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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Energy Tax Policy Act of 2003’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(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 re-
newable 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 min-
imum taxes. 
Sec. 108. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland wa-
terway 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 commis-
sion 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 non-
conventional source. 
Sec. 306. Business related energy credits allowed against regular and minimum 
tax.
Sec. 307. Temporary repeal of alternative minimum tax preference for intan-
gible drilling costs. 
Sec. 308. Allowance of enhanced recovery credit against the alternative min-
imum tax.
TITLE I—CONSERVATION 
SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROP-
ERTY. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal 
credits) is amended by inserting after section 25B the fol-
lowing new section: 
‘‘SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount 
equal to the sum of—
‘‘(1) 15 percent of the qualified photovoltaic 
property expenditures made by the taxpayer during 
such year, and 
‘‘(2) 15 percent of the qualified solar water 
heating property expenditures made by the taxpayer 
during the taxable year. 
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM
CREDIT.—The credit allowed 
under subsection (a) shall not exceed—
‘‘(A) $2,000 for each system of property 
described in subsection (c)(1), and
‘‘(B) $2,000 for each system of property 
described in subsection (c)(2). 
‘‘(2) SAFETY CERTIFICATIONS.—No credit shall 
be allowed under this section for an item of property 
unless—
‘‘(A) in the case of solar water heating 
equipment, such equipment is certified for per-
formance and safety by the non-profit Solar 
Rating Certification Corporation or a com-
parable entity endorsed by the government of 
the State in which such property is installed, 
and 
‘‘(B) in the case of a photovoltaic system, 
such system meets appropriate fire and electric 
code requirements. 
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED SOLAR WATER HEATING PROP-
ERTY
EXPENDITURE.—The term ‘qualified solar 
water heating property expenditure’ means an ex-
penditure for property to heat water for use in a 
dwelling unit located in the United States and used 
as a residence if at least half of the energy used by 
such property for such purpose is derived from the 
sun.
‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property 
that uses solar energy to generate electricity for use 
in a dwelling unit. 
‘‘(3) SOLAR PANELS.—No expenditure relating 
to a solar panel or other property installed as a roof 
(or portion thereof) shall fail to be treated as prop-
erty described in paragraph (1) or (2) solely because 
it constitutes a structural component of the struc-
ture on which it is installed. 
‘‘(4) LABOR
COSTS.—Expenditures for labor 
costs properly allocable to the onsite preparation, as-
sembly, or original installation of the property de-
scribed in paragraph (1) or (2) and for piping or 
wiring to interconnect such property to the dwelling 
unit shall be taken into account for purposes of this 
section. 
‘‘(5) SWIMMING POOLS, ETC., USED AS STOR-
AGE MEDIUM.—Expenditures which are properly al-
locable to a swimming pool, hot tub, or any other 
energy storage medium which has a function other 
than the function of such storage shall not be taken 
into account for purposes of this section. 
‘‘(d) SPECIAL RULES.—
‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC-
CUPANCY.—In the case of any dwelling unit which is 
jointly occupied and used during any calendar year 
as a residence by 2 or more individuals the following 
shall apply: 
‘‘(A) The amount of the credit allowable 
under subsection (a) by reason of expenditures 
(as the case may be) made during such cal-
endar year by any of such individuals with re-
spect to such dwelling unit shall be determined 
by treating all of such individuals as 1 taxpayer 
whose taxable year is such calendar year. 
‘‘(B) There shall be allowable with respect 
to such expenditures to each of such individ-
uals, a credit under subsection (a) for the tax-
able year in which such calendar year ends in 
an amount which bears the same ratio to the 
amount determined under subparagraph (A) as 
the amount of such expenditures made by such 
individual during such calendar year bears to 
the aggregate of such expenditures made by all 
of such individuals during such calendar year. 
‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE 
HOUSING CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as 
defined in such section), such individual shall be 
treated as having made his tenant-stockholder’s pro-
portionate share (as defined in section 216(b)(3)) of 
any expenditures of such corporation. 
‘‘(3) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be 
treated as having made his proportionate share 
of any expenditures of such association. 
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the 
term ‘condominium management association’ 
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other 
than subparagraph (E) thereof) with respect to 
a condominium project substantially all of the 
units of which are used as residences. 
‘‘(4) ALLOCATION IN CERTAIN CASES.—If less 
than 80 percent of the use of an item is for nonbusi-
ness purposes, only that portion of the expenditures 
for such item which is properly allocable to use for 
nonbusiness purposes shall be taken into account.
‘‘(5) WHEN EXPENDITURE MADE; AMOUNT OF 
EXPENDITURE.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), an expenditure with respect 
to an item shall be treated as made when the 
original installation of the item is completed. 
‘‘(B) EXPENDITURES PART OF BUILDING 
CONSTRUCTION.—In the case of an expenditure 
in connection with the construction or recon-
struction of a structure, such expenditure shall 
be treated as made when the original use of the 
constructed or reconstructed structure by the 
taxpayer begins. 
‘‘(C) AMOUNT.—The amount of any ex-
penditure shall be the cost thereof. 
‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—For purposes of determining the 
amount of expenditures made by any individual with 
respect to any dwelling unit, there shall not be taken 
in to account expenditures which are made from 
subsidized energy financing (as defined in section 
48(a)(4)(A)). 
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 
subtitle, if a credit is allowed under this section for any 
expenditure with respect to any property, the increase in
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(f) TERMINATION.—The credit allowed under this 
section shall not apply to taxable years beginning after 
December 31, 2006 (December 31, 2008, with respect to 
qualified photovoltaic property expenditures).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 is amended 
by striking ‘‘and’’ at the end of paragraph (27), by 
striking the period at the end of paragraph (28) and 
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(29) to the extent provided in section 25C(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 25C.’’. 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25B the fol-
lowing new item:
‘‘Sec. 25C. Residential solar energy property.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003.
‘‘(F) TRASH COMBUSTION FACILITIES.—In 
the case of a facility which burns municipal 
solid waste to produce electricity, the term 
‘qualified facility’ means any facility owned by 
the taxpayer which is originally placed in serv-
ice after the date of the enactment of this sub-
paragraph and before January 1, 2007.’’. 
(c) DEFINITION AND SPECIAL RULES.—Subsection 
(c) of section 45 is amended by adding at the end the 
following new paragraphs: 
‘‘(5) OPEN-LOOP
BIOMASS.—The term ‘open-
loop biomass’ means any solid, nonhazardous, cel-
lulosic waste material which is segregated from other 
waste materials and which is derived from—
‘‘(A) any of the following forest-related re-
sources: mill residues, precommercial thinnings, 
slash, and brush, 
‘‘(B) solid wood waste materials, including 
waste pallets, crates, dunnage, manufacturing 
and construction wood wastes (other than pres-
sure-treated, 
chemically-treated, 
or 
painted 
wood wastes), and landscape or right-of-way 
tree trimmings, but not including municipal 
solid waste (garbage), gas derived from the bio-
degradation of solid waste, or paper that is 
commonly recycled, or 
‘‘(C) agriculture sources, including orchard 
tree crops, vineyard, grain, legumes, sugar, and 
other crop by-products or residues. 
Such term shall not include closed-loop biomass. 
‘‘(6) 
REDUCED
CREDIT
FOR
CERTAIN 
PREEFFECTIVE DATE FACILITIES.—In the case of 
any facility described in subparagraph (D) or (E) of 
paragraph (3) which is placed in service before the 
date of the enactment of this paragraph—
‘‘(A) subsection (a)(1) shall be applied by 
substituting ‘1.0 cents’ for ‘1.5 cents’, and 
‘‘(B) the 5-year period beginning on the 
date of the enactment of this paragraph shall 
be substituted in lieu of the 10-year period in 
subsection (a)(2)(A)(ii). 
‘‘(7) CREDIT ELIGIBILITY FOR OPEN-LOOP BIO-
MASS FACILITIES.—In the case of any facility de-
scribed in paragraph (3)(D) which is placed in serv-
ice before the date of enactment of this paragraph, 
if the owner of such facility is not the producer of 
the electricity, the person eligible for the credit al-
lowable under subsection (a) is the lessee or the op-
erator of such facility.
‘‘(8) LIMIT ON REDUCTIONS FOR GRANTS, ETC., 
FOR
OPEN-LOOP
BIOMASS
FACILITIES.—If 
the 
amount of the credit determined under subsection 
(a) with respect to any open-loop biomass facility is 
required to be reduced under paragraph (3) of sub-
section (b), the fraction under such paragraph shall 
in no event be greater than 1⁄2. 
‘‘(9) COORDINATION
WITH
SECTION
29.—The 
term ‘qualified facility’ shall not include any facility 
the production from which is allowed as a credit 
under section 29 for the taxable year or any prior 
taxable year.’’. 
