I 

108TH CONGRESS 

1ST SESSION H. R. 1531

To amend the Internal Revenue Code of 1986 to enhance energy conservation 

and to provide for reliability and diversity in the energy supply for 

the American people, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 1, 2003

Mr. MCCRERY introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to enhance 

energy conservation and to provide for reliability and 

diversity in the energy supply for the American people, 

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Energy Tax Policy Act of 2003’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 
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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—

Sec. 1. Short title. 

TITLE I—CONSERVATION 

Sec. 101. Credit for residential solar energy property. 

Sec. 102. Extension and expansion of credit for electricity produced from renewable resources. 

Sec. 103. Credit for qualified fuel cell power plants. 

Sec. 104. Credit for energy efficiency improvements to existing homes. 

Sec. 105. Business credit for construction of new energy efficient home. 

Sec. 106. Energy credit for combined heat and power system property. 

Sec. 107. New nonrefundable personal credits allowed against regular and minimum taxes. 

Sec. 108. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland waterway transportation which remain in general fund. 

Sec. 109. Reduced motor fuel excise tax on certain mixtures of diesel fuel. 

Sec. 110. Repeal of phaseouts for qualified electric vehicle credit and deduction 

for clean fuel-vehicles. 

TITLE II—RELIABILITY 

Sec. 201. Natural gas gathering lines treated as 7-year property. 

Sec. 202. Natural gas distribution lines treated as 15-year property. 

Sec. 203. Electric transmission property treated as 15-year property. 

Sec. 204. Expensing of capital costs incurred in complying with environmental 

protection agency sulfur regulations. 

Sec. 205. Credit for production of low sulphur diesel fuel. 

Sec. 206. Determination of small refiner exception to oil depletion deduction. 

Sec. 207. Sales or dispositions to implement Federal energy regulatory commission or State electric restructuring policy. 

Sec. 208. Modifications to special rules for nuclear decommissioning costs. 

Sec. 209. Treatment of certain income of cooperatives. 

Sec. 210. Arbitrage rules not to apply to prepayments for natural gas. 

Sec. 211. Prepayment of premium liability for coal industry health benefits. 

TITLE III—PRODUCTION 

Sec. 301. Oil and gas from marginal wells. 

Sec. 302. Temporary suspension of limitation based on 65 percent of taxable 

income and extension of suspension of taxable income limit 

with respect to marginal production. 

Sec. 303. Amortization of delay rental payments. 

Sec. 304. Amortization of geological and geophysical expenditures. 

Sec. 305. Extension and modification of credit for producing fuel from a nonconventional source. 

Sec. 306. Business related energy credits allowed against regular and minimum 

tax. 
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Sec. 307. Temporary repeal of alternative minimum tax preference for intangible drilling costs. 

Sec. 308. Allowance of enhanced recovery credit against the alternative minimum tax.

1 TITLE I—CONSERVATION 

2 SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROP3 ERTY. 

4 (a) IN GENERAL.—Subpart A of part IV of sub5 chapter A of chapter 1 (relating to nonrefundable personal 

6 credits) is amended by inserting after section 25B the fol7 lowing new section: 

8 ‘‘SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY. 

9 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in10 dividual, there shall be allowed as a credit against the tax 

11 imposed by this chapter for the taxable year an amount 

12 equal to the sum of—

13 ‘‘(1) 15 percent of the qualified photovoltaic 

14 property expenditures made by the taxpayer during 

15 such year, and 

16 ‘‘(2) 15 percent of the qualified solar water 

17 heating property expenditures made by the taxpayer 

18 during the taxable year. 

19 ‘‘(b) LIMITATIONS.—

20 ‘‘(1) MAXIMUM CREDIT.—The credit allowed 

21 under subsection (a) shall not exceed—

22 ‘‘(A) $2,000 for each system of property 

23 described in subsection (c)(1), and 
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1 ‘‘(B) $2,000 for each system of property 

2 described in subsection (c)(2). 

3 ‘‘(2) SAFETY CERTIFICATIONS.—No credit shall 

4 be allowed under this section for an item of property 

5 unless—

6 ‘‘(A) in the case of solar water heating 

7 equipment, such equipment is certified for per8 formance and safety by the non-profit Solar 

9 Rating Certification Corporation or a com10 parable entity endorsed by the government of 

11 the State in which such property is installed, 

12 and 

13 ‘‘(B) in the case of a photovoltaic system, 

14 such system meets appropriate fire and electric 

15 code requirements. 

16 ‘‘(c) DEFINITIONS.—For purposes of this section—

17 ‘‘(1) QUALIFIED SOLAR WATER HEATING PROP18 ERTY EXPENDITURE.—The term ‘qualified solar 

19 water heating property expenditure’ means an ex20 penditure for property to heat water for use in a 

21 dwelling unit located in the United States and used 

22 as a residence if at least half of the energy used by 

23 such property for such purpose is derived from the 

24 sun. 
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1 ‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX2 PENDITURE.—The term ‘qualified photovoltaic prop3 erty expenditure’ means an expenditure for property 

4 that uses solar energy to generate electricity for use 

5 in a dwelling unit. 

6 ‘‘(3) SOLAR PANELS.—No expenditure relating 

7 to a solar panel or other property installed as a roof 

8 (or portion thereof) shall fail to be treated as prop9 erty described in paragraph (1) or (2) solely because 

10 it constitutes a structural component of the struc11 ture on which it is installed. 

12 ‘‘(4) LABOR COSTS.—Expenditures for labor 

13 costs properly allocable to the onsite preparation, as14 sembly, or original installation of the property de15 scribed in paragraph (1) or (2) and for piping or 

16 wiring to interconnect such property to the dwelling 

17 unit shall be taken into account for purposes of this 

18 section. 

19 ‘‘(5) SWIMMING POOLS, ETC., USED AS STOR20 AGE MEDIUM.—Expenditures which are properly al21 locable to a swimming pool, hot tub, or any other 

22 energy storage medium which has a function other 

23 than the function of such storage shall not be taken 

24 into account for purposes of this section. 

25 ‘‘(d) SPECIAL RULES.—
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1 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC2 CUPANCY.—In the case of any dwelling unit which is 

3 jointly occupied and used during any calendar year 

4 as a residence by 2 or more individuals the following 

5 shall apply: 

6 ‘‘(A) The amount of the credit allowable 

7 under subsection (a) by reason of expenditures 

8 (as the case may be) made during such cal9 endar year by any of such individuals with re10 spect to such dwelling unit shall be determined 

11 by treating all of such individuals as 1 taxpayer 

12 whose taxable year is such calendar year. 

13 ‘‘(B) There shall be allowable with respect 

14 to such expenditures to each of such individ15 uals, a credit under subsection (a) for the tax16 able year in which such calendar year ends in 

17 an amount which bears the same ratio to the 

18 amount determined under subparagraph (A) as 

19 the amount of such expenditures made by such 

20 individual during such calendar year bears to 

21 the aggregate of such expenditures made by all 

22 of such individuals during such calendar year. 

23 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

24 HOUSING CORPORATION.—In the case of an indi25 vidual who is a tenant-stockholder (as defined in sec-
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1 tion 216) in a cooperative housing corporation (as 

2 defined in such section), such individual shall be 

3 treated as having made his tenant-stockholder’s pro4 portionate share (as defined in section 216(b)(3)) of 

5 any expenditures of such corporation. 

6 ‘‘(3) CONDOMINIUMS.—

7 ‘‘(A) IN GENERAL.—In the case of an indi8 vidual who is a member of a condominium man9 agement association with respect to a condo10 minium which he owns, such individual shall be 

11 treated as having made his proportionate share 

12 of any expenditures of such association. 

13 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO14 CIATION.—For purposes of this paragraph, the 

15 term ‘condominium management association’ 

16 means an organization which meets the require17 ments of paragraph (1) of section 528(c) (other 

18 than subparagraph (E) thereof) with respect to 

19 a condominium project substantially all of the 

20 units of which are used as residences. 

21 ‘‘(4) ALLOCATION IN CERTAIN CASES.—If less 

22 than 80 percent of the use of an item is for nonbusi23 ness purposes, only that portion of the expenditures 

24 for such item which is properly allocable to use for 

25 nonbusiness purposes shall be taken into account. 
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1 ‘‘(5) WHEN EXPENDITURE MADE; AMOUNT OF

2 EXPENDITURE.—

3 ‘‘(A) IN GENERAL.—Except as provided in 

4 subparagraph (B), an expenditure with respect 

5 to an item shall be treated as made when the 

6 original installation of the item is completed. 

7 ‘‘(B) EXPENDITURES PART OF BUILDING

8 CONSTRUCTION.—In the case of an expenditure 

9 in connection with the construction or recon10 struction of a structure, such expenditure shall 

11 be treated as made when the original use of the 

12 constructed or reconstructed structure by the 

13 taxpayer begins. 

14 ‘‘(C) AMOUNT.—The amount of any ex15 penditure shall be the cost thereof. 

16 ‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN17 ERGY FINANCING.—For purposes of determining the 

18 amount of expenditures made by any individual with 

19 respect to any dwelling unit, there shall not be taken 

20 in to account expenditures which are made from 

21 subsidized energy financing (as defined in section 

22 48(a)(4)(A)). 

23 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 

24 subtitle, if a credit is allowed under this section for any 

25 expenditure with respect to any property, the increase in 
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1 the basis of such property which would (but for this sub2 section) result from such expenditure shall be reduced by 

3 the amount of the credit so allowed. 

4 ‘‘(f) TERMINATION.—The credit allowed under this 

5 section shall not apply to taxable years beginning after 

6 December 31, 2006 (December 31, 2008, with respect to 

7 qualified photovoltaic property expenditures).’’. 

8 (b) CONFORMING AMENDMENTS.—

9 (1) Subsection (a) of section 1016 is amended 

10 by striking ‘‘and’’ at the end of paragraph (27), by 

11 striking the period at the end of paragraph (28) and 

12 inserting ‘‘, and’’, and by adding at the end the fol13 lowing new paragraph: 

14 ‘‘(29) to the extent provided in section 25C(e), 

15 in the case of amounts with respect to which a credit 

16 has been allowed under section 25C.’’. 

17 (2) The table of sections for subpart A of part 

18 IV of subchapter A of chapter 1 is amended by in19 serting after the item relating to section 25B the fol20 lowing new item:

‘‘Sec. 25C. Residential solar energy property.’’.

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years ending after De23 cember 31, 2003. 
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1 SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR 

2 ELECTRICITY PRODUCED FROM RENEWABLE 

3 RESOURCES. 

4 (a) EXTENSION OF CREDIT FOR WIND AND CLOSED5 LOOP BIOMASS FACILITIES.—Subparagraphs (A) and (B) 

6 of section 45(c)(3) are each amended by striking ‘‘2004’’ 

7 and inserting ‘‘2007’’. 

8 (b) EXPANSION OF CREDIT FOR OPEN-LOOP BIO9 MASS, LANDFILL GAS FACILITIES, AND TRASH COMBUS10 TION FACILITIES.—Paragraph (3) of section 45(c) is 

11 amended by adding at the end the following new subpara12 graphs: 

13 ‘‘(D) OPEN-LOOP BIOMASS FACILITIES.—

14 In the case of a facility using open-loop biomass 

15 to produce electricity, the term ‘qualified facil16 ity’ means any facility owned by the taxpayer 

17 which is originally placed in service before Jan18 uary 1, 2007. 

19 ‘‘(E) LANDFILL GAS FACILITIES.—In the 

20 case of a facility producing electricity from gas 

21 derived from the biodegradation of municipal 

22 solid waste, the term ‘qualified facility’ means 

23 any facility owned by the taxpayer which is 

24 originally placed in service before January 1, 

25 2007. 
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1 ‘‘(F) TRASH COMBUSTION FACILITIES.—In 

2 the case of a facility which burns municipal 

3 solid waste to produce electricity, the term 

4 ‘qualified facility’ means any facility owned by 

5 the taxpayer which is originally placed in serv6 ice after the date of the enactment of this sub7 paragraph and before January 1, 2007.’’. 

8 (c) DEFINITION AND SPECIAL RULES.—Subsection 

9 (c) of section 45 is amended by adding at the end the 

10 following new paragraphs: 

11 ‘‘(5) OPEN-LOOP BIOMASS.—The term ‘open12 loop biomass’ means any solid, nonhazardous, cel13 lulosic waste material which is segregated from other 

14 waste materials and which is derived from—

15 ‘‘(A) any of the following forest-related re16 sources: mill residues, precommercial thinnings, 

17 slash, and brush, 

18 ‘‘(B) solid wood waste materials, including 

19 waste pallets, crates, dunnage, manufacturing 

20 and construction wood wastes (other than pres21 sure-treated, chemically-treated, or painted 

22 wood wastes), and landscape or right-of-way 

23 tree trimmings, but not including municipal 

24 solid waste (garbage), gas derived from the bio-
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1 degradation of solid waste, or paper that is 

2 commonly recycled, or 

3 ‘‘(C) agriculture sources, including orchard 

4 tree crops, vineyard, grain, legumes, sugar, and 

5 other crop by-products or residues. 

6 Such term shall not include closed-loop biomass. 

7 ‘‘(6) REDUCED CREDIT FOR CERTAIN

8 PREEFFECTIVE DATE FACILITIES.—In the case of 

9 any facility described in subparagraph (D) or (E) of 

10 paragraph (3) which is placed in service before the 

11 date of the enactment of this paragraph—

12 ‘‘(A) subsection (a)(1) shall be applied by 

13 substituting ‘1.0 cents’ for ‘1.5 cents’, and 

14 ‘‘(B) the 5-year period beginning on the 

15 date of the enactment of this paragraph shall 

16 be substituted in lieu of the 10-year period in 

17 subsection (a)(2)(A)(ii). 

18 ‘‘(7) CREDIT ELIGIBILITY FOR OPEN-LOOP BIO19 MASS FACILITIES.—In the case of any facility de20 scribed in paragraph (3)(D) which is placed in serv21 ice before the date of enactment of this paragraph, 

22 if the owner of such facility is not the producer of 

23 the electricity, the person eligible for the credit al24 lowable under subsection (a) is the lessee or the op25 erator of such facility. 
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1 ‘‘(8) LIMIT ON REDUCTIONS FOR GRANTS, ETC., 

2 FOR OPEN-LOOP BIOMASS FACILITIES.—If the 

3 amount of the credit determined under subsection 

4 (a) with respect to any open-loop biomass facility is 

5 required to be reduced under paragraph (3) of sub6 section (b), the fraction under such paragraph shall 

in no event be greater than 1 7 ⁄2. 

