Energy Policy:

NPRA President Slaughter discusses whether MTBE will gum up energy bill debate

National Petrochemical & Refiners Association President Bob Slaughter discusses MTBE language and other issues dealing with passage of this year's energy legislation with E&E Daily senior reporters Mary O'Driscoll and Brian Stempeck.

Transcript

Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Our guest today is Bob Slaughter, president of the National Petrochemical Refiners Association. We're also joined by my colleague, Brian Stempeck, senior reporter with E&E Daily and Greenwire. Mr. Slaughter, I wanted to ask, many of your members are producers of MTBE, the fuel oxygenate that got caught up in the energy bill deliberations last session. A lot of people blame that issue for the failure of the energy bill. Do you think that blame is misplaced? Do you think it should be shared by other issues, or just what?

Bob Slaughter: Well, I think it's misplaced, and certainly at the very least, it should be shared by many different considerations and issues that were very current at the time. There are a lot of difficult sections of this bill that had been controversial. From time to time the electricity section has been very controversial. Some of the nuclear sections have been controversial. You also had the fact that we were in an even-numbered year, which meant that we were in a political year. And there were some very potent political considerations too, that I think affected whether people really wanted an energy bill or not. The good new is, this year I think people are seeing an opportunity to really get an energy bill done. And I believe that people are going to be more optimistic about getting a bill this year. And I think it is very realistic to think that we can have a final product.

Mary O'Driscoll: Well, there's some thinking, though, that the MTBE issue is going to be one of those that's brought up toward the end of the process, because it was kind of the sticking point, or one of the final sticking points in the energy bill debate last time. And then there is some fear among people that this could derail it once again. Is there any movement, that you know of, other than I know that your members wanted to have the liability protection for product liability protection, but that did not really pass much muster in the Senate. Indications are it will not do so again this year, or this term. Is there any other alternative you're looking at, to try to get this issue addressed?

Bob Slaughter: Well, I think I'd like to disagree with some of the assertions you've made. First of all, to say that it didn't pass much muster in the Senate. It did. It was part of a conference report that got 58 votes. It was just two short of what we needed to have the bill go through the Senate. The limited liability provision, which covers not just MTBE, but which also covers renewable fuels, such as ethanol, has been a part of this debate from the very beginning. It has been part of every bill that has passed the House. It was part of the bill that passed the House three times in the last Congress. And it was in the only conference report, which has emanated from consideration of this issue, and did receive 58 votes. So, getting back to your previous question about, I think that the MTBE provision, really, was just the fall guy for a lot of different reasons why people weren't really ready to have a product in the last Congress. This time, I think a lot of people are ready to have a product. I think it's much too early to be counting votes. We've got a whole process ahead of us. But, I think this is going to remain a part of this debate. It is very important to the production of transportation fuels in this country that this issue be resolved. And I think things are good for a bill with this as part of the process this year.

Brian Stempeck: But if Senator Domenici realizes that he can get through on an energy bill without having the liability protection, and it saved some kind of LUST-type, underground storage type fund, discussed as a compromise in the past few months. Is that something that you would be willing to support? Or is the liability protection, is that a deal breaker?

Bob Slaughter: Well, the liability protection is an extremely important issue. It's, in fact, the number one issue to refiners and the oil industry, as well as to many portions of the petrochemical industry in this debate. We'll have to see where things go in the Senate, as we reach the beginning of this debate. And when it comes to the discussions about some kind of LUST fund provision, that is no replacement for the MTBE limited liability provision. The MTBE limited liability provision would have to be a part of any type of mechanism. The LUST fund idea, which was discussed a bit at the very end of the last conference, was not an idea of ours. It was an idea that Senator Stevens was talking about for a while. It merely was a way to augment the fact that -- a little noticed fact -- that the conference report on this bill makes $800 million available for expedited cleanup of MTBE. That didn't receive a lot of play. We're hoping more people notice that provision this time around than the last. But most people don't realize 95 percent of the cleanups under the LUST fund are basically paid for by responsible parties, by state insurance funds, or private insurance. The orphan fund share, which is the only part that you really would have to worry about finding another source of payment for, is handled by the LUST fund. And Senator Stevens, I believe, was talking about making that more apparent, and making the flow of money quicker, more readily available to take care of cleanup of orphan sites. But it's not a substitute for the limited liability provision.