(d) QUALIFIED ENERGY RESOURCES.—Paragraph 
(1) of section 45(c) (relating to qualified energy resources) 
is amended to read as follows: 
‘‘(1) QUALIFIED
ENERGY
RESOURCES.—The 
term ‘qualified energy resources’ means any resource 
described in paragraph (3) which is used to generate 
electricity at a qualified facility.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to electricity sold after the date 
of the enactment of this Act. 
SEC. 103. CREDIT FOR QUALIFIED FUEL CELL POWER 
PLANTS. 
(a) BUSINESS PROPERTY.—
(1) IN GENERAL.—Subparagraph (A) of section 
48(a)(3) (defining energy property) is amended by 
striking ‘‘or’’ at the end of clause (i), by adding 
‘‘or’’ at the end of clause (ii), and by inserting after 
clause (ii) the following new clause: 
‘‘(iii) equipment which is part of a 
qualified fuel cell power plant,’’. 
(2) QUALIFIED FUEL CELL POWER PLANT.—
Subsection (a) of section 48 is amended by redesig-
nating paragraphs (4) and (5) as paragraphs (5) 
and (6), respectively, and by inserting after para-
graph (3) the following new paragraph: 
‘‘(4) QUALIFIED FUEL CELL POWER PLANT.—
For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified 
fuel cell power plant’ means a fuel cell power 
plant that has an electricity-only generation ef-
ficiency greater than 30 percent. 
‘‘(B) LIMITATION.—The energy credit with 
respect to any qualified fuel cell power plant for 
any taxable year shall not exceed—
‘‘(i) $500 for each 1⁄2 kilowatt of ca-
pacity of the power plant, reduced by
‘‘(ii) the aggregate energy credits al-
lowed with respect to such power plant for 
all prior taxable years. 
‘‘(C) FUEL
CELL
POWER
PLANT.—The 
term ‘fuel cell power plant’ means an integrated 
system comprised of a fuel cell stack assembly 
and associated balance of plant components 
that converts a fuel into electricity using elec-
trochemical means. 
‘‘(D) TERMINATION.—Such term shall not 
include any property placed in service after De-
cember 31, 2006.’’. 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to property placed in 
service after December 31, 2003, under rules similar 
to the rules of section 48(m) of the Internal Revenue 
Code of 1986 (as in effect on the day before the 
date of the enactment of the Revenue Reconciliation 
Act of 1990). 
(b) NONBUSINESS PROPERTY.—
(1) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable 
personal credits) is amended by inserting after sec-
tion 25C the following new section:
‘‘SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER 
PLANT. 
‘‘(a) IN GENERAL.—In the case of an individual, 
there shall be allowed as a credit against the tax imposed 
by this chapter for the taxable year an amount equal to 
10 percent of the qualified fuel cell power plant expendi-
tures which are paid or incurred during such year. 
‘‘(b) LIMITATIONS.—The credit allowed under sub-
section (a) with respect to any qualified fuel cell power 
plant for any taxable year shall not exceed—
‘‘(i) $500 for each 1⁄2 kilowatt of ca-
pacity of the power plant, reduced by 
‘‘(ii) the aggregate energy credits al-
lowed with respect to such power plant for 
all prior taxable years. 
‘‘(c) QUALIFIED FUEL CELL POWER PLANT EX-
PENDITURES.—For purposes of this section, the term 
‘qualified fuel cell power plant expenditures’ means ex-
penditures by the taxpayer for any qualified fuel cell power 
plant (as defined in section 48(a)(4))—
‘‘(1) which meets the requirements of subpara-
graphs (B) and (D) of section 48(a)(3), and 
‘‘(2) which is installed on or in connection with 
a dwelling unit—
‘‘(A) which is located in the United States, 
and
‘‘(B) which is used by the taxpayer as a 
residence. 
Such term includes expenditures for labor costs properly 
allocable to the onsite preparation, assembly, or original 
installation of the property. 
‘‘(d) SPECIAL RULES.—For purposes of this section, 
rules similar to the rules of section 25C(d) shall apply. 
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 
subtitle, if a credit is allowed under this section for any 
expenditure with respect to any property, the increase in 
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(f) TERMINATION.—This section shall not apply to 
any expenditure made after December 31, 2006.’’. 
(2) CONFORMING AMENDMENTS.—
(A) Subsection (a) of section 1016 is 
amended by striking ‘‘and’’ at the end of para-
graph (28), by striking the period at the end of 
paragraph (29) and inserting ‘‘, and’’, and by 
adding at the end the following new paragraph: 
‘‘(30) to the extent provided in section 25D(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 25D.’’.
(B) The table of sections for subpart A of 
part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section 
25C the following new item:
‘‘Sec. 25D. Nonbusiness qualified fuel cell power plant.’’.
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to expenditures paid 
or incurred after December 31, 2003. 
SEC. 104. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal 
credits) is amended by inserting after section 25D the fol-
lowing new section: 
‘‘SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount 
equal to 20 percent of the amount paid or incurred by 
the taxpayer for qualified energy efficiency improvements 
installed during such taxable year. 
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—The credit allowed by 
this section with respect to a dwelling shall not ex-
ceed $2,000.
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER 
ON SAME DWELLING TAKEN INTO ACCOUNT.—If a 
credit was allowed to the taxpayer under subsection 
(a) with respect to a dwelling in 1 or more prior tax-
able years, the amount of the credit otherwise allow-
able for the taxable year with respect to that dwell-
ing shall not exceed the amount of $2,000 reduced 
by the sum of the credits allowed under subsection 
(a) to the taxpayer with respect to the dwelling for 
all prior taxable years. 
‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the 
credit allowable under subsection (a) exceeds the limita-
tion imposed by section 26(a) for such taxable year re-
duced by the sum of the credits allowable under this sub-
part (other than this section) for such taxable year, such 
excess shall be carried to the succeeding taxable year and 
added to the credit allowable under subsection (a) for such 
succeeding taxable year. 
‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified 
energy efficiency improvements’ means any energy effi-
cient building envelope component which meets the pre-
scriptive criteria for such component established by the 
2000 International Energy Conservation Code (or, in the
case of metal roofs with appropriate pigmented coatings, 
meets the Energy Star program requirements), if—
‘‘(1) such component is installed in or on a 
dwelling—
‘‘(A) located in the United States, and 
‘‘(B) owned and used by the taxpayer as 
the taxpayer’s principal residence (within the 
meaning of section 121), 
‘‘(2) the original use of such component com-
mences with the taxpayer, and 
‘‘(3) such component reasonably can be ex-
pected to remain in use for at least 5 years. 
If the aggregate cost of such components with respect to 
any dwelling exceeds $1,000, such components shall be 
treated as qualified energy efficiency improvements only 
if such components are also certified in accordance with 
subsection (e) as meeting such criteria. 
‘‘(e) CERTIFICATION.—The certification described in 
subsection (d) shall be—
‘‘(1) determined on the basis of the technical 
specifications or applicable ratings (including prod-
uct labeling requirements) for the measurement of 
energy efficiency, based upon energy use or building 
envelope component performance, for the energy effi-
cient building envelope component,
‘‘(2) provided by a local building regulatory au-
thority, a utility, a manufactured home production 
inspection primary inspection agency (IPIA), or an 
accredited home energy rating system provider who 
is accredited by or otherwise authorized to use ap-
proved energy performance measurement methods by 
the 
Residential 
Energy 
Services 
Network 
(RESNET), and 
‘‘(3) made in writing in a manner that specifies 
in readily verifiable fashion the energy efficient 
building envelope components installed and their re-
spective energy efficiency levels. 
‘‘(f) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) TENANT-STOCKHOLDER IN COOPERATIVE 
HOUSING CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as 
defined in such section), such individual shall be 
treated as having paid his tenant-stockholder’s pro-
portionate share (as defined in section 216(b)(3)) of 
the cost of qualified energy efficiency improvements 
made by such corporation. 
‘‘(2) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be 
treated as having paid his proportionate share 
of the cost of qualified energy efficiency im-
provements made by such association. 
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the 
term ‘condominium management association’ 
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other 
than subparagraph (E) thereof) with respect to 
a condominium project substantially all of the 
units of which are used as residences. 
‘‘(3) BUILDING ENVELOPE COMPONENT.—The 
term ‘building envelope component’ means insulation 
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a 
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and 
metal roofs with appropriate pigmented coatings 
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in 
or on such dwelling. 
‘‘(4) MANUFACTURED HOMES INCLUDED.—For 
purposes of this section, the term ‘dwelling’ includes
a manufactured home which conforms to Federal 
Manufactured Home Construction and Safety Stand-
ards (24 CFR 3280). 
‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the 
basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(h) APPLICATION OF SECTION.—This section shall 
apply to qualified energy efficiency improvements installed 
after December 31, 2003, and before January 1, 2007.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 23 is amended by 
striking ‘‘section 1400C’’ and inserting ‘‘sections 
25E and 1400C’’. 
(2) Subsection (a) of section 1016 is amended 
by striking ‘‘and’’ at the end of paragraph (29), by 
striking the period at the end of paragraph (30) and 
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(31) to the extent provided in section 25E(g), 
in the case of amounts with respect to which a credit 
has been allowed under section 25E.’’.
(3) Subsection (d) of section 1400C is amended 
by inserting ‘‘and section 25E’’ after ‘‘this section’’. 
(4) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25D the 
following new item:
‘‘Sec. 25E. Energy efficiency improvements to existing homes.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003. 
SEC. 105. BUSINESS CREDIT FOR CONSTRUCTION OF NEW 
ENERGY EFFICIENT HOME. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by inserting after section 45F the fol-
lowing new section: 
‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of an eligible contractor, the credit determined 
under this section for the taxable year is an amount equal 
to the aggregate adjusted bases of all energy efficient 
property installed in a qualified new energy efficient home 
during construction of such home. 
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The credit allowed by 
this section with respect to a dwelling shall not 
exceed $2,000. 
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME 
DWELLING TAKEN INTO ACCOUNT.—If a credit 
was allowed under subsection (a) with respect 
to a dwelling in 1 or more prior taxable years, 
the amount of the credit otherwise allowable for 
the taxable year with respect to that dwelling 
shall not exceed the amount of $2,000 reduced 
by the sum of the credits allowed under sub-
section (a) with respect to the dwelling for all 
prior taxable years. 
‘‘(2) COORDINATION
WITH
REHABILITATION 
AND ENERGY CREDITS.—For purposes of this sec-
tion—
‘‘(A) the basis of any property referred to 
in subsection (a) shall be reduced by that por-
tion of the basis of any property which is attrib-
utable to qualified rehabilitation expenditures 
(as defined in section 47(c)(2)) or to the energy 
percentage of energy property (as determined 
under section 48(a)), and
‘‘(B) expenditures taken into account 
under either section 47 or 48(a) shall not be 
taken into account under this section. 
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi-
ble contractor’ means the person who constructed 
the new energy efficient home, or in the case of a 
manufactured home which conforms to Federal 
Manufactured Home Construction and Safety Stand-
ards (24 CFR 3280), the manufactured home pro-
ducer of such home. 
‘‘(2) ENERGY
EFFICIENT
PROPERTY.—The 
term ‘energy efficient property’ means any energy 
efficient building envelope component, and any en-
ergy efficient heating or cooling appliance. 
‘‘(3) QUALIFIED
NEW
ENERGY
EFFICIENT 
HOME.—The term ‘qualified new energy efficient 
home’ means a dwelling—
‘‘(A) located in the United States, 
‘‘(B) the construction of which is substan-
tially completed after December 31, 2003, 
‘‘(C) the original use of which is as a prin-
cipal residence (within the meaning of section 
121) which commences with the person who ac-
quires such dwelling from the eligible con-
tractor, and 
‘‘(D) which is certified to have a level of 
annual heating and cooling energy consumption 
that is at least 30 percent below the annual 
level of heating and cooling energy consumption 
of a comparable dwelling constructed in accord-
ance with the standards of the 2000 Inter-
national Energy Conservation Code and to have 
building envelope component improvements ac-
count for 1⁄3 of such 30 percent. 
‘‘(4) CONSTRUCTION.—The term ‘construction’ 
includes reconstruction and rehabilitation. 
‘‘(5) ACQUIRE.—The term ‘acquire’ includes 
purchase and, in the case of reconstruction and re-
habilitation, such term includes a binding written 
contract for such reconstruction or rehabilitation. 
‘‘(6) BUILDING ENVELOPE COMPONENT.—The 
term ‘building envelope component’ means insulation 
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a 
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and 
metal roofs with appropriate pigmented coatings 
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in 
or on such dwelling. 
‘‘(7) MANUFACTURED HOME INCLUDED.—The 
term ‘dwelling’ includes a manufactured home con-
forming to Federal Manufactured Home Construc-
tion and Safety Standards (24 CFR 3280). 
‘‘(d) CERTIFICATION.—
‘‘(1) METHOD.—A certification described in 
subsection (c)(3)(D) shall be determined on the 
basis of one of the following methods: 
‘‘(A) The technical specifications or appli-
cable ratings (including product labeling re-
quirements) for the measurement of energy effi-
ciency for the energy efficient building envelope 
component or energy efficient heating or cooling 
appliance, based upon energy use or building 
envelope component performance. 
‘‘(B) An energy performance measurement 
method that utilizes computer software ap-
proved by organizations designated by the Sec-
retary. 
‘‘(2) PROVIDER.—Such certification shall be 
provided by—
‘‘(A) in the case of a method described in 
paragraph (1)(A), a local building regulatory
authority, a utility, a manufactured home pro-
duction inspection primary inspection agency 
(IPIA), or an accredited home energy rating 
systems provider who is accredited by, or other-
wise authorized to use, approved energy per-
formance measurement methods by the Home 
Energy Ratings Systems Council or the Na-
tional Association of State Energy Officials, or 
‘‘(B) in the case of a method described in 
paragraph (1)(B), an individual recognized by 
an organization designated by the Secretary for 
such purposes. 
‘‘(3) FORM.—Such certification shall be made 
in writing in a manner that specifies in readily 
verifiable fashion the energy efficient building enve-
lope components and energy efficient heating or 
cooling appliances installed and their respective en-
ergy efficiency levels, and in the case of a method 
described in subparagraph (B) of paragraph (1), ac-
companied by written analysis documenting the 
proper application of a permissible energy perform-
ance measurement method to the specific cir-
cumstances of such dwelling. 
‘‘(4) REGULATIONS.—
‘‘(A) IN GENERAL.—In prescribing regula-
tions under this subsection for energy perform-
ance measurement methods, the Secretary shall 
prescribe procedures for calculating annual en-
ergy costs for heating and cooling and cost sav-
ings and for the reporting of the results. Such 
regulations shall—
‘‘(i) be based on the National Home 
Energy Rating Technical Guidelines of the 
National Association of State Energy Offi-
cials, the Home Energy Rating Guidelines 
of the Home Energy Rating Systems 
Council, or the modified 2001 California 
Residential ACM manual, 
‘‘(ii) provide that any calculation pro-
cedures be developed such that the same 
energy efficiency measures allow a home to 
qualify for the credit under this section re-
gardless of whether the house uses a gas 
or oil furnace or boiler or an electric heat 
pump, and 
‘‘(iii) require that any computer soft-
ware allow for the printing of the Federal 
tax forms necessary for the credit under 
this section and explanations for the home-
buyer of the energy efficient features that 
were used to comply with the requirements 
of this section. 
‘‘(B) PROVIDERS.—For purposes of para-
graph (2)(B), the Secretary shall establish re-
quirements for the designation of individuals 
based on the requirements for energy consult-
ants and home energy raters specified by the 
National Association of State Energy Officials. 
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the 
basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 
apply to dwellings purchased during the period beginning 
on January 1, 2004, and ending on December 31, 2006.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 (relating to current 
year business credit) is amended by striking ‘‘plus’’ at the 
end of paragraph (14), by striking the period at the end 
of paragraph (15) and inserting ‘‘, plus’’, and by adding 
at the end thereof the following new paragraph:
‘‘(16) the new energy efficient home credit de-
termined under section 45G.’’. 
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C 
(relating to certain expenses for which credits are allow-
able) is amended by adding at the end thereof the fol-
lowing new subsection: 
‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—
No deduction shall be allowed for that portion of expenses 
for a new energy efficient home otherwise allowable as a 
deduction for the taxable year which is equal to the 
amount of the credit determined for such taxable year 
under section 45G.’’. 
(d) LIMITATION ON CARRYBACK.—Subsection (d) of 
section 39 is amended by adding at the end the following 
new paragraph: 
‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI-
CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—
No portion of the unused business credit for any 
taxable year which is attributable to the credit deter-
mined under section 45G may be carried back to any 
taxable year ending before January 1, 2004.’’. 
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS 
CREDITS.—Subsection (c) of section 196 is amended by 
striking ‘‘and’’ at the end of paragraph (9), by striking 
the period at the end of paragraph (10) and inserting ‘‘,
and’’, and by adding after paragraph (10) the following 
new paragraph: 
‘‘(11) the new energy efficient home credit de-
termined under section 45G.’’. 
