The oil and gas industry is, for now, staying neutral on just-introduced legislation extending favorable tax treatment the fossil fuel sector currently enjoys to renewables, underscoring the double-edged sword it faces as it weighs whether to create a broader coalition in support of the tax program or make it more vulnerable due to its increased budget costs.
"We don't have a problem with [the legislation]," American Petroleum Institute (API) President Jack Gerard told Clean Energy Report April 24. "Frankly we really don't take a position pro or con."
Similarly, a spokesman with the Interstate Natural Gas Association of America which represents pipeline companies that are large beneficiaries of the current tax program, says the group is also staying "neutral" on the parity bill.
The industry officials were responding to legislation reintroduced in the House and Senate April 24 that would make it possible for renewable energy companies to structure themselves as Master Limited Partnerships (MLPs). The option, which is currently available to projects in the oil, natural gas, coal extraction and pipelines sector, provides a significant benefit in part because it permits ownership interests in such companies to be traded as stocks, bolstering private investment.
The new legislation largely tracks language that was introduced in the 112th Congress, retaining eligibility for renewable power generation and biofuels. But it also includes new language to clarify how the proposal would be implemented and extends eligibility to include energy efficient buildings, "waste heat to power," carbon capture and storage, and biochemicals, according to a press statement and summary.
Senators reintroducing the plan are Chris Coons (D-DE), Jerry Moran (R-KS) Lisa Murkowski (R-AK) and Debbie Stabenow (D-MI). Coons and Moran were original cosponsors in 2012, and Murkowski and Stabenow signed on to the prior version in November.
In the House, Reps. Ted Poe (R-TX) Mike Thompson (D-CA) Peter Welch (D-VT) and Chris Gibson (R-NY) introduced a companion measure. Poe, Thompson and Welch backed the prior measure.
The legislation's fate could become clearer April 25 when the Senate Finance Committee is expected to unveil a discussion paper on energy tax policy as part of ongoing discussions on tax reform options.
During an April 24 event hosted by Politico, several participants characterized 2013 as a year when tax reform proposals will be put on the table but final enactment could prove to be too heavy a lift. "I wouldn't bet my mortgage on tax reform happening this Congress," Advanced Energy Economy's Malcolm Woolf told the audience, but he suggested that the time is ripe for discussion on incentives to encourage energy innovation that sunset over time.
Similar, Steve Ellis of Taxpayers for Common Sense said numerous ideas on tax reform will be "hashed out" in 2013.
But Sen. Debbie Stabenow (D-MI) argued that the decision of Senate Finance Committee Chairman Max Baucus (D- MT) not to seek reelection in 2014 could make him more "motivated" to get tax reform done.
Industry Alliance
While prospects for any tax reform legislation are uncertain in the current Congress, sources close to the fossil energy sector say the industry is mulling whether the MLP legislation will help forge an alliance between renewables and fossil energy interests, as renewables backers claim, or simply help make the existing MLP incentive a target for a budget-minded Congress.
One source familiar with the issue says Capitol Hill backers of the MLP parity bill are urging the fossil sector to make clear if asked that it will not block any parity approach. "We don't want to undermine it" but don't want to be out in front, the source says.
Echoing this, Coons, during an April 24 press briefing, couched the plan as something which "doesn't take away" from existing benefits in the tax code for fossil projects, but levels the playing field for renewables. "This is the opposite of picking winners and losers," he said.
Coons also suggested that the proposal could move either as part of a broader tax reform package or a stand-alone measure, and should not be regarded as a replacement for the renewable energy production tax credit (PTC) that he continues to support.
At the same briefing, Poe, who hails from the oil state of Texas, characterized MLPs as an important part of an "all of the above" strategy for the United States.
One proponent of the parity bill says there is a lack of resistance to the parity concept by fossil energy interests because "it would be so obviously disingenuous" for [them] to argue that they should have access to MLP structure but renweables can't . . . They can't do that."
But the oil and gas industry's neutral stance may also pose some risks for the renewables sector as Gerard and others have suggested that extending MLP to renewables could provide a justification to eliminate the PTC -- an approach that Coons and others oppose.
And expanding the MLP program could carry risks for the fossil energy sector as such expansion would increase MLP costs already under scrutiny given pressures to cut the deficit via tax code changes. One source familiar with the issue says the current reticence of the oil and gas sector reflects uncertainty over whether the MLP parity push will help build a broader coalition for preserving traditional MLP tax breaks or simply make MLP incentives a bigger target for tax reformers amid calls to lower tax rates and broaden the tax base.
"Whether you get additional allies or if the allies cost you too much," that is the question, the source says.?
The Joint Tax Committee recently raised the stakes for fossil energy interests by quadrupling its cost estimate for the current MLP tax break already enjoyed by projects such as pipelines, finding it would cost $7 billion between now and 2016, according to press reports.
MLP parity backers said at the April 24 press briefing that they are awaiting a score for the revised legislation from the Joint Committee on Taxation, but that the prior proposal was estimated by experts to cost $1 billion over ten years. Coons said he believed the legislation would not go significantly over that figure. Aides offered no timeline for that score.
The National Association of Publicly Traded Partnerships -- which represents a range of interests that use the current MLP structure -- urged the House Ways and Means Committee recently to "preserve" the ability of business enterprises to choose the structure that is the most efficient and effective for their particular business activities." A source familiar with the issue says the group is "divided" on the MLP measure.
The discussion of energy tax policy at the Politico event underscored the dilemma faced by MLP proponents in the tax reform debate. Center for American Progress's Richard Caperton, whose group helped organize an April 24 letter from numerous organizations and clean energy businesses in support of the MLP measure, suggested enactment of the measure should happen this year, with or without tax reform.
However, Ellis said his group wants to "excise the whole structure" of MLPs from the tax code, citing costs of the measure he said have grown "exponentially" over the years.
Written by: Doug Obey
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