8 ‘‘(9) COORDINATION WITH SECTION 29.—The 

9 term ‘qualified facility’ shall not include any facility 

10 the production from which is allowed as a credit 

11 under section 29 for the taxable year or any prior 

12 taxable year.’’. 

13 (d) QUALIFIED ENERGY RESOURCES.—Paragraph 

14 (1) of section 45(c) (relating to qualified energy resources) 

15 is amended to read as follows: 

16 ‘‘(1) QUALIFIED ENERGY RESOURCES.—The 

17 term ‘qualified energy resources’ means any resource 

18 described in paragraph (3) which is used to generate 

19 electricity at a qualified facility.’’. 

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to electricity sold after the date 

22 of the enactment of this Act. 

23 SEC. 103. CREDIT FOR QUALIFIED FUEL CELL POWER 

24 PLANTS. 

25 (a) BUSINESS PROPERTY.—
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1 (1) IN GENERAL.—Subparagraph (A) of section 

2 48(a)(3) (defining energy property) is amended by 

3 striking ‘‘or’’ at the end of clause (i), by adding 

4 ‘‘or’’ at the end of clause (ii), and by inserting after 

5 clause (ii) the following new clause: 

6 ‘‘(iii) equipment which is part of a 

7 qualified fuel cell power plant,’’. 

8 (2) QUALIFIED FUEL CELL POWER PLANT.—

9 Subsection (a) of section 48 is amended by redesig10 nating paragraphs (4) and (5) as paragraphs (5) 

11 and (6), respectively, and by inserting after para12 graph (3) the following new paragraph: 

13 ‘‘(4) QUALIFIED FUEL CELL POWER PLANT.—

14 For purposes of this subsection—

15 ‘‘(A) IN GENERAL.—The term ‘qualified 

16 fuel cell power plant’ means a fuel cell power 

17 plant that has an electricity-only generation ef18 ficiency greater than 30 percent. 

19 ‘‘(B) LIMITATION.—The energy credit with 

20 respect to any qualified fuel cell power plant for 

21 any taxable year shall not exceed—

‘‘(i) $500 for each 1 22 ⁄2 kilowatt of ca23 pacity of the power plant, reduced by 
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1 ‘‘(ii) the aggregate energy credits al2 lowed with respect to such power plant for 

3 all prior taxable years. 

4 ‘‘(C) FUEL CELL POWER PLANT.—The 

5 term ‘fuel cell power plant’ means an integrated 

6 system comprised of a fuel cell stack assembly 

7 and associated balance of plant components 

8 that converts a fuel into electricity using elec9 trochemical means. 

10 ‘‘(D) TERMINATION.—Such term shall not 

11 include any property placed in service after De12 cember 31, 2006.’’. 

13 (3) EFFECTIVE DATE.—The amendments made 

14 by this subsection shall apply to property placed in 

15 service after December 31, 2003, under rules similar 

16 to the rules of section 48(m) of the Internal Revenue 

17 Code of 1986 (as in effect on the day before the 

18 date of the enactment of the Revenue Reconciliation 

19 Act of 1990). 

20 (b) NONBUSINESS PROPERTY.—

21 (1) IN GENERAL.—Subpart A of part IV of sub22 chapter A of chapter 1 (relating to nonrefundable 

23 personal credits) is amended by inserting after sec24 tion 25C the following new section: 
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1 ‘‘SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER 

2 PLANT. 

3 ‘‘(a) IN GENERAL.—In the case of an individual, 

4 there shall be allowed as a credit against the tax imposed 

5 by this chapter for the taxable year an amount equal to 

6 10 percent of the qualified fuel cell power plant expendi7 tures which are paid or incurred during such year. 

8 ‘‘(b) LIMITATIONS.—The credit allowed under sub9 section (a) with respect to any qualified fuel cell power 

10 plant for any taxable year shall not exceed—

‘‘(i) $500 for each 1 11 ⁄2 kilowatt of ca12 pacity of the power plant, reduced by 

13 ‘‘(ii) the aggregate energy credits al14 lowed with respect to such power plant for 

15 all prior taxable years. 

16 ‘‘(c) QUALIFIED FUEL CELL POWER PLANT EX17 PENDITURES.—For purposes of this section, the term 

18 ‘qualified fuel cell power plant expenditures’ means ex19 penditures by the taxpayer for any qualified fuel cell power 

20 plant (as defined in section 48(a)(4))—

21 ‘‘(1) which meets the requirements of subpara22 graphs (B) and (D) of section 48(a)(3), and 

23 ‘‘(2) which is installed on or in connection with 

24 a dwelling unit—

25 ‘‘(A) which is located in the United States, 

26 and 
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1 ‘‘(B) which is used by the taxpayer as a 

2 residence. 

3 Such term includes expenditures for labor costs properly 

4 allocable to the onsite preparation, assembly, or original 

5 installation of the property. 

6 ‘‘(d) SPECIAL RULES.—For purposes of this section, 

7 rules similar to the rules of section 25C(d) shall apply. 

8 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 

9 subtitle, if a credit is allowed under this section for any 

10 expenditure with respect to any property, the increase in 

11 the basis of such property which would (but for this sub12 section) result from such expenditure shall be reduced by 

13 the amount of the credit so allowed. 

14 ‘‘(f) TERMINATION.—This section shall not apply to 

15 any expenditure made after December 31, 2006.’’. 

16 (2) CONFORMING AMENDMENTS.—

17 (A) Subsection (a) of section 1016 is 

18 amended by striking ‘‘and’’ at the end of para19 graph (28), by striking the period at the end of 

20 paragraph (29) and inserting ‘‘, and’’, and by 

21 adding at the end the following new paragraph: 

22 ‘‘(30) to the extent provided in section 25D(e), 

23 in the case of amounts with respect to which a credit 

24 has been allowed under section 25D.’’. 
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1 (B) The table of sections for subpart A of 

2 part IV of subchapter A of chapter 1 is amend3 ed by inserting after the item relating to section 

4 25C the following new item:

‘‘Sec. 25D. Nonbusiness qualified fuel cell power plant.’’.

5 (3) EFFECTIVE DATE.—The amendments made 

6 by this subsection shall apply to expenditures paid 

7 or incurred after December 31, 2003. 

8 SEC. 104. CREDIT FOR ENERGY EFFICIENCY IMPROVE9 MENTS TO EXISTING HOMES. 

10 (a) IN GENERAL.—Subpart A of part IV of sub11 chapter A of chapter 1 (relating to nonrefundable personal 

12 credits) is amended by inserting after section 25D the fol13 lowing new section: 

14 ‘‘SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST15 ING HOMES. 

16 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in17 dividual, there shall be allowed as a credit against the tax 

18 imposed by this chapter for the taxable year an amount 

19 equal to 20 percent of the amount paid or incurred by 

20 the taxpayer for qualified energy efficiency improvements 

21 installed during such taxable year. 

22 ‘‘(b) LIMITATIONS.—

23 ‘‘(1) MAXIMUM CREDIT.—The credit allowed by 

24 this section with respect to a dwelling shall not ex25 ceed $2,000. 
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1 ‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER

2 ON SAME DWELLING TAKEN INTO ACCOUNT.—If a 

3 credit was allowed to the taxpayer under subsection 

4 (a) with respect to a dwelling in 1 or more prior tax5 able years, the amount of the credit otherwise allow6 able for the taxable year with respect to that dwell7 ing shall not exceed the amount of $2,000 reduced 

8 by the sum of the credits allowed under subsection 

9 (a) to the taxpayer with respect to the dwelling for 

10 all prior taxable years. 

11 ‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the 

12 credit allowable under subsection (a) exceeds the limita13 tion imposed by section 26(a) for such taxable year re14 duced by the sum of the credits allowable under this sub15 part (other than this section) for such taxable year, such 

16 excess shall be carried to the succeeding taxable year and 

17 added to the credit allowable under subsection (a) for such 

18 succeeding taxable year. 

19 ‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE20 MENTS.—For purposes of this section, the term ‘qualified 

21 energy efficiency improvements’ means any energy effi22 cient building envelope component which meets the pre23 scriptive criteria for such component established by the 

24 2000 International Energy Conservation Code (or, in the 
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1 case of metal roofs with appropriate pigmented coatings, 

2 meets the Energy Star program requirements), if—

3 ‘‘(1) such component is installed in or on a 

4 dwelling—

5 ‘‘(A) located in the United States, and 

6 ‘‘(B) owned and used by the taxpayer as 

7 the taxpayer’s principal residence (within the 

8 meaning of section 121), 

9 ‘‘(2) the original use of such component com10 mences with the taxpayer, and 

11 ‘‘(3) such component reasonably can be ex12 pected to remain in use for at least 5 years. 

13 If the aggregate cost of such components with respect to 

14 any dwelling exceeds $1,000, such components shall be 

15 treated as qualified energy efficiency improvements only 

16 if such components are also certified in accordance with 

17 subsection (e) as meeting such criteria. 

18 ‘‘(e) CERTIFICATION.—The certification described in 

19 subsection (d) shall be—

20 ‘‘(1) determined on the basis of the technical 

21 specifications or applicable ratings (including prod22 uct labeling requirements) for the measurement of 

23 energy efficiency, based upon energy use or building 

24 envelope component performance, for the energy effi25 cient building envelope component, 
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1 ‘‘(2) provided by a local building regulatory au2 thority, a utility, a manufactured home production 

3 inspection primary inspection agency (IPIA), or an 

4 accredited home energy rating system provider who 

5 is accredited by or otherwise authorized to use ap6 proved energy performance measurement methods by 

7 the Residential Energy Services Network 

8 (RESNET), and 

9 ‘‘(3) made in writing in a manner that specifies 

10 in readily verifiable fashion the energy efficient 

11 building envelope components installed and their re12 spective energy efficiency levels. 

13 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—

14 ‘‘(1) TENANT-STOCKHOLDER IN COOPERATIVE

15 HOUSING CORPORATION.—In the case of an indi16 vidual who is a tenant-stockholder (as defined in sec17 tion 216) in a cooperative housing corporation (as 

18 defined in such section), such individual shall be 

19 treated as having paid his tenant-stockholder’s pro20 portionate share (as defined in section 216(b)(3)) of 

21 the cost of qualified energy efficiency improvements 

22 made by such corporation. 

23 ‘‘(2) CONDOMINIUMS.—

24 ‘‘(A) IN GENERAL.—In the case of an indi25 vidual who is a member of a condominium man-
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1 agement association with respect to a condo2 minium which he owns, such individual shall be 

3 treated as having paid his proportionate share 

4 of the cost of qualified energy efficiency im5 provements made by such association. 

6 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO7 CIATION.—For purposes of this paragraph, the 

8 term ‘condominium management association’ 

9 means an organization which meets the require10 ments of paragraph (1) of section 528(c) (other 

11 than subparagraph (E) thereof) with respect to 

12 a condominium project substantially all of the 

13 units of which are used as residences. 

14 ‘‘(3) BUILDING ENVELOPE COMPONENT.—The 

15 term ‘building envelope component’ means insulation 

16 material or system which is specifically and pri17 marily designed to reduce the heat loss or gain of a 

18 dwelling when installed in or on such dwelling, exte19 rior windows (including skylights) and doors, and 

20 metal roofs with appropriate pigmented coatings 

21 which are specifically and primarily designed to re22 duce the heat gain of a dwelling when installed in 

23 or on such dwelling. 

24 ‘‘(4) MANUFACTURED HOMES INCLUDED.—For 

25 purposes of this section, the term ‘dwelling’ includes 
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1 a manufactured home which conforms to Federal 

2 Manufactured Home Construction and Safety Stand3 ards (24 CFR 3280). 

4 ‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub5 title, if a credit is allowed under this section for any ex6 penditure with respect to any property, the increase in the 

7 basis of such property which would (but for this sub8 section) result from such expenditure shall be reduced by 

9 the amount of the credit so allowed. 

10 ‘‘(h) APPLICATION OF SECTION.—This section shall 

11 apply to qualified energy efficiency improvements installed 

12 after December 31, 2003, and before January 1, 2007.’’. 

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subsection (c) of section 23 is amended by 

15 striking ‘‘section 1400C’’ and inserting ‘‘sections 

16 25E and 1400C’’. 

17 (2) Subsection (a) of section 1016 is amended 

18 by striking ‘‘and’’ at the end of paragraph (29), by 

19 striking the period at the end of paragraph (30) and 

20 inserting ‘‘, and’’, and by adding at the end the fol21 lowing new paragraph: 

22 ‘‘(31) to the extent provided in section 25E(g), 

23 in the case of amounts with respect to which a credit 

24 has been allowed under section 25E.’’. 
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1 (3) Subsection (d) of section 1400C is amended 

2 by inserting ‘‘and section 25E’’ after ‘‘this section’’. 

3 (4) The table of sections for subpart A of part 

4 IV of subchapter A of chapter 1 is amended by in5 serting after the item relating to section 25D the 

6 following new item:

‘‘Sec. 25E. Energy efficiency improvements to existing homes.’’.

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years ending after De9 cember 31, 2003. 

10 SEC. 105. BUSINESS CREDIT FOR CONSTRUCTION OF NEW 

11 ENERGY EFFICIENT HOME. 

12 (a) IN GENERAL.—Subpart D of part IV of sub13 chapter A of chapter 1 (relating to business related cred14 its) is amended by inserting after section 45F the fol15 lowing new section: 

16 ‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT. 

17 ‘‘(a) IN GENERAL.—For purposes of section 38, in 

18 the case of an eligible contractor, the credit determined 

19 under this section for the taxable year is an amount equal 

20 to the aggregate adjusted bases of all energy efficient 

21 property installed in a qualified new energy efficient home 

22 during construction of such home. 

23 ‘‘(b) LIMITATIONS.—

24 ‘‘(1) MAXIMUM CREDIT.—
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1 ‘‘(A) IN GENERAL.—The credit allowed by 

2 this section with respect to a dwelling shall not 

3 exceed $2,000. 

