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Managing America: Energy

TheWeekInCongress.com (TM)

Week Ending January 19, 2006

H.R.6 To reduce our Nation's dependency on foreign oil by investing in clean, renewable, and alternative energy resources, promoting new emerging energy technologies, developing greater efficiency, and creating a Strategic Energy Efficiency and Renewables Reserve to invest in alternative energy, and for other purposes.

Areas of energy development and management are addressed in this bill to include cutting subsidies to energy companies for exploration and extraction from public land and reversing a 1990s contract error that freed oil companies of paying royalties when the price of oil rose above $39 per barrel.

The Deep Water Royalty Relief Act of 1995 relieved oil companies from paying royalties on extractions from public land as an effort to stimulate oil exploration in the Gulf of Mexico. The law intended for royalties to be paid to the government when oil reached $39 per barrel but that provision was not included in the contract leaving the oil companies to extract energy relatively royalty free.

Most oil companies reportedly have refused to renegotiate the contracts or pay the royalties that would have been collected. This bill would impose a fee on any of those who hold the 1998-1999 leases unless they renegotiate them to include royalty payment to the taxpayers. Over the first ten years the fees would equal $6 billion. There are over fifty oil companies holding the errant leases.

The Secretary is prohibited from issuing any new lease that authorizes production of oil or natural gas in the Gulf of Mexico and under the Outer Continental Shelf to a person holding other leases unless the person has renegotiated each covered lease to modify the payment responsibilities to include price thresholds that are equal to or less than previous price thresholds (Price thresholds are the price for a barrel of oil or footage of gas that ends royalties breaks and requires royalties be paid to the Treasury.) The person applying for the lease must have paid all fees or entered an agreement with the Secretary obligating the person to pay the fees.

The bill further increases efforts to collect missing royalties by requiring that a leaseholder can not accept a transfer of another lease without entering into an agreement with the Secretary to modify or fix the absence of price thresholds or without renegotiating all covered leases the person owns. The lessee must have paid all fees or has legally obligated himself to the Secretary to pay all fees.

A 2004 law providing qualification for manufacturer’s tax benefit would also be ended. The provision, from an earlier law, impacted several manufacturing types and the oil and gas industries with expense absorbing tax breaks. The elimination of the tax benefit would only apply to oil and gas extraction companies, not other product manufacturers.  The bill reduces a tax break for the cost of geological and geophysical expenses of exploration. The reduction applies to very large, integrated energy companies. Those companies would lose the ability to write off expenses and exploration costs but would gain the authorization to amortize those expenses over seven years rather than five.

The Secretary of Interior is ordered to implement within 60 days of bill passage a ‘conservation of resources’ fee for producing and for non-producing Federal oil and gas leases in the Gulf of Mexico Producing Lease fees would be $9 per barrel for oil and $1.25 per million Btu of gas in 2005 dollars. The provision applies to production of gas or oil in any calendar year in which the arithmetic average of the daily closing for light sweet crude on the NYMEX exceeds $34.73 per barrel for oil and $4.34 per million Btu for gas in 2005 dollars. The provision applies to all oil and gas production after October 1, 2006. Non-producing lease fees are set at $3.75 per acre per year in 2005 dollars and applies to such leases on or after October 1, 2006.

The funds recouped by this bill, estimated at $14 billion over five years, would be considered offsetting receipts meaning they would be counted against other spending thereby offsetting that outlay. The bill establishes an account, The Strategic Energy Efficiency and Renewables Reserve, that could include collected past royalties. The Reserve fund is to be used to fund future legislation to accelerate the use of clean domestic renewable energy resources and alternative fuels; to promote the utilization of energy-efficient products and practices and conservation and to increase research, development and deployment of clean renewable energy and efficiency technologies.

Sponsor:  Rep. Nick J. Rahall II (D-WV-3^rd)

Vote: Passed House 254 to 163 (RC 40). A motion to invoke cloture passed 230 to 195 (RC 39).

The motion to recommit would send the bill to several committees for further consideration and testimony. The bill focuses too much on oil and gas companies and may restrict energy development at a time when the US faces and energy crisis, supporters of the motion held.

The Motion to Recommit the bill with instructions failed 194 to 232 (RC 38).

Cost to the taxpayers: “CBO estimates that enacting this legislation would reduce direct spending by $2.6 billion over the 2007-2012 period and by $6.3 billion over the 2007-2017 period. In addition, the Joint Committee on Taxation (JCT) estimates that the legislation would increase revenues by $2.9 billion over the 2007-2012 period and by $7.7 billion over the 2007-2017 period. The outlay savings and revenue increases from enacting H.R. 6 would total $5.5 billion and $14.0 billion, respectively, over those periods.”

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