(f) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by inserting after the item relating to section 
45F the following new item:
‘‘Sec. 45G. New energy efficient home credit.’’.
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003. 
SEC. 106. ENERGY CREDIT FOR COMBINED HEAT AND 
POWER SYSTEM PROPERTY. 
(a) IN GENERAL.—Subparagraph (A) of section 
48(a)(3) (defining energy property) is amended by strik-
ing ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at the 
end of clause (iii), and by inserting after clause (iii) the 
following new clause: 
‘‘(iv) combined heat and power system 
property,’’. 
(b) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—Subsection (a) of section 48 is amended by redes-
ignating paragraphs (5) and (6) as paragraphs (6) and 
(7), respectively, and by inserting after paragraph (4) the 
following new paragraph:
‘‘(5) COMBINED
HEAT
AND
POWER
SYSTEM 
PROPERTY.—For purposes of this subsection—
‘‘(A) COMBINED HEAT AND POWER SYS-
TEM PROPERTY.—The term ‘combined heat and 
power system property’ means property com-
prising a system—
‘‘(i) which uses the same energy 
source for the simultaneous or sequential 
generation of electrical power, mechanical 
shaft power, or both, in combination with 
the generation of steam or other forms of 
useful thermal energy (including heating 
and cooling applications), 
‘‘(ii) which has an electrical capacity 
of more than 50 kilowatts or a mechanical 
energy capacity of more than 67 horse-
power or an equivalent combination of elec-
trical and mechanical energy capacities, 
‘‘(iii) which produces—
‘‘(I) at least 20 percent of its 
total useful energy in the form of 
thermal energy, and 
‘‘(II) at least 20 percent of its 
total useful energy in the form of elec-
trical or mechanical power (or com-
bination thereof), 
‘‘(iv) the energy efficiency percentage 
of which exceeds 60 percent (70 percent in 
the case of a system with an electrical ca-
pacity in excess of 50 megawatts or a me-
chanical energy capacity in excess of 
67,000 horsepower, or an equivalent com-
bination of electrical and mechanical en-
ergy capacities), and 
‘‘(v) which is placed in service after 
December 31, 2003, and before January 1, 
2007. 
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph 
(A)(iv), the energy efficiency percentage of 
a system is the fraction—
‘‘(I) the numerator of which is 
the total useful electrical, thermal, 
and mechanical power produced by 
the system at normal operating rates, 
and
‘‘(II) the denominator of which is 
the lower heating value of the primary 
fuel source for the system. 
‘‘(ii) DETERMINATIONS MADE ON BTU 
BASIS.—The energy efficiency percentage 
and the percentages under subparagraph 
(A)(iii) shall be determined on a Btu basis. 
‘‘(iii) INPUT AND OUTPUT PROPERTY 
NOT INCLUDED.—The term ‘combined heat 
and power system property’ does not in-
clude property used to transport the en-
ergy source to the facility or to distribute 
energy produced by the facility. 
‘‘(iv) PUBLIC UTILITY PROPERTY.—
‘‘(I) ACCOUNTING
RULE
FOR 
PUBLIC
UTILITY
PROPERTY.—If the 
combined heat and power system 
property is public utility property (as 
defined in section 168(i)(1)), the tax-
payer may only claim the credit under 
the subsection if, with respect to such 
property, the taxpayer uses a normal-
ization method of accounting. 
‘‘(II) CERTAIN
EXCEPTION
NOT 
TO APPLY.—The matter in paragraph
(3) which follows subparagraph (D) 
shall not apply to combined heat and 
power system property. 
‘‘(C) EXTENSION
OF
DEPRECIATION
RE-
COVERY PERIOD.—If a taxpayer is allowed cred-
it under this section for combined heat and 
power system property and such property would 
(but for this subparagraph) have a class life of 
15 years or less under section 168, such prop-
erty shall be treated as having a 22-year class 
life for purposes of section 168.’’. 
(c) NO CARRYBACK OF ENERGY CREDIT BEFORE 
EFFECTIVE DATE.—Subsection (d) of section 39 is 
amended by adding at the end the following new para-
graph: 
‘‘(12) NO CARRYBACK OF ENERGY CREDIT BE-
FORE EFFECTIVE DATE.—No portion of the unused 
business credit for any taxable year which is attrib-
utable to the energy credit with respect to property 
described in section 48(a)(5) may be carried back to 
a taxable year ending before January 1, 2004.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
December 31, 2003.
SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM 
TAXES. 
(a) IN GENERAL.—
(1) Section 25C.—Section 25C(b), as added by 
section 101, is amended by adding at the end the 
following new paragraph: 
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section and 
section 25D and 25E) and section 27 for the 
taxable year.’’. 
(2) Section 25D.—Section 25D(b), as added by 
section 103, is amended—
(A) by striking ‘‘The credit’’ and inserting 
the following: 
‘‘(1) IN GENERAL.—The credit’’, and 
(B) by adding at the end the following new 
paragraph:
‘‘(2) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section and 
section 25E) and section 27 for the taxable 
year.’’. 
(3) Section 25E.—Section 25E(b), as added by 
section 104, is amended by adding at the end the 
following new paragraph: 
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section) and 
section 27 for the taxable year.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 23(b)(4)(B) is amended by inserting 
‘‘and sections 25C, 25D, and 25E’’ after ‘‘this sec-
tion’’. 
(2) Section 24(b)(3)(B) is amended by striking 
‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and 
25E’’. 
(3) Section 25(e)(1)(C) is amended by inserting 
‘‘25C, 25D, and 25E’’ after ‘‘25B,’’. 
(4) Section 25B(g)(2) is amended by striking 
‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D, 
and 25E’’. 
(5) Section 25E(c), as added by section 104, is 
amended by striking ‘‘section 26(a) for such taxable 
year reduced by the sum of the credits allowable 
under this subpart (other than this section)’’ and in-
serting ‘‘subsection (b)(3)’’. 
(6) Section 26(a)(1) is amended by striking 
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 
25E’’. 
(7) Section 904(h) is amended by striking ‘‘and 
25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 
(8) Section 1400C(d) is amended by striking 
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 
25E’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES 
ON RAILROADS AND INLAND WATERWAY 
TRANSPORTATION WHICH REMAIN IN GEN-
ERAL FUND. 
(a) TAXES ON TRAINS.—
(1) IN GENERAL.—Subparagraph (A) of section 
4041(a)(1) is amended by striking ‘‘or a diesel-pow-
ered train’’ each place it appears and by striking ‘‘or 
train’’. 
(2) CONFORMING AMENDMENTS.—
(A) 
Subparagraph 
(C) 
of 
section 
4041(a)(1) is amended by striking clause (ii) 
and by redesignating clause (iii) as clause (ii). 
(B) 
Subparagraph 
(C) 
of 
section 
4041(b)(1) is amended by striking all that fol-
lows ‘‘section 6421(e)(2)’’ and inserting a pe-
riod. 
(C) Subsection (d) of section 4041 is 
amended by redesignating paragraph (3) as 
paragraph (4) and by inserting after paragraph 
(2) the following new paragraph:
‘‘(3) DIESEL FUEL USED IN TRAINS.—There is 
hereby imposed a tax of 0.1 cent per gallon on any 
liquid other than gasoline (as defined in section 
4083)—
‘‘(A) sold by any person to an owner, les-
see, or other operator of a diesel-powered train 
for use as a fuel in such train, or 
‘‘(B) used by any person as a fuel in a die-
sel-powered train unless there was a taxable 
sale of such fuel under subparagraph (A). 
No tax shall be imposed by this paragraph on the 
sale or use of any liquid if tax was imposed on such 
liquid under section 4081.’’
(D) Subsection (e) of section 4082 is 
amended by striking ‘‘section 4041(a)(1)’’ and 
inserting ‘‘subsections (d)(3) and (a)(1) of sec-
tion 4041, respectively’’. 
(E) Paragraph (3) of section 4083(a) is 
amended by striking ‘‘or a diesel-powered 
train’’. 
(F) Paragraph (3) of section 6421(f) is 
amended to read as follows: 
‘‘(3) GASOLINE USED IN TRAINS.—In the case 
of gasoline used as a fuel in a train, this section 
shall not apply with respect to the Leaking Under-
ground Storage Tank Trust Fund financing rate 
under section 4081.’’
(G) Paragraph (3) of section 6427(l) is 
amended to read as follows: 
‘‘(3) REFUND
OF
CERTAIN
TAXES
ON
FUEL 
USED IN DIESEL-POWERED TRAINS.—For purposes 
of this subsection, the term ‘nontaxable use’ includes 
fuel used in a diesel-powered train. The preceding 
sentence shall not apply to the tax imposed by sec-
tion 4041(d) and the Leaking Underground Storage 
Tank Trust Fund financing rate under section 4081 
except with respect to fuel sold for exclusive use by 
a State or any political subdivision thereof.’’
