation near an existing right-of-way.

  • Construction or maintenance of an existing permanent or temporary access road, including those that serve an existing energy facility or for onshore oil or gas leases.

  • Certain oil and gas exploration and development activities conducted on nonfederal surfaces.

  • A proposed federal activity within an existing right-of-way with no long-term net loss of vegetation, soil, or habitat.

Environmental Reviews and Documents: The measure would direct the lead agency for the NEPA review process to include the following analyses for a proposed major action:

  • “Reasonably foreseeable” environmental effects with a reasonably close causal relationship to the proposed agency action.

  • A reasonable number of alternatives to the proposed action, including an analysis of any negative environmental impacts of not implementing the action that are technically and economically feasible.

  • Any irreversible commitments of federal resources involved in the proposed action.

The lead agency and any other involved federal agency would only have to consider the effects of a proposed action that occurs on federal land or is subject to federal control and responsibility.


Agencies wouldn’t have to prepare environmental analyses under NEPA if the proposed action isn’t final, is covered by a categorical exclusion, or the analyses would conflict with the requirements of another law. A lead agency would have to allow a project sponsor to prepare an environmental assessment or environmental impact statement at the sponsor’s request. The agency would have to independently evaluate the environmental document and take responsibility for the content.


A proposed agency action in which an environmental document is required couldn’t be vacated, limited, or delayed unless a court concludes allowing the proposed action would pose a risk of “imminent and substantial environmental harm,” and that there’s no other equitable remedy available.


Agency Responsibilities and Deadlines: The measure would establish responsibilities for the agency acting as lead for the NEPA process to coordinate between other federal and state agencies involved in the review. If there are two or more federal agencies involved in a proposed action, the agencies would be required to determine, by letter or memorandum, which agency would be the lead agency. The decision would be based on several factors, including the extent and duration of an agency’s involvement and the expertise related to the action’s environmental effects. Agencies could appoint federal, state, or local agencies as joint lead or cooperating agencies.


The measure’s lead agency designation requirements wouldn’t apply to mineral exploration or mine permits. A lead agency would be required to develop a schedule to complete any environmental review, permit, or authorization to carry out the proposed action. The agency would have to complete an environmental impact statement within two years or an environmental assessment within one year, unless a deadline extension is agreed to by the project sponsor.


Judicial Review: A claim to review a final agency action related to a supplemental environmental review would have to be filed within 120 days of the notice of the action. The measure couldn’t be construed to place any limit on filing a claim related to a violation of the terms of a permit. It would stipulate that violations wouldn’t be the basis for injunctive relief.


Nonfederal Funding: From fiscal 2023 through 2025, the US Forest Service, on behalf of the Agriculture Department, and the Interior Department could accept and spend funds contributed by nonfederal entities for staff and information technology to expedite the evaluation of permits, applications processing, and other activities for the leasing or expansion of an energy facility.



Oil and Gas Permitting

Environmental Reviews: An environmental review for an oil and gas lease or permit would only apply to areas within or immediately adjacent to the lease plot and that are directly affected by an agency’s proposed action. Such a review wouldn’t require consideration of downstream, indirect effects of oil and gas consumption.


Drilling Permits: The Interior Department would have to process an application for a drilling permit under a valid existing lease regardless of any pending civil actions, unless a US federal court vacated the lease.

A drilling permit issued after the bill’s enactment would be valid for a four-year term from the permit’s approval date or until the lease expires, whichever occurs first.


Permits on Nonfederal Land: Federal permits for oil, gas, and geothermal exploration and production activities on nonfederal land wouldn’t be required as long as the US ownership interest in the resource is less than 50% and the operator submits a state permit. Such activities wouldn’t be treated as a major federal action under NEPA. Activities could begin 30 days after submission of the state permit and wouldn’t be subject to certain requirements of the National Historic Preservation Act and the Endangered Species Act. The measure wouldn’t affect royalties due to the US from oil and gas production and the production of electricity using geothermal resources.


Expedited Approval for Pipelines: The NEPA approval process would be expedited for certain pipelines on federal lands that transport oil or natural gas by not treating them as major federal actions.


Offshore Survey Licensing: The Interior Department would have to authorize geological and geophysical surveys related to oil and gas activities on the Gulf of Mexico Outer Continental Shelf, except within areas subject to existing oil and gas leasing moratoria. The authorizations would have to be issued within 30 days of a completed application.


The Interior Department would have to ensure the use of funds wouldn’t affect impartial decision-making for permits.


Rights-of-Way Terms: The measure would allow any right-of-way to be issued, modified, or renewed for as long as 50 years for pipelines used to transport oil or gas and for the generation, transmission, and distribution of electric energy on public lands.


