A now-estimated $18 billion, 10-year energy tax package rode through the Senate last Tuesday on the coattails of a broader corporate tax bill (S. 1637), which passed 92 to 5. It marked the first victory for the energy bill this year.

The energy tax package originally had a price-tag of $14 billion, but the Senate Finance Committee said last week the gross cost of the batch of energy tax breaks was closer to $18 billion.

The win on the tax package did not come easy. The Senate first had to turn back a drive by Sen. John McCain (R-AZ) to gut the energy tax provisions. By 85 to 13, GOP and Democrats voted against a McCain substitute amendment, which sought to eliminate the energy-related tax breaks and incentives that were piggybacked to the corporate tax bill in April. Only four Republicans and nine Democrats backed McCain’s proposal.

The Arizona Republican argued that the energy tax breaks would have “negligible” impact on boosting domestic oil and gas supply, and that coalbed methane producers, which accounted for 57% of the growth in U.S. gas production during the 1990s, didn’t appear to need any incentives from Congress. They clearly haven’t been “waiting around” for the tax credits to prod them into action, he said.

Although Congress backed construction of a long-line Alaska gas pipeline, McCain asked “to what extent are we willing to mortgage [the federal] budget” to make it a reality. He blasted a floor credit for natural gas produced in Alaska and transported over the proposed pipeline from the North Slope to the Lower 48 states.

The corporate tax cut bill has turned into a “Christmas tree of goodies” for the energy industry, he charged.

But a number of senators rose up in support of the energy tax package staying in the broader tax bill. “It’s half an energy package, and it’s better than none,” shot back Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee.

“This is not a silver bullet. [It] does not solve our energy problems,” but it’s a head start, said Sen. Jeff Bingaman (D-NM), the ranking minority member of the Senate energy panel.

“Congress has been playing political football” with the energy bill for years, noted Sen. Jim Bunning (R-KY). “It’s time to end the game.”

The Senate did not take up an amendment offered by Sen. Jon Kyl (R-AZ) to also gut the energy tax package. In addition, two other McCain amendments weren’t considered — one that would have struck all of the oil and gas tax provisions, and another that would have eliminated Section 29 tax credits related to the production of fuel from unconventional sources.

The corporate tax cut bill got a major shot in the arm earlier Tuesday when the Senate overwhelmingly voted to limit debate and bring the broader tax measure to the floor for an up-or-down vote.

By 90 to 8, Republican and Democratic senators voted to invoke cloture on the corporate tax bill, also known as the Jumpstart Our Business Strength (JOBS) Act. This was a key breakthrough for the measure, which had been filibustered twice in recent weeks.

The battle is not over yet, however. The Senate must now wait and see how the House handles its version of the corporate tax cut bill, and whether it will include an energy tax package in it. The House Ways and Means Committee “still was assessing the Senate action” on the corporate tax measure last week, and was working with House leadership, a committee spokesman said. He said a decision on whether to insert an energy tax package in the House bill hadn’t been made yet.

If the House should opt against energy tax breaks, the House-Senate conference on the corporate tax bill could turn out to be extremely contentious. The House approved a $23.5 billion tax package as part of the comprehensive energy legislation it passed last November.

Even if they could resolve the energy tax issue, House and Senate lawmakers are polarized on several other energy issues, such as a liability waiver for producers of the gasoline additive, methyl tertiary butyl ether (MTBE), and proposed subsidies for Alaska gas producers.

In early April, Senate Republican and Democratic leaders fastened the $18 billion energy tax package to the corporate tax cut bill. GOP leaders had hoped to attach the non-tax policy portion of the Senate energy bill (S. 2095) to a separate piece of legislation.

But the Senate last month defeated a GOP bid to piggyback the 900-plus page policy part of the energy measure to an unrelated bill banning Internet access tax (S. 150).

After surviving the McCain challenge to the energy tax package, Domenici said last week he would “now turn my attention to getting the other half [policy portion of the energy bill] passed and enacted into law.”

The tax package offers incentives for the development of an Alaska gas pipeline, including a controversial floor price for gas produced in Alaska and delivered over the proposed line; Section 29 tax credits for unconventional oil and gas production; a new credit for oil and gas production from marginal wells; accelerated depreciation for gas gathering lines; and expensing of geological and geophysical costs, as well as a number of other initiatives.

It also provides tax benefits and incentives for renewable fuels, alternative vehicles, conservation and energy efficiency, electricity produced using clean coal technology, formation of regional transmission organizations, nuclear decommissioning and energy-related research and development. In addition, the measure would treat electric transmission property, which is placed in service after the bill’s enactment and until July 2006, as 15-year property.

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.