Democrats taking aim at oil-industry tax breaks

"Congress"

12/27/2006

WASHINGTON (AP) - House Democrats in the first weeks of the new Congress plan to establish a dedicated fund to promote renewable energy and conservation, using money from oil companies.


That's only one legislative hit the oil industry is expected to take next year as a Congress run by Democrats is likely to show little sympathy to the cash-rich, high-profile business.


Whether the issue is rolling back tax breaks -- some approved by Congress only 18 months ago -- pushing for more use of ethanol and other biofuels instead of gasoline, or investigations into shortfalls in royalty payments to the government, oil-industry lobbyists will spend most of their time playing defense.


Details of a renewable fuels fund have yet to be worked out. Nonetheless, it's one of the initiatives the House will take up in its first 100 hours in session in January, according to aides to Speaker-elect Nancy Pelosi, D-Calif. At least some of the money -- revenue gained by rolling back some tax breaks -- will go to a program to support research into making ethanol from sources other than corn.


"What we'll do is roll back the subsidies to Big Oil and use the resources to invest in a reserve for research in alternative energy," Pelosi recently told reporters.


But the oil issue likely to be first out of the legislative block in January concerns the ability of the federal government to recover royalties that many Congress members believe have been unfairly avoided by oil and gas companies drilling in deep waters of the Gulf of Mexico.


The Interior Department has been trying to get more than 50 companies to rework 1998-99 drilling leases that allow the companies to avoid paying billions of dollars in royalties because of a government mistake in writing the leases. Recently, five companies agreed to a compromise to pay royalties on future production under the leases, but not from oil and gas already taken from the federal waters.


Most of the other companies argue that the leases represent binding contracts and have not even talked to Interior officials about them.


The industry intransigence has upset many in Congress, both Republicans and Democrats, who say they want to find a way to force the companies back to negotiations on the flawed leases. One approach is legislation barring companies from bidding on future leases unless they agree to renegotiate the flawed ones. Congressional estimates have put the potential royalty loss at as much as $10 billion over the life of the leases.


"There will be a new cop on the beat to force every big oil company that is currently lining its pockets with taxpayer dollars to come back to the negotiating table," Rep. Edward Markey, D-Mass., said.


Oil industry lobbyists also expect a Democratic push to further expand production of ethanol as a gasoline additive and don't see that as a threat to their business. A more contentious issue will be attempts to require large oil companies to make available fuel that is 85 percent ethanol, so-called E-85, at some of their retail outlets.