Senate Majority Leader Harry Reid (D-NV) has indicated he will move forward with an energy bill (HR 6) that includes a slightly larger tax package ($21.8 billion), ignoring threats of a counterattack by Republicans and a possible veto by President Bush.

A second vote to bring the Democrat-crafted energy legislation to the Senate floor is expected to come Thursday. In an attempt to curry more votes, the Democratic leadership has been making changes to the measure since last Friday when Republicans blocked an attempt to close debate and bring the bill up for a vote (see Daily GPI, Dec. 10).

Significantly for the natural gas industry, the revised Senate tax package would eliminate a proposal to repeal the 15-year depreciation for the expansion of natural gas distribution pipelines, and it would limit the repeal of the Section 199 tax deduction for domestic oil and gas production to integrated producers rather than to all oil and gas producers, according to the Senate Finance Committee.

But like the tax portion of the House energy bill, which was passed last Thursday, the Senate tax package would increase the amortization period for geological and geophysical expenditures to seven years from five years for integrated companies, and it would expand the present foreign oil and gas extraction income rules to apply to all foreign income from production and other activity related to the sale of oil and gas.

Sen. Pete Domenici of New Mexico, the ranking Republican on the Senate Energy and Natural Resources Committee, said Tuesday the revised bill still could face significant opposition in the Senate due to the inclusion of the tax package, which would be largely funded by rolling back tax breaks for oil and gas companies.

“He urged the removal of the tax package altogether to save the progress made on CAFE [Corporate Average Fuel Economy], efficiency provisions and the renewable fuel standard,” said energy analyst Christine Tezak of Stanford Group Co. “If cloture fails again on a bill with a modified tax package, we could yet see the version of the bill advocated by [Domenici],” she noted.

“I strongly support the elements of the bill that will lead to less oil consumption, like increased CAFE standards and a renewable fuels standard, but increasing taxes on domestic oil and natural gas production is the wrong thing to do right now,” Domenici said. “The Senate should reject these massive taxes and focus on measures that will reduce costs over the long term.”

Senate leadership has agreed to scrap a mandate in the measure that would have required utilities to get at least 15% of their electricity from renewable sources by 2020. “We are not surprised by this, nor do we feel it is a fatal blow for the alternative energy sector,” Tezak said.

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