4 ‘‘(B) PRIOR CREDIT AMOUNTS ON SAME

5 DWELLING TAKEN INTO ACCOUNT.—If a credit 

6 was allowed under subsection (a) with respect 

7 to a dwelling in 1 or more prior taxable years, 

8 the amount of the credit otherwise allowable for 

9 the taxable year with respect to that dwelling 

10 shall not exceed the amount of $2,000 reduced 

11 by the sum of the credits allowed under sub12 section (a) with respect to the dwelling for all 

13 prior taxable years. 

14 ‘‘(2) COORDINATION WITH REHABILITATION

15 AND ENERGY CREDITS.—For purposes of this sec16 tion—

17 ‘‘(A) the basis of any property referred to 

18 in subsection (a) shall be reduced by that por19 tion of the basis of any property which is attrib20 utable to qualified rehabilitation expenditures 

21 (as defined in section 47(c)(2)) or to the energy 

22 percentage of energy property (as determined 

23 under section 48(a)), and 
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1 ‘‘(B) expenditures taken into account 

2 under either section 47 or 48(a) shall not be 

3 taken into account under this section. 

4 ‘‘(c) DEFINITIONS.—For purposes of this section—

5 ‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi6 ble contractor’ means the person who constructed 

7 the new energy efficient home, or in the case of a 

8 manufactured home which conforms to Federal 

9 Manufactured Home Construction and Safety Stand10 ards (24 CFR 3280), the manufactured home pro11 ducer of such home. 

12 ‘‘(2) ENERGY EFFICIENT PROPERTY.—The 

13 term ‘energy efficient property’ means any energy 

14 efficient building envelope component, and any en15 ergy efficient heating or cooling appliance. 

16 ‘‘(3) QUALIFIED NEW ENERGY EFFICIENT

17 HOME.—The term ‘qualified new energy efficient 

18 home’ means a dwelling—

19 ‘‘(A) located in the United States, 

20 ‘‘(B) the construction of which is substan21 tially completed after December 31, 2003, 

22 ‘‘(C) the original use of which is as a prin23 cipal residence (within the meaning of section 

24 121) which commences with the person who ac-
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1 quires such dwelling from the eligible con2 tractor, and 

3 ‘‘(D) which is certified to have a level of 

4 annual heating and cooling energy consumption 

5 that is at least 30 percent below the annual 

6 level of heating and cooling energy consumption 

7 of a comparable dwelling constructed in accord8 ance with the standards of the 2000 Inter9 national Energy Conservation Code and to have 

10 building envelope component improvements account for 1 11 ⁄3 of such 30 percent. 

12 ‘‘(4) CONSTRUCTION.—The term ‘construction’ 

13 includes reconstruction and rehabilitation. 

14 ‘‘(5) ACQUIRE.—The term ‘acquire’ includes 

15 purchase and, in the case of reconstruction and re16 habilitation, such term includes a binding written 

17 contract for such reconstruction or rehabilitation. 

18 ‘‘(6) BUILDING ENVELOPE COMPONENT.—The 

19 term ‘building envelope component’ means insulation 

20 material or system which is specifically and pri21 marily designed to reduce the heat loss or gain of a 

22 dwelling when installed in or on such dwelling, exte23 rior windows (including skylights) and doors, and 

24 metal roofs with appropriate pigmented coatings 

25 which are specifically and primarily designed to re-
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1 duce the heat gain of a dwelling when installed in 

2 or on such dwelling. 

3 ‘‘(7) MANUFACTURED HOME INCLUDED.—The 

4 term ‘dwelling’ includes a manufactured home con5 forming to Federal Manufactured Home Construc6 tion and Safety Standards (24 CFR 3280). 

7 ‘‘(d) CERTIFICATION.—

8 ‘‘(1) METHOD.—A certification described in 

9 subsection (c)(3)(D) shall be determined on the 

10 basis of one of the following methods: 

11 ‘‘(A) The technical specifications or appli12 cable ratings (including product labeling re13 quirements) for the measurement of energy effi14 ciency for the energy efficient building envelope 

15 component or energy efficient heating or cooling 

16 appliance, based upon energy use or building 

17 envelope component performance. 

18 ‘‘(B) An energy performance measurement 

19 method that utilizes computer software ap20 proved by organizations designated by the Sec21 retary. 

22 ‘‘(2) PROVIDER.—Such certification shall be 

23 provided by—

24 ‘‘(A) in the case of a method described in 

25 paragraph (1)(A), a local building regulatory 
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1 authority, a utility, a manufactured home pro2 duction inspection primary inspection agency 

3 (IPIA), or an accredited home energy rating 

4 systems provider who is accredited by, or other5 wise authorized to use, approved energy per6 formance measurement methods by the Home 

7 Energy Ratings Systems Council or the Na8 tional Association of State Energy Officials, or 

9 ‘‘(B) in the case of a method described in 

10 paragraph (1)(B), an individual recognized by 

11 an organization designated by the Secretary for 

12 such purposes. 

13 ‘‘(3) FORM.—Such certification shall be made 

14 in writing in a manner that specifies in readily 

15 verifiable fashion the energy efficient building enve16 lope components and energy efficient heating or 

17 cooling appliances installed and their respective en18 ergy efficiency levels, and in the case of a method 

19 described in subparagraph (B) of paragraph (1), ac20 companied by written analysis documenting the 

21 proper application of a permissible energy perform22 ance measurement method to the specific cir23 cumstances of such dwelling. 

24 ‘‘(4) REGULATIONS.—
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1 ‘‘(A) IN GENERAL.—In prescribing regula2 tions under this subsection for energy perform3 ance measurement methods, the Secretary shall 

4 prescribe procedures for calculating annual en5 ergy costs for heating and cooling and cost sav6 ings and for the reporting of the results. Such 

7 regulations shall—

8 ‘‘(i) be based on the National Home 

9 Energy Rating Technical Guidelines of the 

10 National Association of State Energy Offi11 cials, the Home Energy Rating Guidelines 

12 of the Home Energy Rating Systems 

13 Council, or the modified 2001 California 

14 Residential ACM manual, 

15 ‘‘(ii) provide that any calculation pro16 cedures be developed such that the same 

17 energy efficiency measures allow a home to 

18 qualify for the credit under this section re19 gardless of whether the house uses a gas 

20 or oil furnace or boiler or an electric heat 

21 pump, and 

22 ‘‘(iii) require that any computer soft23 ware allow for the printing of the Federal 

24 tax forms necessary for the credit under 

25 this section and explanations for the home-
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1 buyer of the energy efficient features that 

2 were used to comply with the requirements 

3 of this section. 

4 ‘‘(B) PROVIDERS.—For purposes of para5 graph (2)(B), the Secretary shall establish re6 quirements for the designation of individuals 

7 based on the requirements for energy consult8 ants and home energy raters specified by the 

9 National Association of State Energy Officials. 

10 ‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub11 title, if a credit is allowed under this section for any ex12 penditure with respect to any property, the increase in the 

13 basis of such property which would (but for this sub14 section) result from such expenditure shall be reduced by 

15 the amount of the credit so allowed. 

16 ‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 

17 apply to dwellings purchased during the period beginning 

18 on January 1, 2004, and ending on December 31, 2006.’’. 

19 (b) CREDIT MADE PART OF GENERAL BUSINESS

20 CREDIT.—Subsection (b) of section 38 (relating to current 

21 year business credit) is amended by striking ‘‘plus’’ at the 

22 end of paragraph (14), by striking the period at the end 

23 of paragraph (15) and inserting ‘‘, plus’’, and by adding 

24 at the end thereof the following new paragraph: 
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1 ‘‘(16) the new energy efficient home credit de2 termined under section 45G.’’. 

3 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C 

4 (relating to certain expenses for which credits are allow5 able) is amended by adding at the end thereof the fol6 lowing new subsection: 

7 ‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—

8 No deduction shall be allowed for that portion of expenses 

9 for a new energy efficient home otherwise allowable as a 

10 deduction for the taxable year which is equal to the 

11 amount of the credit determined for such taxable year 

12 under section 45G.’’. 

13 (d) LIMITATION ON CARRYBACK.—Subsection (d) of 

14 section 39 is amended by adding at the end the following 

15 new paragraph: 

16 ‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI17 CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—

18 No portion of the unused business credit for any 

19 taxable year which is attributable to the credit deter20 mined under section 45G may be carried back to any 

21 taxable year ending before January 1, 2004.’’. 

22 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

23 CREDITS.—Subsection (c) of section 196 is amended by 

24 striking ‘‘and’’ at the end of paragraph (9), by striking 

25 the period at the end of paragraph (10) and inserting ‘‘, 
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1 and’’, and by adding after paragraph (10) the following 

2 new paragraph: 

3 ‘‘(11) the new energy efficient home credit de4 termined under section 45G.’’. 

5 (f) CLERICAL AMENDMENT.—The table of sections 

6 for subpart D of part IV of subchapter A of chapter 1 

7 is amended by inserting after the item relating to section 

8 45F the following new item:

‘‘Sec. 45G. New energy efficient home credit.’’.

9 (g) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to taxable years ending after De11 cember 31, 2003. 

12 SEC. 106. ENERGY CREDIT FOR COMBINED HEAT AND 

13 POWER SYSTEM PROPERTY. 

14 (a) IN GENERAL.—Subparagraph (A) of section 

15 48(a)(3) (defining energy property) is amended by strik16 ing ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at the 

17 end of clause (iii), and by inserting after clause (iii) the 

18 following new clause: 

19 ‘‘(iv) combined heat and power system 

20 property,’’. 

21 (b) COMBINED HEAT AND POWER SYSTEM PROP22 ERTY.—Subsection (a) of section 48 is amended by redes23 ignating paragraphs (5) and (6) as paragraphs (6) and 

24 (7), respectively, and by inserting after paragraph (4) the 

25 following new paragraph: 
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1 ‘‘(5) COMBINED HEAT AND POWER SYSTEM

2 PROPERTY.—For purposes of this subsection—

3 ‘‘(A) COMBINED HEAT AND POWER SYS4 TEM PROPERTY.—The term ‘combined heat and 

5 power system property’ means property com6 prising a system—

7 ‘‘(i) which uses the same energy 

8 source for the simultaneous or sequential 

9 generation of electrical power, mechanical 

10 shaft power, or both, in combination with 

11 the generation of steam or other forms of 

12 useful thermal energy (including heating 

13 and cooling applications), 

14 ‘‘(ii) which has an electrical capacity 

15 of more than 50 kilowatts or a mechanical 

16 energy capacity of more than 67 horse17 power or an equivalent combination of elec18 trical and mechanical energy capacities, 

19 ‘‘(iii) which produces—

20 ‘‘(I) at least 20 percent of its 

21 total useful energy in the form of 

22 thermal energy, and 

23 ‘‘(II) at least 20 percent of its 

24 total useful energy in the form of elec-
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1 trical or mechanical power (or com2 bination thereof), 

3 ‘‘(iv) the energy efficiency percentage 

4 of which exceeds 60 percent (70 percent in 

5 the case of a system with an electrical ca6 pacity in excess of 50 megawatts or a me7 chanical energy capacity in excess of 

8 67,000 horsepower, or an equivalent com9 bination of electrical and mechanical en10 ergy capacities), and 

11 ‘‘(v) which is placed in service after 

12 December 31, 2003, and before January 1, 

13 2007. 

14 ‘‘(B) SPECIAL RULES.—

15 ‘‘(i) ENERGY EFFICIENCY PERCENT16 AGE.—For purposes of subparagraph 

17 (A)(iv), the energy efficiency percentage of 

18 a system is the fraction—

19 ‘‘(I) the numerator of which is 

20 the total useful electrical, thermal, 

21 and mechanical power produced by 

22 the system at normal operating rates, 

23 and 
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1 ‘‘(II) the denominator of which is 

2 the lower heating value of the primary 

3 fuel source for the system. 

4 ‘‘(ii) DETERMINATIONS MADE ON BTU

5 BASIS.—The energy efficiency percentage 

6 and the percentages under subparagraph 

7 (A)(iii) shall be determined on a Btu basis. 

8 ‘‘(iii) INPUT AND OUTPUT PROPERTY

9 NOT INCLUDED.—The term ‘combined heat 

10 and power system property’ does not in11 clude property used to transport the en12 ergy source to the facility or to distribute 

13 energy produced by the facility. 

14 ‘‘(iv) PUBLIC UTILITY PROPERTY.—

15 ‘‘(I) ACCOUNTING RULE FOR

16 PUBLIC UTILITY PROPERTY.—If the 

17 combined heat and power system 

18 property is public utility property (as 

19 defined in section 168(i)(1)), the tax20 payer may only claim the credit under 

21 the subsection if, with respect to such 

22 property, the taxpayer uses a normal23 ization method of accounting. 

24 ‘‘(II) CERTAIN EXCEPTION NOT

25 TO APPLY.—The matter in paragraph 
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1 (3) which follows subparagraph (D) 

2 shall not apply to combined heat and 

3 power system property. 

4 ‘‘(C) EXTENSION OF DEPRECIATION RE5 COVERY PERIOD.—If a taxpayer is allowed cred6 it under this section for combined heat and 

7 power system property and such property would 

8 (but for this subparagraph) have a class life of 

9 15 years or less under section 168, such prop10 erty shall be treated as having a 22-year class 

11 life for purposes of section 168.’’. 

12 (c) NO CARRYBACK OF ENERGY CREDIT BEFORE

13 EFFECTIVE DATE.—Subsection (d) of section 39 is 

14 amended by adding at the end the following new para15 graph: 

16 ‘‘(12) NO CARRYBACK OF ENERGY CREDIT BE17 FORE EFFECTIVE DATE.—No portion of the unused 

18 business credit for any taxable year which is attrib19 utable to the energy credit with respect to property 

20 described in section 48(a)(5) may be carried back to 

21 a taxable year ending before January 1, 2004.’’. 

22 (d) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to property placed in service after 

24 December 31, 2003. 
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1 SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS AL2 LOWED AGAINST REGULAR AND MINIMUM 

3 TAXES. 

4 (a) IN GENERAL.—

5 (1) Section 25C.—Section 25C(b), as added by 

6 section 101, is amended by adding at the end the 

7 following new paragraph: 

8 ‘‘(3) LIMITATION BASED ON AMOUNT OF

9 TAX.—The credit allowed under subsection (a) for 

10 the taxable year shall not exceed the excess of—

11 ‘‘(A) the sum of the regular tax liability 

12 (as defined in section 26(b)) plus the tax im13 posed by section 55, over 

14 ‘‘(B) the sum of the credits allowable 

15 under this subpart (other than this section and 

16 section 25D and 25E) and section 27 for the 

17 taxable year.’’. 

