U.S. Interior Secretary Ken Salazar speaks before an experimental high flow release from the Glen Canyon Dam in Page, Arizona November 19, 2012.

WASHINGTON | Thu Dec 20, 2012 8:17am EST

WASHINGTON (Reuters) - The U.S. federal government on Wednesday announced a plan to manage energy drilling on part of Alaska's North Slope, with the 23-million-acre National Petroleum Reserve to be divided between areas available for oil and gas leases and those that are protected from development.

The announcement by U.S. Interior Secretary Ken Salazar followed the completion of an environmental impact study, which recommended development of areas that contain about 72 percent of the estimated "economically recoverable" oil in the reserve.

The move drew criticism from Alaska Sen. Lisa Murkowski, who said the Obama administration had not gone far enough to open up oil and natural gas resources in the area.

Salazar said the plan as conceived would allow for the potential construction of pipelines carrying oil or gas from operations in the Chukchi and Beaufort Seas through the NPR region, also known as the Western Arctic Reserve.

The "balanced approach" would help protect "significant caribou herds, migratory bird habitat and sensitive coastal resources that are critically important to the culture and subsistence lifestyle of Alaska Natives," Salazar said.

The administration has authorized 177 oil and gas leases in the reserve since May 2011, covering some 1.4 million acres. So far only exploratory drilling has occurred.

Under Wednesday's blueprint 11.8 million acres would be open for development, which are estimated to hold 549 million barrels of economically recoverable oil and 8.7 trillion cubic feet of economically recoverable natural gas.

Murkowski, the top Republican on the Senate Energy Committee, takes the view that the reserve's legal purpose is to provide petroleum to the United States to ensure the nation's energy security.

The administration's plan "locks up 83.5 percent of the likely natural gas in the reserve. That is totally unacceptable," she said.

The reserve is the largest single tract of public land in the country, roughly the size of Indiana, and is managed by the Bureau of Land Management.

Several environmentalists said they liked the plan, which protects the area around the North Slope's biggest lake.

"This is a nice holiday present for America's waterfowl hunters and bird watchers," said Adam Kolton, executive director of the National Wildlife Federation's national advocacy center, who praised the administration's "balanced approach."

But Brendan Cummings, a senior attorney for the Center for Biological Diversity, decried the decision as "unfortunate".

"The Obama administration seems set on turning most of America's Arctic into a sacrifice zone for the benefit of oil companies," he said in an email.

(Additional reporting by Yereth Rosen; Editing by Phil Berlowitz)

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WASHINGTON | Thu Dec 20, 2012 7:41am EST

WASHINGTON (Reuters) - Western states that rely on receipts from coal sales to help fund their governments are concerned the mining industry is dodging royalty payments on lucrative U.S. exports to Asia.

By valuing coal at low domestic prices rather than the much higher price fetched overseas, coal producers can skip a large royalty payout when mining federal land.

The practice could add up to hundreds of millions of dollars in forgone royalties if exports to Asia surge in coming years as the industry hopes, Reuters found.

Wyoming warned federal officials about flaws in the royalty system a year and a half ago. Last week Montana Governor Brian Schweitzer said he will not tolerate the coal industry skirting royalties: "If there's phony baloney going on, we have to get to the bottom of it."

Montana and Wyoming get half of federal royalties on coal from their states.

Asian energy demands mean several million tons of the black rock typically move from the Powder River Basin in eastern Wyoming and Montana across the Pacific each year. Taxpayers have a stake in those sales since the region is mostly on public land.

Powder River Basin sales are uncommonly profitable for miners like Arch Coal, Peabody Energy Corp. and Cloud Peak Energy since coal worth about $13 a ton last year domestically could have fetched roughly 10 times that in China.

Last year less than 5 percent of Cloud Peak coal was shipped to Asia but that accounted for nearly 19 percent of revenue, or about $290 million.

Federal and state officials have said that the mining industry is two steps ahead of regulation as it moves into Asian markets and that the current rules that value coal are open to abuse.

Questions about royalties and taxpayer interests could flavor a dispute about whether coal export terminals should be built in the Pacific Northwest.

Activists in Oregon and Washington have vowed to block coal trains that the mining industry hopes will link the Powder River Basin and Asian markets. Coal export foes say local communities will be harmed by mile-long coal train traffic, and scientists warn that coal power is worsening the impacts of climate change.

VAGARIES OF ROYALTIES

Officials expect coal royalties to be paid on the highest value for the fuel, which is typically the price utilities are willing to pay.

But regulators fret that miners are selling to sister companies at low domestic prices and then pocketing gains when that coal eventually reaches Asian power plants, thus circumventing the higher royalty.

