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Monday, July 16, 2012

Department of the Interior (DOI) Reorganization of Ocean Energy Programs


Curry L. Hagerty
Specialist in Energy and Natural Resources Policy

On June 28, 2012, the Department of the Interior (DOI) submitted to Congress the Proposed Final Five-Year Outer Continental Shelf Leasing Program for 2012-2017, a forward-looking schedule for ocean energy development mandated by the Outer Continental Shelf Lands Act (OCSLA, 43 U.S.C. 1331). This DOI submission to Congress marks the first substantive demonstration of the department’s new institutional structure since the Obama Administration overhauled the regulatory framework for managing ocean energy resources in 2010.

DOI institutional reforms, among other responses to the Gulf of Mexico oil spill of 2010, were aimed at correcting perceived shortcomings within DOI by strengthening federal regulatory policies toward drilling safety and environmental protection. The reforms within DOI took effect on October 1, 2012, creating three DOI agencies:

(1) Office of Natural Resources Revenue (ONRR, pronounced “Honor”), tasked with managing revenue owed to the government for the use of the public domain for energy and mineral development.

(2) Bureau of Ocean Energy Management (BOEM, rhymes with “Rome”), tasked with offshore leasing administration and environmental and economic analysis.

(3) Bureau of Safety and Environmental Enforcement (BSEE, pronounced “Bessy”), tasked with oversight and enforcement for field operations, inspections, workforce safety, and decommissioning.

Because ONRR, BOEM, and BSEE were not created by statute, statutory changes were not needed as part of the DOI reorganization. Legislative action during the first session of the 112th Congress included House and Senate hearings, first to oversee DOI permitting for offshore drilling operations and then to examine proposed legislation aimed at codifying agency reorganization (H.R. 3404, S. 917). H.R. 3404 was ordered to be reported by the House Committee Natural Resources on November 17, 2011. The Senate Committee on Energy and Natural Resources held hearings on S. 917 (S.Hrg. 112–51). No further legislative action on these bills has been scheduled.

Stakeholders (energy companies, developers, and state officials engaged in coastal and marine development) expressed uncertainty prior to the 2010 reorganization about whether, during the transition to the new system, DOI permitting for offshore operations would stay on track or be disrupted. Major disruptions stemming from the reorganization have not materialized, but some uncertainty about the workings of the new agencies remains a concern for some stakeholders in the aftermath of the reorganization. The Government Accountability Office (GAO) has undertaken a study to measure DOI performance since the 2010 reorganization and is expected to provide a report to Congress in 2013.


Date of Report: July 11, 2012
Number of Pages: 13
Order Number: R42599
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Thursday, July 5, 2012

Hydropower: Federal and Nonfederal Investment


Kelsi Bracmort
Specialist in Agricultural Conservation and Natural Resources Policy

Charles V. Stern
Specialist in Natural Resources Policy

Adam Vann
Legislative Attorney

Congress is examining numerous energy sources to determine their contribution to the nation’s energy portfolio and the federal role in supporting these sources. Hydropower, the use of flowing water to produce electricity, is one such source. Conventional hydropower accounted for approximately 6% of total U.S. net electricity generation in 2010.

Hydropower has advantages and disadvantages as an energy source. Its advantages include its status as a continuous, or baseload, power source that releases minimal air pollutants during power generation relative to fossil fuels. Some of its disadvantages, depending on the type of hydropower plant, include high initial capital costs, ecosystem disruption, and reduced generation during low water years and seasons.

Hydropower project ownership can be categorized as federal or nonfederal. The bulk of federal projects are owned and managed by the Bureau of Reclamation and the U.S. Army Corps of Engineers. Nonfederal projects are licensed and overseen by the Federal Energy Regulatory Commission (FERC).

Considered by many to be an established energy source, hydropower is not always discussed alongside clean or renewable energy sources in the ongoing energy debate. However, hydropower proponents argue that hydropower is cleaner than some conventional energy sources, and point to recent findings that additional hydropower capacity could help the United States reach proposed energy, economic, and environmental goals. Others argue that the expansion of hydropower in the form of numerous small hydropower projects could have environmental impacts and regulatory concerns similar to those of existing large projects.

