The Department of Interior notified dozens of state treasurers on Monday that refunds totaling $110 million would be coming back to their coffers after a reversal of the Administration's decision to withhold royalty payments required by the Mineral Leasing Act (MLA). Last spring, a decision was made by Interior and the Office of Management and Budget to treat MLA payments owed to 34 impacted states as a “federal expenditure” subject to the parameters of the Sequester and the 2011 Budget Control Act. That decision received significant bipartisan opposition from many in Congress and the Western Governors Association.

On Monday, Secretary of Interior Ken Salazar announced a management plan that would remove roughly half of the acreage available for oil and natural gas drilling in the 23 million-acre National Petroleum Reserve in Alaska. Under the proposal, drilling activities and potential pipeline construction development could occur in the remaining 12 million acres of the reserve that may connect exploration projects waiting federal approval in the Chukchi Sea.

Alaska State Representative Charisse Millett and the Chair of the Alaska Oil and Gas Conservation Committee, Cathy Foerster, testified at a hearing before the U.S. Senate Committee on Energy and Natural Resources criticizing the very slow pace of plugging 136 abandoned wells overseen by the Bureau of Land Management (BLM) in the National Petroleum Reserve. The Committee's Ranking Member, Senator Lisa Murkowski stated, “This is the type of crime the federal government would fine a private company millions of dollars for, but since these wells were drilled and are owned by a federal agency they are allowed to willfully ignore the law...Only the federal government could get away with this.”

 HB 1487 went into effect today, which prevents the state of New Hampshire from joining a national, regional, or state low carbon fuel standard (LCFS) without first receiving legislative approval. Although the legislation does not prevent agency staff from participating in discussions about LCFS related topics, it could have a significant impact on the development of a regional agreement that critics have often referred to as a "liquid cap and trade program."

According to media reports including the New York Times and others, New York Governor Andrew Cuomo is considering a plan to allow limited permitting for hydraulic fracturing in communities in the Marcellus Shale region bordering Pennsylvania that have expressed support for the process. The move would signal at least a partial end to the nearly three year administrative review that has been conducted by the state Department of Environmental Conservation to determine the path forward on the controversial practice that has been derided by environmental activists because of water and air pollution concerns.

Last week, the Illinois State Senate voted 54-0 to pass new legislation regulating hydraulic fracturing by requiring chemical disclosure of the fluids used to break open the underground formations and new testing requirements for the cement and steel used during the "casing" process. Proponents of the bill lauded its passage as a way to beef up the state's oversight of expected drilling activity that may occur near the New Albany Shale formation and coal fields of southern Illinois.

Today's Wall Street Journal features a prominent story chronicling the number of local municipalities challenging state laws prohibiting them from regulating oil and gas drilling.The trend underscores an inherent tension between states seeking to provide regulatory certainty (not to mention a steady stream of tax revenue) with localities that believe they should have more control over zoning and development in or near their town borders.

Last week, the House of Representatives approved the energy portion of a surface transportation package, the “Protecting Investment in Oil Shale the Next Generation of Environmental, Energy, and Resource Security (PIONEERS) Act” (H.R. 3408) by a vote of 237-187. The amended bill included several provisions to significantly expand offshore oil and natural gas development off the Pacific, Mid-Atlantic, and Gulf Coasts as well as Alaska as a way to fund transportation projects due to a shortage in federal-gas tax receipts for the Highway Trust Fund. In addition, HR 3408 would open up the Alaska National Wildlife Refuge (ANWR) to exploration, incentivizes the development of oil shale reserves and it includes language to expedite the approval process of the Keystone XL project. Prospects for final passage are uncertain at best as the bill faces stiff opposition in the Senate and a veto threat from the Administration.

Energy issues were a focal point last night in the President's State of the Union address. He highlighted the significant increase in oil and gas production, the vast economic potential of natural gas, energy independence, as well as echoing his continued support for renewable and alternative energy. Below is brief analysis from a state perspective into some of the specific proposals, the reaction from Congress, and the prospects for potential action.

The Obama Administration is expected to announce this afternoon that it will deny a National Interest permit for the Keystone XL pipeline project. TransCanada, the company building the project, will reportedly be given an opportunity to "reapply" once it develops an alternative route to avoid the Sandhills region of Nebraska.