House Passes Energy Legislation

The House on April 21, 2005, by a vote of 249 to 183, passed significant energy legislation (H.R. 6). Included among the 26 titles and hundreds of sections in this legislation are nearly 20 provisions focused on tax breaks (Title XIII). The majority of these provisions are business-focused. Several are related to depreciation and amortization for natural gas gathering and distribution lines, electric transmission property, oil and gas delay rental payments and geological and geophysical expenditures. Other provisions relate to business tax credits for fuel cell power plants, allowing certain business energy credits against the alternative minimum tax, and allowing the credit for fuel from nonconventional sources to be a component of the general business credit. Additional business-focused provisions relate to nuclear decommissioning costs, treatment of prepayments for natural gas under the tax-exempt bond arbitrage rules, the small refiner exception to the oil depletion deduction, and excise taxes for diesel fuel blended with water.

For individuals, the legislation provides a credit for residential qualified photovoltaic and solar water heating property, for qualified energy efficient improvements to existing homes, and for motor vehicles with qualified advanced lean-burn technology. The legislation also allows the new residential energy credits against both the regular tax and the alternative minimum tax.

The legislation now moves to the Senate where the likelihood of passage is uncertain. The main concerns being raised with respect to the legislation are drilling in the Arctic National Wildlife Refuge, liability protection for manufacturers of the MTBE gasoline additive that has been blamed for groundwater contamination, and the concern that the legislation may have little short-term impact on high energy prices or the dependence on foreign oil. The Administration has endorsed the legislation and called for Congressional passage prior to the August recess. The tax provisions have a projected five-year cost of $4 billion, with other non-tax-related subsidies adding additional cost to the legislation. The tax breaks are not offset by revenue raisers.