Arch Coal, Cloud Peak and Peabody Energy declined to comment on how they book Asian sales, but they boast to investors about their profitable trade and brokering business.

That business is booming.

About 54 percent of coal export sales from the Powder River Basin was handled by brokers last year while only about 16 percent of such sales east of the Mississippi River was handled that way, according to the Energy Information Administration.

The Office of Natural Resources Revenue, an agency of the Interior Department, has struggled to find the true value of coal when brokered deals and direct-to-utility sales produce different prices for the fuel.

The agency's benchmarks for finding the true value of coal "have proven difficult to use in practice," the agency wrote in May 2011 as it mulled royalty rules that it said were open to abuse.

In a letter supporting tougher rules, the Wyoming Department of Audit beseeched ONRR to "not allow coal producers to create affiliates to reduce the royalties paid."

The mining industry, though, defended the status quo in several letters to regulators.

An ONRR spokesman said officials were committed to collecting every dollar due taxpayers, but he could not comment on when final royalty valuation rules might be proposed.

Autumn Hanna with nonpartisan Taxpayers for Common Sense said the government must quickly put rules in place to protect the public interest on coal sales.

"Taxpayers stand to lose day by day with the existing rules," she said. "The new rules are needed now."

FUTURE EXPORTS

The coal trade has become a controversial issue in the Pacific Northwest where miners want new terminals to allow about 150 million tons of coal a year to be exported from the Powder River Basin.

While politicians spar over whether those ports should be built, there is less friction about what taxpayers are due.

"The Department of the Interior should ensure these companies pay royalties on the full value," said Oregon Senator Ron Wyden, whose staff has met with federal officials in recent weeks to discuss the issues raised by Reuters reporting.

Wyden, a Democrat, will chair the Energy and Natural Resources Committee in the next Congress.

Alaska Senator Lisa Murkowski, the ranking Republican on that committee, believes the government should allow coal exports but officials must protect taxpayers' stake in such sales.

"We know Interior is looking at this and we wait to hear what they find," said a Murkowski spokesman, who noted the senator believes Congress should be setting rules on royalty payments.

Montana Governor Schweitzer, who leaves office next month, has roundly supported the coal terminal expansion, but the straight-talking rancher and miner said taxpayers must get a fair cut on those Asian sales.

"We need to collect on the actual value," Schweitzer told Reuters in an interview.

(Reporting by Patrick Rucker; editing by Prudence Crowther)

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German Chancellor Angela Merkel (C) reacts during the commemoration of the new 380-kV high voltage power line between Schwerin and Hamburg, in Schwerin December 18, 2012.

BERLIN | Wed Dec 19, 2012 9:24am EST

BERLIN (Reuters) - German Chancellor Angela Merkel's cabinet agreed on Wednesday to accelerate the construction of 2,800 km of new high-voltage power lines to push forward the country's shift to renewable energy.

However, in a sign of the complexities of formulating energy policy in Europe's biggest power market, two of her ministers said they had failed to agree a common position on a proposed reform of Europe's system of permits to cut carbon emissions.

Under the nationwide grid plans, the new transmission lines will be completed within four years from a previously planned 10 years and cost about 10 billion euros ($13.21 billion).

The cabinet agreed to mainly prioritize the construction of lines to transport power from wind turbines near the coast and offshore to industrial areas in southern and western Germany.

Germany's ambitious switch to renewable power sources is the result of a major policy reversal from Merkel last year. After the Fukushima disaster in Japan, she decided to speed up the closure of nuclear plants.

One obstacle in achieving her targets, including a goal for renewable energy to account for 35 of German power production by 2020 from around 23 percent now - is the limited capacity and routing of existing grids.

In addition to the new lines, the draft law envisages expanding existing high voltage grid by about 1,500 km.

"(This agreement) shows that we are absolutely on time with our plans... This is a huge step in the expansion of the grid, a huge step for the switch to renewables," said Economy Minister Philipp Roesler.

In a bid to deal with strong local resistance to grid expansion, the planned law sets limits on the legal options opponents can pursue.

Another important contribution came from Germany's 16 federal states who signaled they would let the federal grid operator Bundesnetzagentur coordinate plans, rather than insisting on individual processing, which causes delays.

However, more needs to be done: Distribution grids that take power from high voltage networks served by big power stations and transport it to consumers must also be adapted to cope with an increasing number of wind and solar power installations.

CO2 PERMIT ROW

At a news conference to discuss progress on Germany's "green revolution", Roesler and Environment Minister Peter Altmaier said they were still at odds on EU plans to reform carbon emissions permits but vowed to talk again next year to try to find common ground.

The dispute between the ministers, who share responsibility for energy policy, has been a major factor in holding up any agreement on an EU proposal to withdraw some emissions permits from the market to stop a price slump.

