updated 6/28/2005 10:46:46 AM ET 2005-06-28T14:46:46

After four years and two rounds of effort that failed to produce a law, the Senate has approved a sweeping energy bill designed to boost domestic production of oil, natural gas, coal, nuclear power and alternative energy.

With energy prices rising -- including a recent spike in prices at the gas pump -- the measure passed by a heavy margin, 85-12. The White House also recently stepped up pressure on the Senate to deliver an energy bill. At $16 billion, the bill's cost is nearly three times what the White House said it would like to see. A separate energy bill passed by the House in April would cost $8 billion.

But with oil prices breaking $60 a barrel and gasoline prices up sharply at the pump, the bill offers no immediate relief from surging energy prices.

“This isn't going to change the gas price immediately,” Sen. Craig Thomas, R-Wyo., a member of the Senate Energy Committee, told CNBC last week. “But I do think it will have an impact when we start to say, look we're going to look for conservation, we're going to look for alternatives and we're going to look for efficiency.”

But it remains to be seen whether those solutions will be found in the final version of the bill sent to President Bush for his signature. The Senate and House bills must now be merged -– kicking off a round of negotiations that doomed two previous attempts to enact a complete overhaul of U.S. energy policy. Once again, the two sides will have to agree on a controversial provision that has derailed the energy bill twice.

The House bill includes a waiver for makers the gasoline additive MTBE — now banned in a number of states after it was discovered leaking into water supplies. The Senate has once again opposed the waiver. Reliable estimates of cleanup costs have been hard to come by, but various estimates have suggested the final bill could come to tens of billions of dollars.

"It's going to be a tough conference (with the House)," Sen. Pete Domenici, R-N.M., who will lead the Senate negotiations with the other chamber, said last week.

The Senate also went further than the House to encourage conservation, including tax breaks for energy-efficient homes and purchases of energy efficient appliances and gas-electric hybrid cars.

But those measures will do little to cut oil consumption, since some 70 percent of oil consumed in the U.S. is used for transportation. A measure calling for a substantial increase in automobile fuel economy -– a major antidote to the “oil shocks” of the 1970s — was defeated late last week. Sen. Dick Durbin, D-Ill., proposed an amendment calling for an increase in automobile fuel economy standards to an average of 40 miles per gallon over the next decade. Instead, the Senate passed an auto industry-friendly measure that requires the Transportation Department  to consider a dozen criteria — including safety and economic impact — before raising fuel economy standards.

Opponents of increased mileage standards, including Sen. Christopher Bond (R-Mo.) called Durbin's proposal "politically inspired" and said it would force motorists into smaller cars, "result in more fatalities" and lead to lost auto industry jobs.

“You’ve just got substantial bipartisan opposition to them from the auto-producing states,” said James Lucier, an energy analyst at Prudential Equity Group in Washington. “Both the unions and management are both opposed the standards. Unfortunately I think that’s proven to be a disaster.”

Lucier says that policy has painted the U.S. car makers, which are now heavily invested in building relatively low-mileage light trucks and SUVs, into a corner.

Over the longer term, the bill could help ease tight gasoline supplies by helping speed the process of building new refineries. But even if approved by the House-Senate conference and signed by President Bush, it would be years before gasoline production from new refineries could be brought on line.

The Senate energy bill also will do little to rein in the recent surge in crude oil prices. With U.S. oil production continuing a long slow decline, the White House has repeatedly called on Congress to enact a bill to reduce the country’s dependence on foreign oil. The U.S. produces about 5.5 million barrels per day — about a third of overall demand — down from about 9 million bpd at the start of the “oil shocks” of the 1970s.

But while the Senate bill would require a cut in U.S. oil demand by 1 million barrels per day by 2015 there is little that can be done to boost crude oil output. The bill calls for an inventory of oil and natural gas reserves in U.S. offshore waters, including areas where energy exploration is now banned.  And it would expand the U.S. Strategic Petroleum Reserves from the current level of about 700 million barrels to 1 billion barrels. (At current rates of U.S. oil consumption, those reserves represent about two months of supply.)

The House bill proposed opening the Arctic National Wildlife Refuge in Alaska for drilling, and the Senate attached a similar measure to a budget resolution earlier this year. But it would take years for those reserves to be tapped, and the Department of Energy has estimated that peak production of about 1 million barrels per day would take decades.

As it has in the past, Congress has been generous with provisions to boost corn-based ethanol production, a popular issue with the powerful farm lobby. The House measure would require production of some 5 billion gallons of ethanol a year by 2012. The Senate bill calls for production of 8 billion gallons.

But those levels of ethanol production are only a drop in the gas tank. U.S. motorists currently consume about 144 billion gallons of gasoline a year.

The Senate energy bill would promote other energy sources with loan guarantees for development of technologies geared toward cleaner-burning coal and safer nuclear reactors. The bill also extends federal insurance for nuclear power plant operators through 2025 and offers companies some $2 billion in tax breaks, loans and credits to voluntarily reduce carbon dioxide emissions.

Power solutions
The bill also includes a number of provisions to help overhaul the nation’s aging electric power grid, including increased authority for federal regulators in siting new transmission lines. The bill would also repeal the 1935 law which prevents utilities in different parts of the country from merging, a move that is expected to accelerate a recent string of mergers of large power producers. And it would put in place mandatory standards for reliability and tax incentives for investments in upgrades to the transmission grid.

The Senate bill also includes a number of provisions to deal with other energy bottlenecks, including the production and distribution of natural gas. It would provide incentives for energy companies to drill for deep deposits of natural gas offshore. And the bill gives the Federal Energy Regulatory Commission greater powers to approve sites for liquid natural gas terminals, which would open up additional import capacity.

“It will create a framework in which industrial users of natural gas will have enough confidence that supplies will be available to maintain operations in the U.S.,” said Lucier, the Prudential  analyst.

(Associated Press contributed to this report.)


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