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Energy Update (May 4)

May 4, 2020 | SHARE  
Main Street Lending Program Expanded
On Thursday (Apr. 30), the Federal Reserve announced it will expand the loan options and increase the maximum size of businesses that are eligible for support under the Main Street Lending Program. The revisions apply to companies across every sector in the economy, but the change paves the way for the oil and gas industry to get government financing amid the coronavirus pandemic.
The guidelines released Thursday eased restrictions on borrowing for heavily indebted companies. The changes also allow for companies to use the loans to refinance existing debts, a departure from the first set of criteria.
The expanded program allows companies with 15,000 employees or $5 billion in annual revenue to qualify. The minimum loan size ranges from $500,000 to $1 million.
“The Federal Reserve’s announcement today sends a clear signal to IPAA members that the Administration is willing to address some of our recommendations for assuring that producers have access to the Main Street Lending Program,” the Independent Petroleum Association of America said in a statement to The Hill.[1]
Congressional Democrats called the changes a giveaway to the fossil fuel industry, and warned this will allow heavily indebted companies to use the loans to pay off existing debt.
Senator Kevin Cramer (R-ND) said the changes would help companies hurting from the global price war and decrease in demand. The new guidelines do not name any industries in particular, but many Senate Republicans believe oil and gas will benefit.[2]
“Without providing this lifeline, the U.S. risks bankrupting energy producers, adding hundreds of thousands of blue collar workers to the 30M+ Americans who have already lost their jobs as a result of #Covid19,” Sen. Ted Cruz (R-TX) said in a tweet.
The Federal Reserve said on Thursday (Apr. 30) that a start date for the program will be announced soon.
Bridge Loans
On Tuesday (Apr. 28), Energy Secretary Dan Brouillette told the North Dakota Petroleum Council that the Trump administration was weighing offering oil and gas companies “bridge loans” and other new measures. He also mentioned that the Federal Reserve could lend money to the industry in the form of emergency loans.
“Mnuchin hasn’t made a final decision on this, but that’s where he’s leaning and that’s where I think he’s going to go” Brouillette told the group. Brouillette also said that only certain companies would need the loans, and that others had maintained “healthier balance sheets.”
President Trump said in a press conference on Wednesday (Apr. 29) that he would offer a plan for the sector and vowed he would not let the companies fail. Treasury Secretary Steve Mnuchin said he was looking at “a lot of different strategies” with Brouillette, including potentially having the ability to store another several hundred million barrels more in the Strategic Petroleum reserve.[3]
Carbon Capture Credits
The Section 45Q tax credit incentivizes the use of new and developing technologies to remove carbon from the atmosphere. In a report released Thursday (Apr. 30), the Treasury Department’s Inspector General for Tax Administration determined that 10 entities had claimed more than $1 million each between tax years 2010 and 2019, and their claims made up around 99.9 percent of the credits given.
The analysis also found that 87 percent, nearly $900 million, of the claimed credits were awarded to companies that lacked approved monitoring plans required by law.
Senator Bob Menendez (D-NJ) called for an enforcement crackdown after the report came out. Menendez urged Internal Revenue Service (IRS) Commissioner Charles Rettig to: audit every taxpayer that has claimed more than $10,000 in credits, retroactively deny any credits not in compliance with Environmental Protection Agency (EPA) rules, update guidance and regulations to ensure compliance, and suspend the credit for enhanced oil recovery activities until a full investigation on the past misuse of the break is conducted.
The pressure from Menendez comes as advocates are stepping up efforts to expand the incentive as part of the next Covid-19 relief package. In a letter to congressional leaders on Thursday (Apr. 30), the Carbon Capture Coalition urged the inclusion of an extension of the 45Q tax credit, as well as changes to the credit language that would enable developers to seek cash payments. Republican Senators on the Environment and Public Works Committee have suggested that a carbon capture extension would be more beneficial than calls for more renewable tax credits.[4]
Trump Executive Order on Power Grid Devices
On Friday (May 1), President Trump signed an executive order prohibiting U.S. electric companies from installing grid devices from foreign manufacturers that could threaten national security.
The order tasks the DOE with establishing a “pre-qualified” vendor program that will allow utilities to identify friendly device makers from across the world. DOE will also develop a program to identify any prohibited power devices already in use and work to isolate, monitor, and replace the equipment as appropriate.
The order targets devices designed for use on large-scale electric transmission systems and power plants, not local utility distribution wires. DOE will create a new task force led by Energy Secretary Dan Brouillette that will develop new infrastructure procurement policies for utilities that are fully integrated with federal cybersecurity policies. The group will work with the energy industry through existing emergency preparation groups, including the Electricity and Natural Gas Subsector Coordinating councils.
“It is imperative the bulk-power system be secured against exploitation and attacks by foreign threats,” Brouillette said in a statement.
“This executive order will greatly diminish the ability of foreign adversaries to target our critical electric infrastructure,” he added.[5]
[1] Beitsch, Rebecca. “Fed’s expanded lending program opens funding to oil and gas industry.” The Hill, 30 Apr. 2020.  https://link.edgepilot.com/s/f2618c82/10QLputQ6UWn6HL4PY3Y5A?u=https://thehill.com/policy/energy-environment/495549-feds-expanded-lending-program-opens-funding-to-oil-and-gas-industry
[2] Clark, Lesley. “Oil backers cheer as Fed expands loan program.” E&E News PM, 30 Apr. 2020.
[3] Agragna, Anthony; Coleman, Zack;& Lefebvre, Ben. “Trump administration mulls emergency loans for oil companies.” Politico Pro, 29 Apr. 2020. https://link.edgepilot.com/s/e481a470/aoNmFVC9EkyLSTFr1M-rHQ?u=https://subscriber.politicopro.com/article/2020/04/trump-administration-mulling-emergency-loans-for-oil-companies-1928031
[4] Koss, Geof and Dillon, Jeremy. “Menendez seeks crackdown on credit ‘misuse.’” Greenwire, 30 Apr. 2020. https://link.edgepilot.com/s/5ee97e86/5qLeZhBZMEaQ7EZVYjjusw?u=https://www.eenews.net/greenwire/2020/04/30/stories/1063013285


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