Senate looks to debate ‘something’ on energy

A research note early Wednesday morning from FBR Capital Markets sums up the fluid landscape for the Senate energy bill.

It begins: “Senate scheduled to debate something next week.”

The overall bill is expected to focus on the BP oil spill, reducing energy demand, boosting “clean” sources and — maybe — limiting power plant greenhouse gas emissions.

FBR provides a nice breakdown of the tax negotiations as Majority Leader Harry Reid (D-Nev.) tries to cobble together a bill, while noting that “lack of consensus on a climate strategy threatens to further postpone action.” There is speculation mounting that the whole thing could be punted into September.

Oil industry tax breaks are again on the chopping block. Democrats have failed in several previous attempts to end a suite of incentives, but the tide may be turning, FBR argues.

“The Senate bill could include more than $20B in tax credits for renewable energy and efficiency. Because Congressional rules require tax incentives to be ‘paid for’ with increases in revenue, Democrats expect to rescind existing incentives for the oil and gas industry to offset the cost,” FBR notes.

They add: “Our conversations reflect an increasing willingness to raise taxes on the oil and gas sector to offset renewable spending. The Obama Administration’s budget proposed repealing $36.5B in oil tax breaks, and similar legislation would raise about $30B. In June, the Senate voted 35 to 61 against a bill to repeal oil tax breaks, implying that tax spending will be reduced. However, if attached to the broader energy/Gulf package, a scaled-back tax increase is likely to encounter less opposition.”

Lawmakers will continue looking to shield smaller producers, FBR notes, but that doesn’t mean that only “super-majors” like BP, Exxon and Chevron are on the hook.

“[W]e detect an emerging appetite for tax increases above the $100M annual revenue threshold, which would include a greater number of independent [exploration and production companies] than we anticipate,” they state. Big items on the table include nixing the industry’s ability to write off certain drilling costs, and ending oil companies’ ability to claim a lucrative tax break for domestic manufacturing.