The Senate passed comprehensive energy legislation (HR 6) late Thursday that is considerably more attractive to oil and natural gas producers and electric utilities than it was a few hours earlier that day.

By 65-27, senators voted out the broad energy bill after two weeks of debate, but not before Republicans blocked efforts to include a $32 billion tax package in the measure that would have raised taxes on oil and gas companies; at the same time Democrats failed to force a vote on a controversial amendment that would have required electric utilities to produce 15% of their power from renewable fuels.

But the fight over what energy tax measures finally emerge from the Congress this year is a long way from finished. The Senate Democratic leadership is expected to try to attach the failed tax package to another legislative vehicle prior to the start of a House-Senate conference on the energy bills. Given that the two houses' energy bills have striking differences, "we'll have an energy conference of some sort this summer," said energy analyst Christine Tezak of Stanford Group Co.

But "we...think it likely that the legislative debate on energy could drag well into the fall before everything is sorted out, a successful conference concludes and a bill makes its way to the president," she said.

The Senate-passed energy legislation calls for greater production of renewable fuels and ethanol, would protect consumers from price gouging, would increase the energy efficiency of products, buildings and vehicles, and seeks to improve the energy performance of federal buildings. President Bush has vowed to veto any legislation that contains price gouging measures or language that seeks to subject OPEC nations to U.S. antitrust laws, as the Senate energy bill does.

By 57-36, Senate Republicans Thursday held back an attempt to bring to the floor for a vote the tax package that provided incentives for renewable fuels and clean energy initiatives, but stripped oil and natural gas producers of incentive benefits and assessed new taxes.

The defeat of the Senate tax package was a major victory for oil and gas companies, which would have paid for the bulk of the $32 million in tax incentives for alternative fuels. The measure sought to impose a 13% excise tax on oil and gas produced in the Gulf of Mexico. But since it would allow producers to credit against the excise tax an amount equal to their royalties paid, it would mostly have been a tax on future production from the flawed 1998-1999 deepwater leases that omitted the critical price thresholds. The tax package also would have revoked a manufacturing credit for major integrated companies for income attributable to domestic oil and gas production (see Daily GPI, June 20).

The two proposals alone would have required oil and gas producers to pay more than $20 billion in additional taxes over the next 10 years, according to the Joint Committee on Taxation.

Although Democrats insisted they had 60 votes to adopt the revised draft of Sen. Jeff Bingaman's (D-NM) 15% renewable electricity mandate, Senate Majority Leader Harry Reid (D-NV) never filed the cloture petition needed to override Republican objections -- a decision he later said he regretted, CQ Today reported.

Bingaman, chairman of the Senate Energy and Natural Resources Committee, will continue to try to get the renewable fuel mandate passed in other legislation, said Bingaman spokesman Bill Wicker. "It is not gone for good."

The House Ways and Means Committee approved a tax package that totaled $16 billion, or half the size of the Senate's. But it took the same approach as the Senate tax committee's bill, stripping the oil and natural gas industry of many benefits to pay for the bulk of the green incentives.

The House committee's measure repeals the Section 199 deduction for income attributable to oil and natural gas. This is expected to result in $11.4 billion in lost tax benefits to the oil and gas industry over the next 10 years, according to the Joint Committee on Taxation.

The measure also makes a clarification to foreign oil and natural gas extraction income, a move that is estimated to raise taxes on the industry by $3.56 billion over the next decade. And it extends the amortization period for geological and geophysical expenditures from five years to seven years for large integrated energy companies, which is expected to raise $103 million to fund renewable fuels.

The bill, which passed out of committee 24-16, is scheduled to come to the House floor after the July 4th recess and be included in a broader energy package requested by Speaker Nancy Pelosi (D-CA).

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