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Energy Stimulus Programs Expected to Escape 'Deep Cuts'

As a bipartisan group of senators worked behind closed doors Friday to shave more than $100 billion from the $900 billion-plus economic stimulus package, Capitol Hill sources expected that the bulk of the tax cuts and spending for renewable fuels production, construction of power transmission facilities and energy conservation would survive.

"They appear to have avoided some of the deep cuts" that other programs have suffered, said Bill Wicker, a spokesman for Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee.

"Some people [fiscal conservatives] would like to touch energy, but it's hands off," he said. "It's pretty obvious...Green energy projects and clean energy projects are being pushed very hard" by the Obama administration and Senate Democrats.

Senate leadership was banking on a final vote on the Senate stimulus package (HR 1) by late Friday. But if filibustered, the vote would be pushed back to Sunday. If it clears the Senate, the Democratic and Republican leadership will proceed to hammer out the differences in the House and Senate recovery bills, rather than establishing a formal conference, Wicker said. President Obama wants Congress to complete the stimulus bill by the Presidents' Day break.

"It's definitely going to pass...It's just taking a long time to get there," Wicker said. Senate Majority Leader Harry Reid (D-NV) said he was "increasingly confident" that he would have more than the 60 votes required to pass the stimulus package.

But Minority Leader Mitch McConnell (R-KY) was less sure. The stimulus bill has become a "Trojan horse for pet projects," he said, with the total cost of the bill ballooning to $1.2 trillion when interest is included. "We will not support an aimless spending spree that masquerades as stimulus."

Fiscal conservative Sen. John McCain (R-AZ) wanted to cut the cost of the stimulus bill in half. "We can have a bill that is $400-$500 billion."

The Senate stimulus package, which was voted out of the Senate Finance Committee and Appropriations Committee recently, contains about $30 billion in energy-related tax cuts and $49 billion for direct investments in renewable fuels, energy efficiency and power transmission facilities. The House passed its $819 billion economic recovery bill in late January.

A key concern of utilities and their natural gas customers is decoupling language in the bill. It originally required state governors to implement decoupling of electricity and natural gas volumes from revenues the utilties could collect if they wanted to receive energy efficiency grants. Senators now have a "better understanding of the detriment" of this provision, and "we have been told the language has been softened" to the point it no longer mandates that states subscribe to decoupling to receive energy efficiency grants, a gas industry source said.

Under decoupling, utility revenues from sales of natural gas and electricity would remain stable even if consumer demand for the commodities falls as a result of energy efficient practices. While the tactic is an incentive for utilities to push energy savings, it would be a "disincentive" for energy consumers to invest in energy-efficient appliances and technology, given that there would be no measurable change in their utility bills.

The Senate economic package includes new loan guarantees for standard renewable projects, such as wind or solar, and for electricity transmission projects; increased borrowing authority for the Bonneville Power Authority and Western Area Power Administration to pursue the construction of new transmission facilities and upgrades; about $4.5 billion for smart grid-related activities, including work to modernize the electric grid, enhance security and reliability, and conduct energy storage research and development (R&D); and billions of dollars for energy efficiency and conservation grants, weatherization assistance, and energy efficiency and renewable energy R&D.

Like the House measure, the Senate bill also would extend by three years, through Dec. 31, 2012, the date that wind facilities must be placed in service to be eligible for the renewable energy production tax credit (PTC). It also would extend the in-service date by three years, through Dec. 31, 2013, for other qualifying facilities to be eligible for the PTC. And facilities that produce electricity from renewable fuels, which are placed in service this year or 2010, will have the option to take a 30% investment tax credit (ITC) in lieu of the production tax credit.

Sen. Bingaman said he plans to offer a proposal for renewable energy producers to claim an upfront cash grant of 30% of their project cost from the Department of Treasury instead of the 30% ITC.

The cash grant would be a loan in the form of a grant and would be available for all types of renewable fuels that generate electricity, according to Wicker. Grants would be awarded to producers only after they have agreed to pay back under terms agreed to with the secretary of the Treasury Department, he noted.

Bingaman didn't offer his proposal on the Senate floor, but rather "hopefully will work it out in conference" on the House and Senate economic stimulus bills, Wicker said.

Bingaman also proposed an amendment that would provide $2.5 billion for increased funding for several Interior Department agencies, including the Bureau of Land Management (BLM). It would offer an additional $370 million for the BLM to hire workers to implement land and resource projects, such as reclamation of abandoned oil and gas wells and renewable energy production on public lands.

The amendment does not provide funding to hire additional auditors, permit processors and inspectors to address backlogs at BLM field offices. That will be handled in the "regular appropriations process," which is expected to get underway in March, Wicker said. This is an "issue of concern, high priority" for Bingaman, he noted.

There is one tax credit in the stimulus package that has been carved out for traditional oil and natural gas producers. Producers would be eligible for a $10/ton tax credit if they can prove that the carbon dioxide (CO2) injected to enhance oil and gas recovery has been permanently sequestered in a field.

This is a "clarification or correction of the tax credit language that Congress enacted as part of the financial rescue bill last [fall]," said a Washington, DC, tax expert specializing in carbon capture and storage. The clarification "makes clear what Congress had always intended and that is that you can, in fact, engage in permanent sequestration operations while you're engaged in oil and gas production," he said.

The Internal Revenue Service now will have to "determine what an oil and gas operator has to do to meet the the permanent storage test and that might be interesting," the tax expert said. The Senate provision basically tells producers to prove that the CO2 used in enhancing oil and gas production will be permanently captured, he said. "You're going to have to have some demonstration of proof to get the tax credit."

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