18 (2) Section 25D.—Section 25D(b), as added by 

19 section 103, is amended—

20 (A) by striking ‘‘The credit’’ and inserting 

21 the following: 

22 ‘‘(1) IN GENERAL.—The credit’’, and 

23 (B) by adding at the end the following new 

24 paragraph: 
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1 ‘‘(2) LIMITATION BASED ON AMOUNT OF

2 TAX.—The credit allowed under subsection (a) for 

3 the taxable year shall not exceed the excess of—

4 ‘‘(A) the sum of the regular tax liability 

5 (as defined in section 26(b)) plus the tax im6 posed by section 55, over 

7 ‘‘(B) the sum of the credits allowable 

8 under this subpart (other than this section and 

9 section 25E) and section 27 for the taxable 

10 year.’’. 

11 (3) Section 25E.—Section 25E(b), as added by 

12 section 104, is amended by adding at the end the 

13 following new paragraph: 

14 ‘‘(3) LIMITATION BASED ON AMOUNT OF

15 TAX.—The credit allowed under subsection (a) for 

16 the taxable year shall not exceed the excess of—

17 ‘‘(A) the sum of the regular tax liability 

18 (as defined in section 26(b)) plus the tax im19 posed by section 55, over 

20 ‘‘(B) the sum of the credits allowable 

21 under this subpart (other than this section) and 

22 section 27 for the taxable year.’’. 

23 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 23(b)(4)(B) is amended by inserting 

2 ‘‘and sections 25C, 25D, and 25E’’ after ‘‘this sec3 tion’’. 

4 (2) Section 24(b)(3)(B) is amended by striking 

5 ‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and 

6 25E’’. 

7 (3) Section 25(e)(1)(C) is amended by inserting 

8 ‘‘25C, 25D, and 25E’’ after ‘‘25B,’’. 

9 (4) Section 25B(g)(2) is amended by striking 

10 ‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D, 

11 and 25E’’. 

12 (5) Section 25E(c), as added by section 104, is 

13 amended by striking ‘‘section 26(a) for such taxable 

14 year reduced by the sum of the credits allowable 

15 under this subpart (other than this section)’’ and in16 serting ‘‘subsection (b)(3)’’. 

17 (6) Section 26(a)(1) is amended by striking 

18 ‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 

19 25E’’. 

20 (7) Section 904(h) is amended by striking ‘‘and 

21 25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 

22 (8) Section 1400C(d) is amended by striking 

23 ‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 

24 25E’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2003. 

4 SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES 

5 ON RAILROADS AND INLAND WATERWAY 

6 TRANSPORTATION WHICH REMAIN IN GEN7 ERAL FUND. 

8 (a) TAXES ON TRAINS.—

9 (1) IN GENERAL.—Subparagraph (A) of section 

10 4041(a)(1) is amended by striking ‘‘or a diesel-pow11 ered train’’ each place it appears and by striking ‘‘or 

12 train’’. 

13 (2) CONFORMING AMENDMENTS.—

14 (A) Subparagraph (C) of section 

15 4041(a)(1) is amended by striking clause (ii) 

16 and by redesignating clause (iii) as clause (ii). 

17 (B) Subparagraph (C) of section 

18 4041(b)(1) is amended by striking all that fol19 lows ‘‘section 6421(e)(2)’’ and inserting a pe20 riod. 

21 (C) Subsection (d) of section 4041 is 

22 amended by redesignating paragraph (3) as 

23 paragraph (4) and by inserting after paragraph 

24 (2) the following new paragraph: 
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1 ‘‘(3) DIESEL FUEL USED IN TRAINS.—There is 

2 hereby imposed a tax of 0.1 cent per gallon on any 

3 liquid other than gasoline (as defined in section 

4 4083)—

5 ‘‘(A) sold by any person to an owner, les6 see, or other operator of a diesel-powered train 

7 for use as a fuel in such train, or 

8 ‘‘(B) used by any person as a fuel in a die9 sel-powered train unless there was a taxable 

10 sale of such fuel under subparagraph (A). 

11 No tax shall be imposed by this paragraph on the 

12 sale or use of any liquid if tax was imposed on such 

13 liquid under section 4081.’’

14 (D) Subsection (e) of section 4082 is 

15 amended by striking ‘‘section 4041(a)(1)’’ and 

16 inserting ‘‘subsections (d)(3) and (a)(1) of sec17 tion 4041, respectively’’. 

18 (E) Paragraph (3) of section 4083(a) is 

19 amended by striking ‘‘or a diesel-powered 

20 train’’. 

21 (F) Paragraph (3) of section 6421(f) is 

22 amended to read as follows: 

23 ‘‘(3) GASOLINE USED IN TRAINS.—In the case 

24 of gasoline used as a fuel in a train, this section 

25 shall not apply with respect to the Leaking Under-
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1 ground Storage Tank Trust Fund financing rate 

2 under section 4081.’’

3 (G) Paragraph (3) of section 6427(l) is 

4 amended to read as follows: 

5 ‘‘(3) REFUND OF CERTAIN TAXES ON FUEL

6 USED IN DIESEL-POWERED TRAINS.—For purposes 

7 of this subsection, the term ‘nontaxable use’ includes 

8 fuel used in a diesel-powered train. The preceding 

9 sentence shall not apply to the tax imposed by sec10 tion 4041(d) and the Leaking Underground Storage 

11 Tank Trust Fund financing rate under section 4081 

12 except with respect to fuel sold for exclusive use by 

13 a State or any political subdivision thereof.’’

14 (b) FUEL USED ON INLAND WATERWAYS.—

15 (1) IN GENERAL.—Paragraph (1) of section 

16 4042(b) is amended by adding ‘‘and’’ at the end of 

17 subparagraph (A), by striking ‘‘, and’’ at the end of 

18 subparagraph (B) and inserting a period, and by 

19 striking subparagraph (C). 

20 (2) CONFORMING AMENDMENT.—Paragraph (2) 

21 of section 4042(b) is amended by striking subpara22 graph (C). 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall take effect on October 1, 2003. 
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1 SEC. 109. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN 

2 MIXTURES OF DIESEL FUEL. 

3 (a) IN GENERAL.—Paragraph (2) of section 4081(a) 

4 is amended by adding at the end the following: 

5 ‘‘(C) DIESEL-WATER FUEL EMULSION.—In 

6 the case of diesel-water fuel emulsion at least 

7 14 percent of which is water and with respect 

8 to which the emulsion additive is registered by 

9 a United States manufacturer with the Envi10 ronmental Protection Agency pursuant to sec11 tion 211 of the Clean Air Act (as in effect on 

12 March 31, 2003)), subparagraph (A)(iii) shall 

13 be applied by substituting ‘19.7 cents’ for ‘24.3 

14 cents’.’’. 

15 (b) SPECIAL RULES FOR DIESEL-WATER FUEL

16 EMULSIONS.—

17 (1) REFUNDS FOR TAX-PAID PURCHASES.—Sec18 tion 6427 is amended by redesignating subsections 

19 (m) through (p) as subsections (n) through (q), re20 spectively, and by inserting after subsection (l) the 

21 following new subsection: 

22 ‘‘(m) DIESEL FUEL USED TO PRODUCE EMUL23 SION.—

24 ‘‘(1) IN GENERAL.—Except as provided in sub25 section (k), if any diesel fuel on which tax was im26 posed by section 4081 at the regular tax rate is used 
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1 by any person in producing an emulsion described in 

2 section 4081(a)(2)(C) which is sold or used in such 

3 person’s trade or business, the Secretary shall pay 

4 (without interest) to such person an amount equal to 

5 the excess of the regular tax rate over the incentive 

6 tax rate with respect to such fuel. 

7 ‘‘(2) DEFINITIONS.—For purposes of paragraph 

8 (1)—

9 ‘‘(A) REGULAR TAX RATE.—The term ‘reg10 ular tax rate’ means the aggregate rate of tax 

11 imposed by section 4081 determined without re12 gard to section 4081(a)(2)(C). 

13 ‘‘(B) INCENTIVE TAX RATE.—The term 

14 ‘incentive tax rate’ means the aggregate rate of 

15 tax imposed by section 4081 determined with 

16 regard to section 4081(a)(2)(C).’’. 

17 (2) LATER SEPARATION OF FUEL.—Section 

18 4081 (relating to imposition of tax) is amended by 

19 redesignating subsection (d) as subsection (e) and 

20 inserting after subsection (c) the following new sub21 section: 

22 ‘‘(c) LATER SEPARATION OF FUEL FROM DIESEL23 WATER FUEL EMULSION.—If any person separates the 

24 taxable fuel from a diesel-water fuel emulsion on which 

25 tax was imposed under subsection (a) at a rate determined 
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1 under subsection (a)(2)(C) (or with respect to which a 

2 credit or payment was allowed or made by reason of sec3 tion 6427), such person shall be treated as the refiner of 

4 such taxable fuel. The amount of tax imposed on any re5 moval of such fuel by such person shall be reduced by the 

6 amount of tax imposed (and not credited or refunded) on 

7 any prior removal or entry of such fuel.’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall take effect on October 1, 2003. 

10 SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELEC11 TRIC VEHICLE CREDIT AND DEDUCTION FOR 

12 CLEAN FUEL-VEHICLES. 

13 (a) CREDIT FOR QUALIFIED ELECTRIC VEHICLES.—

14 Subsection (b) of section 30 (relating to limitations) is 

15 amended by striking paragraph (2) and redesignating 

16 paragraph (3) as paragraph (2). 

17 (b) DEDUCTION FOR CLEAN-FUEL VEHICLES AND

18 CERTAIN REFUELING PROPERTY.—Paragraph (1) of sec19 tion 179A(b) (relating to qualified clean-fuel vehicle prop20 erty) is amended to read as follows: 

21 ‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROP22 ERTY.— The cost which may be taken into account 

23 under subsection (a)(1)(A) with respect to any 

24 motor vehicle shall not exceed— 
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1 ‘‘(A) in the case of a motor vehicle not de2 scribed in subparagraph (B) or (C), $2,000, 

3 ‘‘(B) in the case of any truck or van with 

4 a gross vehicle weight rating greater than 

5 10,000 pounds but not greater than 26,000 

6 pounds, $5,000, or 

7 ‘‘(C) $50,000 in the case of— 

8 ‘‘(i) a truck or van with a gross vehi9 cle weight rating greater than 26,000 

10 pounds, or 

11 ‘‘(ii) any bus which has a seating ca12 pacity of at least 20 adults (not including 

13 the driver).’’. 

14 TITLE II—RELIABILITY 

15 SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-

16 YEAR PROPERTY. 

17 (a) IN GENERAL.—Subparagraph (C) of section 

18 168(e)(3) (relating to classification of certain property) is 

19 amended by striking ‘‘and’’ at the end of clause (i), by 

20 redesignating clause (ii) as clause (iii), and by inserting 

21 after clause (i) the following new clause: 

22 ‘‘(ii) any natural gas gathering line, 

23 and’’. 
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1 (b) NATURAL GAS GATHERING LINE.—Subsection (i) 

2 of section 168 is amended by adding after paragraph (15) 

3 the following new paragraph: 

4 ‘‘(16) NATURAL GAS GATHERING LINE.—The 

5 term ‘natural gas gathering line’ means—

6 ‘‘(A) the pipe, equipment, and appur7 tenances determined to be a gathering line by 

8 the Federal Energy Regulatory Commission, or 

9 ‘‘(B) the pipe, equipment, and appur10 tenances used to deliver natural gas from the 

11 wellhead or a commonpoint to the point at 

12 which such gas first reaches—

13 ‘‘(i) a gas processing plant, 

14 ‘‘(ii) an interconnection with a trans15 mission pipeline certificated by the Federal 

16 Energy Regulatory Commission as an 

17 interstate transmission pipeline, 

18 ‘‘(iii) an interconnection with an 

19 intrastate transmission pipeline, or 

20 ‘‘(iv) a direct interconnection with a 

21 local distribution company, a gas storage 

22 facility, or an industrial consumer.’’. 

23 (c) ALTERNATIVE SYSTEM.—The table contained in 

24 section 168(g)(3)(B) is amended by inserting after the 

25 item relating to subparagraph (C)(i) the following:

‘‘(C)(ii) ....................................................................................................... 10’’.
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1 (d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub2 paragraph (B) of section 56(a)(1) is amended by inserting 

3 before the period the following: ‘‘, or in section 

4 168(e)(3)(C)(ii)’’. 

5 (e) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to property placed in service after 

7 the date of the enactment of this Act. 

8 SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 

9 15-YEAR PROPERTY. 

10 (a) IN GENERAL.—Subparagraph (E) of section 

11 168(e)(3) (relating to classification of certain property) is 

12 amended by striking ‘‘and’’ at the end of clause (ii), by 

13 striking the period at the end of clause (iii) and by insert14 ing ‘‘, and’’, and by adding at the end the following new 

15 clause: 

16 ‘‘(iv) any natural gas distribution 

17 line.’’. 

18 (b) ALTERNATIVE SYSTEM.—The table contained in 

19 section 168(g)(3)(B) is amended by inserting after the 

20 item relating to subparagraph (E)(iii) the following:

‘‘(E)(iv) ...................................................................................................... 20’’.

21 (c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub22 paragraph (B) of section 56(a)(1) is amended by inserting 

23 before the period the following: ‘‘, or in section 

24 168(e)(3)(E)(iv)’’. 
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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to property placed in service after 

3 the date of the enactment of this Act. 

4 SEC. 203. ELECTRIC TRANSMISSION PROPERTY TREATED 

5 AS 15-YEAR PROPERTY. 

6 (a) IN GENERAL.—Subparagraph (E) of section 

7 168(e)(3) (relating to classification of certain property) is 

8 amended by striking ‘‘and’’ at the end of clause (iii), by 

9 striking the period at the end of clause (iv) and by insert10 ing ‘‘, and’’, and by adding at the end the following new 

11 clause: 

12 ‘‘(v) any section 1245 property (as de13 fined in section 1245(a)(3)) used in the 

14 transmission at 69 or more kilovolts of 

15 electricity for sale.’’. 

