Oil and gas in the Capitals

Energy matters muddle along in Congress. The fox-hunting season began a little early this year in Washington. A stream of corporate scandals, accounting frauds and CEOs’ greed for non-results-based compensation has provoked bi-partisan, rhetorical outrage on Capitol Hill and in the White House. Events have forced the Bush administration to propose a crackdown, and legislative moves in Congress may herald a return to Big Government intervention.

The energy industry (with the exceptions of Enron, CMS and other electricity / natural gas traders) has managed to mostly stay out of it so far. However, oil and gas companies – big and small – will still be scooped into the maw, as the congressional frenzy of "let’s fix it" gathers momentum. Nor is any American company or CEO immune from the crisis of confidence among investors.

As Washington-based Hudson Institute economist Irwin Stelzer said, "The uncertain outlook for future profits is bad enough. But add to that the dawning realization that past profits – duly recorded on the books and certified as real by auditors – were mere smoke and mirrors, and you have an invitation to stay away from shares."

Cracking down on big business has become fashionable in Washington. Democrats and Republicans are vying for who can be the toughest on dubious accounting, so-called "earnings management" or outright fraud (distinctions are not always clear). Whichever party comes up with the strongest, anti-business legislation may well determine who controls the Senate after November.

Thus, the Washington "Blame Game" is in full swing. Democrats blame Republicans and vice versa – business as usual. In what nuclear plant operators charitably call "cognitive dissonance," House Minority Leader Dick Gephardt (Democrat-Missouri) has blamed President Bush for the accounting fiasco. He whines about the scandal being allowed to continue for eight years (even if Democrats were in the White House for six-and-a-half of those years). The only trouble with all this (as California’s electricity situation demonstrated) is that when politicians become involved in business matters, they invariably make things worse than before.

Despite all the headline-grabbing accounting scandals, the quotidian energy business of Capitol Hill rumbles on imperturbably. The House-Senate conference committee on energy policy agreed in late June to a schedule that stretches debate on roughly 1,500 pages of energy bill (H.R. 4) text over many months ahead, leaving really controversial issues like ANWR (Arctic National Wildlife Refuge) and CAFE (Corporate Average Fuel Economy) standards to the end.

U.S. Sen. Jeff Bingaman has control over his chamber’s actions on upstream oil and gas matters.

Politicians made the usual portentous noises. Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (Democrat-New Mexico) said, "This conference has an important responsibility. A balanced, comprehensive bill is key, if we are to have an energy policy that is good for the economy over the long term."

Oil, gas, nuclear, coal and electric utility companies strongly support some version of an energy bill, as soon as possible. Only consumer groups dislike the version now under debate. One such group said of the conference draft bill, "There is probably not a more anti-consumer, anti-taxpayer piece of legislation in the Congress."

ANWR remains a huge glacier in the way of any energy bill. Sen. Frank Murkowski (Republican-Alaska) says that lawmakers must boost U.S. oil production by opening the refuge to drilling, especially given the need for homeland security. Conversely, Senate Majority Leader Tom Daschle (Democrat-South Dakota) dismisses ANWR as a "moot issue." Daschle harbors presidential ambitions and thus opposes ANWR, to suck up to the environmentalist vote. No one can imagine any other reason, for which he would have such a passionate interest in the issue.

The House-Senate energy bill conference committee will become fraught soon, as there is much work to be done and not that many legislative days left before the scheduled congressional adjournment in October. There are many other issues on lawmakers’ agendas besides energy. It is by no means unimaginable (and perhaps even probable) that a conference stalemate will push the energy bill debate over to the next Congress. Washington cynics say that this would not be bad, because the best national energy policy is no policy.

As often happens, the debate is less about energy than about politics and tax breaks (translation: pork) – witness President Bush’s decision to ban exploration offshore Florida, to politically assist himself and his brother (Republican Gov. Jeb Bush) in that state. Generally, Republicans favor subsidizing development of indigenous energy resources. Democrats prefer subsidies for conservation and renewables. This philosophical gap can be wide.

Much of how this plays out during November’s elections depends on economic performance in the wake of corporate accounting chicaneries and upon how much political adroitness is employed by President Bush and the congressional Republicans. Investor confidence has taken a blow to the abdomen, but there are sanguine signs. A Wall Street Journal poll of 55 leading economists yielded (with uncharacteristic unanimity for practitioners of the "Dismal Science") a U.S. economic growth rate of 3.7% in fourth-quarter 2002 and 3.6% in first-half 2003, with inflation under control. Such economic resilience bodes well for oil and gas.

And like the sparklers on July 4, little gleams of humorous light can be seen everywhere. "Heard about the rumored merger between Motorola and Enron?" asked one wag. "The new company will be called ‘Moron’."

John McCaughey edits and publishes Energy Perspective, a Washington-based, fortnightly publication that features in-depth coverage of major energy topics. Mr. McCaughey has written and edited for Irish newspapers, an international news agency, the London-based Financial Times and the U.S.-based Energy Daily newsletter, and contributed to many other newspapers. He is a regular contributor to this column.