Stateline Story

Energy Bill Has Pros and Cons for States

The federal energy bill that is on its way to the president's desk is a mixed bag for states.

Despite protests from governors and other state officials, the legislation grants broader federal authority to dictate where liquified natural gas ports and power lines can be located.

On the positive side, a key compromise allows states to sue makers of a gasoline additive that has poisoned water sources across the nation. And the act complements states' efforts to encourage the use of energy-efficient home appliances and cars.

The bill, which passed both the House and Senate late last week, has been a priority for President Bush since his first term and provides $14.5 billion in tax breaks to promote domestic production of oil, natural gas, coal, nuclear energy and renewable power.

But many coastal states have fought a provision to increase imports of natural gas, which is super-cooled to a liquid and arrives in special tanker ships. There are now just four terminals to handle liquefied natural gas (LNG) in Georgia, Louisiana, Maryland and Massachusetts. But nearly 40 more are proposed for U.S. waters, clustered mostly in New England and the Gulf of Mexico.

In the past, states have played a central role in determining if and where those facilities could be built, but the energy bill gives the Federal Energy Regulatory Commission (FERC) "exclusive authority" to approve the construction of LNG terminals in state waters or on state land.

While the governors of Louisiana and Texas -- traditional energy-producing states -- have welcomed the new ports, the National Governors Association sent a letter to senators in June, urging them to preserve states' authority over LNG terminals.

California and Rhode Island have filed lawsuits to halt proposed terminals in their states. State officials in Connecticut and Delaware also are trying to prevent LNG projects, and activists and local governments have protested the environmental and security risks of LNG in most other states where a terminal is planned.

Bryan Lee, a FERC spokesman, said the legislation only affirms the regulatory power his agency has always had.

But the bill gives FERC new power to set a deadline for both the federal and state permitting process. If a state misses that deadline, a federal appellate court could rule to approve the project over a state's objections, Lee said.

Governors and other state officials also have objected to a section of the energy bill that allows FERC to override a state on the construction of some power lines. Under the bill, states will have one year to approve transmission lines deemed a high priority by the U.S. Department of Energy. If the state rejects that proposal, FERC can overrule that decision.

States did win one major victory in the energy bill and will be allowed to sue makers of methyl tertiary butyl ether (MTBE), a gasoline additive used to clean up car exhaust in 19 states. The substance has been linked to cancer and has been found in water supplies even outside the states where it was added to fuel.

A provision to shield MTBE makers from legal liability was dropped from the House version of the bill late last month, allowing both chambers to agree to the legislation before they left for an August recess. A similar energy measure died in Congress in 2003, largely because of the MTBE issue and the question of drilling in Alaska's Arctic National Wildlife Refuge -- another proposal dropped from the legislation in July.

Congress also is following the states' lead in promoting some energy-efficient home appliances and cars. The bill offers tax credits up to $500 for consumers who buy energy-efficient heating and air conditioning units, upgrade their thermostats or replace windows.

Only Oregon offers tax credits for homeowners who buy efficient heating and cooling systems, according to the American Council for an Energy Efficient Economy. Nine states have passed energy efficiency standards for some new home appliances.

Hybrid cars that use a combination of electric and gasoline power, cars fueled by hydrogen fuel cells and fully electric cars also get a boost in the federal energy measure. Twenty states offer incentives to buy environmentally friendly cars, according to the Electric Drive Transportation Association.