A new bipartisan $14 billion US energy tax bill has passed the Senate Finance Committee. Lobbyists say it is unclear where the budget offsets will come to pay for the measure, which contains about $4 billion in credits and incentives for the oil and gas industry.
Senate Democratic leaders plan to add the proposal to a pending energy reform package that Senate Majority Leader Tom Daschle (D-SD) says will be debated this month. More serious legislative action isn't expected until later in the month.
The Republican-led House of Representatives last August passed a comprehensive energy bill that also includes oil and gas provisions that congressional budget-makers estimate will 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 included a majority of Democrats, say the provisions are "corporate welfare" that will help make energy companies more profitable but will do little to improve energy security.
Senate Finance Committee Chairman Max Baucus (D-Mont.) and Sen. Charles Grassley of Iowa, the ranking committee Republican, prepared the Senate tax provisions, which may be less controversial.
Lawmakers modified their package in midmonth to provide $14 billion in energy tax credits and incentives for the 10-year period, 2002-12, according to the Joint Committee on Taxation.
Bill similarities
Although the Senate version contains fewer tax measures for industry, there are similarities between the two proposals.
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 fall below $18/bbl or $2/Mcf (OGJ, July 30, 2001, p. 36).
Both bills extend the Sec. 29 tax credit for production from nonconventional sources. The House version contains the measure; the Senate added the provision Feb. 13 after lawmakers accepted a Senate amendment offered by Sens. Craig Thomas (R-Wyo.) and Jay Rockefeller (D-W.Va.).
Senate budget-makers rejected a proposal by Sen. Frank Murkowski (R-Alas.) to establish a tax credit aimed at encouraging a new pipeline from Alaska to the Lower 48. The provision would give North Slope producers a natural gas floor price. The pending energy reform bill includes loan guarantees of as much as $10 billion for an Alaska gas pipeline, provided the applications for permitting certificates are filed within 6 months after the bill is passed.
Both House and Senate energy tax proposals would repeal the diesel fuel and kerosine-dyeing mandate and treat natural gas gathering lines as a 7-year property for tax purposes. Both bills provide a largely similar "small business refiner" (fewer than 1,500 employees and an average daily refinery run not exceeding 155,000 b/d) credit for the production of low-sulfur diesel fuel.
Small refiners could claim an immediate deduction for up to 75% of the costs of complying with that clean fuel rule. Small refiners may also claim a credit equal to 5¢/gal for each gallon of low-sulfur diesel fuel produced during the tax year. The Senate bill includes language allowing a cooperative to pass production credits to the organization. The Senate version also allows refiners to still receive some credit if production sometimes goes up to 205,000 b/d.
Differences
There are other, larger differences between the two plans. The Senate bill treats natural gas distribution lines as a 15-year property for tax purposes; the House bill considers it a 10-year property. The latest Senate bill changes the refinery limitation on claiming independent producer status for oil depletion deductions. Independent producers could not have refinery operations that exceed 60,000 b/d. The House bill increases the limitation to 75,000 b/d.
Only the House version would allow producers to "carry back" unused credits for up to 10 years instead of 1 year.
The House bill allows companies to expense geological and geophysical costs and delay rental payments in the year incurred. The Senate bill allows G&G costs to be amortized over 2 years. Similarly, the House bill allows delayed rental payments to be deducted currently; the Senate bill amortizes them over 2 years.
Only the House bill extends the net operating loss carry-back period to 5 years-to enable producers to recover from losses much sooner-and a phased-in repeal of the Alternative Minimum Tax.
The Senate bill, meanwhile, directs the Secretary of the Treasury, in conjunction with the Secretary of the Interior, to undertake a study of the effects Sec. 29 has had on production of coal- bed methane.
Financing question
A big question in the tax debate is where the money would come from to pay for the programs. The White House's new budget recommends only a modest extension of the suspension of the 100% net income limitation for marginal wells. The provision expired Dec. 1, 2001, and the White House wants to keep the provision for 2 more years. The House and Senate bills would extend the limitation 5 years.
And under Senate rules, legislators must find budget offsets to pay for tax provisions.
What Senate leaders decide to trade off may prove too controversial, say industry lobbyists. But then again, the entire energy reform bill is controversial; there are serious doubts any comprehensive energy legislation can move forward if provisions to lease a portion of the coastal plain of the Arctic National Wildlife Refuge remain in the bill, industry and environmental groups say.