Minerals Supply Chain: The Bureau of Land Management and US Forest Service would have to complete the federal permitting and review processes with maximum efficiency and effectiveness for mineral projects, rather than for critical mineral production on federal land. The agencies would have to defer to and rely on baseline data, analyses, and reviews performed by state agencies with jurisdiction over the environmental or reclamation permits for the proposed mineral project.


Mining Permitting Improvement: The measure would designate mineral production as a covered sector for federal permitting improvement purposes. It would generally cover actions related to domestic mining and processing including:

  • Byproduct and co-product production at existing mining, mine waste reclamation, and other industrial facilities.

  • Modernization of mining and beneficiation to increase productivity, environmental sustainability, and workforce safety.

Uranium Designation: The measure would modify the types of minerals excluded from the critical mineral category so that uranium isn’t “unilaterally excluded” from future consideration as a critical mineral. Within 60 days of enactment, the US Geological Survey would be required to update the final list of critical minerals with the revised criteria in the Federal Register.


Foreign Bad Actors: A mining claimant would be barred from using, occupying, and conducting operations on federal land if the Interior Department determines that the claimant has a foreign parent company with a known record of human rights violations or has knowingly operated an illegal mine in another country.


Judicial Review: A claim to review a federal agency permit for a mineral project would have to be filed within 120 days of the publication of a notice in the federal register announcing that the permit is final.

Oil and Gas Leasing

Onshore Leasing: The Interior Department would have to reinstate quarterly onshore oil and gas lease sales on federal lands. The department would be required to conduct at least four oil and gas lease sales each fiscal year in Alaska, Colorado, Montana, Nevada, New Mexico, North Dakota, Oklahoma, Utah, Wyoming, and any other states with land available for oil and gas leasing. If a sale is canceled, delayed, or deferred, the Interior Department would be required to conduct a replacement sale during the same fiscal year. It would also conduct a replacement sale if 25% or more of the acreage offered in an initial sale doesn’t receive a bid. Reinstated leases wouldn’t be considered a major federal action under NEPA. The department could permit lease owners to suspend operations, within 15 days of a request, if the lease owner is waiting for adjacent leases to be offered. Any land payment or royalty would also be suspended, and the lease term would be extended by the suspension period.


Lease Protests: The department would be required to resolve any protest to a lease sale within 60 days of a bidder’s payment. The department would be required to collect a base $150 filing fee for protests, increasing by $5 per page that exceeds 10 pages. Any protest that includes more than one lease parcel or drilling application would be charged $10 per additional parcel or application. The fee would be adjusted annually for inflation starting on Jan. 1, 2024.


Drilling Permits: The Interior Department would be required to complete environmental reviews and issue permits for any pending drilling applications within 30 days of enactment.


Offshore Leasing: The Interior Department would be required to conduct all remaining offshore lease sales outlined by the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Proposed Final Program by Sept. 30.

That program scheduled 11 lease sales, and eight of which had been held when the program expired on June 30, 2022, according to a September Congressional Research Service report. The department would have to annually hold at least two oil and gas lease sales in the Gulf of Mexico and Alaska regions beginning in fiscal 2023.


The department would be required to issue an oil and gas leasing program every five years. The program would have to include at least two lease sales in the Gulf of Mexico region per year. The 2023-2028 oil and gas leasing program would also have to be issued, along with its environmental assessment, by July 1.


The measure would require the department to prepare subsequent oil and gas leasing programs within 36 months of conducting the first lease sale under a program. Each subsequent oil and gas leasing program would have to be approved within 180 days before the previous leasing program expires.


Geothermal: The measure would require yearly lease sales for geothermal energy, instead of every two years. Replacement sales would be required within the same year a lease sale is canceled or delayed. The department would have to notify applicants for geothermal drilling permits whether their application is complete within 30 days of receiving it, and final decisions would be due within 30 days after that.


Coal: For any pending qualified application for a coal lease, the Interior Department would have to “promptly” publish a draft environmental assessment, finalize the fair market value of the coal tract, and grant the application. The department would also have to grant any additional approvals needed for mining activities to start for previously awarded coal leases. The measure would lift a moratorium on new coal mining leases issued in January 2016 by the Obama administration.


China Ban: The measure would bar the Communist Party of China, or a person acting on its behalf, from acquiring any ownership interest in land leased for oil or gas.


Current Moratoria: The bill would stipulate that it wouldn’t affect existing moratoria on oil and gas leasing in certain areas of the Outer Continental Shelf, or the ban on oil and gas development in the Great Lakes.


Mineral Withdrawals: Federal lands and waters couldn’t be withdrawn from mineral leasing unless a resource assessment is completed during a 10-year period ending on the date of withdrawal. The Interior Department would also have to assess how the withdrawal would affect economic and national security interests, federal revenue, and military readiness. Mineral assessments would also be required as part of a resource management plan or forest management plan developed by the Interior or Agriculture departments. The Interior Department would provide recommendations to the president on how to reduce the effects that a withdrawal may have on mineral exploration and development for newly discovered mineral deposits in previously withdrawn areas.


