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The following subcommittee hearings have been scheduled for March:

March 3:   The Subcommittee on Insular Affairs, Oceans and Wildlife  - "Managing Our Ocean and Wildlife Resources in a Dynamic Environment: Priorities for the New Administration and the 111^th Congress." 

March 3:   The Subcommittee on National Parks, Forests and Public Lands - "The Role of Federal Lands in Combating Climate Change." 

 March 5:  The Subcommittee on Energy and Mineral Resources - "Energy Outlooks, and the Role of Federal Onshore and Offshore Resources in Meeting Future Energy Demand." 

House Natural Resources Committee Chairman Nick Rahall (D-WV) praised President Obama's fiscal year 2010 budget in a news release, claiming that under it "taxpayers [will] receive a fair return for the extraction of oil and natural gas resources on public lands." The budget's proposals implement ideas that Rahall has advocated for and introduced in the past: "Last Congress, I introduced legislation to reform the royalty collection program, encourage the diligent development of federal oil and gas leases, and require energy companies to pay their fair share for the use of public resources.  I am heartened that the President's budget includes all of these initiatives, and also correctly identifies our public lands as an immense potential resource for the development and deployment of domestic alternative energy," Rahall said

The Office of Management and Budget ("OMB") released the President's budget today, outlining the Administration's spending priorities for fiscal year 2010.  The overall budget allocation for the Department of the Interior, which includes the Minerals Management Service, is $12 billion.  The fact sheet for Interior states the budget will help "promote energy security with a focus on clean renewable sources and strategies to address climate change."  On the revenue side, the budget "includes provisions to encourage responsible development of oil and gas resources, and closes loopholes that have given oil companies excessive royalty relief."  Specifically, it calls for "using a new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes" that have provided such relief.  It notes that the new tax would not begin until 2011, "after the economy has had time to recover."   The budget outline also makes reference to charging user fees for the processing of oil and gas drilling permits on federal lands as well as adjusting royalty rates to secure a greater return on production.  This budget provides an outline for Congress to utilize as it developments a federal budget for fiscal year 2010.  Both the House and the Senate will start to work on the individual appropriations bills later in the Spring.

Yesterday Calypso LNG, LLC notified the U.S. Maritime Administration (MARAD) that it will suspend work on its previously filed application to construct an LNG deepwater port planned for offshore Florida. Calypso LNG's announcement follows comments by Florida Gov. Charlie Crist (R) that he would oppose the project. MARAD's press release (courtesy of LNGLawBlog) offers additional details.

Usually when top executives from the oil and natural gas industry testify before a congressional committee, they come expecting to hear an ear full.  At today's House Natural Resources Committee hearing on OCS drilling, however, the executives walked away with relatively few scars.  They even agreed with Committee Chairman Nick Rahall (D-WV) on one point -- that the nation is sorely in need of a comprehensive energy policy that considers the panoply of available energy resources, including solar, wind, and biofuels.  Despite recognizing the need for a comprehensive approach, it was clear that the industry representatives favored additional access to OCS resources.  In his prepared statement, the Chairman noted the benefits of offshore drilling, including jobs and tax income, but also stated that "the amount of additional oil that we could drill offshore is a drop in the bucket of what we need to sustain our economy and meet our energy needs."  Citing the American Petroleum Institute's ("API") own figures, he added that even in the most optimistic scenario, opening the entire OCS to drilling would "provide no more than 5% of our total daily energy needs, and displace only 8% of our oil imports" by 2030.   
 
Today's panel included officials from ExxonMobil, BP, Shell, Chevron, Devon (representing API), and the Institute for 21st Century Energy, an affiliate of the U.S. Chamber of Commerce.  Each panelist generally agreed that additional OCS drilling will promote energy security, create jobs, and generate more revenue for the U.S. Treasury.  Moreover, when the issue arose, each panelist appeared to support revenue sharing with states that host drilling operations off their coastline.  Perhaps one of the most prominent themes of the day was that the resource data currently held by the government to establish projections for OCS oil and gas inventory is woefully inadequate.  Members of the Committee were repeatedly reminded that current resource projections in the Gulf of Mexico are roughly eight times greater than were originally forecasted.  In short, the executives believe that the projected inventories in the OCS areas formerly under moratoria would be much higher if companies were allowed to use current technology to evaluate these areas.  Some panelists even expressed a willingness to fund these endeavors, but are hesitant to do so until the federal government provides greater assurances that these areas would be open to development. 
 
