Dems poised to roll back oil subsidies

[Ron Burgundy]

AP - Newly empowered House Democrats sought to recoup billions of dollars in lost royalties from offshore drilling as they anticipated approval Thursday of a $15 billion package of fees, taxes and royalties on oil and gas companies. The money would be used to promote renewable fuels.

The House took up the energy bill as the final one of a string of high-priority issues that Speaker Nancy Pelosi (news, bio, voting record) vowed to address in the first 100 hours of Democratic control of Congress. She has characterized the energy measures as key to reducing government subsidies for the oil industry.

The bill is largely aimed at recovering an estimated $10 billion that stands to be lost to the government because of an error in deep-water drilling leases for the Gulf of Mexico issued in the late 1990s. Congressional auditors and the Interior Department's inspector general have said the mistake was ignored for six years by the Minerals Management Service, which oversees the leasing program.

As the House began debate on the energy measure, Interior Inspector General Earl Devaney told a Senate hearing Thursday that the minerals bureau showed "a shockingly cavalier management approach" in dealing with the leasing error, although the problem was known within the agency as early as 2000.

It's "a jaw-dropping example of bureaucratic bungling," he told the Senate Energy and Natural Resources Committee.

The White House on Wednesday expressed support for some of the tax and royalty proposals but said other provisions unfairly single out the oil industry or jeopardize domestic oil and gas production.

The legislation would impose a "conservation fee" on oil and gas taken from deep waters of the Gulf of Mexico, scrap nearly $6 billion worth of oil industry tax breaks enacted by Congress in recent years and seek to recoup royalties lost to the government because of an Interior Department error in leases issued in the late 1990s.

Democratic leaders estimate the measure would generate an additional $15 billion in revenue. Almost all of that money would be funneled into a research and development fund for renewable fuels such as solar and wind power, alternative fuels including ethanol and bio-diesel, and conservation incentives.

The legislation was expected to move through the House with broad support from Democrats and moderate Republicans. Its prospects in the Senate were uncertain, given the Democrats' narrow majority there and sharp opposition from some Republicans as well as the White House.

Sen. Maria Cantwell (news, bio, voting record), D-Wash., said Wednesday she doubts the Senate would accept the package as written. She suggested the Senate might want broader legislation to fix what she characterized as an oil and gas royalty program "riddled with blatant mismanagement."

While President Bush supports a rollback of some of the royalty breaks for deep-water drilling contained in the House bill, the White House said Wednesday it strongly opposes the new production fees and a provision that would bar oil companies from future lease sales unless they renegotiate and pay royalties under the flawed 1998-99 leases.

Those measures could embroil the government's offshore oil and gas leasing program in protracted litigation, delay future lease sales and disrupt energy supplies, said the White House.

"We must be mindful of potential unintended consequences. Litigation could take years to resolve," Interior Assistant Secretary C. Stephen Allred told the Senate hearing. He said a three-year delay in leases would cut domestic oil production by 1.6 billion barrels and cost the government $13 billion in lost royalties over 10 years.

The 1998-99 leases did not include a provision that would trigger royalty payments once market prices reached a certain level far below today's prices. The mistake so far has cost the government nearly $1 billion in lost royalties with the losses potentially growing to $10 billion over 25 years, according to Congress' Government Accountability Office.

The House bill also would prohibit the oil and gas industry from taking advantage of a 2004 tax break that was aimed at helping U.S. manufacturers compete against imports. That provision was never intended for highly profitable large oil companies, but it has saved them $700 million a year, maintains Rep. Jim McDermott (news, bio, voting record), D-Wash.

The White House opposed that provision as an attempt "to single out this industry from others for punitive tax treatment."

The oil industry has been lobbying hard to try to block the tax and royalty provisions — if not in the House, perhaps in the Senate.

Repeal of royalty relief and rollback of the tax breaks "will discourage new domestic oil and gas production and refinery capacity, threaten American jobs and make it less economical to produce domestic energy resources," Red Cavaney, president of the American Petroleum Institute, wrote members of Congress on Wednesday.

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The bill is HR6.

source: http://news.yahoo.com/s/ap/20070118/ap_on_go_co/congress_oil [link]