Financial Performance of the Major Oil Companies, 2007-2011

Robert Pirog
Specialist in Energy Economics

Periods of rising oil prices can result in reduced economic growth, rising prices and reduced disposable incomes for consumers, as well as a deteriorating trade balance. For the oil industry, periods of high oil prices generally imply increasing cash flows and higher profits. While some view the improvement in the industries’ finances under these conditions as a business return no different than those earned in other industries, others view it as a windfall, a direct transfer from consumers, without any significant additional activity attributable to the industry. Although the U.S. oil industry is composed of many firms, to many the face of the oil industry is represented by the five major firms operating extensively in the U.S. market. These firms are: ExxonMobil, Chevron, BP plc, Royal Dutch Shell plc, and ConocoPhillips.

Over the period 2007 to 2011, oil prices were volatile. They increased to a record peak in 2008, declined rapidly at the end of 2008 and early 2009, and increased through 2010, and remained high during 2011. The total revenues and net incomes of the five major oil companies followed a similar pattern. However, the companies’ production of both crude oil and natural gas, their two key products, remained largely unchanged in the face of volatile prices, suggesting that for these firms, market price and the production of key products are not closely related.

During the period 2007 to 2011, the five major companies’ upstream activities of exploration and production contributed more to the total profitability of the firms than the downstream activities of refining and marketing.

During the period, capital budgets were more stable than the price of oil, and the companies’ exploration and production activities did little to increase their ability to produce oil or natural gas. The companies used their profits to carry out a number of activities, to include the distribution of dividends to shareholders, the repurchase of shares on the market to enhance investor holdings, and to carry out business strategies.


Date of Report: February 17, 2012
Number of Pages: 12
Order Number: R42364
Price: $29.95

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Federal Agency Authority to Contract for Electric Power and Renewable Energy Supply

Anthony Andrews
Specialist in Energy and Defense Policy

The federal government purchases roughly 57 million megawatt-hours of electricity annually (based on FY2007 data, the latest information available), making it the single largest U.S. energy consumer. The Department of Defense (DOD) alone consumes over 29 million megawatt-hours. The federal Power Marketing Administrations (PMAs) sell electricity at more than twice the volume of federal power purchases, over 127 million megawatt-hours of hydropower annually, and are projected to produce wind-generated energy far in excess of the 2005 Energy Policy Act (EPAct) mandates for increasing federal use of renewable energy.

Various statutes and regulations authorize federal agencies to enter into contracts for their utility services and designate the General Services Administration (GSA) as the lead federal contracting agency. Utility services include electricity, natural gas, water, sewerage, thermal energy, chilled water, hot water, and steam. GSA may enter into “area-wide contracts” for up to 10 years with electric utility service suppliers to cover the needs of federal agencies within the supplier’s franchise territory. GSA has delegated certain authority to DOD to enter into utility service contracts on behalf of the military departments, and delegated similar authority to other federal agencies. DOD can also enter into contracts for up to 30 years for services to operate energy generating facilities on military installations. To meet the EPAct renewable energy goals, multiyear “power purchase agreements” (upwards of 10 to 20 years) are proposed with small and merchant renewable power generators. The agreements would fully commit funds up front, contrary to the pay-as-you-go rules of the 1990 Budget Enforcement Act.

In addition to utility service contracts, federal agencies can also take advantage of utility sponsored incentive programs for reducing energy demand. Demand response and load management programs provide rate incentives and/or cash payments to utility customers in exchange for curtailing their energy demand during peak usage periods. Utility energy service contracts (UESCs) enable federal agencies to enter into contracts with utilities to implement energy and water related improvements at their facilities. Agencies may also fund energy-savings improvement projects with appropriations, or the utility may arrange to finance the project’s capital cost up front and recover the investment through its rate charge. Energy saving performance contracts (ESPCs) enable federal agencies to install energy efficiency improvements with no upfront capital costs. The 2007 Energy Independence and Security Act (EISA) authorized federal agencies to combine appropriated funds and energy service companies’ (ESCO) private financing for ESPCs. The authority expands agencies’ opportunities to install solar energy generation.

