A “How To” On Passing Energy Legislation (Part II of IV)

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  1. JimofPennsylvan
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    JimofPennsylvan VIP Member

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    PART TWO

    Also on the flip side of the increasing supply issue, the compromise bill should mandate a stepped up leasing rate by the Department of Interior for land in the National Petroleum Reserve in Alaska. The mandate of at least one lease per year seems like a good mandate (See H.R. 6515).

    The compromise bill should contain provisions which stop excessive and/or manipulative speculative activity in the petroleum commodity markets. One can reasonably argue the degree to which, but not whether or not, this type of speculative activity has negatively affected oil prices in recent years. Further, the American economy is significantly dependant on oil, the American economy is a consumer based economy high oil prices reduce the ability of the American consumer to spend, the American economy is highly dependant on the use of debt and credit - high oil prices cause dysfunctionality in these areas, oil prices significantly impact U.S. financial markets which are critical to the health of the U.S. economy; the bottom line is Congress must fix the wrongful speculation problem or America will suffer severely over it. For the record, the evidence that speculative activity is a cause for higher oil prices than market fundamentals warrant is indicated, in part, by the following. Over the last several years at times, when commodity prices increased in inordinate amounts, the actual traders that trade the petroleum future contracts on the trading floors often explained the inordinate jumps in prices as due to high levels of speculative activity. Secondly, common sense indicates that if one focuses on the dramatic increase in the trading volume in the commodity markets over the last several years this is evident, if one has more investors with more buying power in a market looking to make an investment profit common sense indicates that the market will likely see these investors bid up prices at higher levels than would occur if they weren’t in the market. Thirdly, if one looks at the commodity markets over the last month or two we see a lot of the speculators staying on the sidelines because of the regulatory climate, they’re waiting to see if Congress passes curbs on speculation, this has created an environment in the commodity markets where favorable fundamentals, like lower demand, stronger dollar, etc. have brought down commodity prices.

    It needs to be mentioned that speculative activity does not include any hedging activity by either oil or gas producers or end users. Moreover, this bill’s restrictions on wrongful speculative activity should not just extend to the trading of the commodity contracts but also to swap dealing or any other type of trading activity that utilizes a commodity index for pricing and there exists a real likelihood that such trading will or does have an affect on the market price of that commodity. The “Stop Excessive Energy Speculation Act of 2008”, S. 3268, does the job that Congress needs to do here and should be largely adopted into this compromise bill; however, it does not seem to go far enough in solving a critical part of this speculation problem which is this wrongful speculation activity just being moved to foreign commodity markets, like what many experts warn will occur, which will leave America in its same predicament with inflated petroleum prices. A viable solution to this problem seems to be to criminalize such foreign activity on U.S. citizens and U.S. businesses that engage in it and in regard to foreign individuals and foreign businesses that engage in it block their access to U.S. equity, U.S commodity markets and the like as a deterrent.

    These three aforementioned elements of the compromise legislation; increasing land available for leasing, demanding presently leased land be fully developed from a production standpoint and stopping wrongful speculation in the commodity markets should be considered “must” elements, the bill must contain these three elements or either parties’ leadership won’t support or advance the bill, no amendments should be allowed on the floor debate of either chamber to eliminate or damage the essence of these three elements. Further, all four Congressional leaders should make the commitment that no matter how things turn out on the permitted amendment motions in their respective chambers as long as the final bill has these three elements in it they will fully support expeditiously putting the final bill to a final vote to determine whether or not their chamber passes the bill.

    Section: Two

    Congressional leaders should make the following elements parts of the compromise bill but allow amendments to knock out these elements. The compromise bill should contain provisions that do away with the tax break for oil companies, known as the manufacturing deduction, in Section 199 of the Internal Revenue Code and use that money to continue and increase and expand the alternative energy tax credits and breaks due to soon expire which if allowed to occur will not only end some good government energy initiatives, but also, will hurt some important renewable energy industries (See S. 2821). This tax break for the oil companies they don’t deserve, they are making record profits at the expense of America’s families’ budgets and America’s families’ standard of living. Continuing this tax break is to subvert the will of the Congress that passed this tax legislation, this last quarter both Exxon Mobil and Royal Dutch Shell corporations both reported net income in excess of $11 billion dollars, Exxon Mobil is on target to make over $ 40 billion dollars this year which is more than many states’, across America, overall yearly budget. That prior Congress would never have voted for such an outcome, to believe otherwise is to believe something that is not credible. Moreover, in the last few years one of the top executives of one of the major oil companies said in a moment of candor and honesty in appearing before some Congressional committee that his corporation doesn’t need the current tax breaks to be moved to expand exploration efforts. It has been said often by many top oil company executives that the only obstacle to increased energy exploration is good opportunities (that is, land with high amounts of oil or gas reserves).

    This compromise bill should also contain provisions that get the rightful amounts of royalties due the public from those oil and gas leases in the Gulf of Mexico where there was a lease drafting error and the lessees aren’t paying their justly owed royalty amounts. This issue has been reported in the media for years and it is an outrageous, members of Congress should be really mad about this and put a stop to this. Energy companies that operate in the U.S. make out like bandits on leases in the U.S. compared to the same type of leases in many foreign countries throughout the world; this is appalling that these energy companies are shorting the government here where even if they paid the correct royalty they would still be making great profits off the leases.

    As stated earlier, Congress should not let the loss through the amendment process of any of these elements, whether it be the extension of the energy tax credits/deductions or the above listed revenue generation elements stop Congress from passing this bill. The Congress can later pass budget neutral energy tax credit and tax break legislation, this energy tax legislation has compelling force behind it, it is like the alternative minimum tax legislation where Congress every year has to raise the eligibility limit, Congress always finds the money to pass the legislation before the requisite time deadline because public pressure won’t allow otherwise.

    SEE PART THREE
     

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