Louisiana's senators disappointed after losing royalty debate

New Orleans CityBusiness, Jun 6, 2005 by Richard Slawsky

Although a provision granting Louisiana a greater share of offshore drilling royalties was stripped from a Senate version of the Energy Bill, the move wasn't a total loss for Louisiana. However, a little-noticed last minute addition to the bill could set the stage for a bigger controversy.

Sen. David Vitter, R-Metairie, has vowed to vote against the bill if it doesn't contain the offshore drilling royalty provision.

It's hard to express how disappointed I am, Vitter said in a prepared statement. Yet again, the Senate Energy Committee has failed to pass any royalty sharing to help us save our coast.

Vitter called the removal of the provision a real setback and said he will not support a federal Energy Bill without a change in royalty sharing between the states and the federal government.

Sen. Jeff Bingaman, D-N.M., opposed the royalty sharing provision and threatened to stall the package if the provision was included. Sen. Mary Landrieu, D-New Orleans, then withdrew her provision. Bingaman has since denied the threat and has said he only opposed the amendment.

Louisiana received $41.4 million from the federal government in 2004 for oil and gas royalties. New Mexico received $382.8 million as its share in 2004.

Louisiana is one of the few states that produces more oil and gas than it uses. For production in federal waters offshore, the state receives less than 1 percent of the royalties. New Mexico, on the other hand, receives 50 percent of the royalties from production on federal land within its borders.

The Senate Energy Bill is estimated to cost taxpayers approximately $11 billion, $3 billion more than the House version. President Bush is pushing for Congress to have a bill ready for his signature by August.

The Senate version avoids some of the more controversial issues in the House measure, such as drilling in Alaska's Arctic National Wildlife Reserve and a liability shield for manufacturers of the cancer-causing gasoline additive methyl tertiary butyl ether. Those issues must be reconciled before a final bill can go to the president.

One provision added May 26 to the draft bill originally released by the Senate Energy Committee is a measure repealing the 1935 Public Utility Holding Company Act. The PUHCA repeal, which appeared in previous versions of the Energy Bill, is also in the House version.

PUHCA's repeal has near-unanimous support of utility company officials, including New Orleans-based Entergy Corp. Proponents say the Depression-era law stifles competition and discourages investment in the U.S. electric grid.

Entergy continues to support the broad industry effort to pass legislation in the U.S. Congress to repeal PUHCA and transfer certain aspects of the oversight of public utility holding companies from the Securities and Exchange Commission to the Federal Energy Regulatory Commission, Entergy officials say in a statement on the company Web site. Entergy believes that PUHCA inhibits its ability to compete in the evolving electric energy marketplace and largely duplicates the oversight activities otherwise performed by FERC, other federal regulators, and state and local regulators.

Opponents say repealing PUHCA will lead to a wave of consolidation among utility companies, eventually leading to two or three companies having control over the electric grid.

Repeal would leave consumers vulnerable to the type of market manipulation and profiteering that characterized the 2001-2002 West Coast energy crisis and expose shareholders to poor investments and corporate fraud, according to the Washington, D.C-based consumer group Public Citizen. Officials from bankrupt Houston energy firm Enron, Public Citizen points out, repeatedly applied to the SEC for exemptions from PUHCA regulations.

The Public Utility Holding Company Act of 1935 is a federal law regulating the parent or holding companies of electric and natural gas utilities. The law forbids utility owners from speculating in riskier businesses with ratepayer money since such speculation harms utility credit and raises the cost of borrowing money, thereby raising utility bills.

PUHCA does not allow non-utility companies such as oil companies or investment banks to own utilities. It also requires the SEC to approve any merger or utility acquisition by a holding company.

While the royalty sharing provision was stripped from the Senate bill, Landrieu still plans to pursue the issue either as an amendment to the Energy Bill or as a standalone bill.

Louisiana is not asking for any more or any less than other states get, Landrieu said. It's a gross injustice and it's been her No. 1 legislative priority to get that changed, she said.

It's been a battle that we've been fighting intensely for the last eight years, Landrieu said. When it happens it will be a significant victory for the state.