---------------------- Forwarded by Jeffrey Keeler/Corp/Enron on 09/06/2000 
06:39 PM ---------------------------
   
	
	
	From:  Jeffrey Keeler                           09/06/2000 06:28 PM
	

To: James Prentice/GPGFIN/Enron@ENRON, Stanley Horton/Corp/Enron@Enron, 
Shelley Corman/ET&S/Enron@ENRON, Ted Robinson/HOU/ECT@ECT, Michael A 
Robison/HOU/ECT@ECT, J Mark Metts/NA/Enron@Enron, Dwight 
Larson/Corp/Enron@ENRON, Michael Terraso/OTS/Enron@ENRON, Marc 
Phillips/OTS/Enron@ENRON, Jim Peterson/OTS/Enron@ENRON, Susan 
Worthen/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Joe 
Kolb/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Stacey Bolton/HOU/EES@EES, Sandra 
McCubbin/SFO/EES@EES, Richard Shapiro/HOU/EES@EES, James D 
Steffes/HOU/EES@EES, Rob Bradley/Corp/Enron@ENRON, Joe Allen/HOU/EES@EES, Joe 
Hillings/Corp/Enron@ENRON, Mark Palmer/Corp/Enron@ENRON, John 
Wodraska/HOU/AZURIX@AZURIX, Diane Bazelides/HOU/AZURIX@AZURIX, Jonalan 
Page/PDX/ECT@ECT, Thomas Krueger/HOU/ECT@ECT, Clayton Seigle/HOU/ECT@ECT, 
Chris Long/Corp/Enron@ENRON
cc:  

Subject: Senate Environment Committee Markup Tomorrow (9/7)

On Thursday 9/7 (tomorrow, 9 a.m.), the Senate Environment and Public Works 
Committee plans to mark up S. 2962, Chairman Bob Smith's legislation that 
would remove the oxygenate mandate and phase out MTBE.    It is expected to 
be a very contested markup, with several Republicans and (hopefully) some 
Democrats opposing the legislation on various grounds.

The basic provisions of the "Manager's Amendment" (the latest bill version 
that will be the operative vehicle at the markup) include:

1)  Removal of the federal mandate that 2% of RFG contain oxygenates -- 
states apply for a waiver

Comment:  a state would need to do nothing but apply to have a waiver 
approved.   Ethanol does not like this provision, because it harms them too, 
but the new "clean fuel" mandate (below) makes up for that.

2)  A phase out of MTBE by 2004.

Comment:  rather than setting year-by-year goals, it sets a date certain for 
phase out in 2004  -- this is probably preferable for producers to transition 
to making other additives, giving them 4 years to make the necessary 
arrangements.

3)  Environmental "Anti backsliding" language
 -- air toxics must be 27.5% better than a baseline
 -- criteria pollutants (this is still in development, drafted by NRDC) - 
sets a 5 year baseline period and then looks at   that baseline and 
determines whether further action is warranted.

Comment:  this is a weak anti-backsliding provision, that will weaken MTBE's 
ability to hold on to market share on the basis that other additives are not 
meeting environmental criteria.

4)  Clean Alternative Fuels Program:  a mandate for clean, renewable fuels 
(mainly ethanol), ramps up over 10 years.  It is estimated that the current 
1.2 billion gallon market for ethanol would expand to 4.5 billion gallons in 
that 10 year period. 

Comment:  This provision is the one that is causing most of the problems -- 
refiners, Highway Funding advocates (road builders, etc.) do not want to see 
ethanol get such a boost.  Senator Jim Inhofe (the Clean Air subcommittee 
chairman) will vigorously try to remove this provision.   In addition, ADM, 
Cargil and the other big ethanol producers don't really prefer this approach 
to an ethanol mandate.  This may seem strange, but if there is simply an MTBE 
ban with no ethanol mandate, the market for ethanol production would increase 
quickly to 2.8 billion gallons,  While this is smaller than the 10 year 
number of 4.5 billion gallons envisioned by the bill's mandate, the larger 
producers would be able to get a greater share and more money up front if 
there is no mandate.   If the mandate stays in place, there will be more 
opportunity for smaller companies to build additional ethanol capacity to 
meet the eventual 4.5 bg market.

5)   LUST funding:  releases more LUST money and allows it to be used for 
remediation of MTBE spills.

There are numerous amendments planned on various issues, many of which deal 
with the ethanol mandate.   At this point, refiners (API, NPRA) are opposing 
the bill over ethanol issues.   MTBE producers (thorough the OFA) are 
opposing the bill on a number of grounds and working with certain Republican 
Senators (Kay Bailey Hutchison, Bob Bennett) to develop amendments that would 
make the bill less acceptable.   

Enron has not directly opposed the legislation, but is relying on OFA to do 
most of that work.   We have focused on issues related to "transition."   
Stranded cost amendments may be offered, but are not expected to have much 
traction.   We were successful in getting Chairman Bob Smith to agree that if 
this bill is passed by the Committee, they will address issues of transition 
for MTBE producers before the bill goes to the Senate floor.   He will engage 
in a "colloquy" with Senator Kay Bailey Hutchison at the end of the markup in 
which he will commit to work on these issues with Hutchison and other MTBE 
supporters.   A transition package could include tax relief or other 
incentives for the production of other additives.   In another recent 
positive development, we have received signals that Democrats Tom Daschle and 
Max Baucus will also support efforts to develop a MTBE transition package 
before a bill reaches the floor.   This is largely in an effort to neutralize 
some of the MTBE industry opposition to a bill on the Senate floor.

I will keep you posted as developments occur, and likely send a report later 
in the afternoon tomorrow.   Please let me know if you have questions.

Jeff Keeler