Summary and Background
On May 7, 2008, Senator Reid
introduced S. 2991, the Consumer-First Energy Act of 2008. Senator
Reid introduced a modified version of that bill (S. 3044) on May
20, 2008. On June 4, 2008, Senator Reid moved to proceed to the
bill and Senator McConnell objected. Senator Reid subsequently
filed a cloture motion on the motion to proceed to S. 3044 and it is
expected to be pending once the Senate finishes its consideration of Lieberman-Warner
Climate Security Act of 2008.
The legislation would create
a tax on "windfall profits" of the major oil companies at a special supplemental
rate of 25 percent; repeal the Section 199 deduction for the major oil and gas
companies and tighten the rules restricting the use of foreign tax credits on
oil and gas related income; suspend filling of the Strategic Petroleum Reserve
(SPR); punish price gouging; limit excessive speculation in the oil markets;
and crack down on the Organization of the Petroleum Exporting Countries
(OPEC). The "windfall profits" tax would not apply to profits of oil companies for
qualified investment in clean, affordable and domestically-produced renewable
alternative fuels or renewable electricity production.
Major
Provisions
Tax provisions. The Consumer-First Energy
Act of 2008 would create a tax on the "windfall profits" of the major oil companies at a special supplemental
rate of 25 percent. Companies could avoid this tax by investing in clean,
renewable energy. The bill would also eliminate the deduction for
domestic production that the major oil and gas companies use to reduce their
taxable income from the sale, exchange, or other disposition of oil, natural
gas, or any primary product thereof. Additionally, the legislation would
tighten the rules restricting the use of foreign tax credits on oil and gas
related income. All revenue collected from the windfall profits tax
and the elimination of unnecessary tax breaks would be deposited into an Energy
Independence and Security Act Trust Fund. A description of
the differences between the tax provisions in S. 3044 and S. 2991
are listed below.
Price
gouging. The Consumer-First
Energy Act of 2008 would provide the President, the Federal Trade
Commission, and state Attorneys General with the tools necessary to investigate
potential price gouging during energy emergencies. Specifically, the
legislation would:
- Give the President the authority to declare a temporary
national energy emergency in instances where the President determines that
a threatened or existing disruption of oil, petroleum, or biofuel
supplies or significant pricing anomalies constitute a danger to
the health, safety, welfare, or economic well-being of the citizens of the
United States. This is similar to the emergency authority provided
to Governors under many individual state statutes; and
- Upon declaration of an energy emergency, price gouging is
prohibited and punishable by federal civil and criminal penalties.
This provision is modeled after state anti-price gouging legislation
in at least 30 states. The legislation would also empower state
Attorneys General with the authority to bring a civil action on behalf of
citizens for price gouging during an energy emergency.
Strategic Petroleum Reserve. The Consumer-First Energy Act of 2008 would require the Secretary of
Energy to suspend acquisition of petroleum for the SPR through 2008, including through
the direct purchase or royalty-in-kind contracts. It allows the Secretary
to resume filling if the price of petroleum falls to $75 per barrel. Filling
of the Strategic Petroleum Reserve takes 70,000 barrels of oil off the market
each day and a temporary suspension could reduce gas prices by about 5 cents.
On May 13, 2008, the Senate
passed this provision as an amendment to the Flood Insurance Reform and
Modernization Act by a vote of 97 to 1. The House and Senate would
later pass and the President signed H.R. 6022, which suspended the
filling of the SPR through 2008 as long as the price for a barrel of oil
remains above $75.
No
Oil Producing and Exporting Cartels (NOPEC). The Consumers-First
Energy Act of 2008 would amend the Sherman Antitrust Act and allow
the Attorney General to bring enforcement actions against any country or
company that is colluding in setting the price of oil, natural gas or any
petroleum product. Additionally, it would seek to address OPEC state
claims that their anti-competitive behavior has sovereign immunity from U.S.
courts due to a court ruling in 1979. The bill would not authorize
private lawsuits against OPEC.
Market speculation. Excessive speculation from the financial
traders of crude oil, without adequate oversight and consumer protection, has
led many energy experts to believe that these traders are unnaturally raising
the price of oil. Additionally, oil executives have stated that the
current supply and demand dynamics cannot explain today's price of oil.
The Consumer-First Energy
Act of 2008 would amend the Commodity
Exchange Act to limit the price impacts of excessive speculation by
preventing traders of U.S. crude oil from routing their transactions through
off-shore markets in order to evade speculation limits and also impose
reporting requirements.
Additionally, the bill would
require the Commodities Futures Trading Commission to substantially increase
the margin requirement on crude oil future trades within 90 days to limit
excessive speculation and protect consumers. The current margin
requirement varies between five and seven percent which essentially means that
a commodity trader can control $10 million worth of future oil contracts by
only putting $500,000 to $700,000 down.
Differences
Between S. 2991 and S. 3044
The windfall profit tax provisions in S. 3044 differ from those in S.
2991 in the following ways:
- The windfall profits tax provisions in S.
2991 was modified so that the companies are only able to reduce their
windfall profits tax liability by the amount by which their "qualified investments" exceed the average of such investments over the
period 2002 through 2006. S. 2991 allowed them to reduce
windfall profits tax liability for all such investments;
- Intangible drilling costs and refinery property
were removed from the list of costs that count as "qualified investments"
for purposes of reducing windfall profits tax liability;
- The list of "qualified investments"
allowable to reduce the windfall profits tax liability was expanded to
include small irrigation power facilities, landfill gas facilities, trash
combustion facilities, and qualified hydropower facilities. These
facilities all qualify for the Section 45 Production Tax Credit, but were
not listed as "qualified
investments" for purposes of the
windfall profits tax in S. 2991; and
- The base period for determining "reasonably inflated average profit" was changed from 2001 through 2005 to 2002
through 2006.
Legislative History
The Consumer-First
Energy Act of 2008 was introduced by Senator Reid on May 7, 2008.
Pursuant to Rule XIV, Senator Reid placed the bill on the Senate
calendar on May 8, 2008.
On May
20, 2008, Senator Reid introduced a revised version of the Consumer First
Energy Act, now numbered S. 3044. Senator Reid placed
that bill on the calendar on May 21, 2008, pursuant to Rule XIV.
On June 4, 2008, Senator Reid
moved to proceed to the bill and Senator McConnell objected. Senator Reid
subsequently filed a cloture motion on the motion to proceed to S. 3044.
Expected Amendments
The
DPC will distribute information on amendments as it becomes available.
Administration Position
At the time of publication,
the Bush Administration had not yet released a Statement of Administration Position
on S. 3044.
