Industry sees Senate bill as stepping stone to comprehensive energy policy

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Apr. 26 -- Major oil companies and independents both said they see a recently passed Senate energy bill as an important step in finalizing a comprehensive US energy policy. But independents cautioned that the Senate bill falls "far short" of the domestic energy production incentives in the House-passed energy bill.

"The Senate bill includes a package of tax credits that are particularly important to small independent producers. Yet, it is woefully inadequate to reduce our dependence on imported oil or to allow energy producers access to America's abundant resources, particularly at a time when we are fighting a war on terrorism and facing mounting unrest and conflict in the Middle East,'' said Diemer True, chairman of the Independent Petroleum Association of America, on Apr. 25. ``Should this situation in the Middle East escalate, our reliance on imported oil puts us further at risk. The Senate bill does very little to help."

The American Petroleum Institute Apr. 26 struck a more conciliatory tone.
"[API] welcomes Senate passage of this important energy legislation. With the House of Representatives earlier having passed its energy bill, two out of three necessary legislative steps have been completed as the federal government moves forward on a comprehensive national energy policy. The all-important third step now needs to be taken: agreement by the Congress to submit a final bill to the president," the association said.
"We are pleased the Senate bill addresses some of our nation's motor fuel concerns, acknowledges the need to increase domestic energy supply and enhance our energy infrastructure, as well as encourages increased conservation, energy efficiency, and alternative and renewable fuels, while maintaining environmental safeguards.
"We are optimistic Congress will send to the president for his signature a balanced bill that will become an important component of our national energy policy.
API and its members stand ready to support efforts to this end."

The American Gas Association also weighed in with support.
"US Senate passage of a comprehensive national energy plan will lead to a stronger economy, less dependence on imported oil and a cleaner environment by promoting increased use of natural gas, according to the AGA, which represents natural gas utilities.
"The Senate bill is another positive step in the legislative process toward providing a better environment for meeting America's growing energy needs," said AGA President and CEO David N. Parker.

Senate action
The Senate on an 88-11 vote approved a sweeping energy reform package Apr. 25. It now must be reconciled with a version passed by the House last August. The House version puts a larger emphasis on boosting domestic oil production, including a provision to open to leasing a small portion of the Arctic National Wildlife Refuge (OGJ, Apr. 22, 2002, p. 39).
It also includes about $8 billion in tax incentives aimed specifically at increasing US oil and gas production, compared with about $4 billion in the Senate bill. The Senate bill, however, includes tax incentives for North Slope producers to ship gas through a proposed trans-Alaska gas line from northern Alaska to the Lower 48. The Senate bill also provides loan guarantees to encourage pipeline companies to build the project, which could be the US's largest construction project ever.

Disappointment over ANWR
Senate Republican leaders predicted the House and Senate could resolve their significant differences over the bill, but they expect ANWR would not be part of final legislation (OGJ Online, Apr. 24, 2002).

Independent oil producers, however, made clear they have not conceded defeat over the issue yet.
``Of course, we are disappointed that the ANWR vote failed, but that's an issue that the conference committee may be able to resurrect. It will be important that Majority Leader[Tom] Daschle (D-SD) appoint conferees who will look to the best interests of the country as they work on a compromise between the House bill, which embodies much of the president's energy policy, and the Senate package, which falls significantly short,'' True said.
IPAA Pres. Barry Russell said, ``We are pleased that the Senate has acted and the ball has been moved forward, putting us that much closer to a conference with the House and a final bill for the president's signature.''

Russell said he also is pleased that the final Senate bill contains many of the tax provisions and other measures that IPAA has been calling for so long. These include:
-- A marginal well tax credit.
--Extension of the suspension of the taxable limitation on percentage depletion with respect to marginal production.
-- Two-year amortization of delay rental payments.
-- Two-year amortization of geological and geophysical expenditures.
-- A study of the effect of Section 29 on the development of coalbed methane production.
-- A provision to extend the Section 29 tax credit for 3 years for "new" gas.
-- A provision directing the Environmental Protection Agency to complete a study on the effects of hydraulic fracturing on underground drinking water sources.
-- A study of the impact of financial incentives on offshore/onshore production.
-- Funding for the timely processing of leases and permits.
-- Exempting production acreage from lease acreage caps.
-- A coalbed methane study.
-- Subsalt lease suspensions.

Energy efficiency groups unhappy
Energy conservation groups, however, were more harsh with their assessment of the Senate bill.
The Alliance to Save Energy said it gave the Senate a ``D+'' for making a ``pitiful showing'' on energy efficiency in its major energy bill (S. 517).

By a vote of 52-47, the Senate adopted an amendment offered by Sen. Tom Harkin (D-Iowa) that significantly weakened the bill's efficiency standards for central air conditioners.
``By voting today for the Harkin amendment, the Senate voted for more power plants, more pollution, and more money out of consumers' pockets,'' said ASE Pres, David M. Nemtzow. ``It's a sorry day when the Senate votes down such a common-sense provision.''
The Senate also rejected, 57-42, an amendment by Sens. Tom Carper (D-Del.) and Arlen Specter (R-Pa.) that would have required the Department of Transportation to reduce gasoline consumption by 1 million b/d of oil by 2015. The Senate also rejected earlier efforts to boost vehicle fuel efficiency standards.

``These two provisions would have protected the nation's economic security, bolstered the reliability of the electric system, saved consumers billions of dollars, and significantly reduced pollution,'' Nemtzow said.
``The Senate has failed on fuel economy, missing an important opportunity to save more oil than the US currently imports from Iraq and Kuwait combined,'' Nemtzow continued. ``The amendment was no substitute for the fuel economy provision stripped from the original energy bill. But in failing to rise to the challenge of our severe vulnerability to oil supply disruption, the Senate has failed the American people.
``On energy efficiency, the Senate energy bill is redeemed only by its $3 billion tax package, an increased authorization for energy efficiency programs, and new, tough energy efficiency requirements for federal buildings and facilities,'' Nemtzow said. The tax package includes tax credits for energy-efficient homes, washers, refrigerators, heating and cooling systems, windows, and insulation, and a tax deduction for investment in efficient commercial buildings.

Ethanol groups win key provision
One group that roundly praised the legislation was the fuel ethanol lobby. The bill includes a renewable fuels standard (RFS) and expands tax benefits to small ethanol producers.
The Renewable Fuels Association declared passage of the Senate energy bill a major victory for renewable fuels, energy security, farmers, and the environment.
"Today's action by the Senate is a true milestone for the ethanol industry," said Bob Dinneen, RFA president. "And not just because the Senate energy bill sets the ethanol industry on an aggressive growth path, but because this debate helped forge a new era of understanding between the oil industry and renewable fuel producers. In order to cost-effectively and securely meet America's demand for motor fuels, our two industries must continue to work together in the future, and I know we will. The RFA will support this bill during the Conference Committee, and we are confident an energy bill including these provisions will reach the president's desk before the end of the year."

The RFS provisions ban the fuel oxygenate methyl tertiary butyl ether, eliminate the reformulated gasoline oxygen standard, streamlines federal clean fuel rules, and establishes a minimum renewable fuels standard that is expected to boost annual consumption of ethanol to 5 billion gal by 2012.
The ethanol proposal is supported by API, farmers, ethanol interests, environmental and public health groups, and a bipartisan coalition of lawmakers from farm and oil states.
President George W. Bush also strongly endorsed the ethanol mandate proposal in a recent speech in South Dakota.

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