Altmaier said he expected the European Commission to make a new proposal after the European Parliament had dealt with the subject in February.

"As soon as this proposal is on the table, the German government will take a view on it," said Altmaier.

Roesler also signaled a willingness to talk.

"We both have the goal that we want a well-functioning emissions certificate market," he told reporters.

Altmaier backs the EU proposed reform of the Emissions Trading Scheme (ETS), a main pillar of the bloc's efforts to cut CO2 emissions, but Roesler opposes meddling in the market.

Benchmark EU carbon prices were up 1.44 percent at 7.03 euros a metric ton at about 1150 GMT. ($1 = 0.7568 euros)

(Additional reporting by Markus Wacket, Vera Eckert; Writing by Madeline Chambers; Editing by Noah Barkin and David Cowell)

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n">(Reuters) - A tanker carrying light crude oil down the Hudson River briefly ran aground south of Albany, New York, but showed no evidence of a spill, the Coast Guard said on Thursday.

The Stena Primorsk, a 600-foot (182-metre) motor tanker, lost control of its steering on Thursday morning and hit land near Stuyvesant, New York, about 20 miles downriver from Albany, the Coast Guard said. The vessel was later at anchor.

There was no evidence of pollution from the crash, though emergency responders were sent to the site to investigate, the Coast Guard said.

Oil market sources said the vessel was carrying light shale crude from the Bakken prospect in North Dakota destined for a Canadian refinery.

(Reporting by Peter Rudegeair and Selam Gebrekidan; Editing by Nick Zieminski)

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Thu Dec 20, 2012 7:41am EST

n">(Reuters) - Private equity firm KKR & Co LP on Thursday kicked off a joint venture with Suez Environment to run the water and wastewater systems of a New Jersey city it hopes will become a model for cash-strapped local authorities in the United States.

KKR and Suez subsidiary United Water will pay $150 million to the city of Bayonne for the rights to a 40-year concession, allowing them to collect water and wastewater revenues but also requiring them to come up with another $157 million over the life of the contract to manage and upgrade the systems.

The cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that is likely to be met primarily through higher water bills and local fees, according to the American Water Works Association, a non-profit think tank.

The Environmental Protection Agency estimated in 2007 that the U.S. must invest $390 billion over the next 20 years to update or replace aging wastewater infrastructure.

But the U.S. water industry, run for the most part by the public sector, remains highly fragmented, comprising about 52,000 water systems - over half of which serve a population of 500 or less - and 16,000 wastewater facilities.

Concessions such as the one awarded by Bayonne are rare due to political opposition or reluctance from local authorities to give up control of what they see as essential infrastructure, especially when they can tap the municipal bond market for their financing needs.

"We are slowly starting to see more cities looking at these partnerships given all the fiscal pressures they're facing. But for every three cities that evaluate these options seriously, at least two ultimately can't get to the finish line," said Brandon Freiman, a principal at KKR's energy and infrastructure team.

"The one that gets to the finish line generally appreciates that these are win-win deals that are good for all constituents. So while we think that there should be more of these deals, progress has been very slow," Freiman added.

Last week, another private equity firm, Table Rock Capital, said it had finalized a 30-year concession worth more than $300 million, in partnership with Veolia Water, to run the water and wastewater systems of the city of Rialto in California.

Bayonne will pay off over $130 million of its debt with the money it gets from KKR and United Water, cutting its municipal debt burden in half. It will see the two firms take over more than 96 miles of water mains and more than 83 miles of sewers serving the city's 63,000 residents.

Consumers and businesses in Bayonne will see an initial 8.5 percent bump in their water and sewer charges, translating to an additional $5 per month for residential users. Rates will then freeze till January 2015 and then rise annually based on an inflation-linked formula.

"The partnership will invest in our aging infrastructure, and provide resources that the Bayonne Municipal Utilities Authority could not otherwise deliver. Simply put, this transaction will result in a more efficient and reliable water and sewer system for today and future generations," the authority's executive director Steve Gallo said.

Infrastructure investments of such kind usually deliver internal rates of return of a little over 10 percent, lower than those typically seen in the buyouts of companies but much safer in their risk profile.

KKR will fund 90 percent of the joint venture with United Water. Two thirds of the investment will be financed with debt on an average interest rate of about 5 percent.

KKR, which has $66.3 billion in assets under management, is making the investment through a dedicated infrastructure fund pool of $2.4 billion, that includes dedicated accounts with some of its investors.

Nassau County, located on Long Island just east of New York City, and among the wealthiest counties in the U.S., is negotiating a similar water and wastewater concession with United Water to help address its budget deficits.

(Reporting by Greg Roumeliotis in New York; Editing by Hans-Juergen Peters)

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