The 1978 Public Utilities Regulation Policies Act (PURPA) defined a new class of small renewable energy generators that produce less than 80 megawatts and required electric utilities to purchase the electricity generated at the utility’s “avoided cost” of power production via a stateauthorized “power purchase” contract (also referred to as a power purchase agreement). However, state laws and regulations vary on the use of the contracts. States are more likely to permit the contracts when the purchaser is a utility, because the utility is responsible for providing firm uninterrupted power to the customer. Four PMAs market and distribute hydropower in 34 states to public utility districts and cooperatives at cost-based rates. EPAct directed the PMAs to study the economic and engineering feasibility of combining wind-generated energy with hydropower and to conduct a demonstration project that uses wind energy generated by Indian tribes. Short of amending federal contract authority, federal agencies may have recourse to meet EPAct mandates by purchasing power through the PMAs.


Date of Report: February 1, 2012
Number of Pages: 24
Order Number: R41960
Price: $29.95

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Energy and Water Development: FY2012 Appropriations

Carl E. Behrens, Coordinator
Specialist in Energy Policy

The Energy and Water Development appropriations bill provides funding for civil works projects of the Army Corps of Engineers (Corps), the Department of the Interior’s Bureau of Reclamation, the Department of Energy (DOE), and a number of independent agencies.

President Obama’s FY2012 budget request for Energy and Water Development was released in February 2011, but the Congress was concerned for the first months of the year with completing the appropriations cycle for FY2011. As with other funding bills, the FY2011 Energy and Water Development bill was not taken to the floor in either the House or the Senate in the 111th Congress. Funding for its programs was included in a series of continuing resolutions, and at the beginning of the 112th Congress was part of a major debate over overall spending levels. Energy and Water Development programs were included in the Department of Defense and Full-Year Continuing Appropriations Act (P.L. 112-10) that became law April 15, 2011.

For FY2012 the level of overall spending was a major issue. In addition, issues specific to Energy and Water Development programs included:

•          the proposal to offset additional emergency supplemental funding for the Corps, for flood-related expenditures in the Midwest and elsewhere, with cuts in other programs; 

•          the distribution of appropriations for Corps (Title I) and Reclamation (Title II) projects that have historically received congressional appropriations above Administration requests; 

•          alternatives to the proposed national nuclear waste repository at Yucca Mountain, Nevada, which the Administration has abandoned (Title III: Nuclear Waste Disposal); and 

•          large differences in funding proposals for Energy Efficiency and Renewable Energy (EERE) programs (Title III).

On June 2, 2011, the House Appropriations Subcommittee on Energy and Water Development approved a FY2012 bill that would appropriate $30.6 billion for these programs, compared to the Administration’s request of $36.5 billion. The full Appropriations Committee voted out the bill (H.R. 2354) June 15. The bill passed the House July 15 by a vote of 219-196. On September 7 the Senate Appropriations Committee reported out its version of H.R. 2354 (S.Rept. 112-75).

On October 4 the House agreed to a Senate-passed version of H.R. 2608, the Continuing Appropriations Act, 2012, funding government programs at the FY2011 level through November 18. The bill earlier had emergency funding for the Corps and for the Federal Energy Management Administration (FEMA), but that was deleted when agreement could not be reached over whether funding should be offset.

After several more short-term continuing resolutions, the House on December 16 and Senate on December 17 passed the Consolidated Appropriations Act, 2012 (H.R. 2055, P.L. 112-74), including Energy and Water Development Programs in Division B. Emergency funding for the Corps was included, without offsets, in a stand-alone bill (H.R. 3672, P.L. 112-77) that passed on the same days.


Date of Report: February 6, 2012
Number of Pages: 74
Order Number: R41908
Price: $29.95

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Closing Yucca Mountain: Litigation Associated with Attempts to Abandon the Planned Nuclear Waste Repository

Todd Garvey
Legislative Attorney

Passed in 1982, the Nuclear Waste Policy Act (NWPA) was an effort to establish an explicit statutory basis for the Department of Energy (DOE) to dispose of the nation’s most highly radioactive nuclear waste. The NWPA requires DOE to remove spent nuclear fuel from commercial nuclear power plants, in exchange for a fee, and transport it to a permanent geologic repository or an interim storage facility before permanent disposal. Defense-related high-level waste is to go into the same repository. In order to achieve this goal, and in an effort to mitigate the political difficulties of imposing a federal nuclear waste facility on a single community, Congress attempted to establish an objective, scientifically based multi-stage statutory process for selecting the eventual site of the nation’s new permanent geologic repository. Congress amended the NWPA’s site selection process in 1987, however, and designated Yucca Mountain, Nevada, as the sole candidate site for the repository by terminating site specific activities at all other candidate sites.

