On May 7, 2008, Senator Reid introduced S.2991, the Consumer-First Energy Act of 2008, which 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 tightens 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 that are invested in clean, affordable and domestically produced renewable alternative fuels, expanded refinery capacity and utilization, or renewable electricity production.
Title I – Tax Provisions Related to Oil and Gas
The Consumer-First Energy Act of 2008 would create a tax on "windfall profits" of the major oil companies at a special supplemental rate of 25 percent. This tax would not apply to the windfall profits of oil companies invested in clean, affordable and domestically produced renewable alternative fuels, expanded refinery capacity and utilization, or renewable electricity production, which would all help lower consumers energy bills. The bill would also would repeal the deduction for domestic production for the major oil and gas companies for their income on the sale, exchange, or other disposition of oil, natural gas, or any primary product thereof. Additionally, the legislation would also tighten the rule restricting the use of foreign tax credits on oil and gas related income. All revenue collected from the windfall profits tax and repeals of the tax deductions would be deposited into an Energy Independence and Security Act Trust Fund.
Title II – Price Gouging
America’s heavy reliance on petroleum products leaves our nation and citizenry vulnerable to crippling price increases and volatility, much of which is unrelated to supply disruptions or normal market factors. Title II of 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 atemporary 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.
Title III – Strategic Petroleum Reserve
The Bush Administration’s policy of taking oil off the market and putting it underground in the Strategic Petroleum Reserve (SPR) is a contributing factor to current high energy prices. As the SPR’s capacity already exceeds our International Energy Program commitments to maintain at least 90 days of oil stocks in reserve, it makes no sense to store oil underground when oil is trading at prices that have soared beyond $120.
Title III 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.
Title IV – No Oil Producing and Exporting Cartels
Title IV of 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, Title IV would seeks to address OPEC state claims that their anti-competitive behavior has sovereign immunity from U.S. courts due to a court ruling in 1979. Title IV would not authorize private lawsuits against OPEC.
Title V – Market Speculation
Excessive speculation by financial traders, without adequate oversight and consumer protection, has likely increased energy prices for consumers. Today, speculators can avoid all U.S. market oversight or reporting requirements by routing their trades through the IntercontinentalExchange (ICE) in London instead of the NYMEX in New York. 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.
The Consumer-First Energy Act of 2008 will be introduced by Senator Reid on May 7, 2008. Pursuant to Rule XIV, Senator Reid will place the bill on the Senate calendar.
The DPC will distribute information on amendments as it becomes available.
At the time of publication, the Bush Administration had not yet released a Statement of Administration Position on the Consumer-First Energy Act of 2008.