The president would be barred from pausing, restricting, or delaying mineral development on federal lands, unless the lands are withdrawn from mineral leasing. That would include new oil and gas leases, drilling permits, coal leases, or mineral leases. The measure would also bar the president and the Interior and Agriculture departments from rescinding any existing lease, permit, or claim for mineral extractions in designated federal land, unless specifically authorized by federal statute or there was noncompliance.


Fee Reduction: The measure would decrease royalty rates for offshore oil and gas leases to a flat rate of 12.5%, instead of a range of about 16.7% to 18.8% that was imposed under the Democrats’ 2022 tax, health care, and climate change law. Royalty rates for onshore leases would be reduced to 12.5% from 16.7%, and royalties for lease reinstatement would decrease to 16.7%, from 20%. Rental rates would be reduced to a minimum of $1.50 per acre per year for the first five years of the lease, increasing to $2 per acre per year for each year after. The current rates are $3 per acre for the first two years, increasing to $5 per acre for the next six years, and $15 per acre per each year after. A minimum royalty, no less than the rental amount, would be paid at the expiration of each lease year once oil or gas is discovered. The measure would eliminate a nonrefundable fee charged to any person that submits an expression of interest in leasing land for oil and gas exploration and development.


Competitive Bidding: Lands without any bids or with bids less than the national minimum would be offered within 30 days for leasing without competitive bidding. The land would remain available for leasing for two years after the competitive lease sale. In those cases, the first qualified applicant would be entitled to the lease without competitive bidding. A $75 nonrefundable application fee would be require and the leases would be subject to a 12.5% royalty rate. A lease holder could choose to continue a lease as a noncompetitive lease under certain conditions when the land is capable of producing oil or gas. Competitive and noncompetitive leases, including tar sand areas, would be for a primary term of 10 years.


Lease Sale Litigation: The measure would clarify that any oil or gas lease sale couldn’t be vacated and activities on awarded leases couldn’t be limited or delayed unless a judicial review determines that the lease would pose substantial environmental harm and that there’s no equitable remedy available. Courts, in response to any NEPA action, couldn’t issue an order preventing the award of a lease if the Interior Department previously opened bids for such leases.

Revenue Sharing

Offshore Oil and Gas: The measure would modify how revenue from energy leasing is shared among states and the federal government. The portion of offshore oil and gas revenue deposited into the Treasury’s general fund would be reduced to 37.5% from 50%. The other 62.5% would be split among states, with Gulf producing states’ portion increasing to 80% from 75% and state financial assistance for land and water conservation decreasing to 20% from 25%. The measure would eliminate limitations on the total amount of revenue disbursed to states each year and instead stipulate that the amounts disbursed to Gulf producing states be treated as revenue sharing and not as a federal award or grant. State revenue payments would also be exempt from budget sequestration after the bill’s enactment.


Offshore Wind: For revenue collected from offshore wind projects, 12.5% would be deposited into the general fund of the Treasury, 37.5% into the North American Wetlands Conservation Fund, and 50% to qualified states.

The funding for states would be allocated based on a formula that is inversely proportional to the distances between the point on the coastline of each eligible state that is closest to the geographic center of the leased tract. Each state would get a minimum of 10% of the total revenue set aside for qualified states. The measure would also require 20% of each state’s share to be allocated to coastal political subdivisions of the state.

States would have to use their funds for specified purposes, including coastal protection, resiliency, conservation, and port infrastructure improvements. Governors would be required to submit an annual report to the Interior Department on how they use the funds within 180 days of the end of each fiscal year. If they don’t submit the report on time, their funding for the succeeding year would be deposited into the Treasury instead. Payments to states would be treated as revenue sharing and would also be exempt from sequestration.


Administrative Fee: The measure would eliminate a 2% annual deduction for administrative costs from payments to states relating to onshore land sales, bonuses, royalties, and rentals.

Cross-Border Energy Infrastructure

International border crossing facilities, which are used to import or export natural gas or oil, or to transmit electricity, couldn’t be constructed, connected, or operated without a “certificate of crossing.” The new certificates would be issued by the Federal Energy Regulatory Commission (FERC) for pipeline projects or the Energy Department for electricity transmission projects. Electricity transmission projects would have to comply with standards set by the Electric Reliability Organization and any other relevant organizations that have “functional control” over the facility as a condition of receiving a certificate. The measure would repeal a federal law that requires entities to secure an order from FERC to transmit electricity from the US to a foreign country. Presidential permits wouldn’t be required for border crossing facilities, including for modifications. The president couldn’t revoke existing presidential permits for the facilities unless authorized by Congress. The bill’s certification requirements wouldn’t apply to facilities already in operation, or those with existing presidential permits or pending applications.