(b) FUEL USED ON INLAND WATERWAYS.—
(1) IN
GENERAL.—Paragraph (1) of section 
4042(b) is amended by adding ‘‘and’’ at the end of 
subparagraph (A), by striking ‘‘, and’’ at the end of 
subparagraph (B) and inserting a period, and by 
striking subparagraph (C). 
(2) CONFORMING AMENDMENT.—Paragraph (2) 
of section 4042(b) is amended by striking subpara-
graph (C). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on October 1, 2003.
SEC. 109. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN 
MIXTURES OF DIESEL FUEL. 
(a) IN GENERAL.—Paragraph (2) of section 4081(a) 
is amended by adding at the end the following: 
‘‘(C) DIESEL-WATER FUEL EMULSION.—In 
the case of diesel-water fuel emulsion at least 
14 percent of which is water and with respect 
to which the emulsion additive is registered by 
a United States manufacturer with the Envi-
ronmental Protection Agency pursuant to sec-
tion 211 of the Clean Air Act (as in effect on 
March 31, 2003)), subparagraph (A)(iii) shall 
be applied by substituting ‘19.7 cents’ for ‘24.3 
cents’.’’. 
(b) SPECIAL RULES
FOR DIESEL-WATER FUEL 
EMULSIONS.—
(1) REFUNDS FOR TAX-PAID PURCHASES.—Sec-
tion 6427 is amended by redesignating subsections 
(m) through (p) as subsections (n) through (q), re-
spectively, and by inserting after subsection (l) the 
following new subsection: 
‘‘(m) DIESEL FUEL USED TO PRODUCE EMUL-
SION.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (k), if any diesel fuel on which tax was im-
posed by section 4081 at the regular tax rate is used
by any person in producing an emulsion described in 
section 4081(a)(2)(C) which is sold or used in such 
person’s trade or business, the Secretary shall pay 
(without interest) to such person an amount equal to 
the excess of the regular tax rate over the incentive 
tax rate with respect to such fuel. 
‘‘(2) DEFINITIONS.—For purposes of paragraph 
(1)—
‘‘(A) REGULAR TAX RATE.—The term ‘reg-
ular tax rate’ means the aggregate rate of tax 
imposed by section 4081 determined without re-
gard to section 4081(a)(2)(C). 
‘‘(B) INCENTIVE
TAX
RATE.—The term 
‘incentive tax rate’ means the aggregate rate of 
tax imposed by section 4081 determined with 
regard to section 4081(a)(2)(C).’’. 
(2) LATER
SEPARATION
OF
FUEL.—Section 
4081 (relating to imposition of tax) is amended by 
redesignating subsection (d) as subsection (e) and 
inserting after subsection (c) the following new sub-
section: 
‘‘(c) LATER SEPARATION OF FUEL FROM DIESEL-
WATER FUEL EMULSION.—If any person separates the 
taxable fuel from a diesel-water fuel emulsion on which 
tax was imposed under subsection (a) at a rate determined
under subsection (a)(2)(C) (or with respect to which a 
credit or payment was allowed or made by reason of sec-
tion 6427), such person shall be treated as the refiner of 
such taxable fuel. The amount of tax imposed on any re-
moval of such fuel by such person shall be reduced by the 
amount of tax imposed (and not credited or refunded) on 
any prior removal or entry of such fuel.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on October 1, 2003. 
SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELEC-
TRIC VEHICLE CREDIT AND DEDUCTION FOR 
CLEAN FUEL-VEHICLES. 
(a) CREDIT FOR QUALIFIED ELECTRIC VEHICLES.—
Subsection (b) of section 30 (relating to limitations) is 
amended by striking paragraph (2) and redesignating 
paragraph (3) as paragraph (2). 
(b) DEDUCTION FOR CLEAN-FUEL VEHICLES AND 
CERTAIN REFUELING PROPERTY.—Paragraph (1) of sec-
tion 179A(b) (relating to qualified clean-fuel vehicle prop-
erty) is amended to read as follows: 
‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROP-
ERTY.— The cost which may be taken into account 
under subsection (a)(1)(A) with respect to any 
motor vehicle shall not exceed—
‘‘(A) in the case of a motor vehicle not de-
scribed in subparagraph (B) or (C), $2,000, 
‘‘(B) in the case of any truck or van with 
a gross vehicle weight rating greater than 
10,000 pounds but not greater than 26,000 
pounds, $5,000, or 
‘‘(C) $50,000 in the case of— 
‘‘(i) a truck or van with a gross vehi-
cle weight rating greater than 26,000 
pounds, or 
‘‘(ii) any bus which has a seating ca-
pacity of at least 20 adults (not including 
the driver).’’. 
TITLE II—RELIABILITY 
SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-
YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (C) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ‘‘and’’ at the end of clause (i), by 
redesignating clause (ii) as clause (iii), and by inserting 
after clause (i) the following new clause: 
‘‘(ii) any natural gas gathering line, 
and’’.
(d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(C)(ii)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act. 
SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 
15-YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ‘‘and’’ at the end of clause (ii), by 
striking the period at the end of clause (iii) and by insert-
ing ‘‘, and’’, and by adding at the end the following new 
clause: 
‘‘(iv) any natural gas distribution 
line.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (E)(iii) the following:
‘‘(E)(iv) ......................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(E)(iv)’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act. 
SEC. 203. ELECTRIC TRANSMISSION PROPERTY TREATED 
AS 15-YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ‘‘and’’ at the end of clause (iii), by 
striking the period at the end of clause (iv) and by insert-
ing ‘‘, and’’, and by adding at the end the following new 
clause: 
‘‘(v) any section 1245 property (as de-
fined in section 1245(a)(3)) used in the 
transmission at 69 or more kilovolts of 
electricity for sale.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (E)(iv) the following:
‘‘(E)(v) .......................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(E)(v)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act.
SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and 
corporations) is amended by inserting after section 179A 
the following new section: 
‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
‘‘(a) TREATMENT AS EXPENSES.—A small business 
refiner (as defined in section 45H(c)(1)) may elect to treat 
75 percent of qualified capital costs (as defined in section 
45H(c)(2)) which are paid or incurred by the taxpayer 
during the taxable year as expenses which are not charge-
able to capital account. Any cost so treated shall be al-
lowed as a deduction for the taxable year in which paid 
or incurred. 
‘‘(b) REDUCED PERCENTAGE.—In the case of a small 
business refiner with average daily domestic refinery runs 
for the 1-year period ending on March 31, 2003, in excess 
of 155,000 barrels, the number of percentage points de-
scribed in subsection (a) shall be reduced (not below zero) 
by the product of such number (before the application of 
this subsection) and the ratio of such excess to 50,000 
barrels.
‘‘(c) BASIS REDUCTION.—For purposes of this title, 
the basis of any property shall be reduced by the portion 
of the cost of such property taken into account under sub-
section (a).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 is amended by 
inserting after the item relating to section 179A the fol-
lowing new item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying 
with Environmental Protection Agency sulfur regu-
lations.’’.
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to expenses paid or incurred after 
March 31, 2003. 
SEC. 205. CREDIT FOR PRODUCTION OF LOW SULPHUR DIE-
SEL FUEL. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its) is amended by adding at the end the following new 
section: 
‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULPHUR 
DIESEL FUEL. 
‘‘(a) IN GENERAL.—For purposes of section 38, the 
amount of the low sulphur diesel fuel production credit 
determined under this section with respect to any facility 
of a small business refiner is an amount equal to 5 cents 
for each gallon of low-sulfur diesel fuel produced during
the taxable year by such small business refiner at such 
facility. 
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The aggregate credit deter-
mined under subsection (a) for any taxable year with 
respect to any facility shall not exceed—
‘‘(A) 25 percent of the qualified capital 
costs incurred by the small business refiner 
with respect to such facility, reduced by 
‘‘(B) the aggregate credits determined 
under this section for all prior taxable years 
with respect to such facility. 
‘‘(2) REDUCED PERCENTAGE.—In the case of a 
small business refiner with average daily domestic 
refinery runs for the 1-year period ending on March 
31, 2003, in excess of 155,000 barrels, the number 
of percentage points described in paragraph (1) shall 
be reduced (not below zero) by the product of such 
number (before the application of this paragraph) 
and the ratio of such excess to 50,000 barrels. 
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) SMALL
BUSINESS
REFINER.—The term 
‘small business refiner’ means, with respect to any 
taxable year, a refiner of crude oil with respect to 
which not more than 1,500 persons are engaged in
the refinery operations of the business on any day 
during such taxable year and whose average daily 
domestic refinery run for the 1-year period ending 
on March 31, 2003, did not exceed 205,000 barrels. 
