Next Step for House Energy Bill: A Hard Slog Through Senate

Energy legislation that sped through the House yesterday will face a slower and uncertain path in the closely divided Senate.

The House easily cleared legislation that would hike oil industry taxes and require payments from oil companies that hold flawed late 1990s deep water leases. It would steer the estimated $14 billion in revenues into renewable energy and energy efficiency.

A spokesman for Senate Majority Leader Harry Reid (D-Nev.) said he generally supports the bill. "We will take a look at it and hope to be able to act on it, or something like it, fairly quickly," said spokesman Will Edgar.

But Reid plans to use his committees to vet energy policies, which rules out matching the quick pace of the House. And while general ideas in the House bill may progress in the narrowly Democratic Senate, the specifics and shape are another matter.

The bill is already drawing attacks from key Senate GOP lawmakers. Sen. Chuck Grassley (R-Iowa) yesterday blasted tax language that makes oil and gas companies ineligible for deductions on income from domestic manufacturing -- a provision estimated to raise in excess of $7 billion over 10 years.

"It seems very strange to me that if you want to become less dependent on foreign oil, the first thing you would do in your first 100 hours is increase the taxes by 3 percentage points on all domestic production of oil and gas," said Grassley, ranking member of the Finance Committee.

The oil industry is not enjoying high popularity, but it remains to be seen whether the Senate will match the House's appetite for rolling back its tax breaks.

"There are many who have signed a 'no tax-hike pledge,' so we will have to see how that works," said Sen. Ben Nelson (D-Neb.), a centrist Democrat, in an interview last night in the Capitol. Asked if that applied to taxes on oil companies as well as people, he replied, "We will all have to go back and take a look at the pledge."

"I do think the energy companies are going to have an opportunity to come in and argue their case, as I think they should," he said.

Sen. Pete Domenici (R-N.M.), ranking member of the Senate's energy panel, said the bill would do nothing for renewable energy. He said it will shut U.S. companies out of the Gulf of Mexico while creating a "multi-billion dollar slush fund with no plans for how it should be spent."

An aide to Sen. Mary Landrieu (D-La.), a frequent swing vote who represents a key oil and gas state, said she is concerned that some incentive rollbacks could stymie domestic production.

The oil industry, while facing criticism in recent years amid high profits and high gasoline costs, plans to fiercely lobby against the bill. Other major industry groups oppose it as well.

Moreover, some anti-tax activists are mobilizing against the bill. Heritage Foundation congressional expert Brian Darling said conservatives will argue the oil industry tax provisions could lead to other tax increases in this Congress.

"It is the camel's nose under the tent argument that is very important here," he said.

Key Democrat may seek changes

Sen. Jeff Bingaman (D-N.M.) favors congressional action to ensure royalty payments from late 1990s leases and steering the money into other energy programs. But he has not specifically endorsed the House royalty provisions.

"The committee will look at the House bill, as well as other ways of fixing the problem, and how we will use the funds that we will collect by making our oil tax and royalty programs more effective and fairer to all," said Bingaman, the chair of the Senate Energy and Natural Resources Committee.

He added that he will work to develop an amendment to the House bill that will "avoid legal pitfalls."

A top Interior Department official told his committee yesterday that the House bill's royalty language invited litigation that could delay future gulf leasing. Bingaman plans further steps to determine whether the legal concerns are well-founded or not, spokesman Bill Wicker said.

Deep water leases in 1998 and 1999 were mistakenly issued without clauses that end royalty relief when prices reach certain limits. The error could eventually cost an estimated $10 billion if left uncorrected. The House bill would deny new gulf leases to producers unless they pay "conservation of resources" fees or renegotiate the leases.

Elsewhere, several sources suggested that one open question is whether Senate lawmakers will seek to alter the renewable energy and energy efficiency fund the House bill creates. The bill does not specify how the new revenues should be spent, stating this will be decided by subsequent legislation.

One environmentalist expressed concern about possible efforts to ensure coal-to-liquid fuels or nuclear power are made eligible. "If anything puts the breaks on this [bill], it will be what the fund is used for," said one environmental lobbyist. "If it stays renewable energy and clean energy, I think it goes through."

Bingaman yesterday used the Senate's Rule 14 to get the bill placed on the Senate calendar. A spokesman explained that this clears the way for various committees with jurisdiction to work on provisions in the House-passed bill, which otherwise would be referred only to the Finance Committee because it includes tax provisions.

"It is a procedural move that allows the committees to go ahead and work on their pieces," Wicker said.

It is not, he explained, an attempt to fast-track the House bill onto the Senate floor.

Copyright 2007 E&E Daily. All Rights Reserved. Visit E&E Daily for a free trial.

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