3

(a) The National Environmental Policy Act (NEPA)

In this connection, it is premature to determine the timing, nature and scope of the environmental impact statement (EIS) required to be prepared pursuant to $102 (2) (C) of NEPA or the nature and timing of the permits that might have to be obtained by the affected refiners and importers, with respect to storage in their own facilities, from the Environmental Protection Agency (EPA), the Army Corps of Engineers and the appropriate State authorities under the Clean Air and Clean Water Acts and the Coastal Zone Management Act.

(a)

Possible Delays Occasioned by Litigation

Constitutional and EPCA Challenges:

Such

Our estimate is that litigation challenges based on constitutional grounds or on the alleged invalidity of the proposed program under the EPCA (areas 1 and 2 identified above) should be disposed of within nine months to a year. This estimate is based upon the experience of our regulatory litigators in defending other DOE regulations against challenges. More pertinent is the estimate that the filing of such suits need not seriously delay implementation of the IPR program unless the parties suing are able to persuade the court to enjoin implementation pending the outcome of the case. imposition of a preliminary injunction is not probable given that the party suing has the burden of establishing both the likelihood of success in the outcome of the case, and irreparable injury to itself that could not be cured by the damages or other relief it is seeking. A court is more likely to issue an injunction in cases where the issue involves something other than just money. With the exception of possible environmental claims, it is likely that most litigation disputes over the IPR would probably involve only money damages and hence would not, in the eyes of most courts, justify enjoining the program pending resolution of the issues in dispute. Furthermore, even if a preliminary injunction were imposed by a district court, DOE could take an immediate appeal against it.

However, it cannot be stated with certainty that no substantial delays would be involved without knowing the exact posture of each case. Furthermore, the mere fact of litigation may occasion some administrative delays and would, of course, involve DOE in additional legal work. This is a problem inherent in DOE's regulatory function. We are presently involved in about 250 law suits challenging our regulations. If companies suing were to appeal adverse district court rulings, the litigation would take longer to dispose of. Here, however, the prospects of the program being enjoined are even less.

Of course, should DOE receive an adverse ruling on the substance of a constitutional challenge or legal challenge based on the EPCA provisions, the program may have to be suspended until the illegal aspect is corrected or, perhaps, even terminated. However, an adverse district court ruling could, of course, be appealed by DOE and district courts will usually stay enforcement of an adverse decision until the agency has had an opportunity to have an appeal heard.

(b) Environmental Laws:

The potential for delay in the environmental area (area 3 identified above) is different and probably more serious. While it is, as stated, premature to assess the exact timing of preparing an EIS or obtaining necessary permits under the Clean Water and Clean Air Acts, it can be noted that failure to comply with applicable requirements could seriously delay implementation of the program. Potential delays are of two

types.

Firstly, parties dissatified with the EIS might sue in the Federal district court. Given the liberal attitude of most courts towards standing to sue in this area, potential plaintiffs could well include affected importers and refiners. Here, unlike the above-discussed constitutional and EPCA challenges, the potential for the plaintiffs enjoining implementation of the program are considerable if the EIS does not comply with NEPA; indeed, many cases in this area are effectively resolved at the preliminary injunction stage. Because of the expedited procedures for hearing and deciding preliminary injunction motions, the matter is likely to be resolved somewhat quickly and rapid appeals, if permitted, could be taken against adverse results. The prospects for delaying implementation during this period are limited; the court might grant a ten-day temporary restraining order on implementation. Should DOE successfully resist the

5

injunction, the program could continue unabated. However, should the plaintiff prevail, the court could enjoin the entire program, implementation of which would have to be suspended until the NEPA violation was corrected; it might then take several hearings to satisfy a court as to compliance. However, it must be noted that the basis for challenge under NEPA is that the EIS has not been adequately or properly prepared and utilized in the decision-making process, not that the program is environmentally unsound. Furthermore, the courts have not always granted injunctions, even where a violation of NEPA is found; more often they have required the agency to rectify the EIS within a certain period without stopping the program. This is more likely when they are asked to enjoin an entire program, such as the IPR, as opposed to a specific project, such as a dam.

Secondly, once the program is in force, there is considerable potential for delay in construction of the actual physical storage facilities in those cases where permits must be obtained under the Clean Air and Clean Water Acts for new or substantially modified facilities from the EPA, the Army Corps of Engineers, and the States. With respect to IPR storage in SPR facilities, the prospects for delay should not be substantially different from those of the SPR itself.