‘‘(2) QUALIFIED
CAPITAL
COSTS.—The term 
‘qualified capital costs’ means, with respect to any 
facility, those costs paid or incurred during the ap-
plicable period for compliance with the applicable 
EPA regulations with respect to such facility, includ-
ing expenditures for the construction of new process 
operation units or the dismantling and reconstruc-
tion of existing process units to be used in the pro-
duction of low-sulfur diesel fuel, associated adjacent 
or offsite equipment (including tankage, catalyst, 
and power supply), engineering, construction period 
interest, and sitework. 
‘‘(3) APPLICABLE
EPA
REGULATIONS.—The 
term ‘applicable EPA regulations’ means the High-
way Diesel Fuel Sulfur Control Requirements of the 
Environmental Protection Agency. 
‘‘(4) APPLICABLE PERIOD.—The term ‘applica-
ble period’ means, with respect to any facility, the 
period beginning on April 1, 2003, and ending with 
the date which is 1 year after the date on which the
taxpayer must comply with the applicable EPA regu-
lations with respect to such facility. 
‘‘(5) LOW-SULFUR
DIESEL
FUEL.—The term 
‘low-sulfur diesel fuel’ means diesel fuel with a sul-
fur content of 15 parts per million or less. 
‘‘(d) REDUCTION IN BASIS.—For purposes of this 
subtitle, if a credit is determined under this section with 
respect to any property by reason of qualified capital 
costs, the basis of such property shall be reduced by the 
amount of the credit so determined. 
‘‘(e) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date 
which is 30 months after the first day of the first 
taxable year in which the low sulphur diesel fuel pro-
duction credit is allowed with respect to a facility, 
the small business refiner must obtain certification 
from the Secretary, in consultation with the Admin-
istrator of the Environmental Protection Agency, 
that the taxpayer’s qualified capital costs with re-
spect to such facility will result in compliance with 
the applicable EPA regulations. 
‘‘(2) CONTENTS OF APPLICATION.—An applica-
tion for certification shall include relevant informa-
tion regarding unit capacities and operating charac-
teristics sufficient for the Secretary, in consultation
with the Administrator of the Environmental Protec-
tion Agency, to determine that such qualified capital 
costs are necessary for compliance with the applica-
ble EPA regulations. 
‘‘(3) REVIEW
PERIOD.—Any application shall 
be reviewed and notice of certification, if applicable, 
shall be made within 60 days of receipt of such ap-
plication. 
‘‘(4) STATUTE OF LIMITATIONS.—With respect 
to the credit allowed under this section—
‘‘(A) the statutory period for the assess-
ment of any deficiency attributable to such 
credit shall not expire before the end of the 3-
year period ending on the date that the review 
period described in paragraph (3) ends, and 
‘‘(B) such deficiency may be assessed be-
fore the expiration of such 3-year period not-
withstanding the provisions of any other law or 
rule of law which would otherwise prevent such 
assessment. 
‘‘(f) CONTROLLED GROUPS.—For purposes of this 
section, all persons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 shall be treated 
as 1 taxpayer.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 (relating to general 
business credit) is amended by striking ‘‘plus’’ at the end 
of paragraph (15), by striking the period at the end of 
paragraph (16) and inserting ‘‘, plus’’, and by adding at 
the end the following new paragraph: 
‘‘(17) in the case of a small business refiner, 
the low sulphur diesel fuel production credit deter-
mined under section 45H(a).’’. 
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C 
(relating to certain expenses for which credits are allow-
able) is amended by adding after subsection (d) the fol-
lowing new subsection: 
‘‘(e) LOW SULPHUR DIESEL FUEL PRODUCTION 
CREDIT.—No deduction shall be allowed for that portion 
of the expenses otherwise allowable as a deduction for the 
taxable year which is equal to the amount of the credit 
determined for the taxable year under section 45H(a).’’. 
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating 
to adjustments to basis) is amended by striking ‘‘and’’ at 
the end of paragraph (30), by striking the period at the 
end of paragraph (31) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
‘‘(32) in the case of a facility with respect to 
which a credit was allowed under section 45H, to 
the extent provided in section 45H(d).’’. 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new item:
‘‘Sec. 45H. Credit for production of low sulphur diesel fuel.’’.
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to expenses paid or incurred after 
March 31, 2003, in taxable years ending after such date. 
SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION 
TO OIL DEPLETION DEDUCTION. 
(a) IN GENERAL.—Paragraph (4) of section 613A(d) 
(relating to certain refiners excluded) is amended to read 
as follows: 
‘‘(4) CERTAIN
REFINERS
EXCLUDED.—If the 
taxpayer or a related person engages in the refining 
of crude oil, subsection (c) shall not apply to the 
taxpayer for a taxable year if the average daily refin-
ery runs of the taxpayer and the related person for 
the taxable year exceed 75,000 barrels. For purposes 
of this paragraph, the average daily refinery runs for 
any taxable year shall be determined by dividing the 
aggregate refinery runs for the taxable year by the 
number of days in the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION 
OR STATE ELECTRIC RESTRUCTURING POL-
ICY. 
(a) IN GENERAL.—Section 451 (relating to general 
rule for taxable year of inclusion) is amended by adding 
at the end the following new subsection: 
‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO 
IMPLEMENT FEDERAL ENERGY REGULATORY COMMIS-
SION OR STATE ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—In the case of any quali-
fying electric transmission transaction to which the 
taxpayer elects the application of this section, quali-
fied gain from such transaction shall be recog-
nized—
‘‘(A) in the taxable year which includes the 
date of such transaction to the extent the 
amount realized from such transaction ex-
ceeds—
‘‘(i) the cost of exempt utility property 
which is purchased by the taxpayer during
the 4-year period beginning on such date, 
reduced (but not below zero) by 
‘‘(ii) any portion of such cost pre-
viously taken into account under this sub-
section, and 
‘‘(B) ratably over the 8-taxable year period 
beginning with the taxable year which includes 
the date of such transaction, in the case of any 
such gain not recognized under subparagraph 
(A). 
‘‘(2) QUALIFIED GAIN.—For purposes of this 
subsection, the term ‘qualified gain’ means, with re-
spect to any qualifying electric transmission trans-
action in any taxable year— 
‘‘(A) any ordinary income derived from 
such transaction which would be required to be 
recognized under section 1245 or 1250 for such 
taxable year (determined without regard to this 
subsection), and 
‘‘(B) any income derived from such trans-
action in excess of the amount described in sub-
paragraph (A) which is required to be included 
in gross income for such taxable year (deter-
mined without regard to this subsection).
‘‘(3) QUALIFYING
ELECTRIC
TRANSMISSION 
TRANSACTION.—For purposes of this subsection, the 
term ‘qualifying electric transmission transaction’ 
means any sale or other disposition before January 
1, 2007, of—
‘‘(A) property used in the trade or business 
of providing electric transmission services, or 
‘‘(B) any stock or partnership interest in a 
corporation or partnership, as the case may be, 
whose principal trade or business consists of 
providing electric transmission services, 
but only if such sale or disposition is to an inde-
pendent transmission company. 
‘‘(4) 
INDEPENDENT
TRANSMISSION
COM-
PANY.—For purposes of this subsection, the term 
‘independent transmission company’ means—
‘‘(A) an independent transmission provider 
approved by the Federal Energy Regulatory 
Commission, 
‘‘(B) a person—
‘‘(i) who the Federal Energy Regu-
latory Commission determines in its au-
thorization of the transaction under section 
203 of the Federal Power Act (16 U.S.C. 
824b) or by declaratory order is not a
market participant within the meaning of 
such Commission’s rules applicable to inde-
pendent transmission providers, and 
‘‘(ii) whose transmission facilities to 
which the election under this subsection 
applies are under the operational control of 
a Federal Energy Regulatory Commission-
approved independent transmission pro-
vider before the close of the period speci-
fied in such authorization, but not later 
than the close of the period applicable 
under subsection (a)(2)(B) as extended 
under paragraph (2), or 
‘‘(C) in the case of facilities subject to the 
jurisdiction of the Public Utility Commission of 
Texas—
‘‘(i) a person which is approved by 
that Commission as consistent with Texas 
State law regarding an independent trans-
mission provider, or 
‘‘(ii) a political subdivision or affiliate 
thereof whose transmission facilities are 
under the operational control of a person 
described in clause (i).
‘‘(5) EXEMPT
UTILITY
PROPERTY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘exempt 
utility property’ means property used in the 
trade or business of—
‘‘(i) generating, transmitting, distrib-
uting, or selling electricity, or 
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas. 
