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.
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 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.
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.
- 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.
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.
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 S.3044.