Brian Stempeck: Why is there such a huge gulf between your estimates of what kind damages there are from MTBE, and what we're seeing from some of the water groups? They say it's upwards of $30 billion. You're saying $800 million. That's a huge gulf. And it doesn't seem -- maybe neither one is right, there is a middle ground -- but why such a big difference between those two numbers?

Bob Slaughter: Well, first of all, we've not said $800 million. It's actually, probably less than that. The simple reason why the numbers are different is that their number is wrong. The number that they have been using is an aggregate number which fluctuates between $2 billion to $29 billion. I saw a number this morning of $92 billion that I'd never seen before. But basically, to do that, they're aggregating together, they're pretending like there's no private money that will clean up any of these sites. EPA says that 95 percent of the funds will be provided by private money, responsible parties, state insurance funds and also private insurance. They're pretending that isn't true. They have, inflated, taken EPA's number for the cleanup of sites that include MTBE, which is about $170 million. They've decided in their own mind, with no attribution, that that is $400 million and they've used that as a multiplier. They've pretended as if all of the sites that have been impacted by any fuel additive are MTBE sites, which also is not true.

Brian Stempeck: But at the same time, around the country you have hundreds of lawsuits being filed, in California, on the East Coast, in New York. All of these local water utilities saying, "Our water is tainted. It smells like turpentine. Somebody's gotta pay for this." How could that be less than a billion dollars? It seems like if you have 150, 200 lawsuits going forward that would clearly be a lot more money than you're talking about.

Bob Slaughter: Remember that 95 percent of the costs are borne by responsible parties, by --

Brian Stempeck: What do you mean by responsible party? Are you talking about station owners?

Bob Slaughter: No. It's essentially when you have a spill, and they're basically trying to determine who is responsible for the spill, you go through a process and eventually, responsible parties are determined. They will pay for the site. Our industry, when our industry is responsible for any kind of problem like that, we clean up the problem. And the whole system of responsible parties takes care of 95 percent of these costs. And what we're talking about is an orphan share cost, which usually is around 5 percent, which can be handled through the LUST fund. What you have here, is you have a race to the courthouse that was basically started when it became obvious that there was going to be some kind of attempt to deal with this very serious problem as part of the last conference report. People are being sued in these lawsuits, who didn't make MTBE, who never made gasoline containing MTBE. They just merely, maybe took gasoline on exchange from someone else to satisfy part of the demand of their customers. And all these people were doing was obeying the law in the 1990 Clean Air Act amendments, that basically mandated them to make gasoline containing an oxygenate, which senators knew at the time, and so did people in the House, would in large part be met by MTBE. So, all this is, is an attempt to penalize people for obeying the law, which is not fair.

Mary O'Driscoll: Let's kind of expand the discussion a little bit, to go to the energy bill, just in general, that the Congress has started up a new debate on the energy bill this year, drafts being discussed and issues bandied about. What would your organization like to see, other than MTBE, in the energy bill?

Bob Slaughter: Well, we're very interested in the fuels provisions that have been a part of the bill through all three congresses. We're very interested in seeing a repeal of the 2 percent oxygenation requirement in reformulated gasoline, which was part of the 1990 Clean Air Act amendments. We argued very strongly at the time, and I confess, I'm old enough to have been one of the lobbyists working the issue in 1989 and 1990. We argued, very strenuously, that that 2 percent oxygenation requirement was not necessary. And so, we essentially opposed the provision that has led to the mandatory use of MTBE, or other oxygenates in RFG. That should be removed, and refiners given more flexibility to make the gasoline that best suits the environmental characteristics of the different areas we serve. That's extremely important. Also, there is some language in there that would study the boutique fuel problem, that has received a lot of attention, and basically, develop some solid evidence on which we could decide whether there is a real problem there, and if so, what should be done. It mandates joint work by EPA and DOE on that subject. We'd like to see more provisions in this year's bill than we've seen in the past on natural gas supply. Our petrochemical manufacturers, 70 percent of them use natural gas and gas liquids as feed stocks. So we're very interested in seeing something that will increase the domestic production of natural gas. We're for LNG. We're for Alaska gas, but we're gonna have to do more to produce from domestic sources, in order to keep this very important industry competitive and located in the United States, thereby, 550,000 pretty good jobs in the United States -- very good jobs -- that are in the petrochemical industry, or directly dependent on it. And we need more gas to help serve that industry.

