WASHINGTON -- Tax-exempt <

bond provisions in the energy bill passed by the House this week will face an uncertain future when House and Senate lawmakers meet in June to hammer out a compromise measure, lobbyists and tax aides said yesterday.

The House bill, approved by a <

vote of 381 to 37 Wednesday night, has been closely watched by the municipal market because it contains provisions that would increase the supply of bank-qualified bonds and loosen investment restrictions on nuclear decommissioning trust funds.

Those provisions were not in the <

version of energy legislation the Senate passed overwhelmingly in February.

Lobbyists said they were unsure <

whether Senate lawmakers will agree to retain those and other House energy bill tax provisions in the final measure.

"I never feel comfortable when <

the Senate Finance Committee hasn't passed on something," said Milton Wells, the director of governmental affairs for the National Association of State Treasurers.

The Senate conferees may want <

to jettison all or part of the House tax section because it contains revenue-raising items that the senators would prefer to use to pay for other proposals, a tax lobbyist said. But the lobbyist also said one of the tax provisions, a measure that would ease alternative minimum tax rules on oil companies, is heavily favored by a number of senators, and could keep the rest of the section from being eliminated.

For the bond provisions in particular, <

one thing working in their favor is the fact that the Senate already approved them once this year. They were included in a comprehensive tax bill that President Bush vetoed in April because it would have increased taxes on wealthy taxpayers.

Beyond the specific concerns <

about the tax portion of the House bill, there is also the problem of larger conflicts encompassing the overall measure. The energy bill, which would set comprehensive energy policy for the next several years, has generated controversy among both oil producers and environmentalists. President Bush sharply criticized the House version of the bill when it first emerged from the House Energy and Commerce Committee in March.

But House members have already <

diffused at least some of the objections that the President and the energy lobby could raise about the bill, lobbyists said.

"A lot of things were dumped out <

to make it less of a hot potato," said Madalyn Cafruny, a spokeswoman for the American Public Power Association.

For example, the Energy and <

Commerce Committee had inserted a provision that would have required oil companies to contribute to the Strategic Petroleum Reserve. On Wednesday, the House approved an amendment offered by Ways and Means Committee Chairman Dan Rostenkowski, D-Ill., to remove that provision from the bill.

President Bush's reaction to the <

bill that finally emerged from the House this week was mixed. In a statement he said it still "needlessly locks up some of America's best prospects for domestic oil and gas production." But he also noted that the bill contains some of his own energy proposals and added that it "forms a welcome bipartisan basis for moving to conference."

Ms. Cafruny said she believes the <

chances for enactment are good because Congress wants to craft a package the President will sign so that it can be "something they can take home" to the voters at election time.

The provision on bank-qualified <

bonds is designed to increase bank purchases of municipals by easing rules enacted in 1986. Under that law, banks may deduct 80% of the cost of carrying tax-exempt bonds only if they are purchased from issuers who expect to sell no more than $10 million annually. The provision would raise that amount to $20 million.

Another bond provision would <

end the requirement that nuclear decommissioning trust funds invest only in Treasury securities or tax-exempt municipal bonds. The provision would also lower the funds' 34% tax rate to 20%.

The Ways and Means panel also <

added another item that would apply to investor-owned electric utilities that issue tax-exempt bonds for so-called wheeling activities -- that is, acting as conduits for power generated by independent producers.

The Energy and Commerce Committee <

had approved a provision that would authorize federal regulators to require local utilities to step up their wheeling activities. In doing so, the energy committee realized those requirements could in some cases cause utilities to violate Internal Revenue Service rules against exporting power, and could endanger the tax-exempt status of their bonds. So the energy committee added a provision that would have waived all the IRS restrictions in those situations.

The Ways and Means panel, <

however, limited the waiver to existing utilities that qualify for bond financing under current law.


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