U.S. House Passes Energy Legislation to Expand Drilling, Taxes

By Daniel Whitten

Sept. 17 (Bloomberg) -- The House of Representatives passed a Democrat-sponsored bill aimed at boosting drilling for oil and gas off the U.S. coast and increasing taxes on energy companies by $18 billion.

White House officials threatened a veto of the 290-page measure, which was approved late yesterday on a 236-189 vote, largely along party lines. New revenue would be used to fund alternative energy development.

The bill would retain part of a drilling ban set to expire Sept. 30 and prevent drilling outside three miles off the U.S. coast. The measure would allow drilling on the Outer Continental Shelf beyond 100 miles. States could permit drilling between 50 miles and 100 miles.

The bill ``pairs offshore drilling with poison pills,'' Kevin Book, an analyst with Freidman Billings Ramsey & Co. Inc. in Arlington, Virginia, said in a note yesterday. ``We do not believe it is likely to garner a veto-proof two-thirds majority, nor to clear the Senate with a filibuster proof majority.''

President George W. Bush threatened a veto, objecting primarily that the bill doesn't allow drilling within 50 miles of the coast or in new areas of Alaska. Bush and Republicans also oppose the new taxes.

The vote comes as the price of oil dropped to $91.15 a barrel today from a record $147.27 July 11. Oil fell more than $10 over two days on concern that turmoil on Wall Street may weaken the global economy and curb fuel demand.

Gasoline Prices

The average gasoline pump price rose to $3.85 a gallon yesterday from $3.68 Sept. 11, according to AAA after Hurricane Ike hit the Texas coast.

Democrats are seeking a way to protect coastal areas from pollution by restricting drilling close to the coast, said Daniel Weiss, an analyst for the Democratic-leaning Center for American Progress.

A 26-year-old congressional moratorium on offshore drilling ends at the end of this fiscal year, Sept. 30, and Democrats may not have the votes to extend the moratorium.

``The question is, `How do you protect the coast after Sept. 30?''' Weiss said. ``If nothing happens, then it's open season on the coast.''

The administration objects that the bill would replace current, temporary prohibitions on drilling on the Outer Continental Shelf with permanent restrictions.

``At a time when American families are in need of genuine relief from the effects of high fuel prices, this bill purports to open access to American energy sources while in reality taking actions to stifle development,'' the Office of Management and Budget said in a statement today.

Waning Support

``The consensus has now developed strongly enough that I hear the Democrats wouldn't have the support to keep the moratorium in the law,'' said Senator Jon Kyl, of Arizona, the Senate Republican Whip.

Republicans are not backing down on their insistence that large swaths of the outer continental shelf be opened, not just areas in the House bill.

``The American people have been waiting for months for this Democratic Congress to give them a meaningful, honest vote on more American energy production, but instead, Speaker Pelosi has served-up a legislative hoax and a debate rigged to once again defy their will.'' House Republican Leader John Boehner, of Ohio, said in a statement today.

The measure does not give proceeds to states that allow for drilling, as Congress did in 2006 for Louisiana, Mississippi, Alabama and Texas. It would roll back tax breaks oil companies get for creating domestic manufacturing jobs and another for oil pumped in other countries, something opponents oppose.

Recover Billions

It also would aim to recover billions of dollars from oil companies that benefited from lease provisions in 1998 and 1999 that didn't include price thresholds triggering royalties.

Some environmental groups opposed the measure. ``This bill does too little to bring about America's clean energy future,'' Betsy Loyless, an Audubon Society vice president, said. ``When the political season is over we will urge Congress to quickly adopt measures we know will help.''

It would require states to get more power from wind and other renewable sources, mandate building efficiency, and offer tax incentives for fuel-efficient vehicles like plug-in hybrids.

Renewable electricity producers would get $6.9 billion in tax breaks. The break for wind would be extended through the end of 2009 and for geothermal and biomass through 2011.

Separately, the bill would extend tax credits for solar and fuel cell investments through 2016 at a cost of $907 million. It would mandate that 15 percent of electricity come from renewable sources.

The measure also includes provisions promoting oil shale development and requires ethics training and drug testing for Interior Department employees working on the oil and minerals royalty program, who were targeted by Interior's inspector general for corruption and for mismanagement.

To contact the reporter on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net