The 264-123 vote came at the end of a daylong debate that saw Republicans calling the proposal bad economic policy and Democrats characterizing it as a way to overturn ill-gotten tax benefits enjoyed by the oil industry during 12 years of GOP control of Congress.
It also came after a last-minute parliamentary maneuver by Minority Whip Roy Blunt (R-Mo.), ultimately unsuccessful, to require a three-fifths majority vote in support of the bill because it would result in a tax hike.
Talk of victory was short lived as the reality sunk in that the bill faces an uncertain future in the Senate. Voting margins across the Hill are tighter, lawmakers there prefer to take time with energy legislation, and some senators are warning against overly aggressive legislation to deal with the bill's controversial handling of royalties on deepwater oil leases. The White House also opposes much of the measure and issued a strong statement against it this week.
The legislation would make oil and gas companies ineligible for deductions on manufacturing income that were included in the 2004 corporate tax bill. Elimination of those deductions is projected to raise more than $7 billion over 10 years.
The bill also pressures Gulf of Mexico producers to renegotiate flawed 1998 and 1999 deepwater leases or face bans from bidding on future lease sales. It also allows the Interior Department to waive royalties for offshore Alaska production.
Last, the bill would roll back tax breaks for certain oil exploration costs for major integrated oil companies, repealing several new royalty incentives that were part of the Energy Policy Act of 2005. It would create a new "strategic energy efficiency and renewables reserve" to spend the revenues the tax and royalty provisions would bring in.
Republicans during the House debate said the bill would end up penalizing oil companies, taxing domestic oil instead of focusing on foreign oil imports and raising prices for consumers.
Rep. Marsha Blackburn (R-Tenn.) called it the product of a "hold-on-to-your-wallet Congress," while Rep. Jim McCrery (R-La.), ranking member of the tax-writing Ways and Means Committee, said the oil companies "are not evil rapacious organizations."
"New taxes discourage exploration for energy resources and weaken the domestic energy industry," McCrery said. "They will be passed through to consumers and will have a ripple effect on everything they buy and the services they hire."
Rep. Jim McDermott (D-Wash.), a senior Ways and Means member who managed that committee's portion of the bill for the Democrats, rejected McCrery's argument.
"You would think that the end of the Western world as we know it is about to descend upon us," he said. The bill "is a down payment on the changes that must go on in this country. We know the American people have spoken on this issue. They are demanding change."
Rep. Bill Pascrell (D-N.J.) noted that the bill marks the first effort by Congress to start "weaning [companies] off corporate welfare."
"You'd better get used to it," he said.
The GOP also accused the Democratic majority of undertaking an illegal private property taking through the bill's requirement that companies renegotiate the deepwater gulf leases. They compared the Democrats with Venezuela President Hugo Chavez and Bolivia President Evo Morales, who are moving to nationalize their energy industries, and Russian President Vladimir Putin, in saying the bill will unfairly force the rewrite of private companies' contracts.
That led ranking Natural Resources Committee member Don Young (R-Alaska) to liken the deep red color of his shirt to the color of the bill: "communist red."
"My biggest concern is the road to hell is paved with good intentions," he said. "This is a good example. It fits the realm of Russia and Putin, and fits the realm of Bolivia and Venezuela."
And though Republicans dismiss the strategic energy efficiency and renewables reserve as nothing more than a "slush fund," Democrats contend it is a vehicle to provide money for domestic alternative energy production.
Natural Resources Committee Chairman Nick Rahall (D-W.Va.) said the current policies "are hitting the American taxpayer not once, not twice, but three times: once at the pump, once at the Treasury through the tax code and then through the royalty holidays in 1995 and '05.
"Meanwhile, our people are back home, standing in workboots, pumping gasoline in their tanks, while lobbyists scuttle about in Armani suits wanting more," Rahall said.
Reactions run the gamut
Environmental, alternative energy and consumer groups applauded the vote.
"The days of our federal government giving free rides to big oil are over," said Apollo Alliance President Jerome Ringo, calling the bill "a signal of change and the sign of a Congress that is ready to meet the challenge to end our nation's dependence on foreign oil."
Rodger Schlickeisen of Defenders of Wildlife called passage of the bill "a win-win for everyone except the oil companies, which have been posting record-breaking profits for the past several years at the expense of the average American. It is almost poetic that the oil industry will, in fact, be funding the $14 billion in clean renewable energy funds."
Tom Buis of the National Farmers Union said he is pleased that Congress "is realigning our energy priorities and will start to focus more on renewable forms of energy and fuels from the farm, as opposed to our continued reliance on imported oil."
The oil industry was not so welcoming.
"This is purely a political bill playing on the campaign rhetoric of the 2006 election," Independent Petroleum Association of American President Barry Russell said. "At a time when we need more American energy, it simply doesn't make sense to harm those companies that can provide it. Unfortunately, this bill is a loss for American consumers and a win for foreign oil suppliers."
Energy Secretary Samuel Bodman's reaction was measured, saying he was pleased to see Congress take energy security seriously but noting the administration's opposition to requiring companies that signed favorable oil development leases with Interior in 1998 and 1999 to renegotiate those leases.
"While I agree that the leases are out of line with prior and current policy, the bigger issue is protecting the sanctity of contracts," Bodman said.
Dealing with the royalties issue
Across the Capitol, Interior officials at a Senate hearing on the lease issue predicted the House royalty provisions could spark litigation that would delay new lease sales and stymie future oil and gas production. Stephen Allred, assistant secretary for land and minerals management, said a three-year delay in lease sales could cut production by 1.6 billion barrels of oil equivalent over 10 years, causing a $13 billion revenue decline.
Instead, companies might consider renegotiating the 1998-1999 leases if Congress created new incentives, suggesting an extension of deep water leases. He said more companies have not renegotiated leases because they are waiting to see how Congress responds to the issue.
The Interior Department is under fire for failing to adequately address the mishandled leases. Officials there have reached agreements with six oil companies to include new price thresholds, accounting for an estimated 20 percent of future production from these leases.
Sen. Byron Dorgan (D-N.D.), an energy committee member who also is chairman of the Energy and Water Appropriations Subcommittee, said he will consider addressing the matter on a spending bill if Interior does not do its job.
"There will be an appetite to legislate if the Interior Department and oil companies are not able to reach agreement," he said. "You're not going to be able to negotiate on future contracts. Congress isn't going to sit by and let $10 billion go into the pockets of the oil companies without some consequences. If that's the way companies intend to deal with this issue it's a mistake and I think they should not be bidding on future leases."
But Sen. Jeff Sessions (R-Ala.) said all parties should be able to bid on future leases.
"I think we should pursue with vigor every opportunity to fix what appears to be a major mistake in the lease," he said. "We're required to let all responsible parties bid. Just because someone makes you angry over a contract that may not be a reason to say you can no longer bid."
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