16 (b) ALTERNATIVE SYSTEM.—The table contained in 

17 section 168(g)(3)(B) is amended by inserting after the 

18 item relating to subparagraph (E)(iv) the following:

‘‘(E)(v) ....................................................................................................... 20’’.

19 (c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub20 paragraph (B) of section 56(a)(1) is amended by inserting 

21 before the period the following: ‘‘, or in section 

22 168(e)(3)(E)(v)’’. 

23 (d) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to property placed in service after 

25 the date of the enactment of this Act. 
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1 SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN 

2 COMPLYING WITH ENVIRONMENTAL PROTEC3 TION AGENCY SULFUR REGULATIONS. 

4 (a) IN GENERAL.—Part VI of subchapter B of chap5 ter 1 (relating to itemized deductions for individuals and 

6 corporations) is amended by inserting after section 179A 

7 the following new section: 

8 ‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN 

9 COMPLYING WITH ENVIRONMENTAL PROTEC10 TION AGENCY SULFUR REGULATIONS. 

11 ‘‘(a) TREATMENT AS EXPENSES.—A small business 

12 refiner (as defined in section 45H(c)(1)) may elect to treat 

13 75 percent of qualified capital costs (as defined in section 

14 45H(c)(2)) which are paid or incurred by the taxpayer 

15 during the taxable year as expenses which are not charge16 able to capital account. Any cost so treated shall be al17 lowed as a deduction for the taxable year in which paid 

18 or incurred. 

19 ‘‘(b) REDUCED PERCENTAGE.—In the case of a small 

20 business refiner with average daily domestic refinery runs 

21 for the 1-year period ending on March 31, 2003, in excess 

22 of 155,000 barrels, the number of percentage points de23 scribed in subsection (a) shall be reduced (not below zero) 

24 by the product of such number (before the application of 

25 this subsection) and the ratio of such excess to 50,000 

26 barrels. 
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1 ‘‘(c) BASIS REDUCTION.—For purposes of this title, 

2 the basis of any property shall be reduced by the portion 

3 of the cost of such property taken into account under sub4 section (a).’’. 

5 (b) CLERICAL AMENDMENT.—The table of sections 

6 for part VI of subchapter B of chapter 1 is amended by 

7 inserting after the item relating to section 179A the fol8 lowing new item:

‘‘Sec. 179B. Deduction for capital costs incurred in complying 

with Environmental Protection Agency sulfur regulations.’’.

9 (c) EFFECTIVE DATE.—The amendment made by 

10 this section shall apply to expenses paid or incurred after 

11 March 31, 2003. 

12 SEC. 205. CREDIT FOR PRODUCTION OF LOW SULPHUR DIE13 SEL FUEL. 

14 (a) IN GENERAL.—Subpart D of part IV of sub15 chapter A of chapter 1 (relating to business-related cred16 its) is amended by adding at the end the following new 

17 section: 

18 ‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULPHUR 

19 DIESEL FUEL. 

20 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

21 amount of the low sulphur diesel fuel production credit 

22 determined under this section with respect to any facility 

23 of a small business refiner is an amount equal to 5 cents 

24 for each gallon of low-sulfur diesel fuel produced during 
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1 the taxable year by such small business refiner at such 

2 facility. 

3 ‘‘(b) MAXIMUM CREDIT.—

4 ‘‘(1) IN GENERAL.—The aggregate credit deter5 mined under subsection (a) for any taxable year with 

6 respect to any facility shall not exceed—

7 ‘‘(A) 25 percent of the qualified capital 

8 costs incurred by the small business refiner 

9 with respect to such facility, reduced by 

10 ‘‘(B) the aggregate credits determined 

11 under this section for all prior taxable years 

12 with respect to such facility. 

13 ‘‘(2) REDUCED PERCENTAGE.—In the case of a 

14 small business refiner with average daily domestic 

15 refinery runs for the 1-year period ending on March 

16 31, 2003, in excess of 155,000 barrels, the number 

17 of percentage points described in paragraph (1) shall 

18 be reduced (not below zero) by the product of such 

19 number (before the application of this paragraph) 

20 and the ratio of such excess to 50,000 barrels. 

21 ‘‘(c) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) SMALL BUSINESS REFINER.—The term 

23 ‘small business refiner’ means, with respect to any 

24 taxable year, a refiner of crude oil with respect to 

25 which not more than 1,500 persons are engaged in 
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1 the refinery operations of the business on any day 

2 during such taxable year and whose average daily 

3 domestic refinery run for the 1-year period ending 

4 on March 31, 2003, did not exceed 205,000 barrels. 

5 ‘‘(2) QUALIFIED CAPITAL COSTS.—The term 

6 ‘qualified capital costs’ means, with respect to any 

7 facility, those costs paid or incurred during the ap8 plicable period for compliance with the applicable 

9 EPA regulations with respect to such facility, includ10 ing expenditures for the construction of new process 

11 operation units or the dismantling and reconstruc12 tion of existing process units to be used in the pro13 duction of low-sulfur diesel fuel, associated adjacent 

14 or offsite equipment (including tankage, catalyst, 

15 and power supply), engineering, construction period 

16 interest, and sitework. 

17 ‘‘(3) APPLICABLE EPA REGULATIONS.—The 

18 term ‘applicable EPA regulations’ means the High19 way Diesel Fuel Sulfur Control Requirements of the 

20 Environmental Protection Agency. 

21 ‘‘(4) APPLICABLE PERIOD.—The term ‘applica22 ble period’ means, with respect to any facility, the 

23 period beginning on April 1, 2003, and ending with 

24 the date which is 1 year after the date on which the 
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1 taxpayer must comply with the applicable EPA regu2 lations with respect to such facility. 

3 ‘‘(5) LOW-SULFUR DIESEL FUEL.—The term 

4 ‘low-sulfur diesel fuel’ means diesel fuel with a sul5 fur content of 15 parts per million or less. 

6 ‘‘(d) REDUCTION IN BASIS.—For purposes of this 

7 subtitle, if a credit is determined under this section with 

8 respect to any property by reason of qualified capital 

9 costs, the basis of such property shall be reduced by the 

10 amount of the credit so determined. 

11 ‘‘(e) CERTIFICATION.—

12 ‘‘(1) REQUIRED.—Not later than the date 

13 which is 30 months after the first day of the first 

14 taxable year in which the low sulphur diesel fuel pro15 duction credit is allowed with respect to a facility, 

16 the small business refiner must obtain certification 

17 from the Secretary, in consultation with the Admin18 istrator of the Environmental Protection Agency, 

19 that the taxpayer’s qualified capital costs with re20 spect to such facility will result in compliance with 

21 the applicable EPA regulations. 

22 ‘‘(2) CONTENTS OF APPLICATION.—An applica23 tion for certification shall include relevant informa24 tion regarding unit capacities and operating charac25 teristics sufficient for the Secretary, in consultation 
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1 with the Administrator of the Environmental Protec2 tion Agency, to determine that such qualified capital 

3 costs are necessary for compliance with the applica4 ble EPA regulations. 

5 ‘‘(3) REVIEW PERIOD.—Any application shall 

6 be reviewed and notice of certification, if applicable, 

7 shall be made within 60 days of receipt of such ap8 plication. 

9 ‘‘(4) STATUTE OF LIMITATIONS.—With respect 

10 to the credit allowed under this section—

11 ‘‘(A) the statutory period for the assess12 ment of any deficiency attributable to such 

13 credit shall not expire before the end of the 3-

14 year period ending on the date that the review 

15 period described in paragraph (3) ends, and 

16 ‘‘(B) such deficiency may be assessed be17 fore the expiration of such 3-year period not18 withstanding the provisions of any other law or 

19 rule of law which would otherwise prevent such 

20 assessment. 

21 ‘‘(f) CONTROLLED GROUPS.—For purposes of this 

22 section, all persons treated as a single employer under sub23 section (b), (c), (m), or (o) of section 414 shall be treated 

24 as 1 taxpayer.’’. 
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1 (b) CREDIT MADE PART OF GENERAL BUSINESS

2 CREDIT.—Subsection (b) of section 38 (relating to general 

3 business credit) is amended by striking ‘‘plus’’ at the end 

4 of paragraph (15), by striking the period at the end of 

5 paragraph (16) and inserting ‘‘, plus’’, and by adding at 

6 the end the following new paragraph: 

7 ‘‘(17) in the case of a small business refiner, 

8 the low sulphur diesel fuel production credit deter9 mined under section 45H(a).’’. 

10 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C 

11 (relating to certain expenses for which credits are allow12 able) is amended by adding after subsection (d) the fol13 lowing new subsection: 

14 ‘‘(e) LOW SULPHUR DIESEL FUEL PRODUCTION

15 CREDIT.—No deduction shall be allowed for that portion 

16 of the expenses otherwise allowable as a deduction for the 

17 taxable year which is equal to the amount of the credit 

18 determined for the taxable year under section 45H(a).’’. 

19 (d) BASIS ADJUSTMENT.—Section 1016(a) (relating 

20 to adjustments to basis) is amended by striking ‘‘and’’ at 

21 the end of paragraph (30), by striking the period at the 

22 end of paragraph (31) and inserting ‘‘, and’’, and by add23 ing at the end the following new paragraph: 
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1 ‘‘(32) in the case of a facility with respect to 

2 which a credit was allowed under section 45H, to 

3 the extent provided in section 45H(d).’’. 

4 (e) CLERICAL AMENDMENT.—The table of sections 

5 for subpart D of part IV of subchapter A of chapter 1 

6 is amended by adding at the end the following new item:

‘‘Sec. 45H. Credit for production of low sulphur diesel fuel.’’.

7 (f) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to expenses paid or incurred after 

9 March 31, 2003, in taxable years ending after such date. 

10 SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION 

11 TO OIL DEPLETION DEDUCTION. 

12 (a) IN GENERAL.—Paragraph (4) of section 613A(d) 

13 (relating to certain refiners excluded) is amended to read 

14 as follows: 

15 ‘‘(4) CERTAIN REFINERS EXCLUDED.—If the 

16 taxpayer or a related person engages in the refining 

17 of crude oil, subsection (c) shall not apply to the 

18 taxpayer for a taxable year if the average daily refin19 ery runs of the taxpayer and the related person for 

20 the taxable year exceed 75,000 barrels. For purposes 

21 of this paragraph, the average daily refinery runs for 

22 any taxable year shall be determined by dividing the 

23 aggregate refinery runs for the taxable year by the 

24 number of days in the taxable year.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2003.

4 SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FED5 ERAL ENERGY REGULATORY COMMISSION 

6 OR STATE ELECTRIC RESTRUCTURING POL7 ICY. 

8 (a) IN GENERAL.—Section 451 (relating to general 

9 rule for taxable year of inclusion) is amended by adding 

10 at the end the following new subsection: 

11 ‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO

12 IMPLEMENT FEDERAL ENERGY REGULATORY COMMIS13 SION OR STATE ELECTRIC RESTRUCTURING POLICY.—

14 ‘‘(1) IN GENERAL.—In the case of any quali15 fying electric transmission transaction to which the 

16 taxpayer elects the application of this section, quali17 fied gain from such transaction shall be recog18 nized—

19 ‘‘(A) in the taxable year which includes the 

20 date of such transaction to the extent the 

21 amount realized from such transaction ex22 ceeds—

23 ‘‘(i) the cost of exempt utility property 

24 which is purchased by the taxpayer during 
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1 the 4-year period beginning on such date, 

2 reduced (but not below zero) by 

3 ‘‘(ii) any portion of such cost pre4 viously taken into account under this sub5 section, and 

6 ‘‘(B) ratably over the 8-taxable year period 

7 beginning with the taxable year which includes 

8 the date of such transaction, in the case of any 

9 such gain not recognized under subparagraph 

10 (A). 

11 ‘‘(2) QUALIFIED GAIN.—For purposes of this 

12 subsection, the term ‘qualified gain’ means, with re13 spect to any qualifying electric transmission trans14 action in any taxable year— 

15 ‘‘(A) any ordinary income derived from 

16 such transaction which would be required to be 

17 recognized under section 1245 or 1250 for such 

18 taxable year (determined without regard to this 

19 subsection), and 

20 ‘‘(B) any income derived from such trans21 action in excess of the amount described in sub22 paragraph (A) which is required to be included 

23 in gross income for such taxable year (deter24 mined without regard to this subsection). 
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1 ‘‘(3) QUALIFYING ELECTRIC TRANSMISSION

2 TRANSACTION.—For purposes of this subsection, the 

3 term ‘qualifying electric transmission transaction’ 

4 means any sale or other disposition before January 

5 1, 2007, of—

6 ‘‘(A) property used in the trade or business 

7 of providing electric transmission services, or 

8 ‘‘(B) any stock or partnership interest in a 

9 corporation or partnership, as the case may be, 

10 whose principal trade or business consists of 

11 providing electric transmission services, 

12 but only if such sale or disposition is to an inde13 pendent transmission company. 

14 ‘‘(4) INDEPENDENT TRANSMISSION COM15 PANY.—For purposes of this subsection, the term 

16 ‘independent transmission company’ means—

17 ‘‘(A) an independent transmission provider 

18 approved by the Federal Energy Regulatory 

19 Commission, 

20 ‘‘(B) a person—

21 ‘‘(i) who the Federal Energy Regu22 latory Commission determines in its au23 thorization of the transaction under section 

24 203 of the Federal Power Act (16 U.S.C. 

25 824b) or by declaratory order is not a 
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1 market participant within the meaning of 

2 such Commission’s rules applicable to inde3 pendent transmission providers, and 

4 ‘‘(ii) whose transmission facilities to 

5 which the election under this subsection 

6 applies are under the operational control of 

7 a Federal Energy Regulatory Commission8 approved independent transmission pro9 vider before the close of the period speci10 fied in such authorization, but not later 

11 than the close of the period applicable 

12 under subsection (a)(2)(B) as extended 

13 under paragraph (2), or 

14 ‘‘(C) in the case of facilities subject to the 

15 jurisdiction of the Public Utility Commission of 

16 Texas—

17 ‘‘(i) a person which is approved by 

18 that Commission as consistent with Texas 

19 State law regarding an independent trans20 mission provider, or 

21 ‘‘(ii) a political subdivision or affiliate 

22 thereof whose transmission facilities are 

23 under the operational control of a person 

24 described in clause (i). 
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1 ‘‘(5) EXEMPT UTILITY PROPERTY.—For pur2 poses of this subsection—

3 ‘‘(A) IN GENERAL.—The term ‘exempt 

4 utility property’ means property used in the 

5 trade or business of—

6 ‘‘(i) generating, transmitting, distrib7 uting, or selling electricity, or 

8 ‘‘(ii) producing, transmitting, distrib9 uting, or selling natural gas. 