NSE TO ADDITIONAL QUESTIONS FOR THE RECORD

BY SENATOR WALLOP

NG ON MARCH 11, 1991 (Titles VII and VIII of S. 341)
VED FROM IPAA, Denise Bode

QUESTIONS FOR INDUSTRY WITNESSES (PANEL II)

1. Would you agree that many of today's energy problems stem from reliance on an international market-place where energy prices have no relationship to the costs of production or the full costs of maintaining access to those supplies?

IPAA agrees generally. Yet we hasten to point out that the term "market-place" might well mask the true nature of world crude oil commerce. Afterall, the vast majority of world oil supplies are controlled by governments, not by private sector enterprises, and traditional commercial factors alone do not drive oil production and marketing decisions by state-owned oil companies.

Nonetheless, it is important to point out that "cost of production" does have a bearing on the ability of OPEC nations to dominate world oil commerce. Specifically, OPEC nations have a cost of production considerably below that of U.S. private-sector firms. Constrained primarily by financial obligations which must be met by oil revenues, OPEC nations are able to manipulate production, supplies and, ultimately, prices of oil for purposes that may not be consistent with the U.S. energy and environmental policy goals which underly proposed national energy security legislation.

IPAA believes that a world oil price collapse, as experienced in
the late 1980s, will do serious harm to the U.S. oil and natural
gas resource base, hitting first and hardest U. s. stripper well
production. The impacts of cheap oil will also be harmful to
initiatives for conservation and alternative fuels. In addition,
IPAA believes there is a significant probability that oil prices
will collapse when Kuwaiti and Iraqi oil production returns to
the world market, unless there is an OPEC agreement to limit
production and to accept the proposition that oil will have a
decreasing share of world energy consumption.

Finally, IPAA believes that the costs associated with dependence
on foreign imports (i.e., military expenditures to assure access
to foreign supplies, increased environmental risks from inceased
tanker traffic, and losses to national wealth and economic
activity derived from mineral extraction, balance of payments
costs, and others) are not reflected in the price at the pump.
2. Do you agree that the United States must find the means to
stimulate development of competitive supplies by assuring
sufficient stability in domestic energy prices that investments
can be made in the development of domestic alternatives?

IPAA believes domestic oil price stability is the most important
"missing element" in current U.S. energy policy and the
administration's proposed national energy strategy. While
changes in tax policy (such as elimination of tax preference
treatment for intangible drilling costs and percentage depletion
under the alternative minimum tax) would help improve the

- 2

economics of domestic oil and natural gas exploration and production, tax changes alone are not sufficient to bring stability.

The achievement of price stability in the petroleum industry would have the side-effect of encouraging the development of alternative energy sources. However, fossil fuels -- primarily oil and natural gas -- are the only domestic energy sources that can reasonably be produced commercially at current price levels. Oil prices would have to rise to an equivalent of at least $30 per barrel for most alternative energy source to become feasible in the United States.

What mechanism would you propose to accomplish this objective? IPAA supports the establishment of a minimum security price for oil and petroleum products imported into the U.S., as proposed in S. 217 and other legislation. IPAA is concerned that the adoption of a national energy policy designed to decrease reliance on oil will actually work to decrease domestic

production (not oil imports) unless a minimum security price is also part of that energy policy.

3. As you are aware, 8. 341 contains a provision which would establish a price differential between domestic and imported crude oil and petroleum products. This is accomplished by requiring that approximately 9 percent of arude oil and petroleum product imports, or the equivalent, be furnished to the Federal government for use in both filling the Stategic Petroleum Reserve and meeting the fuel requirements of the Department of Defense.

.. Would you agree that this requirement is in effect a surcharge on the importation of crude oil and petroleum products?

Yes.

b. What mechanism would you propose to fund expansion of the Strategic Petroleum Reserve under the present Federal budgetary contraints?

If there is a need to expand the strategic petroleum reserve, the existing method of funding is preferable to new special taxes. The degree of need for a strategic petroleum reserve is a function of the degree of U.S. dependence on foreign oil. Oil importers, in the event of a supply disruption, are the very people who will seek a drawdown of strategic reserves. Others may also desire a drawdown to ameliorate oil prices by increasing supplies, but it will be primarily those firms that need the commodity that will rely on Federal government supplies. It is reasonable to expect importers to fund the insurance policy they will need. Any fee on imported oil for such purpose will provide an increased incentive for domestic production, decreasing to some extent the need for strategic reserves.