‘‘(B) NONRECOGNITION OF GAIN BY REA-
SON OF ACQUISITION OF STOCK.—Acquisition of 
control of a corporation shall be taken into ac-
count under this subsection with respect to a 
qualifying electric transmission transaction only 
if the principal trade or business of such cor-
poration is a trade or business referred to in 
subparagraph (A). 
‘‘(6) 
SPECIAL
RULE
FOR
CONSOLIDATED 
GROUPS.—In the case of a corporation which is a 
member of an affiliated group filing a consolidated 
return, any exempt utility property purchased by an-
other member of such group shall be treated as pur-
chased by such corporation for purposes of applying 
paragraph (1)(A).
‘‘(7) 
TIME
FOR
ASSESSMENT
OF
DEFI-
CIENCIES.—If the taxpayer has made the election 
under paragraph (1) and any gain is recognized by 
such taxpayer as provided in paragraph (1)(B), 
then—
‘‘(A) the statutory period for the assess-
ment of any deficiency, for any taxable year in 
which any part of the gain on the transaction 
is realized, attributable to such gain shall not 
expire prior to the expiration of 3 years from 
the date the Secretary is notified by the tax-
payer (in such manner as the Secretary may by 
regulations prescribe) of the purchase of exempt 
utility property described in paragraph (1)(A)(i) 
or of an intention not to purchase such prop-
erty, and 
‘‘(B) such deficiency may be assessed be-
fore the expiration of such 3-year period not-
withstanding any law or rule of law which 
would otherwise prevent such assessment. 
‘‘(8) PURCHASE.—For purposes of this sub-
section, the taxpayer shall be considered to have 
purchased any property if the unadjusted basis of 
such property is its cost within the meaning of sec-
tion 1012.
‘‘(9) ELECTION.—An election under paragraph 
(1) shall be made at such time and in such manner 
as the Secretary may require and, once made, shall 
be irrevocable.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions occurring after the 
date of the enactment of this Act. 
SEC. 208. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS. 
(a) REPEAL
OF LIMITATION
ON DEPOSITS INTO 
FUND BASED ON COST OF SERVICE; CONTRIBUTIONS 
AFTER FUNDING PERIOD.—Subsection (b) of section 
468A is amended to read as follows: 
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the Fund for any taxable year 
shall not exceed the ruling amount applicable to 
such taxable year. 
‘‘(2) CONTRIBUTIONS
AFTER
FUNDING
PE-
RIOD.—Notwithstanding any other provision of this 
section, a taxpayer may pay into the Fund in any 
taxable year after the last taxable year to which the 
ruling amount applies. Payments may not be made 
under the preceding sentence to the extent such pay-
ments would cause the assets of the Fund to exceed
the nuclear decommissioning costs allocable to the 
taxpayer’s current or former interest in the nuclear 
power plant to which the Fund relates. The limita-
tion under the preceding sentence shall be deter-
mined by taking into account a reasonable rate of 
inflation for the nuclear decommissioning costs and 
a reasonable after-tax rate of return on the assets 
of the Fund until such assets are anticipated to be 
expended.’’. 
(b) CLARIFICATION
OF
TREATMENT
OF
FUND 
TRANSFERS.—Subsection (e) of section 468A is amended 
by adding at the end the following new paragraph: 
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in 
connection with the transfer of the taxpayer’s inter-
est in a nuclear power plant, the taxpayer transfers 
the Fund with respect to such power plant to the 
transferee of such interest and the transferee elects 
to continue the application of this section to such 
Fund—
‘‘(A) the transfer of such Fund shall not 
cause such Fund to be disqualified from the ap-
plication of this section, and 
‘‘(B) no amount shall be treated as distrib-
uted from such Fund, or be includible in gross 
income, by reason of such transfer.’’.
(c) TREATMENT
OF CERTAIN DECOMMISSIONING 
COSTS.—
(1) IN GENERAL.—Section 468A is amended by 
redesignating subsections (f) and (g) as subsections 
(g) and (h), respectively, and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection 
(b), any taxpayer maintaining a Fund to which this 
section applies with respect to a nuclear power plant 
may transfer into such Fund up to an amount equal 
to the excess of the total nuclear decommissioning 
costs with respect to such nuclear power plant over 
the portion of such costs taken into account in de-
termining the ruling amount in effect immediately 
before the transfer. 
‘‘(2) 
DEDUCTION
FOR
AMOUNTS
TRANS-
FERRED.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (C), the deduction allowed by 
subsection (a) for any transfer permitted by 
this subsection shall be allowed ratably over the 
remaining estimated useful life (within the 
meaning of subsection (d)(2)(A)) of the nuclear
power plant beginning with the taxable year 
during which the transfer is made. 
‘‘(B) DENIAL
OF
DEDUCTION
FOR
PRE-
VIOUSLY DEDUCTED AMOUNTS.—No deduction 
shall be allowed for any transfer under this sub-
section of an amount for which a deduction was 
previously allowed or a corresponding amount 
was not included in gross income. For purposes 
of the preceding sentence, a ratable portion of 
each transfer shall be treated as being from 
previously deducted or excluded amounts to the 
extent thereof. 
‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—
If—
‘‘(i) any transfer permitted by this 
subsection is made to any Fund to which 
this section applies, and 
‘‘(ii) such Fund is transferred there-
after, 
any deduction under this subsection for taxable 
years ending after the date that such Fund is 
transferred shall be allowed to the transferor 
for the taxable year which includes such date. 
‘‘(D) SPECIAL RULES.—
‘‘(i) GAIN
OR
LOSS
NOT
RECOG-
NIZED.—No gain or loss shall be recog-
nized on any transfer permitted by this 
subsection. 
‘‘(ii) TRANSFERS
OF
APPRECIATED 
PROPERTY.—If appreciated property is 
transferred in a transfer permitted by this 
subsection, the amount of the deduction 
shall be the adjusted basis of such prop-
erty. 
‘‘(3) NEW RULING AMOUNT REQUIRED.—Para-
graph (1) shall not apply to any transfer unless the 
taxpayer requests from the Secretary a new schedule 
of ruling amounts in connection with such transfer. 
‘‘(4) NO
BASIS
IN
QUALIFIED
FUNDS.—Not-
withstanding any other provision of law, the tax-
payer’s basis in any Fund to which this section ap-
plies shall not be increased by reason of any transfer 
permitted by this subsection.’’. 
(2) NEW RULING AMOUNT TO TAKE INTO AC-
COUNT TOTAL COSTS.—Subparagraph (A) of section 
468A(d)(2) is amended to read as follows: 
‘‘(A) fund the total nuclear decommis-
sioning costs with respect to such power plant
over the estimated useful life of such power 
plant, and’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES. 
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section 
501(c)(12) is amended by striking ‘‘or’’ at the end 
of clause (i), by striking clause (ii), and by adding 
at the end the following new clauses: 
‘‘(ii) from any provision or sale of 
transmission service or ancillary services if 
such services are provided on a non-
discriminatory open access basis under an 
independent transmission provider agree-
ment approved by FERC (other than in-
come received or accrued directly or indi-
rectly from a member), 
‘‘(iii) from any nuclear decommis-
sioning transaction, or 
‘‘(iv) from any asset exchange or con-
version transaction.’’.
(2) DEFINITIONS AND SPECIAL RULES.—Para-
graph (12) of section 501(c) is amended by adding 
at the end the following new subparagraphs: 
‘‘(E) For purposes of this subparagraph 
and subparagraph (C)(ii), the term ‘FERC’ 
means the Federal Energy Regulatory Commis-
sion and references to such term shall be treat-
ed as including the Public Utility Commission 
of Texas with respect to any ERCOT utility (as 
defined in section 212(k)(2)(B) of the Federal 
Power Act (16 U.S.C. 824k(k)(2)(B))). 
‘‘(F) 
For 
purposes 
of 
subparagraph 
(C)(iii), the term ‘nuclear decommissioning 
transaction’ means—
‘‘(i) any transfer into a trust, fund, or 
instrument established to pay any nuclear 
decommissioning costs if the transfer is in 
connection with the transfer of the mutual 
or cooperative electric company’s interest 
in a nuclear power plant or nuclear power 
plant unit, 
‘‘(ii) any distribution from any trust, 
fund, or instrument established to pay any 
nuclear decommissioning costs, or
‘‘(iii) any earnings from any trust, 
fund, or instrument established to pay any 
nuclear decommissioning costs. 