Several members of the Committee inquired as to how much money the companies were devoting to the development of renewable fuels.  While the panelists responded to this inquiry, Rep. Lois Capps (D-CA) requested these figures to be provided in writing to the Committee.  A few members, however, did suggest that the companies were spending an inadequate amount of money on developing alternative energy resources in light of their profit figures for 2008.  Rep. John Sarbanes (D-MD) also noted that he is worried that the combination of low prices and additional OCS drilling may inhibit the nation's ability to adequately develop renewable forms of energy. 
 
Another issue raised during the hearing was Interior Secretary Salazar's recent decision to delay the OCS planning process by 180 days.  As expected, the companies did not favor this decision.  The Ranking Member on the Committee, Doc Hastings (R-WA) took this sentiment a bit further, noting that the Secretary's decision amounts to a reinstatement of the ban on drilling.  Rep. Hastings also added that the government needs to examine what it can do to facilitate the development of leases.  Rep. Henry Brown (R-SC) further examined the permitting issue, asking the panelists to compare the process in the U.S. with other countries.  The panelists appeared to agree that the permitting process, at least in the Gulf of Mexico, is comparable with other countries.  The Alaska permitting process does appear, however, to be more difficult, according to the executives.
 
While this hearing concluded the Committee's first series on OCS drilling matters, we expect the Chairman and others to call for additional hearings to discuss royalties, leasing, and other related issues.

Virginia Gov. Tim Kaine (D) sent a letter to Interior Secretary Ken Salazar last week asking him to postpone OCS Lease Sale 220, which includes lands offshore Virginia.  Kaine praised Salazar's decision to extend the public comment period for the Department's 5-year OCS leasing plan, which includes Lease Sale 220, but argued that Virginia state laws do not "support exploration for oil or production of gas or oil."  Today's Virginian-Pilot has more details.

The House Natural Resources Committee today convened the second in a series of hearings addressing the nation's policy on offshore drilling.  In his opening statement, Committee Chairman, Nick Rahall (D-WV), noted that he is "not opposed to drilling," but is "aware of the risks" associated with the development of the OCS.  This sentiment was echoed by several of the Committee's members who, while not in favor of reimposing the longstanding congressional drilling moratoria, understand that opening the offshore to greater production will trigger environmental concerns, including the addition of more greenhouse gases to the atmosphere.  On this point, several members asserted that it is not yet clear that such activities have significantly contributed to global warming.  Not surprisingly, there was generally a clear divide between Committee Democrats and Republicans on these issues, although both sides appeared interested in developing a national energy policy.    
 
The first panel included Reps. Sam Farr (D) and Dana Rohrabacher (R), both from California.  Rep. Farr was in favor of reinstating the moratoria, noting that he supports a temporary ban until a more comprehensive approach can be established.  Rep. Farr also advocated for "marine spatial planning," a process that allows the government to "assess and then allocate areas of the OCS" for development in a manner that preserves the oceans and benefits the economy.  He contrasted this method with onshore development, where certain regions hosting critical habitats are restricted from development.  In contrast, Rep. Rohrabacher strongly advocated for OCS drilling while noting that he is an avid surfer and scuba diver.  He cited environmental groups as a key obstacle to expanded exploration and production.  He added that the lack of OCS production requires the United States to import oil and gas by tanker.  Noting that tanker spills cause greater damage than spills from OCS production, he said opponents "ironically make oil spills more likely" by blocking the development of such production.  Rep. Rohrabacher also suggested, somewhat facetiously, that providing pleasant "facades" on offshore platforms (e.g., painting trees on them) may help to win the support of environmental opponents. 
 