10 ‘‘(B) NONRECOGNITION OF GAIN BY REA11 SON OF ACQUISITION OF STOCK.—Acquisition of 

12 control of a corporation shall be taken into ac13 count under this subsection with respect to a 

14 qualifying electric transmission transaction only 

15 if the principal trade or business of such cor16 poration is a trade or business referred to in 

17 subparagraph (A). 

18 ‘‘(6) SPECIAL RULE FOR CONSOLIDATED

19 GROUPS.—In the case of a corporation which is a 

20 member of an affiliated group filing a consolidated 

21 return, any exempt utility property purchased by an22 other member of such group shall be treated as pur23 chased by such corporation for purposes of applying 

24 paragraph (1)(A). 
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1 ‘‘(7) TIME FOR ASSESSMENT OF DEFI2 CIENCIES.—If the taxpayer has made the election 

3 under paragraph (1) and any gain is recognized by 

4 such taxpayer as provided in paragraph (1)(B), 

5 then—

6 ‘‘(A) the statutory period for the assess7 ment of any deficiency, for any taxable year in 

8 which any part of the gain on the transaction 

9 is realized, attributable to such gain shall not 

10 expire prior to the expiration of 3 years from 

11 the date the Secretary is notified by the tax12 payer (in such manner as the Secretary may by 

13 regulations prescribe) of the purchase of exempt 

14 utility property described in paragraph (1)(A)(i) 

15 or of an intention not to purchase such prop16 erty, and 

17 ‘‘(B) such deficiency may be assessed be18 fore the expiration of such 3-year period not19 withstanding any law or rule of law which 

20 would otherwise prevent such assessment. 

21 ‘‘(8) PURCHASE.—For purposes of this sub22 section, the taxpayer shall be considered to have 

23 purchased any property if the unadjusted basis of 

24 such property is its cost within the meaning of sec25 tion 1012. 
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1 ‘‘(9) ELECTION.—An election under paragraph 

2 (1) shall be made at such time and in such manner 

3 as the Secretary may require and, once made, shall 

4 be irrevocable.’’. 

5 (b) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to transactions occurring after the 

7 date of the enactment of this Act. 

8 SEC. 208. MODIFICATIONS TO SPECIAL RULES FOR NU9 CLEAR DECOMMISSIONING COSTS. 

10 (a) REPEAL OF LIMITATION ON DEPOSITS INTO

11 FUND BASED ON COST OF SERVICE; CONTRIBUTIONS

12 AFTER FUNDING PERIOD.—Subsection (b) of section 

13 468A is amended to read as follows: 

14 ‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—

15 ‘‘(1) IN GENERAL.—The amount which a tax16 payer may pay into the Fund for any taxable year 

17 shall not exceed the ruling amount applicable to 

18 such taxable year. 

19 ‘‘(2) CONTRIBUTIONS AFTER FUNDING PE20 RIOD.—Notwithstanding any other provision of this 

21 section, a taxpayer may pay into the Fund in any 

22 taxable year after the last taxable year to which the 

23 ruling amount applies. Payments may not be made 

24 under the preceding sentence to the extent such pay25 ments would cause the assets of the Fund to exceed 
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1 the nuclear decommissioning costs allocable to the 

2 taxpayer’s current or former interest in the nuclear 

3 power plant to which the Fund relates. The limita4 tion under the preceding sentence shall be deter5 mined by taking into account a reasonable rate of 

6 inflation for the nuclear decommissioning costs and 

7 a reasonable after-tax rate of return on the assets 

8 of the Fund until such assets are anticipated to be 

9 expended.’’. 

10 (b) CLARIFICATION OF TREATMENT OF FUND

11 TRANSFERS.—Subsection (e) of section 468A is amended 

12 by adding at the end the following new paragraph: 

13 ‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in 

14 connection with the transfer of the taxpayer’s inter15 est in a nuclear power plant, the taxpayer transfers 

16 the Fund with respect to such power plant to the 

17 transferee of such interest and the transferee elects 

18 to continue the application of this section to such 

19 Fund—

20 ‘‘(A) the transfer of such Fund shall not 

21 cause such Fund to be disqualified from the ap22 plication of this section, and 

23 ‘‘(B) no amount shall be treated as distrib24 uted from such Fund, or be includible in gross 

25 income, by reason of such transfer.’’. 
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1 (c) TREATMENT OF CERTAIN DECOMMISSIONING

2 COSTS.—

3 (1) IN GENERAL.—Section 468A is amended by 

4 redesignating subsections (f) and (g) as subsections 

5 (g) and (h), respectively, and by inserting after sub6 section (e) the following new subsection: 

7 ‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—

8 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

9 (b), any taxpayer maintaining a Fund to which this 

10 section applies with respect to a nuclear power plant 

11 may transfer into such Fund up to an amount equal 

12 to the excess of the total nuclear decommissioning 

13 costs with respect to such nuclear power plant over 

14 the portion of such costs taken into account in de15 termining the ruling amount in effect immediately 

16 before the transfer. 

17 ‘‘(2) DEDUCTION FOR AMOUNTS TRANS18 FERRED.—

19 ‘‘(A) IN GENERAL.—Except as provided in 

20 subparagraph (C), the deduction allowed by 

21 subsection (a) for any transfer permitted by 

22 this subsection shall be allowed ratably over the 

23 remaining estimated useful life (within the 

24 meaning of subsection (d)(2)(A)) of the nuclear 
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1 power plant beginning with the taxable year 

2 during which the transfer is made. 

3 ‘‘(B) DENIAL OF DEDUCTION FOR PRE4 VIOUSLY DEDUCTED AMOUNTS.—No deduction 

5 shall be allowed for any transfer under this sub6 section of an amount for which a deduction was 

7 previously allowed or a corresponding amount 

8 was not included in gross income. For purposes 

9 of the preceding sentence, a ratable portion of 

10 each transfer shall be treated as being from 

11 previously deducted or excluded amounts to the 

12 extent thereof. 

13 ‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—

14 If—

15 ‘‘(i) any transfer permitted by this 

16 subsection is made to any Fund to which 

17 this section applies, and 

18 ‘‘(ii) such Fund is transferred there19 after, 

20 any deduction under this subsection for taxable 

21 years ending after the date that such Fund is 

22 transferred shall be allowed to the transferor 

23 for the taxable year which includes such date. 

24 ‘‘(D) SPECIAL RULES.—
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1 ‘‘(i) GAIN OR LOSS NOT RECOG2 NIZED.—No gain or loss shall be recog3 nized on any transfer permitted by this 

4 subsection. 

5 ‘‘(ii) TRANSFERS OF APPRECIATED

6 PROPERTY.—If appreciated property is 

7 transferred in a transfer permitted by this 

8 subsection, the amount of the deduction 

9 shall be the adjusted basis of such prop10 erty. 

11 ‘‘(3) NEW RULING AMOUNT REQUIRED.—Para12 graph (1) shall not apply to any transfer unless the 

13 taxpayer requests from the Secretary a new schedule 

14 of ruling amounts in connection with such transfer. 

15 ‘‘(4) NO BASIS IN QUALIFIED FUNDS.—Not16 withstanding any other provision of law, the tax17 payer’s basis in any Fund to which this section ap18 plies shall not be increased by reason of any transfer 

19 permitted by this subsection.’’. 

20 (2) NEW RULING AMOUNT TO TAKE INTO AC21 COUNT TOTAL COSTS.—Subparagraph (A) of section 

22 468A(d)(2) is amended to read as follows: 

23 ‘‘(A) fund the total nuclear decommis24 sioning costs with respect to such power plant 
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1 over the estimated useful life of such power 

2 plant, and’’. 

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2003. 

6 SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERA7 TIVES. 

8 (a) INCOME FROM OPEN ACCESS AND NUCLEAR DE9 COMMISSIONING TRANSACTIONS.—

10 (1) IN GENERAL.—Subparagraph (C) of section 

11 501(c)(12) is amended by striking ‘‘or’’ at the end 

12 of clause (i), by striking clause (ii), and by adding 

13 at the end the following new clauses: 

14 ‘‘(ii) from any provision or sale of 

15 transmission service or ancillary services if 

16 such services are provided on a non17 discriminatory open access basis under an 

18 independent transmission provider agree19 ment approved by FERC (other than in20 come received or accrued directly or indi21 rectly from a member), 

22 ‘‘(iii) from any nuclear decommis23 sioning transaction, or 

24 ‘‘(iv) from any asset exchange or con25 version transaction.’’. 
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1 (2) DEFINITIONS AND SPECIAL RULES.—Para2 graph (12) of section 501(c) is amended by adding 

3 at the end the following new subparagraphs: 

4 ‘‘(E) For purposes of this subparagraph 

5 and subparagraph (C)(ii), the term ‘FERC’ 

6 means the Federal Energy Regulatory Commis7 sion and references to such term shall be treat8 ed as including the Public Utility Commission 

9 of Texas with respect to any ERCOT utility (as 

10 defined in section 212(k)(2)(B) of the Federal 

11 Power Act (16 U.S.C. 824k(k)(2)(B))). 

12 ‘‘(F) For purposes of subparagraph 

13 (C)(iii), the term ‘nuclear decommissioning 

14 transaction’ means—

15 ‘‘(i) any transfer into a trust, fund, or 

16 instrument established to pay any nuclear 

17 decommissioning costs if the transfer is in 

18 connection with the transfer of the mutual 

19 or cooperative electric company’s interest 

20 in a nuclear power plant or nuclear power 

21 plant unit, 

22 ‘‘(ii) any distribution from any trust, 

23 fund, or instrument established to pay any 

24 nuclear decommissioning costs, or 
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1 ‘‘(iii) any earnings from any trust, 

2 fund, or instrument established to pay any 

3 nuclear decommissioning costs. 

4 ‘‘(G) For purposes of subparagraph 

5 (C)(iv), the term ‘asset exchange or conversion 

6 transaction’ means any voluntary exchange or 

7 involuntary conversion of any property related 

8 to generating, transmitting, distributing, or sell9 ing electric energy by a mutual or cooperative 

10 electric company, the gain from which qualifies 

11 for deferred recognition under section 1031 or 

12 1033, but only if the replacement property ac13 quired by such company pursuant to such sec14 tion constitutes property which is used, or to be 

15 used, for—

16 ‘‘(i) generating, transmitting, distrib17 uting, or selling electric energy, or 

18 ‘‘(ii) producing, transmitting, distrib19 uting, or selling natural gas.’’. 

20 (b) TREATMENT OF INCOME FROM LOAD LOSS

21 TRANSACTIONS, ETC.—Paragraph (12) of section 501(c), 

22 as amended by subsection (a)(2), is amended by adding 

23 after subparagraph (G) the following new subparagraph: 

24 ‘‘(H)(i) In the case of a mutual or coopera25 tive electric company described in this para-
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1 graph or an organization described in section 

2 1381(a)(2)(C), income received or accrued from 

3 a load loss transaction shall be treated as an 

4 amount collected from members for the sole 

5 purpose of meeting losses and expenses. 

6 ‘‘(ii) For purposes of clause (i), the term 

7 ‘load loss transaction’ means any wholesale or 

8 retail sale of electric energy (other than to 

9 members) to the extent that the aggregate sales 

10 during the recovery period does not exceed the 

11 load loss mitigation sales limit for such period. 

12 ‘‘(iii) For purposes of clause (ii), the load 

13 loss mitigation sales limit for the recovery pe14 riod is the sum of the annual load losses for 

15 each year of such period. 

16 ‘‘(iv) For purposes of clause (iii), a mutual 

17 or cooperative electric company’s annual load 

18 loss for each year of the recovery period is the 

19 amount (if any) by which—

20 ‘‘(I) the megawatt hours of electric 

21 energy sold during such year to members 

22 of such electric company are less than 

23 ‘‘(II) the megawatt hours of electric 

24 energy sold during the base year to such 

25 members.
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1 ‘‘(v) For purposes of clause (iv)(II), the 

2 term ‘base year’ means—

3 ‘‘(I) the calendar year preceding the 

4 start-up year, or 

5 ‘‘(II) at the election of the electric 

6 company, the second or third calendar 

7 years preceding the start-up year. 

8 ‘‘(vi) For purposes of this subparagraph, 

9 the recovery period is the 7-year period begin10 ning with the start-up year. 

11 ‘‘(vii) For purposes of this subparagraph, 

12 the start-up year is the calendar year which in13 cludes the date of the enactment of this sub14 paragraph or, if later, at the election of the mu15 tual or cooperative electric company—

16 ‘‘(I) the first year that such electric 

17 company offers nondiscriminatory open ac18 cess, or 

19 ‘‘(II) the first year in which at least 

20 10 percent of such electric company’s sales 

21 are not to members of such electric com22 pany. 

23 ‘‘(viii) A company shall not fail to be treat24 ed as a mutual or cooperative company for pur25 poses of this paragraph or as a corporation op-
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1 erating on a cooperative basis for purposes of 

2 section 1381(a)(2)(C) by reason of the treat3 ment under clause (i). 

4 ‘‘(ix) For purposes of this subparagraph, 

5 in the case of a mutual or cooperative electric 

6 company, income received, or accrued, indirectly 

7 from a member shall be treated as an amount 

8 collected from members for the sole purpose of 

9 meeting losses and expenses.’’. 

10 (c) EXCEPTION FROM UNRELATED BUSINESS TAX11 ABLE INCOME.—Subsection (b) of section 512 (relating to 

12 modifications) is amended by adding at the end the fol13 lowing new paragraph: 

14 ‘‘(18) TREATMENT OF MUTUAL OR COOPERA15 TIVE ELECTRIC COMPANIES.—In the case of a mu16 tual or cooperative electric company described in sec17 tion 501(c)(12), there shall be excluded income 

18 which is treated as member income under subpara19 graph (H) thereof.’’. 