The Obama Administration, in conjunction with DOE, has taken three important steps directed toward terminating the Yucca Mountain project. First, the Administration’s FY2011and FY2012 budget proposals eliminated all funding for the Yucca Mountain project. Second, the President and Secretary of Energy Steven Chu established a Blue Ribbon Commission to consider alternative solutions to the nation’s nuclear waste challenge. Third, and most controversial, DOE has attempted to terminate the Nuclear Regulatory Commission’s (NRC’s) Yucca Mountain licensing proceeding by seeking to withdraw the license application for the Yucca Mountain facility.

DOE’s withdrawal motion triggered strong opposition from a number of concerned parties. The states of Washington and South Carolina—each awaiting cleanup and removal of defense-related nuclear waste at the Hanford and Savannah River Sites, respectively—have played significant roles in the legal challenge to the license withdrawal. Claims challenging the Secretary’s authority to withdraw the Yucca Mountain license application were filed with both the NRC and the U.S. Court of Appeals for the District of Columbia (D.C. Circuit).

Although DOE’s motion to withdraw the Yucca Mountain license application was denied by the NRC’s Atomic Safety and Licensing Board, the NRC has suspended the licensing proceeding due to budgetary limitations.

While the result of the ongoing dispute over the legality of the attempted termination of the Yucca Mountain program remains uncertain, congressional action could have a significant impact on the fate of the Yucca Mountain facility. A number of leading House Republicans have voiced strong opposition to shutting down the Yucca Mountain facility. Consequently, the Yucca Mountain dispute will not only be contested before the NRC and the D.C. Circuit, but also in Congress.


Date of Report: February 2, 2012
Number of Pages: 30
Order Number: R41675
Price: $29.95

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Keeping America’s Pipelines Safe and Secure: Key Issues for Congress

Paul W. Parfomak
Specialist in Energy and Infrastructure Policy

Nearly half a million miles of pipeline transporting natural gas, oil, and other hazardous liquids crisscross the United States. While an efficient and fundamentally safe means of transport, many pipelines carry materials with the potential to cause public injury and environmental damage. The nation’s pipeline networks are also widespread and vulnerable to accidents and terrorist attack. Recent pipeline accidents in Marshall, MI, San Bruno, CA, Allentown, PA, and Laurel, MT, have heightened congressional concern about pipeline risks and drawn criticism from the National Transportation Safety Board. Both government and industry have taken numerous steps to improve pipeline safety and security over the last 10 years. Nonetheless, while many stakeholders agree that federal pipeline safety programs have been on the right track, the spate of recent pipeline incidents suggest there continues to be significant room for improvement. Likewise, the threat of terrorist attack remains a concern.

The federal pipeline safety program is authorized through the fiscal year ending September 30, 2015, under the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (P.L. 112-90) which was signed by President Obama on January 3, 2012. The act contains a broad range of provisions addressing pipeline safety and security. Among the most significant are provisions that could increase the number of federal pipeline safety inspectors, require automatic shutoff valves for transmission pipelines, mandate verification of maximum allowable operating pressure for gas transmission pipelines, increase civil penalties for pipeline safety violations, and mandate reviews of diluted bitumen pipeline regulation. The Transportation Security Administration Authorization Act of 2011 (H.R. 3011) would mandate a study regarding the relative roles and responsibilities of the Department of Homeland Security and the Department of Transportation with respect to pipeline security.

As it oversees the federal pipeline safety program and the federal role in pipeline security, Congress may wish to assess how the various elements of U.S. pipeline safety and security fit together in the nation’s overall strategy to protect transportation infrastructure. Pipeline safety and security necessarily involve many groups: federal agencies, oil and gas pipeline associations, large and small pipeline operators, and local communities. Reviewing how these groups work together to achieve common goals could be an oversight challenge for Congress.


Date of Report: February 8, 2012
Number of Pages: 36
Order Number: R41536
Price: $29.95

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