After a rousing first session, the atmosphere surrounding the second panel was less colorful.  The lighting rod on the panel, at least for Republicans, was Secretary Mike Chrisman of the California Natural Resources Agency.  Secretary Chrisman was frequently questioned about his state's staunch opposition to offshore drilling.  Committee Ranking Member Doc Hastings (R-WA) also asked why California appears to support the importation of liquefied natural gas (LNG) over offshore production, implying that the nation would be better served by producing natural gas domestically than importing from "Saudi Arabia, Venezuela and Brazil."  Secretary Chrisman noted that the state is evaluating importing LNG from Australia and that LNG is part of a broader energy policy, which includes a heavy renewable energy component.  Virginia State Senator Frank Wagner (R), a longtime supporter of drilling offshore Virginia, noted that he disagrees with Governor's Kaine's support for Interior Secretary Salazar's recent decision to extend the comment period on the 5-year OCS plan by 180 days.   
 
Tomorrow the Committee will host the third hearing in the series, focusing on industrial perspectives.  Based on past hearings, this one promises to be the most contentious. 

American Petroleum Institute chairman, Larry Nichols, said the Department of the Interior's plan to evaluate the OCS's oil and natural gas resources will result in a "de-facto moratorium." Nichols views Secretary Salazar's use of the U.S. Geological Survey to conduct the survey as a way to stall moving forward with plans to develop new areas of the OCS. In just over a month, the DOI is due to issue a comprehensive report on the potential impacts of drilling in the OCS. Secretary Salazar has publicly taken a cautious approach to the issue of drilling thus far. Today's Platts Inside Energy EXTRA has more.  [Subscription required.]

On the eve of this week's House Natural Resource Committee hearings focusing on offshore oil and gas drilling, Interior Secretary Ken Salazar called for clarity of the scope of the Minerals Management Service’s authority over the Outer Continental Shelf.  In addition to MMS's jurisdiction over the leasing of offshore oil and gas resources, the 2005 Energy Policy Act put MMS in charge of alternative energy development on the OCS.  The agency has yet to finalize a final rule implementing the renewable energy program.  Secretary Salazar suggested that a combination of future legislation and administrative action may be required to further iron out this authority.  Today’s E&E Daily has more. [Subscription required.]

Governor Charlie Crist (R-FL) pledged yesterday to oppose the proposed Calypso LNG deepwater port planned 10 miles off the coast of Fort Lauderdale, Fla., noting that he believes the project is "already in bed. It's gone." Read more in the Miami Herald.

On February 17, 2009, President Obama signed into law the “American Recovery and Reinvestment Act” (“ARRA”), a $787.2 billion spending and tax cut stimulus package.  The following is a summary of the major provisions in the ARRA that may impact offshore wind energy projects.

Production Tax Credit Extension. Internal Revenue Code (“IRC”) § 45 allows a production tax credit (“PTC”) for production of electricity at a “qualified facility” using “qualified energy resources.”  PTCs are generally available during the 10-year period beginning on the date that a qualified facility is placed in service. The amount of the available PTC is the product of the amount of electricity produced and an inflation-adjusted amount published annually by the IRS.

A qualified facility must be placed in service before specified dates. The ARRA extended by 3 years, from January 1, 2010 to January 1, 2013, the date before which a wind facility must be placed in service to be treated as a qualified facility. 

Election to Claim ITC in Lieu of PTC.  Under IRC § 48, an investment tax credit (“ITC”) is available with respect to “energy property.”  Prior to the ARRA, the term “energy property” did not include wind facilities.  The ARRA expands the ITC to allow taxpayers to make an election to claim with respect to wind facilities (in lieu of a PTC), an ITC equal to 30% of the taxpayer’s basis in the wind facility.  The ITC is claimed during construction of the wind facility and/or in the year that the wind facility is placed in service (as compared to the PTC which provides a credit over the 10-year period after a wind facility is placed in service) 

Repeal of ITC Subsidized Energy Financing Reduction. The amount of the available ITC is 30% of a taxpayer’s basis in a wind facility.  The ARRA amended the ITC so that no reduction in the amount of the tax credit is required for energy property constructed using subsidized energy financing or private activity bonds, the interest on which is tax-exempt. Subsidized energy financing includes financing under a federal, state, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.

Treasury Grant In Lieu of PTC or ITC. In lieu of claiming PTCs or ITCs with respect to wind facilities, the ARRA provides that a grant may be obtained from the Department of Treasury. To qualify for the Treasury grant, either (i) the property must be placed in service during 2009 or 2010 or (ii) construction must begin in 2009 or 2010 and must be completed before January 1, 2013. The amount of the grant is the 30% of a taxpayer’s basis in a wind facility.

