Senate energy debate expected to generate more controversy

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Mar. 11 --New tax incentives designed to spur US oil and gas production are expected to be one of the last items the Senate tackles this spring as it moves to pass sweeping energy legislation, according to congressional sources and industry lobbyists.
Part of the Senate bill includes a bipartisan $14 billion energy tax proposal that includes about $4 billion in credits and incentives for the oil and gas industry.

When the Republican-led House of Representatives last August passed its own comprehensive energy bill, it included oil and gas provisions that congressional budget-makers estimated would cost $8 billion over a 10-year period. Lawmakers from oil-producing states say the expanded incentives could ultimately save taxpayers money by improving the economy and adding jobs in the oil sector.
Critics of the House bill, which include most Democrats, say the provisions are "corporate welfare" that help make energy companies more profitable but do little to improve energy security (OGJ Online, Feb. 13, 2002).
But what the Democratic-led Senate will ultimately pass with regard to tax provisions is still largely unclear, lobbyists say.

Nontax amendments expected this week
The Senate resumes debate today with possible votes on provisions to tighten motor vehicle fuel efficiency standards and expand government oversight of energy derivatives.

Hundreds of other amendments could be proposed, but Senate Majority Leader Tom Daschle (D-SD) last week threatened to temporarily pull the energy bill from the floor if debate stalls.

Daschle also has suggested that the bill may still be under construction past the spring recess during Mar. 25 ?Apr 5.

Fuel efficiency
Amendments designed to improve automobile fuel efficiency standards are expected to dominate the debate in the meantime.

Sens. John McCain (R-Ariz). and John Kerry (D-Mass.) are sponsoring an amendment that would raise the fuel efficiency standard for cars and sport utility vehicles to 36 mpg by 2015. Environmental groups say that by enacting the measure, America would save 2 million b/d of oil by 2020, which they contend eclipses any oil that might be available from the Arctic National Wildlife Refuge coastal plain. There is also expected to be a competing proposal by Sens. Carl Levin (D-Mich.) and Senator Kit Bond (R-Mo.) that would not be as stringent, although details are still pending.

Following that, a long-anticipated debate over leasing a portion of ANWR could occur, as well as debate on updating electricity laws, followed by discussion of taxes under energy policy, according to lawmakers and lobbyists.
Sen. Frank Murkowksi (R-Alas.), the Senate's most ardent ANWR leasing supporter, in an interview Mar. 8 did not reveal what strategy he may use to bring up the leasing proposal. But he denied rumors that he would automatically try to stall an energy bill that did not contain an ANWR provision.

"I'd like to vote for an energy bill," he said. He also declined to speculate on whether the White House would veto a bill that did not contain ANWR. Congressional and administration sources have suggested the White House is willing to accept a bill without ANWR; however, some members of President George W. Bush's cabinet, including Sec. of Commerce Don Evans, have reportedly urged the president to reject any bill that does not have an ANWR leasing component. Those who oppose ANWR leasing, such as Kerry, have threatened to talk the energy bill to death if Murkowski or another proleasing lawmaker attempts to include it for discussion.

Amendments approved
So far the Senate has approved several amendments that are much less incendiary than ANWR. Of interest to the oil and gas industry are the following:

-- An amendment designed to block North Slope producers from building the line mostly in Canada via a shorter, northern route instead of a southern route through Alaska paralleling the oil pipeline to Fairbanks and then the Alaska Highway to British Columbia. The amendment also clarifies Alaska will have regulatory authority over gas delivered from a southern pipeline to state customers.

-- A bipartisan plan supported by Daschle and Murkowski to give North Slope producers a floor price for gas when market conditions are poor is still being mulled and will likely be considered later when the tax portions of the bill are debated; some smaller producers in the Lower 48 are unhappy about this plan because they say a floor price gives Alaska producers an unfair advantage. However, pipeline proponents say the Senate bill already includes provisions to encourage marginal production outside Alaska. Both the House and Senate versions include a new $3/bbl credit for the production of oil and 50¢/Mcf for gas from marginal wells. The maximum amount of production on which credits could be claimed would be 1,095 boe/year. The credits would phase in when prices fell below $18/bbl or $2/Mcf.

-- An amendment approved by the Senate Mar. 8 directs the Environmental Protection Agency to study whether there is a need to regulate hydraulic fracturing.

-- The Senate also included in the energy bill the modified text of S. 235, the Pipeline Safety Act passed by the Senate in February 2001 (OGJ Online, Dec. 21, 2001). Two new provisions address security concerns: Sec. 781 authorizes the secretary of transportation to withhold information if it is deemed to be in the interest of national defense or foreign policy; Sec. 782 authorizes the secretary to provide technical assistance to pipeline operators or to state and local officials to prevent or respond to acts of terrorism.

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