Congress is slowly but steadily drilling into energy policy tax issues, but anyone hoping to see detailed plans soon may be disappointed.
“Like any good play, you have to set the scenes, and we’ll see what happens in the final act,” said Steve Nadel, executive director for the American Council for an Energy-Efficient Economy.
House and Senate tax writers have been digesting a massive amount of data and advice from Capitol Hill sources and the energy industry and are passing that along to lawmakers.
“I feel like we’re in the third inning and moving forward,” said Rep. Kevin Brady (R-Texas), who along with Rep. Mike Thompson (D-Calif.) is co-leading a Ways and Means working group on energy. “Priorities within the Tax Code are beginning to surface.”
“The whole idea is to get knowledgeable on this,” Thompson said. “We have the best information available so we can in fact do some good public policy.”
Among the items under consideration: allowing renewable energy companies to have greater access to tax-advantaged structures, balancing a reduction in tax rates with elimination of incentives widely used by oil and gas producers and promoting new measures to spur energy efficiency.
What the two lawmakers have heard so far is that the energy industry is very capital intensive. “The cost of capital matters, the ability to recover it on a timely basis matters,” Brady said. “And certainty is an issue raised by everyone,” especially after last year’s tax extenders and fiscal cliff debates, he said.
The two lawmakers met on Brady’s home turf at the University of Houston for two hours Tuesday in a closed-door session with seven organizations that mainly represented the oil and gas industry but also included the wind and solar industries.
They are holding two more talks in Washington, one on tax incentives for commercial and consumer energy efficiency and one on international competitiveness and financing.
Previous discussions have focused on oil and gas exploration and production, electricity transmission and distribution and renewable fuels in vehicles, and Thompson said he expects a field hearing in his district soon.
The one thing that he and Brady heard most in Houston “is that they very much want to be treated, they want a certain level playing field and be treated the same as everyone else,” Thompson said. “But who doesn’t, right?”
Thompson, Rep. Ted Poe (R-Texas) and Sens. Chris Coons (D-Del.) and Jerry Moran (R-Kan.) have sought to allow renewable energy projects to use master limited partnership tax structures and real estate investment trusts to reduce their capital costs. Currently, those tax structures are available only to companies involved in oil, natural gas, coal extraction and pipeline projects, and they are explicitly prevented from applying to renewable energy.
Other bills have included familiar efforts that draw more partisan heat.
Sen. Robert Menendez (D-N.J.) is seeking to repeal tax incentives for the five biggest oil companies operating in the U.S., an effort fiercely opposed by Republicans and oil-state Democrats. Rep. Mike Pompeo (R-Kan.) is continuing his efforts to trim the overall corporate tax rate and eliminate all energy tax credits for both conventional and renewable energy sources.
But some businesses are already pushing back at the idea of losing their targeted Tax Code help, arguing that would leave them worse off even if corporate tax rates were cut.
“Clearly the energy industry understands that if we’re going to significantly lower the rates and simplify the Tax Code, status quo overall is not an option,” Brady said.
And different energy companies hold different opinions, depending on their position in the energy value chain and how well-established their sector is. “It is hard to say that there is a consensus that is beginning to emerge,” Brady said.
The oil and gas industry alone underscores the complexity of the debate.
A number of companies have testified that incentives such as deductions for intangible drilling costs are “so critical that it is difficult to lower the [broader corporate tax] rate even in the single digits that would offset that dollar for dollar,” Brady said.
Rules allowing dual capacity corporate taxpayers to deduct foreign taxes are crucial for companies such as ExxonMobil that operate around the globe but are not important for many domestically focused oil refinery companies.
For other companies, the financial pain from collectively repealing Last In, First Out inventory accounting rules and the Section 199 domestic manufacturing credits, and undermining the use of MLPs would outweigh any benefits from lowering the corporate tax rates.
Tuesday’s meeting in Houston was the fourth for Brady and Thompson and the first outside of Washington, D.C.
Neither the working group led by Brady and Thompson nor the other bipartisan working groups on the House panel are tasked with producing specific recommendations, and it’s unclear when committee leaders might be able to release some draft language or a list of energy policy options.
Brady said he and Thompson could help foster bipartisanship down the line.
“I know we’re not done yet, but I feel like if there’s common ground to be found, I think Mike and I can find it,” he said.
Outside groups have until April 15 to submit written comments to Ways and Means – and the Joint Committee on Taxation will release a summary of those comments May 6. The American Petroleum Institute is among those who have already filed comments while others such as the American Wind Energy Association plan to submit their comments by the deadline.
The Senate Finance Committee is expected to release potential energy, natural resources and infrastructure options submitted by committee staff from both parties and outside groups as part of a broader release of so-called option papers.
The issuance of those papers, which began with last month’s on simplifying the tax system, is expected to take place each Thursday while Congress is in session. Sources told POLITICO the energy paper will be the fourth released from the committee.
A spokeswoman for Finance Committee Chairman Max Baucus (D-Mont.) said the schedule remains fluid regarding which Thursday policy papers will be released. The committee is releasing its second policy paper – regarding small businesses – next Thursday.
Nadel said he has been having a hard time getting some industry officials to focus on getting their ideas into the policy mix because it was so early in the process but that ACEEE would submit comments to Ways and Means by the April 15 deadline either alone or jointly with industry groups.
In December, he testified before a Senate Finance subcommittee on the need to direct tax incentives to the most effective technologies and to end breaks for technologies that aren’t advancing.
Some of that was encompassed in legislation led last Congress by now-retired Sens. Jeff Bingaman (D-N.M.) and Olympia Snowe (R-Maine), as well as others including Sens. Dianne Feinstein (D-Calif.) and Ben Cardin (D-Md.).
Legislation revamping the energy efficiency Tax Code has not been unveiled yet this Congress, and there is no consensus on who will lead a new charge. Cardin sits on the Finance Committee with Energy and Natural Resources Committee Chairman Ron Wyden (D-Ore.) and Sen. Rob Portman (R-Ohio), who has pursued bipartisan non-tax-related energy efficiency legislation with Sen. Jeanne Shaheen (D-N.H.). Nadel also singled out Finance panelist Menendez.
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