PACE in The Hill: Tax Reform An Important Part of Pro-Consumer Energy Policy

The following opinion piece from PACE Executive Director Lance Brown appeared in today’s edition of The Hill. Read the piece online here.

Later today, the House Energy and Commerce Subcommittee on Energy will convene to discuss the effects on federal energy taxes on power prices and the families and businesses who pay them. This is a timely topic for lawmakers, as eight years of changes to the energy sector by the Obama administration have already helped to distort the energy marketplace and place upward pressure on the price of electricity. The EPA, emboldened by the president and spurred on by the environmental lobby, ran amok. The regulatory landscape expanded and America’s utilities scrambled to find a path forward that met the demands of both customers and   administrative fiat.

Under recent executive leadership, sweeping decisions about the future of American energy didn’t always keep in mind those forced to pay the toll for new regulations. But as members of this energy subcommittee undertake their work today, they have a chance to begin moving the needle away from regulatory overreach and toward the direction of customers. Understanding that the committee’s session focuses on the role of energy taxes as part of a comprehensive tax reform effort, here are some principles we hope they will keep in mind during their meeting.

First, U.S. tax laws should serve to unleash America’s domestic energy potential, not restrain it. As Energy Subcommittee Chairman Fred Upton has stated, the tax code is a useful and effective tool for “driving energy policy” by increasing investment in fossil fuels, nuclear energy, renewable power sources, and energy efficiency. Our energy future is brightest and customers are best served when a diverse group of energy sources is at the disposal of utility planners. America’s energy sector doesn’t just need an “all of the above” strategy; it needs a “more of the above” focus. More options means greater reliability and lower prices.

Second, U.S. tax laws should be geared toward competitiveness in the global marketplace. Already, federal lawmakers are considering comprehensive tax reform such as the blueprint for change put forward by House Speaker Paul Ryan and House Ways and Means Chairman Kevin Brady. This plan would provide better tax treatment for American companies and ensure that imports and exports are treated equally from a tax perspective. And while slashing corporate tax rates and lowering the tax burden on small businesses is a central part of this bold plan, so too is the tenet that U.S. tax policy shouldn’t play favorites when it comes to energy sources. Energy companies, whether they produce fossil fuels or some other form of energy, deserve access to the same tax deductions and incentives for capital investment. Adhering to this principle will further grow American energy supplies and lower prices for customers on the home front.

While Senator Franken and others have attempted to label energy tax deductions by fossil fuel companies as subsidies, this characterization simply lacks basis in fact. Provisions such as Intangible Drilling Costs, the Section 199 Manufacturers’ Deduction, and others, are standard deductions of the kind taken by numerous other industries. They are not direct subsidies of the type showered on the for-profit solar industry in past years. In that light, lawmakers should take caution in how they frame arguments about energy sector tax deductions and resist calls for removing such incentives on the basis that they are something other than what they really are. Treating energy companies differently than their counterparts in other sectors isn’t just unfair; it creates distortions in the marketplace that ultimately hurt customers in the form of reduced supplies and higher prices.

Third, and finally, members of the committee should acknowledge that the key to long-term investment and growth in the nation’s oil and gas sector begins with stable and permanent tax laws. In 2015, traditional energy producers such as oil and gas were the second highest investors in America, devoting more than $33 billion to the nation’s energy infrastructure. In fact, this sector invested more than $160 billion from 2011 to 2015, creating millions of jobs and helping the American economy claw its way out of recession. Repealing tax provisions that have  buoyed the energy sector will only serve to undermine growth, erect barriers to capital investment, and curtail energy  supplies. On the other hand, a set of stable tax rules will further encourage the flow of capital and help customers by stabilizing prices in the long term.

The energy sector is more than a simply a bright spot in the American economy. It is a beacon of light capable of guiding the nation out of economic stagnation toward greater growth. Through smart and informed tax policy, a robust domestic energy sector can provide built-in advantages for American companies vis a vis their international counterparts and help ease the burden on families through lower and more stable prices. Wise energy policy can also move our nation closer toward true energy independence, reducing the need to import energy from the world’s trouble spots.

As the members of the House Energy and Commerce Subcommittee on Energy deliberate today, we encourage them to keep close in mind those who pay for American energy policy. By moving closer toward a tax code that serves American energy customers, they can help protect and strengthen their collective future.