Brian Stempeck: Going back to what you said about getting rid of the oxygenate requirement. Congress, of course, also wants to include an ethanol mandate, and I know your group has some mixed feelings about that. If an energy bill does contain liability protection for MTBE, and some of these other things that you're looking towards getting, that also contains the ethanol mandate. How does that balance out for you guys? Is that something, overall, that's a win for you?

Bob Slaughter: Well, I think that's a very good question, Brian. In the end, you always hate to just absolutely commit to what a situation is going to resolve in what decision. But, we did make a decision at the end of the last Congress that we would support the conference report on the H.R. 6, which did contain an ethanol mandate, as you know, 5 billion gallons in 2012, a significant increase in ethanol use, because on the whole, we thought that that package was worthy of our support. It did include the limited liability provision for renewables and MTBE. So you have to be a little bit pragmatic if you're going to get a product out of the Congress, basically, and I think the nation badly needs a more supply driven energy bill. Our association's been talking about that now for five years. And as I said before, when we started, this seems to be the Congress that may actually end up in passing such a bill and we certainly will want to be encouraging it.

Brian Stempeck: Let me switch to refining capacity for a minute. Last time that there was some hearings on this, Joe Barton introduced a bill on refining capacity. There was a hearing of the EPW Committee. Since then, it seems kind of loss of momentum, in terms of looking for ways to expand our buying capacity into the environmental regulations you're dealing with. Is Congress doing enough? And what else can they do to try this refining capacity in the U.S.?

Bob Slaughter: Well, I believe you'll be hearing some more about the issue. One, that refining issues generally become front and center during the peak gasoline demand season, which usually starts in the spring and goes through the fall. And so, some of these issues, I think, will become front and center again. The National Petroleum Council had a study that was done at the end of last year on U.S. refining capacity and fuel supply needs, updating a previous study. I'm testifying this week before the Energy and Environment Subcommittee, on the House side. And I'm going to talk about the findings of that report, which do recommend that we take more action, domestically, to make sure that we don't make it difficult to add capacity here. There are a lot of things that make it difficult to add capacity in the United States. It's hard to build any new heavy manufacturing facility here. No refinery bill for the last, almost 30 years now. But, some of that is an economic decision as to where you would build a refinery or add capacity, that there is a huge NIMBY factor here, permitting goes on forever. Folks in Arizona have been trying to build a refinery out there for 10 years. It's one of the fastest growing demand areas in the country. They can't get one built. But, basically, we've got to do a little bit better job, I think, of managing the balance between our environmental and energy policies. This decade, the refining industry will spend about $20 billion in new fuels and stationary source programs to make cleaner fuels. Programs aren't always sequenced in the appropriate fashion. They get pancaked, one on top of the other. The New Source Review program, which has been a mess for the last 10 years, is finally being straightened out. That's been something that has hampered the addition of capacity in the United States, and even the installation of modern technology that could be very good environmental technology.

Brian Stempeck: Last summer, Senator Inhofe said that one of the things he was going to look at was streamlining the permitting process from your refineries. Has he followed through with that? Is that something you would expect to see to come on the table after Clear Skies, and after the transportation bill? Or is that just not going to be tackled this year?

Bob Slaughter: Well, I think it could well come forward. We talked with Senator Inhofe's staff. I know a number of stakeholders have discussed this issue with him. We've encouraged them to try to look at something that will encourage states to move on permit requests for adding capacity, or changing and producing cleaner fuels, kind of a carrot-and-stick approach, because you don't want to pre-empt the states. A lot of this is a state decision, but you want to set up some kind of incentive program that will allow adequate public input, but not forever, so that we can get closure on some of these matters. And frankly, Congressman Barton had a bill on refineries, Senator Inhofe has looked into this issue. I think we'll hear more about them this year.

Mary O'Driscoll: I wanted to ask, do you think there's actually going to be an energy bill this year? Are we going to get one next year? What's your prognostication?

Bob Slaughter: Well, I'm an optimist. And you don't know me well enough, but I'm usually not. I've been in town a long time, and so I'm not always the world's greatest optimist. But I'm feeling better about an energy bill this year. There are a lot of serious questions people have about the doability of various parts of the energy bill, and the whole kit and caboodle. But I think enough people know that America really needs a new supply-based energy bill. And I think it'll happen during this conference, this Congress.

Mary O'Driscoll: Well, we'll have to end it on that note. I'd like to thank our guest, Bob Slaughter, president of the National Petrochemical and Refiners Association, my colleague, Brian Stempeck. And I'm Mary O'Driscoll. We'll see you next time, on another edition of OnPoint.

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