US Senate Passes Bill With

US Senate Passes Bill With $18 Billion Energy Tax Package

May 25 - Oil & Gas Journal

The US Senate overwhelming agreed 85-13 to keep energy tax provisions in a pending trade bill. But the energy portion of the bill faces an uphill battle when lawmakers meet with their House counterparts to reconcile differences between the legislation, congressional and industry sources said May 12.

The $18 billion tax package was originally part of a larger energy bill, debated in various forms for more than 3 years. But persistent gridlock between the Republican-led House and the nearly evenly divided Senate has stalled efforts to push so-called "comprehensive" energy legislation out of Congress.

Meanwhile the White House continues to call for a sweeping energy bill but has not signaled it would veto a measure that is not to the House leadership's liking.

Responding to the Senate's latest legislative action, House leaders continue to insist that any energy bill that passes Congress should contain the tax provisions, congressional sources said. The tax measures, along with an ethanol fuel mandate plan, were the most popular pieces of an earlier energy bill that is languishing. Although peeling off the tax provisions worked for Senate energy bill sponsors, a recent related effort to have the Senate consider the ethanol program separately recently failed.

Nevertheless, the Senate energy bill's chief sponsor and champion Senate Energy & Natural Resources Chairman Pete Domenici (R-NM) called the May 11 vote to keep the tax provisions in the pending legislation "the first significant victory for gaming passage of the comprehensive national energy policy bill developed over the past 18 months." The Senate later voted the same night by a 92-5 margin to approve the Foreign Sales Corporation/Extraterritorial Income Act, or JOBS Bill, including the energy tax amendments (S. 163 7).

Energy bill's contents

Included in the Senate's energy tax proposal are incentives for development of an Alaska natural gas export pipeline to the Lower 48. These include an enhanced oil recovery credit, accelerated depreciation, and a floor price provision. The House has never approved tax incentives for the pipeline although last November under version HR 6 it agreed to conditionally support as much as $ 18 billion in a federally backed loan guarantee. But the Secretary of the Department of the Interior had wide discretion on where the money can be spent.

The bill that recently passed the Senate also provides a new credit for the production of crude oil and natural gas from marginal wells. The credit is not available if the market prices for oil and gas exceed certain levels. The House's comprehensive energy bill has a similar provision. Similarly, both House and Senate have measures that provide accelerated depreciation for natural gas gathering lines.

The Senate tax package also contains a provision that allows small refiners to claim an immediate deduction for as much as 75% of the qualified capital costs for purpose of complying with highway sulfur diesel rules. Lawmakers also provide a credit of 5/gal for each gallon of low-sulfur diesel fuel produced by a small business refiner. The House has similar sulfur provisions.

And as in the House energy bill, the Senate increases the daily barrel limitation for special tax rules governing independent producers. Moreover, it allows geological and geophysical costs to be amortized over 2 years and delay rental payments to be amortized over 2 years.

Maureen Lorenzetti

Washington Editor