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Washington Energy Updates

 
    Contact: Carol Connors
Director of Government Relations
cconnors@localpower.org
March 2014
 
     
  Tax Reform / Energy Tax Proposals - Odds for passage of a major overhaul of the U.S. tax code by Congress in 2014 are slim to none, given the political landscape and the mid-term November elections. That said, House Ways and Means Committee Chairman Dave Camp's (R-MI) plan, released February 26, has laid the groundwork for future efforts. In fact, it is considered to be the most comprehensive tax reform measure proposed since 1986. It aims to cut marginal tax rates on individuals and corporations by dramatically reducing the number of deductions and credits. What causes many nervous members of Congress to eschew the proposal is that it seeks to eliminate the state and local tax deduction. If this elimination is enacted, it is estimated to raise almost $1 trillion in revenue over 10 years. Two other existing popular tax provisions, the home mortgage interest and charitable deductions, are dramatically limited.

With respect to energy tax reform, both President Obama's March 4 proposed fiscal 2015 budget and Chairman Camp's draft include changes.

The Obama budget purports to:
  • Permanently extend the production tax credit (PTC) and, starting with projects that begin construction in 2015, the PTC would become a refundable credit, reducing the need for investors to offset taxes. The PTC would become available for electricity directly consumed by producers as well as electricity sold, and solar projects would become PTC-eligible in 2015.
  • The investment tax credit (ITC) would be repealed for projects placed in service after 2016. This applies for both the current 30% temporary credit and the 10% permanent credit.
  • The credit for second generation biofuels would be extended to 2020 and then gradually repealed by 2024. The 30% tax credit for investments in eligible property used in a qualifying advanced energy project, currently limited to total credits of $2.3 billion, would have additional credit authority of $2.5 billion.
  • Multiple provisions would reduce or eliminate tax benefits for oil and natural gas producers. This includes repeal of the Enhanced Oil Recovery (EOR) credit; the credit for marginal wells; expensing of intangible drilling costs; deduction for tertiary injectants; exception to passive loss limitation for working interests in oil and natural gas properties; percentage depletion for oil and natural gas wells; and, domestic manufacturing deduction for oil and natural gas production.
Chairman Camp's draft purports to:
  • The credits available for alcohol fuels and alternative fuels (which expired at the end of 2011) and for biodiesel and second generation biofuels (which expired at the end of 2013) would not be extended and therefore effectively repealed.
  • The PTC would be reduced and then eliminated for generation of electricity from wind, biomass and other renewable resources.
  • The ITC for construction of solar and other renewable energy facilities would be repealed. The repeal would affect the tax credit for projects that are completed after 2016, including those that claim the ITC in lieu of the PTC.
  • Repeal of other renewable and alternative energy tax credits.
  • Repeal of oil and natural gas incentives, including the EOR credit; the credit for marginal wells; exception to passive loss limitation for working interests in oil and gas properties; and percentage depletion for oil and gas wells.
Senate Finance Committee Chairman Ron Wyden (D-OR) continues instead to push for tax extenders to continue many energy and non-energy tax provisions that expired December 31, 2013, at least for the short-term. It is reported that this effort could occur as soon as early April. Chairman Wyden argues that brief extensions would allow Congress to focus on broader tax reform but Senate Republicans are reluctant to act quickly.

While both Rep. Camp's bill and President Obama's proposed 2015 budget are unlikely to pass as a whole, it is conceivable that some of their individual tax reform proposals could be included in other must-pass bills to offset future spending programs or to provide tax cuts.

Meanwhile, the Obama Administration is considering using existing executive authority to make changes to tax policies with respect to renewable energy development. This attempt could include a revenue ruling to allow real estate investment trusts (REITs) to invest in renewables. REITs, which are subject to special tax treatment, are designed to finance commercial properties. The U.S. Treasury Department is currently reviewing expanding their scope.

Coal Likely Viable for Energy Reliability - EPA Administrator Gina McCarthy spoke before a meeting of energy industry representatives March 6, emphasizing that fossil fuels will continue to play a role in U.S. domestic energy production as the Obama Administration strives for reductions in carbon emissions. This effort is by way of a proposed EPA rule setting restrictive pollution standards for existing power plants to be issued this June. "Conventional fuels like coal and natural gas are going to play a critical role in a diverse U.S. energy mix for years to come. This [upcoming] rule will not change that. It will recognize that," McCarthy announced at the IHS CERAWeek energy conference. The Administrator further added that the "all-of-the-above" energy policy is an effective way to combine higher domestic fossil fuel output with trimming carbon pollution, leading to a stronger economy and job growth.