Keystone Pipeline XL: The measure would express the sense of Congress that lawmakers disapprove of President Joe Biden’s revocation of the presidential permit for the Keystone XL pipeline in 2021.

Natural Gas Regulation

The measure would give FERC the exclusive authority to approve or deny applications to construct, expand, or operate facilities to export or import natural gas to or from a foreign country, including a liquefied natural gas terminal. The commission would consider natural gas imports and exports to be in line with the public interest when making a determination about an application. The measure wouldn’t affect the president’s authority to sanction gas imports or exports that involve a state sponsor of terrorism.


Environmental Reviews: FERC would be designated as the only lead agency for assessing the environmental effects of federal projects related to natural gas through the NEPA review process. Other agencies would have to give deference, to the maximum extent authorized by law, to the scope of project-related NEPA reviews that FERC determines to be appropriate. FERC, within 45 days of receiving a covered application, would have to invite other relevant federal, state, local, and tribal governments to participate in the review process.

The deadline for federal authorization of natural gas projects would be within 90 days after the commission completes its NEPA review.

Water Quality Certification

Applicants for federal authorizations to conduct activities that could cause pollutants to be discharged in US waters wouldn’t have to provide a water quality certification as required under the Clean Water Act. State or interstate agencies identified by FERC as participating in the NEPA review process could propose conditions to ensure activities resulting in discharges comply with federal laws governing water pollution before an authorization or certification is granted. The commission could include those conditions in an authorization or certificate for activities that would result in pollutant discharge only if it finds that the terms are in compliance with general water pollution control laws. The measure would specify that the EPA, states, and interstate agencies with the authority to grant water quality certifications could make determinations based only on water quality standards set by the Clean Water Act. The agencies would have to publish related certification requirements within 30 days of the bill’s enactment, and any decisions to grant or deny applications would have to be provided in writing. The agencies would also have to identify any additional information needed to process a certification request within 90 days of receiving it.

Critical Energy Resources

Critical energy resource facilities, which refine resources determined by the Energy Department to be essential to the US energy sector and vulnerable to supply chain disruptions, would be granted “interim status” for hazardous waste permits until the Environmental Protection Agency or a state permitting program instructs the facility to submit Part B of its permit application. The permitting application process is divided into parts A and B. The EPA would be authorized to issue flexible air permits for covered facilities under the Clean Air Act, allowing them to make physical or operational changes without further review or approval. If the EPA determines, in consultation with the Energy Department, that there’s a need to process or refine a critical energy resource due to a sudden increase in demand or shortage, it could issue a temporary waiver of Clean Air Act requirements. The agency would have to ensure, to the maximum extent practicable, that the waiver doesn’t conflict with any federal, state, or local environmental laws and that it minimizes any adverse environmental effects. Waivers would expire within 90 days after they’re issued, with possible renewals. Parties wouldn’t be subject to penalties under federal, state, or local laws for actions taken when a waiver was in effect if it’s later stayed or modified by a court. The EPA would be “relieved of any requirement” to determine whether a critical chemical substance poses unreasonable health or environmental risks if it doesn’t act before a statutory deadline. The EPA couldn’t require applicants to withdraw a notice of intent to manufacture a new chemical substance or to process or manufacture a chemical substance for a significant new use, or request to suspend the review period, unless the agency has conducted a preliminary review and provided the applicant a draft of its determination.

Environmental Incentive Repeals

The measure would repeal several incentive programs established or expanded by the Democrats’ 2022 tax, health care, and climate change law, including a program imposing fees for methane emissions, the Natural Gas Reduction Fund providing resources for projects that reduce greenhouse gas emissions, the high-efficiency electric home rebate program, state-based home energy efficiency contractor training grants, and assistance for zero-energy building code adoption. Unobligated balances from the programs would be rescinded.

Other Provisions

Hydraulic Fracturing: The president couldn’t declare a moratorium on hydraulic fracturing unless it’s authorized by Congress.


Hydrofluoric Acid in Refineries: Operators of refineries that use a hydrofluoric acid alkylation unit couldn’t be required to assess safer technology and alternative risk management measures.


Group Positions

SUPPORTERS of the measure (Floor Alerts) include the American Chemistry Council, American Clean Power Association, Citizens for Responsible Energy Solutions, National Electrical Contractors Association, and the US Chamber of Commerce.


The Wilderness Society OPPOSES the measure (Floor Alert).

 

From the Hill is an industry snapshot for Capitol Core Group clients in select industries of interest. It is compiled from Capitol Core research and discussions as well as outside resources including Bloomberg Government, Roll Call, and other relevant sources. All data provided is public data but is compiled for ease of understanding.


This is the first in the series on the topic of energy policy.


As a 30-year veteran of electric energy policy, Michael W. McKinney leads Capitol Core Group’s energy practice (m.mckinney@capitolcore.com)

 

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