Increased Funding for Clean Renewable Energy Bonds. Under current law, the amount of “New Clean Renewable Energy Bonds” available under IRC § 54C is limited to $800 million. The ARRA increases the bond limitation by $1.6 billion.

Innovative Technology Loan Guarantee Program. The ARRA appropriates $6 billion to pay the costs of guarantees made under § 1705 of the Energy Policy Act of 2005, as amended. Eligible projects under § 1705 must commence construction no later than September 30, 2011 and include wind facilities.  Unlike previous loan guarantees made under the Energy Policy Act of 2005, those made under § 1705 do not require the facility to employ new or significantly improved technologies.

For additional information on impacts of the ARRA on other forms of renewable energy, please click here.

Chairman Nick Rahall (D-WV) and the House Natural Resources Committee held their first in a series of three hearings on OCS leasing policy today, welcoming celebrity ocean advocates Ted Danson and Phillipe Cousteau, the grandson of Capt. Jacques Costeau, as the first panel of witnesses.  Rahall opened by responding to advocates of the "drill, baby, drill!" mold, noting that "the United States does drill -- and we drill a lot," and that there are more active rigs in the U.S. than in the rest of the world combined.  Danson, arguing that "oil and water don't mix" and that "the oil companies are making us a sucker's offer [in expanding OCS drilling]," proposed reinstating the OCS ban, suspending all Arctic exploration, and holding a new series of hearings on offshore renewable energy such as wind, tidal, current, and geothermal projects.  Cousteau, echoing Danson's proposals, also called for a more comprehensive, unified approach to leasing, and the funding of a new Ocean Investment Fund with OCS royalties.  Rahall opined that political realities dictate that an OCS ban cannot be reimposed.  A lively (and long) round of questioning from Members focused on the difference in environmental impacts from oil versus natural gas exploration, "use-it-or-lose-it" issues with existing leases, and environmental and permitting problems related to offshore renewables.

Rep. Markey (D-MA) introduced legislation today (H.R. 790) designed to prohibit oil and natural gas leasing and production in the Georges Bank, off the coast of Massachusetts. Georges Bank supports several of New England's largest fishing ports, including the nation's most productive port in New Bedford, Mass. Given that oil and gas leasing is no longer prohibited on the majority of the Outer Continental Shelf, coastal state members may be inclined to introduce measures prohibiting offshore development in specific areas, such as the Georges Bank. Read Rep. Markey's press release for more details. 

 

Similar legislation (H.R. 204) was introduced earlier this year by Rep. Mike Thompson (D-CA) to prohibit drilling offshore Northern California.

House Natural Resources Chairman Nick Rahall (D-WV) has called a series of three oversight hearings focused on offshore drilling.  The series consists of: "Environmental and Commercial Perspectives" on Feb. 11; "State Perspectives" on Feb. 24; and "Industrial Perspectives" on Feb. 25.  These congressional hearings come at a time when the Obama Administration is trying to decide how aggressively, and under what conditions, to lease federal land located on the OCS for oil and gas E&P.  The Committee's Ranking Member, Rep. Doc Hastings (R-WA), argues that job creation should be the primary touchstone when evaluating offshore drilling policy.  Chairman Rahall, echoing President Obama, does not fundamentally oppose offshore exploration, but adds that it should be done in a "responsible, environmentally sound and transparent manner."  Stay tuned to see exactly what that limiting language means when it comes to energy legislation in the 111th Congress.  Today's Greenwire has more. [Subscription required.]

In a press release issued today, House Minority Leader John Boehner (R-OH) announced that he and several of his Republican colleagues wrote to President Obama and the Department of the Interior to urge them not to block energy exploration on the Outer Continental Shelf. The Members stated OCS energy exploration is critical to lowering energy costs and to job creation.

Senate Energy and Natural Resource Committee Chairman Jeff Bingaman announced today that he proposes amending the tax code to give renewable producers the option of a 30 percent cash grant in lieu of 30 percent production credit. A related amendment was included in the approved House bill and the current Senate version; however, Bingaman's proposal would be a further incentive/boon to renewable producers than that first amendment. His proposal (and the current tax incentive) apply to a wide range of renewable facilities, and appear at this time to include certain offshore facilities (e.g., offshore wind facilities).