Congress faces several issues as it determines how hydropower fits into a changing energy and economic landscape. For example, existing large hydropower infrastructure is aging; many of the nation’s hydropower generators and dams are over 30 years old. Proposed options to address this concern include increasing federal funding, utilizing alternative funding, privatizing federally owned dams, and encouraging additional small-capacity generators, among other options. Additionally, whether to significantly expand or encourage expansion of hydropower is likely to require congressional input due to the uncertainty surrounding the clean and renewable energy portfolio within power markets. Potential expansion of hydropower projects could take place by improving efficiency at existing projects or by building new projects, or both. Congressional support for this approach is evident in the House passage of the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2012 (H.R. 2842). Senate activity on this matter includes the Hydropower Improvement Act of 2011 (S. 629), which proposes to establish a grants program for increased hydropower production, and to amend the Federal Power Act (FPA) to authorize FERC to exempt electric power generation facilities on federal lands from the act’s requirements, among other things. Another issue is the rate at which FERC issues licenses for nonfederal projects, which is slower than some find ideal. The licensing process can be delayed significantly as stakeholders and the approximately dozen federal and state agencies involved give their input. FERC responded by developing a more streamlined licensing process in 2003. Still, some object to “mandatory conditions” that federal agencies can place on new or renewed hydropower facilities. The 112th Congress has introduced roughly 25 bills regarding hydropower, a quarter of which are state- or site-specific legislation.


Date of Report: June 26, 2012
Number of Pages: 24
Order Number: R42579
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Tuesday, July 3, 2012

The Strategic Petroleum Reserve: Authorization, Operation, and Drawdown Policy


Anthony Andrews
Specialist in Energy and Defense Policy

Robert Pirog
Specialist in Energy Economics

Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and Conservation Act (EPCA) of 1975 to help prevent a repetition of the economic disruption caused by the 1973-1974 Arab oil embargo. EPCA specifically authorizes the President to draw down the SPR upon a finding that there is a “severe energy supply interruption.” The meaning of a “severe energy supply interruption” has been controversial. The authors of EPCA intended the SPR only to ameliorate discernible physical shortages of crude oil. Historically, increasing crude oil prices typically signal market concerns for supply availability. However, Congress deliberately kept price trigger considerations out of the President’s SPR drawdown authority because of the question about what price level should trigger a drawdown, and the concern that a price threshold could influence market behavior and industry inventory practices. As a member of the International Energy Agency—a coalition of 28 countries—the United States agrees to support energy supply security through energy policy cooperation, commit to maintaining emergency reserves equal to 90 days of net petroleum oil imports, develop programs for demand restraint in the event of emergencies, and participate in allocation of oil deliveries among the signatory nations to balance a shortage.

The Department of Energy (DOE) manages the SPR, which is comprised of 62 underground storage caverns that were solution-mined from naturally occurring salt domes located at four sites in Texas and Louisiana. The 2005 Energy Policy Act directed SPR expansion to its authorized capacity of 1 billion barrels, but the SPR’s physical expansion has not proceeded beyond 727 million barrels. The SPR’s maximum drawdown capability is 4.4 million barrels per day, based on the capacity of the pipelines and marine terminals that serve it. Legislation restricts SPR sales to no more than 30 million barrels over a 60-day period for anything less than a severe energy supply interruption.

Congress initially appropriated funds to fill the SPR through crude oil purchases, but ended that practice in 1994. In 2000, the Department of Energy began acquiring oil to fill the SPR through the royalty-in-kind (RIK) program. In lieu of paying cash royalties on Gulf of Mexico leases, producers diverted a portion of their production volume to the SPR. The Secretary of the Interior administratively terminated the RIK program in 2009.

The DOE has conducted sales and loans of crude oil from the SPR for several different reasons. The 1990 Energy Policy and Conservation Act Amendments expanded SPR drawdown authority to include responding to short-term supply interruptions stemming from situations internal to the United States. U.S. Presidents have authorized emergency sales of SPR crude to meet IEA obligations during the 1990 Persian Gulf War, in the aftermath of Hurricanes Katrina and Rita in 2005, and after a prolonged disruption of Libyan crude in 2011. In addition to these emergency sales, the Department of Energy has released oil, from time-to-time, to test the SPR system, make loans to help refiners bridge temporary supply disruptions, and sold oil at the direction of Congress to generate revenue for budget deficit reduction.

The 30.64 million barrel SPR sale in 2011 reduced the SPR’s inventory from 726.6 million barrels to 695.9 million barrels. The SPR currently holds the equivalent of 80 days of import protection (based on 2012 data of 8.72 million barrels per day of net petroleum imports).


Date of Report: June 18, 2012
Number of Pages: 22
Order Number: R42460
Price: $29.95

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