20 (d) CROSS REFERENCE.—Section 1381 is amended 

21 by adding at the end the following new subsection:
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1 ‘‘(c) CROSS REFERENCE.—

‘‘For treatment of income from load loss transactions of organizations described in subsection 

(a)(2)(C), see section 501(c)(12)(H).’’.

2 (e) EFFECTIVE DATE.—The amendments made by 

3 this section shall apply to taxable years beginning after 

4 the date of the enactment of this Act. 

5 SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAY6 MENTS FOR NATURAL GAS. 

7 (a) IN GENERAL.—Subsection (b) of section 148 (re8 lating to higher yielding investments) is amended by add9 ing at the end the following new paragraph: 

10 ‘‘(4) SAFE HARBOR FOR PREPAID NATURAL

11 GAS.—

12 ‘‘(A) IN GENERAL.—The term ‘investment13 type property’ does not include a prepayment 

14 under a qualified natural gas supply contract. 

15 ‘‘(B) QUALIFIED NATURAL GAS SUPPLY

16 CONTRACT.—For purposes of this paragraph, 

17 the term ‘qualified natural gas supply contract’ 

18 means any contract to acquire natural gas for 

19 resale by a utility owned by a governmental 

20 unit if the amount of gas permitted to be ac21 quired under the contract by the utility during 

22 any year does not exceed the sum of—

23 ‘‘(i) the annual average amount dur24 ing the testing period of natural gas pur-
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1 chased (other than for resale) by cus2 tomers of such utility who are located 

3 within the service area of such utility, and 

4 ‘‘(ii) the amount of natural gas to be 

5 used to transport the prepaid natural gas 

6 to the utility during such year. 

7 ‘‘(C) NATURAL GAS USED TO GENERATE

8 ELECTRICITY.—Natural gas used to generate 

9 electricity shall be taken into account in deter10 mining the average under subparagraph 

11 (B)(i)—

12 ‘‘(i) only if the electricity is generated 

13 by a utility owned by a governmental unit, 

14 and 

15 ‘‘(ii) only to the extent that the elec16 tricity is sold (other than for resale) to 

17 customers of such utility who are located 

18 within the service area of such utility. 

19 ‘‘(D) ADJUSTMENTS FOR CHANGES IN

20 CUSTOMER BASE.—

21 ‘‘(i) NEW BUSINESS CUSTOMERS.—

22 If—

23 ‘‘(I) after the close of the testing 

24 period and before the date of issuance 

25 of the issue, the utility owned by a 
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1 governmental unit enters into a con2 tract to supply natural gas (other 

3 than for resale) for a business use at 

4 a property within the service area of 

5 such utility, and 

6 ‘‘(II) the utility did not supply 

7 natural gas to such property during 

8 the testing period or the ratable 

9 amount of natural gas to be supplied 

10 under the contract is significantly 

11 greater than the ratable amount of 

12 gas supplied to such property during 

13 the testing period, 

14 then a contract shall not fail to be treated 

15 as a qualified natural gas supply contract 

16 by reason of supplying the additional nat17 ural gas under the contract referred to in 

18 subclause (I). 

19 ‘‘(ii) LOST CUSTOMERS.—The average 

20 under subparagraph (B)(i) shall not exceed 

21 the annual amount of natural gas reason22 ably expected to be purchased (other than 

23 for resale) by persons who are located 

24 within the service area of such utility and 
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1 who, as of the date of issuance of the 

2 issue, are customers of such utility. 

3 ‘‘(E) RULING REQUESTS.—The Secretary 

4 may increase the average under subparagraph 

5 (B)(i) for any period if the utility owned by the 

6 governmental unit establishes to the satisfaction 

7 of the Secretary that, based on objective evi8 dence of growth in natural gas consumption or 

9 population, such average would otherwise be in10 sufficient for such period. 

11 ‘‘(F) ADJUSTMENT FOR NATURAL GAS

12 OTHERWISE ON HAND.—

13 ‘‘(i) IN GENERAL.—The amount oth14 erwise permitted to be acquired under the 

15 contract for any period shall be reduced 

16 by—

17 ‘‘(I) the applicable share of nat18 ural gas held by the utility on the 

19 date of issuance of the issue, and 

20 ‘‘(II) the natural gas (not taken 

21 into account under subclause (I)) 

22 which the utility has a right to ac23 quire during such period (determined 

24 as of the date of issuance of the 

25 issue). 
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1 ‘‘(ii) APPLICALBE SHARE.—For pur2 poses of the clause (i), the term ‘applicable 

3 share’ means, with respect to any period, 

4 the natural gas allocable to such period if 

5 the gas were allocated ratably over the pe6 riod to which the prepayment relates. 

7 ‘‘(G) INTENTIONAL ACTS.—Subparagraph 

8 (A) shall cease to apply to any issue if the util9 ity owned by the governmental unit engages in 

10 any intentional act to render the volume of nat11 ural gas acquired by such prepayment to be in 

12 excess of the sum of—

13 ‘‘(i) the amount of natural gas needed 

14 (other than for resale) by customers of 

15 such utility who are located within the 

16 service area of such utility, and 

17 ‘‘(ii) the amount of natural gas used 

18 to transport such natural gas to the utility. 

19 ‘‘(H) TESTING PERIOD.—For purposes of 

20 this paragraph, the term ‘testing period’ means, 

21 with respect to an issue, the most recent 5 cal22 endar years ending before the date of issuance 

23 of the issue. 
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1 ‘‘(I) SERVICE AREA.—For purposes of this 

2 paragraph, the service area of a utility owned 

3 by a governmental unit shall be comprised of—

4 ‘‘(i) any area throughout which such 

5 utility provided at all times during the 

6 testing period—

7 ‘‘(I) in the case of a natural gas 

8 utility, natural gas transmission or 

9 distribution services, and 

10 ‘‘(II) in the case of an electric 

11 utility, electricity distribution services, 

12 ‘‘(ii) any area within a county contig13 uous to the area described in clause (i) in 

14 which retail customers of such utility are 

15 located if such area is not also served by 

16 another utility providing natural gas or 

17 electricity services, as the case may be, and 

18 ‘‘(iii) any area recognized as the serv19 ice area of such utility under State or Fed20 eral law.’’. 

21 (b) PRIVATE LOAN FINANCING TEST NOT TO APPLY

22 TO PREPAYMENTS FOR NATURAL GAS.—Paragraph (2) of 

23 section 141(c) (providing exceptions to the private loan fi24 nancing test) is amended by striking ‘‘or’’ at the end of 

25 subparagraph (A), by striking the period at the end of 
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1 subparagraph (B) and inserting ‘‘, or’’, and by adding at 

2 the end the following new subparagraph: 

3 ‘‘(C) is a qualified natural gas supply con4 tract (as defined in section 148(b)(4)).’’. 

5 (c) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply to obligations issued after the date 

7 of the enactment of this Act. 

8 SEC. 211. PREPAYMENT OF PREMIUM LIABILITY FOR COAL 

9 INDUSTRY HEALTH BENEFITS. 

10 (a) IN GENERAL.—Section 9704 (relating to liability 

11 of assigned operators) is amended by adding at the end 

12 the following new subsection: 

13 ‘‘(j) PREPAYMENT OF PREMIUM LIABILITY.—

14 ‘‘(1) IN GENERAL.—If—

15 ‘‘(A) any assigned operator who is a mem16 ber of a controlled group of corporations (with17 in the meaning of section 52(a)) makes a pay18 ment meeting the requirements of paragraph 

19 (2) to the Combined Fund, and 

20 ‘‘(B) the common parent of such group—

21 ‘‘(i) is jointly and severally liable for 

22 any premium which would (but for this 

23 subsection) be required to be paid by such 

24 operator, and 
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1 ‘‘(ii) provides security which meets the 

2 requirements of paragraph (3), 

3 then no person (other than such common parent) 

4 shall be liable for any premium for which such oper5 ator would otherwise be liable. 

6 ‘‘(2) REQUIREMENTS.—A payment meets the 

7 requirements of this paragraph if—

8 ‘‘(A) the amount of the payment is not less 

9 than the present value of the total premium li10 ability of the assigned operator for its assignees 

11 under this chapter with respect to the Com12 bined Fund (as determined by the operator’s 

13 enrolled actuary, as defined in section 

14 7701(a)(35)), using actuarial methods and as15 sumptions each of which is reasonable and 

16 which are reasonable in the aggregate, as deter17 mined by such enrolled actuary, 

18 ‘‘(B) a signed actuarial report is filed with 

19 the Secretary of Labor by such enrolled actuary 

20 containing—

21 ‘‘(i) the date of the actuarial valuation 

22 applicable to the report, and 

23 ‘‘(ii) a statement by the enrolled actu24 ary signing the report that to the best of 

25 the actuary’s knowledge the report is com-
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1 plete and accurate and that in the actu2 ary’s opinion the actuarial assumptions 

3 used are in the aggregate reasonably re4 lated to the experience of the operator and 

5 to reasonable expectations, and 

6 ‘‘(C) a description of the security described 

7 in paragraph (3) is filed with the Secretary of 

8 Labor by the common parent, and 

9 ‘‘(D) 30 calendar days have elapsed after 

10 the report required by subparagraph (B), and 

11 the description required by subparagraph (C), 

12 are filed with the Secretary of Labor, and the 

13 Secretary of Labor has not notified the as14 signed operator in writing that the require15 ments of this paragraph have not been satisfied. 

16 ‘‘(3) SECURITY.—Security meets the require17 ments of this paragraph if—

18 ‘‘(A) the security (in the form of a bond, 

19 letter of credit, or cash escrow) is provided to 

20 the trustees of the 1992 UMWA Benefit Plan, 

21 solely for the purpose of paying premiums for 

22 beneficiaries described in section 9712(b)(2)(B), 

23 equal in amount to one year’s liability of the as24 signed operator under section 9711, determined 
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1 by using the average cost of such operator’s li2 ability during its prior 3 calendar years; and 

3 ‘‘(B) the security will remain in place for 

4 5 years. 

5 ‘‘(4) USE OF PREPAYMENT.—Any payment to 

6 which this subsection applies (and earnings thereon) 

7 shall be used exclusively to pay premiums which 

8 would (but for this subsection) be required to be 

9 paid by the assigned operator making such pay10 ment.’’

11 (b) EFFECTIVE DATE.—The amendment made by 

12 this section shall take effect on the date of the enactment 

13 of this Act. 

14 TITLE III—PRODUCTION 

15 SEC. 301. OIL AND GAS FROM MARGINAL WELLS. 

16 (a) IN GENERAL.—Subpart D of part IV of sub17 chapter A of chapter 1 (relating to business credits) is 

18 amended by adding at the end the following: 

19 ‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM 

20 MARGINAL WELLS. 

21 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

22 the marginal well production credit for any taxable year 

23 is an amount equal to the product of—

24 ‘‘(1) the credit amount, and 
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1 ‘‘(2) the qualified credit oil production and the 

2 qualified natural gas production which is attrib3 utable to the taxpayer. 

4 ‘‘(b) CREDIT AMOUNT.—For purposes of this sec5 tion—

6 ‘‘(1) IN GENERAL.—The credit amount is—

7 ‘‘(A) $3 per barrel of qualified crude oil 

8 production, and 

9 ‘‘(B) 50 cents per 1,000 cubic feet of 

10 qualified natural gas production. 

11 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN12 CREASE.—

13 ‘‘(A) IN GENERAL.—The $3 and 50 cents 

14 amounts under paragraph (1) shall each be re15 duced (but not below zero) by an amount which 

16 bears the same ratio to such amount (deter17 mined without regard to this paragraph) as—

18 ‘‘(i) the excess (if any) of the applica19 ble reference price over $15 ($1.67 for 

20 qualified natural gas production), bears to 

21 ‘‘(ii) $3 ($0.33 for qualified natural 

22 gas production). 

23 The applicable reference price for a taxable 

24 year is the reference price of the calendar year 
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1 preceding the calendar year in which the tax2 able year begins. 

3 ‘‘(B) INFLATION ADJUSTMENT.—In the 

4 case of any taxable year beginning in a calendar 

5 year after 2003, each of the dollar amounts 

6 contained in subparagraph (A) shall be in7 creased to an amount equal to such dollar 

8 amount multiplied by the inflation adjustment 

9 factor for such calendar year (determined under 

10 section 43(b)(3)(B) by substituting ‘2002’ for 

11 ‘1990’). 

12 ‘‘(C) REFERENCE PRICE.—For purposes of 

13 this paragraph, the term ‘reference price’ 

14 means, with respect to any calendar year—

15 ‘‘(i) in the case of qualified crude oil 

16 production, the reference price determined 

17 under section 29(d)(2)(C), and 

18 ‘‘(ii) in the case of qualified natural 

19 gas production, the Secretary’s estimate of 

20 the annual average wellhead price per 

21 1,000 cubic feet for all domestic natural 

22 gas. 

23 ‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS

24 PRODUCTION.—For purposes of this section—
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1 ‘‘(1) IN GENERAL.—The terms ‘qualified crude 

2 oil production’ and ‘qualified natural gas production’ 

3 mean domestic crude oil or natural gas which is pro4 duced from a qualified marginal well. 

5 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

6 WHICH MAY QUALIFY.—

7 ‘‘(A) IN GENERAL.—Crude oil or natural 

8 gas produced during any taxable year from any 

9 well shall not be treated or qualified crude oil 

10 production or qualified natural gas production 

11 to the extent production from the well during 

12 the taxable year exceeds 1,095 barrels or barrel 

13 equivalents. 

14 ‘‘(B) PROPORTIONATE REDUCTIONS.—

15 ‘‘(i) SHORT TAXABLE YEARS.—In the 

16 case of a short taxable year, the limitations 

17 under this paragraph shall be proportion18 ately reduced to reflect the ratio which the 

19 number of days in such taxable year bears 

20 to 365. 

21 ‘‘(ii) WELLS NOT IN PRODUCTION EN22 TIRE YEAR.—In the case of a well which is 

23 not capable of production during each day 

24 of a taxable year, the limitations under 

25 this paragraph applicable to the well shall 
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1 be proportionately reduced to reflect the 

2 ratio which the number of days of produc3 tion bears to the total number of days in 

4 the taxable year. 

