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Democrats drying up oil industry tax breaks
LA Times
By Richard Simon, Times Staff Writer
January 17, 2007

WASHINGTON — When oil company executives came before the Republican-controlled Congress in 2005 to defend their record profits amid high gasoline prices, they were spared the indignity of being sworn in under bright TV lights, as the tobacco chiefs had been a decade earlier.

But with Democrats in charge, perhaps no industry will find the new Congress less hospitable than the oil industry.

That will be underscored Thursday when the House is expected to approve a bill that would repeal billions of dollars in oil industry tax breaks passed by the GOP-controlled Congress.

The measure would raise about $14 billion over 10 years by repealing the tax breaks and by closing a loophole that allowed royalty-free offshore oil leases. The money would be used to promote energy conservation and develop alternative fuels.

Currently, the government spends about $1.2 billion a year on projects to promote energy efficiency and renewable fuels.

"It looks like Congress is looking to rebalance the equation," said Bill Prindle, acting executive director of the American Council for an Energy-Efficient Economy, an energy think tank based in Washington.

Repealing the tax breaks will be the last of a spate of measures, including today's vote to cut interest rates for student loans, that House Democrats pledged to pass in their first 100 legislative hours.

Gasoline prices have eased from the record high of more than $3 per gallon set in 2005 after Hurricane Katrina damaged Gulf Coast energy facilities; the average price nationally Tuesday was $2.23 per gallon for regular unleaded, according to the Auto Club. But energy remains a potent political issue, as evidenced by the nearly 200 lawmakers who have signed up as co-sponsors of the House bill.

President Bush is expected to propose energy initiatives in his State of the Union speech next week, and Democrats are spotlighting the tax repeal bill as a down payment on their plans to pursue a new energy policy.

The tax breaks were aimed at reducing U.S. dependence on foreign oil by encouraging domestic production of oil and natural gas. But even usually industry-friendly Republicans have found it hard to defend the oil companies after they recorded record profits.

One Republican who supports the House measure says it is smart to move the country away from fossil fuels. "Oil and natural gas are not forever," said Rep. Roscoe G. Bartlett of Maryland.

The measure is expected to easily pass the House but is likely to face a tougher time in the Senate. And it could run into trouble at the White House. Bush opposed the tax breaks for the oil and gas industry that were included in the 2005 energy bill. But the administration has been cool to the idea of forcing oil companies to renegotiate drilling leases.

A number of energy companies were permitted to drill royalty-free in the Gulf of Mexico in the 1990s, when energy prices were lower, to spur domestic production. But, in an apparent clerical error, a standard stipulation was left out of the leases that would have required the companies to pay royalties if oil prices rose. That oversight has shortchanged the Treasury by billions of dollars.

White House spokesman Scott Stanzel said the administration recently moved to increase the royalty rate on new deepwater leases in the Gulf, but he said the faulty leases need to be honored. "The government should be a reliable partner with private industry and should not change the rules in the middle of the game," he said.

Some companies have voluntarily renegotiated leases. Under the House measure, the others would be required to renegotiate or pay a $9-per-barrel "conservation" fee. If they refuse, they would be barred from bidding on new offshore drilling leases.

The big oil companies have stayed in the background, largely leaving it to their trade groups to attack the bill.

"This measure is purely political with the goal of punishing an industry that has low favorability on Capitol Hill," said Barry Russell, president of the Independent Petroleum Assn. of America. "This is a time to encourage American investment in energy projects here at home, not discourage it."

The House bill would roll back a tax break included in the 2005 energy bill for only the five largest integrated oil companies.

And it would create a special exemption to exclude only oil and gas companies from a tax break included in a 2004 corporate tax bill aimed at encouraging domestic production.

Don Duncan, vice president of federal and international affairs for ConocoPhillips, criticized that provision, saying it was discriminatory.

The House bill doesn't go after all of the $32 billion in tax breaks and subsidies that Friends of the Earth, an environmental group, has estimated the oil and gas industries receive, including a $500-million research program put into the energy bill at the urging of then-House Majority Leader Tom DeLay (R-Texas).

That program, designed to fund research into "ultra deepwater" drilling, has been assailed as a "giveaway" to the oil industry by some Democrats. But other Democrats support it.

Environmentalists on Capitol Hill lobbying for the House measure said they hope it is just the first step toward eliminating all tax breaks and subsidies for the oil and gas industries.

Industry allies are worried about the new Congress.

"Those of us who want a pro-production energy policy are going to have our hands full in this Congress preventing too many bad things [from] happening," said Rep. Joe L. Barton of Texas, the top Republican on the House Energy and Commerce Committee.

Rep. Jim McCrery of Louisiana, the top Republican on the tax-writing House Ways and Means Committee, said, "If you're interested in trying to lower the cost of energy, raising taxes is not the way to do that."

Unlike some other initiatives on the 100-hour agenda that have drawn unanimous support from Democrats, such as increasing the minimum wage, repealing the tax breaks may draw opposition from Democrats from energy-producing states.

"There will probably be Democrats who vote no," said Rep. Gene Green (D-Texas). He plans to vote for measure, however. "We've tried to make the best of what we consider bad legislation."

No decision has been made on how the nearly $14 billion that the bill would generate over a 10-year period would be divvied up. Possible uses could include expanding funding or tax breaks for development and use of fuel-efficient vehicles and alternative energy sources, such as solar and wind power.

The measure's supporters hope the prospect of additional funds for home-state energy projects, such as increased ethanol production, will help generate bipartisan support for it in the Senate.

"It's long overdue, but Congress is finally ready to strip big oil of unjustified taxpayer subsidies and kick-start the nation's clean, renewable energy industry," said Rep. Henry A. Waxman (D-Los Angeles), a leading critic of subsidies to the oil and gas industries.

richard.simon@latimes.com

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