‘‘(G) 
For 
purposes 
of 
subparagraph 
(C)(iv), the term ‘asset exchange or conversion 
transaction’ means any voluntary exchange or 
involuntary conversion of any property related 
to generating, transmitting, distributing, or sell-
ing electric energy by a mutual or cooperative 
electric company, the gain from which qualifies 
for deferred recognition under section 1031 or 
1033, but only if the replacement property ac-
quired by such company pursuant to such sec-
tion constitutes property which is used, or to be 
used, for—
‘‘(i) generating, transmitting, distrib-
uting, or selling electric energy, or 
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.’’. 
(b) TREATMENT
OF INCOME FROM LOAD LOSS 
TRANSACTIONS, ETC.—Paragraph (12) of section 501(c), 
as amended by subsection (a)(2), is amended by adding 
after subparagraph (G) the following new subparagraph: 
‘‘(H)(i) In the case of a mutual or coopera-
tive electric company described in this para-
graph or an organization described in section 
1381(a)(2)(C), income received or accrued from 
a load loss transaction shall be treated as an 
amount collected from members for the sole 
purpose of meeting losses and expenses. 
‘‘(ii) For purposes of clause (i), the term 
‘load loss transaction’ means any wholesale or 
retail sale of electric energy (other than to 
members) to the extent that the aggregate sales 
during the recovery period does not exceed the 
load loss mitigation sales limit for such period. 
‘‘(iii) For purposes of clause (ii), the load 
loss mitigation sales limit for the recovery pe-
riod is the sum of the annual load losses for 
each year of such period. 
‘‘(iv) For purposes of clause (iii), a mutual 
or cooperative electric company’s annual load 
loss for each year of the recovery period is the 
amount (if any) by which—
‘‘(I) the megawatt hours of electric 
energy sold during such year to members 
of such electric company are less than 
‘‘(II) the megawatt hours of electric 
energy sold during the base year to such 
members.
‘‘(v) For purposes of clause (iv)(II), the 
term ‘base year’ means—
‘‘(I) the calendar year preceding the 
start-up year, or 
‘‘(II) at the election of the electric 
company, the second or third calendar 
years preceding the start-up year. 
‘‘(vi) For purposes of this subparagraph, 
the recovery period is the 7-year period begin-
ning with the start-up year. 
‘‘(vii) For purposes of this subparagraph, 
the start-up year is the calendar year which in-
cludes the date of the enactment of this sub-
paragraph or, if later, at the election of the mu-
tual or cooperative electric company—
‘‘(I) the first year that such electric 
company offers nondiscriminatory open ac-
cess, or 
‘‘(II) the first year in which at least 
10 percent of such electric company’s sales 
are not to members of such electric com-
pany. 
‘‘(viii) A company shall not fail to be treat-
ed as a mutual or cooperative company for pur-
poses of this paragraph or as a corporation op-
erating on a cooperative basis for purposes of 
section 1381(a)(2)(C) by reason of the treat-
ment under clause (i). 
‘‘(ix) For purposes of this subparagraph, 
in the case of a mutual or cooperative electric 
company, income received, or accrued, indirectly 
from a member shall be treated as an amount 
collected from members for the sole purpose of 
meeting losses and expenses.’’. 
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(18) TREATMENT OF MUTUAL OR COOPERA-
TIVE ELECTRIC COMPANIES.—In the case of a mu-
tual or cooperative electric company described in sec-
tion 501(c)(12), there shall be excluded income 
which is treated as member income under subpara-
graph (H) thereof.’’. 
(d) CROSS REFERENCE.—Section 1381 is amended 
by adding at the end the following new subsection:
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss trans-
actions of organizations described in subsection 
(a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS. 
(a) IN GENERAL.—Subsection (b) of section 148 (re-
lating to higher yielding investments) is amended by add-
ing at the end the following new paragraph: 
‘‘(4) SAFE
HARBOR
FOR
PREPAID
NATURAL 
GAS.—
‘‘(A) IN GENERAL.—The term ‘investment-
type property’ does not include a prepayment 
under a qualified natural gas supply contract. 
‘‘(B) QUALIFIED
NATURAL
GAS
SUPPLY 
CONTRACT.—For purposes of this paragraph, 
the term ‘qualified natural gas supply contract’ 
means any contract to acquire natural gas for 
resale by a utility owned by a governmental 
unit if the amount of gas permitted to be ac-
quired under the contract by the utility during 
any year does not exceed the sum of—
‘‘(i) the annual average amount dur-
ing the testing period of natural gas pur-
chased (other than for resale) by cus-
tomers of such utility who are located 
within the service area of such utility, and 
‘‘(ii) the amount of natural gas to be 
used to transport the prepaid natural gas 
to the utility during such year. 
‘‘(C) NATURAL GAS USED TO GENERATE 
ELECTRICITY.—Natural gas used to generate 
electricity shall be taken into account in deter-
mining 
the 
average 
under 
subparagraph 
(B)(i)—
‘‘(i) only if the electricity is generated 
by a utility owned by a governmental unit, 
and 
‘‘(ii) only to the extent that the elec-
tricity is sold (other than for resale) to 
customers of such utility who are located 
within the service area of such utility. 
‘‘(D) ADJUSTMENTS
FOR
CHANGES
IN 
CUSTOMER BASE.—
‘‘(i) NEW
BUSINESS
CUSTOMERS.—
If—
‘‘(I) after the close of the testing 
period and before the date of issuance 
of the issue, the utility owned by a
governmental unit enters into a con-
tract to supply natural gas (other 
than for resale) for a business use at 
a property within the service area of 
such utility, and 
‘‘(II) the utility did not supply 
natural gas to such property during 
the testing period or the ratable 
amount of natural gas to be supplied 
under the contract is significantly 
greater than the ratable amount of 
gas supplied to such property during 
the testing period, 
then a contract shall not fail to be treated 
as a qualified natural gas supply contract 
by reason of supplying the additional nat-
ural gas under the contract referred to in 
subclause (I). 
‘‘(ii) LOST CUSTOMERS.—The average 
under subparagraph (B)(i) shall not exceed 
the annual amount of natural gas reason-
ably expected to be purchased (other than 
for resale) by persons who are located 
within the service area of such utility and
who, as of the date of issuance of the 
issue, are customers of such utility. 
‘‘(E) RULING REQUESTS.—The Secretary 
may increase the average under subparagraph 
(B)(i) for any period if the utility owned by the 
governmental unit establishes to the satisfaction 
of the Secretary that, based on objective evi-
dence of growth in natural gas consumption or 
population, such average would otherwise be in-
sufficient for such period. 
‘‘(F) ADJUSTMENT
FOR
NATURAL
GAS 
OTHERWISE ON HAND.—
‘‘(i) IN GENERAL.—The amount oth-
erwise permitted to be acquired under the 
contract for any period shall be reduced 
by—
‘‘(I) the applicable share of nat-
ural gas held by the utility on the 
date of issuance of the issue, and 
‘‘(II) the natural gas (not taken 
into account under subclause (I)) 
which the utility has a right to ac-
quire during such period (determined 
as of the date of issuance of the 
issue).
‘‘(ii) APPLICALBE SHARE.—For pur-
poses of the clause (i), the term ‘applicable 
share’ means, with respect to any period, 
the natural gas allocable to such period if 
the gas were allocated ratably over the pe-
riod to which the prepayment relates. 
‘‘(G) INTENTIONAL ACTS.—Subparagraph 
(A) shall cease to apply to any issue if the util-
ity owned by the governmental unit engages in 
any intentional act to render the volume of nat-
ural gas acquired by such prepayment to be in 
excess of the sum of—
‘‘(i) the amount of natural gas needed 
(other than for resale) by customers of 
such utility who are located within the 
service area of such utility, and 
‘‘(ii) the amount of natural gas used 
to transport such natural gas to the utility. 
‘‘(H) TESTING PERIOD.—For purposes of 
this paragraph, the term ‘testing period’ means, 
with respect to an issue, the most recent 5 cal-
endar years ending before the date of issuance 
of the issue.
‘‘(I) SERVICE AREA.—For purposes of this 
paragraph, the service area of a utility owned 
by a governmental unit shall be comprised of—
‘‘(i) any area throughout which such 
utility provided at all times during the 
testing period—
‘‘(I) in the case of a natural gas 
utility, natural gas transmission or 
distribution services, and 
‘‘(II) in the case of an electric 
utility, electricity distribution services, 
‘‘(ii) any area within a county contig-
uous to the area described in clause (i) in 
which retail customers of such utility are 
located if such area is not also served by 
another utility providing natural gas or 
electricity services, as the case may be, and 
‘‘(iii) any area recognized as the serv-
ice area of such utility under State or Fed-
eral law.’’. 
(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY 
TO PREPAYMENTS FOR NATURAL GAS.—Paragraph (2) of 
section 141(c) (providing exceptions to the private loan fi-
nancing test) is amended by striking ‘‘or’’ at the end of 
subparagraph (A), by striking the period at the end of