Senate Proposal To Give U.S. Energy Revenues to States

From Rigzone

Energy-rich states would be in a position to receive millions of dollars of oil royalties and other energy revenue currently collected by the federal government under a proposal being put together by a pair of key lawmakers.

The plan, being developed by top members of the Senate Energy & Natural Resources Committee, would allow states like Alaska to collect a share of royalties from oil in the U.S.-controlled waters of the Arctic Ocean and sets up other states like California to collect a share of revenue from solar power produced on public lands.

The federal government already distributes some oil and natural gas royalties to the states, but the setup is limited in scope.

A new revenue-sharing proposal, if adopted, is likely to create added pressure on the U.S. government to exploit energy resources on federal areas. Republicans criticize President Barack Obama for declining to unlock more federal land and water for drilling. A revenue-sharing plan that allows states to collect millions of dollars from expanded production could serve as a powerful incentive for state officials to weigh in.

The plan would drain money from the U.S. Treasury at a time when President Barack Obama and congressional leaders are looking for ways to boost government revenues and pay down the debt. Oil royalties are one of the largest sources of nontax revenue for the federal government. The U.S. Treasury collected $6.6 billion in energy revenues in fiscal year 2012, according to the Interior Department.

Earlier proposals for revenue sharing arrangements have stalled in Congress, in part because a senior member of the Senate opposed them, but this plan has a greater chance of success, aides say. The new chair of the Senate Energy & Natural Resources Committee, Sen. Ron Wyden (D., Ore.), has said he is willing to consider the idea whereas his predecessor strongly opposed it.

Wyden said in a recent interview with Dow Jones that he wants to pursue a “third path” that includes a broad mix of resources that could qualify for revenue sharing with the federal government, such as timber.

Sens. Lisa Murkowski (R., Alaska) and Mary Landrieu (D., La.) are drafting the bill to expand the current revenue sharing arrangements. The legislation, which aides say is in its early stages but could be introduced as early as this month, would force the government to hand over 27.5% of energy revenue from offshore production. An additional 10% would be provided to states if they agreed to use the money for specific purposes, such as restoration projects.

Most states control the waters within three nautical miles of their coasts. Beyond that, the federal government controls the resources and collects money from lease sales and production royalties.

The bill would also create revenue sharing for renewable energy, like solar and wind power, which doesn’t currently exist.

The largest and most significant solar projects in the U.S. are still in construction and are expected to come online in 2013 or 2014. The developers of a standard 250-megawatt solar plant pay about $1.5 million in rents to the federal government each year, according to the Solar Energy Industries Association.

Only 2% of the installed wind generation capacity exists on federal lands, according to recent data from the American Wind Energy Association.

Sen. Murkowski is the top Republican on the Senate Energy and Natural Resource Committee. Her home state of Alaska is seeing increased activity in the Arctic, where Royal Dutch Shell PLC is in the process of drilling for oil in the Beaufort and Chukchi seas.

The Arctic’s potential resources are a powerful draw for oil companies, but Shell has faced numerous challenges and opposition from environmental groups.

Sen. Landrieu, a key Democrat on the panel, was part of a group of lawmakers who successfully pushed a bill in 2006 to create revenue sharing for four Gulf Coast states. That law doesn’t fully kick in until 2017. Sen. Landrieu was also behind a successful effort to direct 80% of spill-related fines paid by BP PLC under the Clean Water Act to the Gulf Coast states impacted by the disaster.

As part of the new bill, Sen. Landrieu wants to remove an existing $500 million annual cap on the amount of money the Gulf Coast can receive.

Supporters of the plan say a beefed-up revenue-sharing arrangement will compensate states for infrastructure projects that facilitate energy production.

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