5 ‘‘(3) DEFINITIONS.—

6 ‘‘(A) QUALIFIED MARGINAL WELL.—The 

7 term ‘qualified marginal well’ means a domestic 

8 well—

9 ‘‘(i) the production from which during 

10 the taxable year is treated as marginal 

11 production under section 613A(c)(6), or 

12 ‘‘(ii) which, during the taxable year—

13 ‘‘(I) has average daily production 

14 of not more than 25 barrel equiva15 lents, and 

16 ‘‘(II) produces water at a rate 

17 not less than 95 percent of total well 

18 effluent. 

19 ‘‘(B) CRUDE OIL, ETC.—The terms ‘crude 

20 oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have 

21 the meanings given such terms by section 

22 613A(e). 

23 ‘‘(C) BARREL EQUIVALENT.—The term 

24 ‘barrel equivalent’ means, with respect to nat-
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1 ural gas, a conversation ratio of 6,000 cubic 

2 feet of natural gas to 1 barrel of crude oil. 

3 ‘‘(d) OTHER RULES.—

4 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX5 PAYER.—In the case of a qualified marginal well in 

6 which there is more than one owner of operating in7 terests in the well and the crude oil or natural gas 

8 production exceeds the limitation under subsection 

9 (c)(2), qualifying crude oil production or qualifying 

10 natural gas production attributable to the taxpayer 

11 shall be determined on the basis of the ratio which 

12 taxpayer’s revenue interest in the production bears 

13 to the aggregate of the revenue interests of all oper14 ating interest owners in the production. 

15 ‘‘(2) OPERATING INTEREST REQUIRED.—Any 

16 credit under this section may be claimed only on 

17 production which is attributable to the holder of an 

18 operating interest. 

19 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

20 SOURCES EXCLUDED.—In the case of production 

21 from a qualified marginal well which is eligible for 

22 the credit allowed under section 29 for the taxable 

23 year, no credit shall be allowable under this section 

24 unless the taxpayer elects not to claim the credit 

25 under section 29 with respect to the well.’’. 
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1 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec2 tion 38(b) is amended by striking ‘‘plus’’ at the end of 

3 paragraph (16), by striking the period at the end of para4 graph (17) and inserting ‘‘, plus’’, and by adding at the 

5 end the following: 

6 ‘‘(18) the marginal oil and gas well production 

7 credit determined under section 45I(a).’’. 

8 (c) CARRYBACK.—Subsection (a) of section 39 (relat9 ing to carryback and carryforward of unused credits gen10 erally) is amended by adding at the end the following: 

11 ‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL

12 AND GAS WELL PRODUCTION CREDIT.—In the case 

13 of the marginal oil and gas well production credit—

14 ‘‘(A) this section shall be applied sepa15 rately from the business credit (other than the 

16 marginal oil and gas well production credit), 

17 ‘‘(B) paragraph (1) shall be applied by 

18 substituting ‘10 taxable years’ for ‘1 taxable 

19 years’ in subparagraph (A) thereof, and 

20 ‘‘(C) paragraph (2) shall be applied—

21 ‘‘(i) by substituting ‘31 taxable years’ 

22 for ‘21 taxable years’ in subparagraph (A) 

23 thereof, and 
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1 ‘‘(ii) by substituting ‘30 taxable years’ 

2 for ‘20 taxable years’ in subparagraph (A) 

3 thereof.’’. 

4 (d) COORDINATION WITH SECTION 29.—Section 

5 29(a) is amended by striking ‘‘There’’ and inserting ‘‘At 

6 the election of the taxpayer, there’’. 

7 (e) CLERICAL AMENDMENT.—The table of sections 

8 for subpart D of part IV of subchapter A of chapter 1 

9 is amended by adding at the end the following:

‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.

10 (f) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to production in taxable years be12 ginning after December 31, 2003. 

13 SEC. 302. TEMPORARY SUSPENSION OF LIMITATION BASED 

14 ON 65 PERCENT OF TAXABLE INCOME AND 

15 EXTENSION OF SUSPENSION OF TAXABLE IN16 COME LIMIT WITH RESPECT TO MARGINAL 

17 PRODUCTION. 

18 (a) LIMITATION BASED ON 65 PERCENT OF TAX19 ABLE INCOME.—Subsection (d) of section 613A (relating 

20 to limitation on percentage depletion in case of oil and 

21 gas wells) is amended by adding at the end the following 

22 new paragraph: 

23 ‘‘(6) TEMPORARY SUSPENSION OF TAXABLE IN24 COME LIMIT.—Paragraph (1) shall not apply to tax25 able years beginning after December 31, 2003, and 
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1 before January 1, 2007, including with respect to 

2 amounts carried under the second sentence of para3 graph (1) to such taxable years.’’. 

4 (b) EXTENSION OF SUSPENSION OF TAXABLE IN5 COME LIMIT WITH RESPECT TO MARGINAL PRODUC6 TION.—Subparagraph (H) of section 613A(c)(6) (relating 

7 to temporary suspension of taxable income limit with re8 spect to marginal production) is amended by striking 

9 ‘‘2004’’ and inserting ‘‘2007’’. 

10 (c) EFFECTIVE DATE.—The amendment made by 

11 subsection (a) shall apply to taxable years beginning after 

12 December 31, 2003. 

13 SEC. 303. AMORTIZATION OF DELAY RENTAL PAYMENTS. 

14 (a) IN GENERAL.—Section 167 (relating to deprecia15 tion) is amended by redesignating subsection (h) as sub16 section (i) and by inserting after subsection (g) the fol17 lowing new subsection: 

18 ‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS

19 FOR DOMESTIC OIL AND GAS WELLS.—

20 ‘‘(1) IN GENERAL.—Any delay rental payment 

21 paid or incurred in connection with the development 

22 of oil or gas wells within the United States (as de23 fined in section 638) shall be allowed as a deduction 

24 ratably over the 24-month period beginning on the 

25 date that such payment was paid or incurred. 
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1 ‘‘(2) HALF-YEAR CONVENTION.—For purposes 

2 of paragraph (1), any payment paid or incurred dur3 ing the taxable year shall be treated as paid or in4 curred on the mid-point of such taxable year. 

5 ‘‘(3) EXCLUSIVE METHOD.—Except as provided 

6 in this subsection, no depreciation or amortization 

7 deduction shall be allowed with respect to such pay8 ments. 

9 ‘‘(4) TREATMENT UPON ABANDONMENT.—If 

10 any property to which a delay rental payment relates 

11 is retired or abandoned during the 2-year period de12 scribed in paragraph (1), no deduction shall be al13 lowed on account of such retirement or abandon14 ment and the amortization deduction under this sub15 section shall continue with respect to such payment. 

16 ‘‘(5) DELAY RENTAL PAYMENTS.—For purposes 

17 of this subsection, the term ‘delay rental payment’ 

18 means an amount paid for the privilege of deferring 

19 development of an oil or gas well under an oil or gas 

20 lease.’’. 

21 (b) EFFECTIVE DATE.—The amendment made by 

22 this section shall apply to amounts paid or incurred in tax23 able years beginning after December 31, 2003. 
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1 SEC. 304. AMORTIZATION OF GEOLOGICAL AND GEO2 PHYSICAL EXPENDITURES. 

3 (a) IN GENERAL.—Section 167 (relating to deprecia4 tion) is amended by redesignating subsection (i) as sub5 section (j) and by inserting after subsection (h) the fol6 lowing new subsection: 

7 ‘‘(i) AMORTIZATION OF GEOLOGICAL AND GEO8 PHYSICAL EXPENDITURES.—

9 ‘‘(1) IN GENERAL.—Any geological and geo10 physical expenses paid or incurred in connection 

11 with the exploration for, or development of, oil or 

12 gas within the United States (as defined in section 

13 638) shall be allowed as a deduction ratably over the 

14 24-month period beginning on the date that such ex15 pense was paid or incurred. 

16 ‘‘(2) SPECIAL RULES.—For purposes of this 

17 subsection, rules similar to the rules of paragraphs 

18 (2), (3), and (4) of subsection (h) shall apply.’’. 

19 (b) EFFECTIVE DATE.—The amendment made by 

20 this section shall apply to costs paid or incurred in taxable 

21 years beginning after December 31, 2003. 

22 SEC. 305. EXTENSION AND MODIFICATION OF CREDIT FOR 

23 PRODUCING FUEL FROM A NONCONVEN24 TIONAL SOURCE. 

25 (a) IN GENERAL.—Section 29 is amended by adding 

26 at the end the following new subsection: 
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1 ‘‘(h) EXTENSION FOR OTHER FACILITIES.—

2 ‘‘(1) EXTENSION FOR OIL AND CERTAIN GAS.—

3 In the case of a well for producing qualified fuels de4 scribed in subparagraph (A) or (B)(i) of subsection 

5 (c)(1)—

6 ‘‘(A) APPLICATION OF CREDIT FOR NEW

7 WELLS.—Notwithstanding subsection (f), this 

8 section shall apply with respect to such fuels—

9 ‘‘(i) which are produced from a well 

10 drilled after the date of the enactment of 

11 this subsection and before January 1, 

12 2007, and 

13 ‘‘(ii) which are sold not later than the 

14 close of the 4-year period beginning on the 

15 date that such well is drilled, or, if earlier, 

16 January 1, 2010. 

17 ‘‘(B) EXTENSION OF CREDIT FOR OLD

18 WELLS.—Subsection (f)(2) shall be applied by 

19 substituting ‘2007’ for ‘2003’ with respect to 

20 wells described in subsection (f)(1)(A) with re21 spect to such fuels. 

22 ‘‘(2) EXTENSION FOR FACILITIES PRODUCING

23 QUALIFIED FUEL FROM LANDFILL GAS.—

24 ‘‘(A) IN GENERAL.—In the case of a facil25 ity for producing qualified fuel from landfill gas 
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1 which was placed in service after June 30, 

2 1998, and before January 1, 2007, this section 

3 shall apply to fuel produced at such facility dur4 ing the 5-year period beginning on the later 

5 of—

6 ‘‘(i) the date such facility was placed 

7 in service, or 

8 ‘‘(ii) the date of the enactment of this 

9 subsection. 

10 ‘‘(B) REDUCTION OF CREDIT FOR CERTAIN

11 LANDFILL FACILITIES.—In the case of a facility 

12 to which paragraph (1) applies and which is 

13 subject to the 1996 New Source Performance 

14 Standards/Emissions Guidelines of the Environ15 mental Protection Agency, subsection (a)(1) 

16 shall be applied by substituting ‘$2’ for ‘$3’. 

17 ‘‘(3) SPECIAL RULES.—In determining the 

18 amount of credit allowable under this section solely 

19 by reason of this subsection—

20 ‘‘(A) DAILY LIMIT.—The amount of quali21 fied fuels sold during any taxable year which 

22 may be taken into account by reason of this 

23 subsection with respect to any project shall not 

24 exceed an average barrel-of-oil equivalent of 

25 200,000 cubic feet of natural gas per day. Days 
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1 before the date the project is placed in service 

2 shall not be taken into account in determining 

3 such average. 

4 ‘‘(B) EXTENSION PERIOD TO COMMENCE

5 WITH UNADJUSTED CREDIT AMOUNT.—In the 

6 case of fuels sold during 2003, the dollar 

7 amount applicable under subsection (a)(1) shall 

8 be $3 (without regard to subsection (b)(2)). In 

9 the case of fuels sold after 2003, subparagraph 

10 (B) of subsection (d)(2) shall be applied by sub11 stituting ‘2003’ for ‘1979’.’’. 

12 (b) EFFECTIVE DATE.—The amendment made by 

13 this section shall apply to fuel sold after the date of the 

14 enactment of this Act. 

15 SEC. 306. BUSINESS RELATED ENERGY CREDITS ALLOWED 

16 AGAINST REGULAR AND MINIMUM TAX. 

17 (a) IN GENERAL.—Subsection (c) of section 38 (re18 lating to limitation based on amount of tax) is amended 

19 by redesignating paragraph (4) as paragraph (5) and by 

20 inserting after paragraph (3) the following new paragraph: 

21 ‘‘(4) SPECIAL RULES FOR SPECIFIED ENERGY

22 CREDITS.—

23 ‘‘(A) IN GENERAL.—In the case of speci24 fied energy credits—
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1 ‘‘(i) this section and section 39 shall 

2 be applied separately with respect to such 

3 credits, and 

4 ‘‘(ii) in applying paragraph (1) to 

5 such credits—

6 ‘‘(I) the tentative minimum tax 

7 shall be treated as being zero, and 

8 ‘‘(II) the limitation under para9 graph (1) (as modified by subclause 

10 (I)) shall be reduced by the credit al11 lowed under subsection (a) for the 

12 taxable year (other than the specified 

13 energy credits). 

14 ‘‘(B) SPECIFIED ENERGY CREDITS.—For 

15 purposes of this subsection, the term ‘specified 

16 energy credits’ means the credits determined 

17 under sections 45G, 45H, and 45I.’’. 

18 (b) CONFORMING AMENDMENTS.—Paragraphs 

19 (2)(A)(ii)(II) and (3)(A)(ii)(II) of section 38(c) are each 

20 amended by inserting ‘‘or the specified energy credits’’ 

21 after ‘‘employee credit’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years ending after the 

24 date of the enactment of this Act. 
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1 SEC. 307. TEMPORARY REPEAL OF ALTERNATIVE MINIMUM 

2 TAX PREFERENCE FOR INTANGIBLE DRILL3 ING COSTS. 

4 (a) IN GENERAL.—Clause (ii) of section 57(a)(2)(E) 

5 is amended by adding at the end the following new sen6 tence: ‘‘The preceding sentence shall not apply to taxable 

7 years beginning after December 31, 2003, and before Jan8 uary 1, 2006.’’. 

9 (b) EFFECTIVE DATE.—The amendment made by 

10 this section shall apply to taxable years beginning after 

11 December 31, 2003. 

12 SEC. 308. ALLOWANCE OF ENHANCED RECOVERY CREDIT 

13 AGAINST THE ALTERNATIVE MINIMUM TAX. 

14 (a) IN GENERAL.—Subparagraph (B) of section 

15 38(c)(4), as amended by section 306, is amended by add16 ing at the end the following new sentence: ‘‘For taxable 

17 years beginning after December 31, 2003, and before Jan18 uary 1, 2006, such term includes the credit determined 

19 under section 43.’’. 

20 (b) EFFECTIVE DATE.—The amendment made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2003.

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