PACE Report: Natural Gas Hedging Protects Power Customers

A new report from the Partnership for Affordable Clean Energy (PACE) explains that the practice of natural gas hedging is a critical instrument for protecting electricity customers over the long term. Natural gas has now surpassed coal as the most used fossil fuel for power generation, meaning that hedging against potential increases in the price of natural gas has become more important.

Nationwide, electric utilities have continued to use natural gas hedging instruments as a way of stabilizing power prices over the long term and avoiding so-called ‘sticker shock’ for customers.

“Historically, hedging has allowed utilities to navigate the volatility of changing factors such as weather without creating constant sticker shock for their customers,” the report states. “Whether a mild winter and low electricity use combine to create a glut of natural gas, or whether a harsh winter drives up prices, utilities that combine hedging with smart forecasting are better able to stabilize their power prices.”

In states like Florida, which is already number two in the nation in terms of natural gas use for electricity generation and poised to use even more natural gas in the coming years, hedging is an indispensable tool for utilities and regulators as they seek to shield customers from potential natural gas price spikes. Lawmakers in Florida are now considering Senate Bill 1238, legislation that would allow utilities to make investments in natural gas reserves as a form of hedging.

“Electricity customers everywhere, but especially those customers in Florida, remain vulnerable to swings in natural gas prices,” explains PACE Executive Director Lance Brown. “We hope that this report helps policymakers recognize the value of natural gas hedging and that they remain committed to long-term price stability for customers.”


Clark: Gulf of Mexico Energy Critical to Alabama Manufacturers, Economy

The following guest blog is provided by George Clark, President of Manufacture Alabama, the only trade association in the state dedicated exclusively to the competitive, legislative, regulatory and operational interests and needs of manufacturers and their partner industries and businesses.  A PACE partner, Manufacture Alabama works to create a business and political climate that promotes a positive, competitive environment and enhances the opportunity for growth of all Alabama manufacturers.

As Alabama’s voice for manufacturing and industry, Manufacture Alabama fully recognizes the critical importance of affordable and reliable energy.  Manufacture Alabama member companies are among both the largest producers of energy in the state and the largest consumers of energy in the state.

Given that these same companies also support thousands of high-paying careers, it is easy to understand that energy development is key to supporting Alabama’s economy and job base.  In Alabama, the Gulf of Mexico plays an especially vital role.

Consider that in Fiscal Year 2014, Gulf of Mexico oil and gas activity generated an average 1.35 million barrels of crude oil per day and supported 18,000 jobs and $1.5 billion in GDP for Alabama alone.  Furthermore, it is estimated that opening access to the Eastern Gulf of Mexico could produce additional benefits for Alabama in the form of 21,000 new jobs, $1.7 billion annually for the state’s economy, and over $3.5 billion in state government revenue.  This is also estimated to produce enough resources to replace nearly 60% of our daily crude oil and petroleum product imports from the Persian Gulf.

While a select few have been calling on the federal government to shut down access to the Gulf of Mexico and keep the Gulf’s resources locked under the seabed forever, Alabamians understand the foolhardy nature of such shortsighted rhetoric.

The Gulf of Mexico is a critical backbone to the health and well-being of Alabama, the Gulf Coast region, and the nation as a whole.  Indeed, energy development in the Gulf benefits our economic, employment, and national security, while helping to protect our environment as well.

For example, prior to finalizing a 2017-2022 oil and natural gas leasing program – which includes the Central and Western Gulf but excludes the majority of the Eastern Gulf still under congressional moratorium –  President Obama’s Interior Department concluded that removing the entire Gulf of Mexico from the leasing program would result in billions of dollars in environmental and social costs as production substitutes are brought in from other sources and countries.  It also found that the United States would have to rely on imports to replace almost 60% of the lost production.

To make Alabama the best business location in the U.S. for manufacturers, it is important to have federal policies in place that will facilitate stable and affordable supplies of energy.  That is why, as the Alabama Legislature works its way through the home stretch of the 2017 Regular Session, Manufacture Alabama is supporting efforts to secure a resolution urging the federal government to provide for continued and expanded access to the Gulf of Mexico.

Given the important role of offshore oil and natural gas revenues in securing a strong coastline and safeguarding the state’s infrastructure, it is also why we are calling on the Legislature to support congressional action to lift the annual cap on federal offshore revenue sharing that is currently in place for Alabama and the Gulf Coast states to our west.

With the right business and policy climate in place, there is no limit to what manufacturers and all businesses and residents in Alabama can achieve.  For that reason, Manufacture Alabama is proud to support a federal energy policy that includes the Gulf of Mexico and access to the full range of its benefits for generations to come.