LNG Exports - The House Energy and Commerce Subcommittee on Energy and Power held a hearing March 25 on H.R. 6, the Domestic Prosperity and Global Freedom Act, introduced by U.S. Rep. Cory Gardner (R-CO) who is challenging U.S. Senator Mark Udall (D-CO) this fall. H.R. 6 provides that all pending liquefied natural gas (LNG) applications to non-Free Trade Agreement (FTA) countries for which a notice has been published in the Federal Register as of March 6, 2014, will be granted without delay or modification. The U.S. Department of Energy (DOE) under the Natural Gas Act (NGA) is charged with the authority of approving natural gas imports and exports—the Federal Energy Regulatory Commission (FERC) is responsible for siting and construction. This pending legislation also amends the standard of review for future export applications, shifting the responsibility from FTA nations to World Trade Organization (WTO) member countries. The WTO recently agreed that its member nations not restrict the export of certain commodities and this bill would require that the United States adhere to the same trade principles. The full Committee held a forum October 10, 2013 at which representatives from South Korea, India, the Czech Republic, Haiti, Hungary, Lithuania, Japan, Singapore, and Thailand expressed their keen interest in receiving LNG from the United States. It is widely documented that the United States has become the world leader for natural gas production, primarily as a result of refining the hydraulic fracturing technology to extract natural gas from shale. The Subcommittee examined the economic and geopolitical benefits of U.S. LNG exports. Among other witnesses, Paula Gant, Deputy Assistant Secretary for Oil and Natural Gas at DOE testified. While Ms. Gant did not offer an Administration position on H.R. 6, she indicated that the measure would effectively nullify DOE’s current NGA authority to conduct a public interest review evaluating environmental and international factors, economic impacts and U.S. energy security for approving LNG exports to non-FTA countries. With Russia’s takeover of Crimea, the congressional debate to expeditiously approve transatlantic sales of U.S. LNG exports has intensified because of Europe’s dependency on Russian natural gas and other forms of Russian energy. In a timely move, DOE issued March 24 a conditional order approving LNG shipment from Jordan Cove’s facility in Coos Bay, Oregon to sell up to 0.8 billion cubic feet per day of LNG to countries that lack free-trade agreements with the United States. The decision is the first to address an LNG export application on the West Coast. The other five LNG construction permits DOE has issued to date have been in the friendlier Gulf Coast region and one for the revamping of an old LNG import terminal, Cove Point, in Maryland. Environmental groups gathered March 18 to protest against the Obama Administration’s approval of LNG export terminals with a particular focus on Cove Point, claiming that there is long-term damage from natural gas use.

Other March Congressional Hearings - The Senate Energy and Natural Resources Committee held an oversight hearing also on March 25 entitled "Importing Energy, Exporting Jobs: Can it be Reversed?", similar to the House Energy and Power Subcommittee's March 25 topic. The hearing focused on oil and natural gas exports, the first chaired by the Committee's new Chairwoman Mary Landrieu (D-LA). Other hearings in both Houses the week of March 24 were held by the respective energy and environment appropriations committees on DOE's fiscal 2015 budget request and the Environmental Protection Agency's (EPA) proposed budget. The House Foreign Affairs Committee sponsored a hearing on the geopolitical potential of the U.S. energy production surge and the Senate Homeland Security and Governmental Affairs Committee listened to public officials and private sector witnesses testifying on protecting against cybersecurity attacks on energy infrastructure, both held on March 26.

Acting FERC Chairman LaFleur Speech on Natural Gas and Electricity -- On March 27, FERC LaFleur appeared as the guest speaker before the Natural Gas Roundtable (NGR), an organization consisting of gas industry members. She highlighted the current abundance of domestic natural gas and FERC’s continuing efforts to better coordinate gas-electric interdependency. FERC issued on March 20 three orders related to this effort: (1) a Notice of Proposed Rulemaking (NOPR) to seek public comments on changing the scheduling process for the provision of natural gas to optimize its availability; (2) on the electric side, an order to adjust the bidding cycles of organized electricity markets; and (3) an order requiring natural gas pipelines to post on their websites offers of released capacity. She also touched on the status of the 13 LNG export applications pending at FERC and her ongoing efforts to enhance relations with like agencies such as the Commodities Futures Trade Commission (CFTC), EPA, and the Nuclear Regulatory Commission (NRC).

FERC Discussion on Winter Energy Prices and Demand - The Federal Energy Regulatory Commission will sponsor a technical conference April 1 to address the effects of this past severe winter weather events on spikes in energy demand and electricity prices. Participants include FERC Commissioners and staff, power market operators, state regulators and other stakeholders. The conference will examine how Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) dealt with day-ahead and real time information received on what the effects of the "polar vortex" had on electricity supply and how they distributed this data to energy suppliers and marketers. Other interested parties will discuss the viability of the U.S. energy infrastructure, fuel procurement, and fuel diversity during these winter events. The conference may also review concerns that market manipulation occurred during the cold winter season to artificially drive up natural gas and electricity prices.

Predictions on U.S. Senate Mid-term November Elections - Washington DC political analysts are now largely concluding that the probability of a Republican takeover of the Senate has grown stronger. There are two almost sure Republican winners in South Dakota and West Virginia. Current polling results are showing that Senate contests are getting tougher for Democrats in Louisiana, Alaska, Arkansas, Montana and North Carolina. These polling numbers are also highlighting gains for Republicans in the Georgia and Kentucky U.S. Senate races, continually considered a long shot for Democratic wins anyway (even with the daughter of former Democrat Senator Sam Nunn in the Georgia race). And, Scott Brown appears to be making inroads in New Hampshire, putting that state in play. The call: a 50-50 bet the Senate will flip in 2015.
 
     
 
 
     
 
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