720
shall complete the consideration, and shall make the deter-
mination, referred to in section 111 with respect to each
standard established by paragraphs (11) through (13) of
section 111(d).’’.
(2) FAILURE TO COMPLY.—Section 112(c) of
the Public Utility Regulatory Policies Act of 1978
(16 U.S.C. 2622(c)) is amended by adding at the
end the following:
‘‘In the case of each standard established by paragraphs
(11) through (13) of section 111(d), the reference con-
tained in this subsection to the date of enactment of this
Act shall be deemed to be a reference to the date of enact-
ment of such paragraphs (11) through (13).’’.
(3) PRIOR STATE ACTIONS.—
(A) IN
GENERAL.—Section 112 of the
Public Utility Regulatory Policies Act of 1978
(16 U.S.C. 2622) is amended by adding at the
end the following:
‘‘(d) PRIOR STATE ACTIONS.—Subsections (b) and
(c) of this section shall not apply to the standards estab-
lished by paragraphs (11) through (13) of section 111(d)
in the case of any electric utility in a State if, before the
enactment of this subsection—
‘‘(1) the State has implemented for such utility
the standard concerned (or a comparable standard);
721
‘‘(2) the State regulatory authority for such
State or relevant nonregulated electric utility has
conducted a proceeding to consider implementation
of the standard concerned (or a comparable stand-
ard) for such utility; or
‘‘(3) the State legislature has voted on the im-
plementation of such standard (or a comparable
standard) for such utility.’’.
(B) CROSS REFERENCE.—Section 124 of
such Act (16 U.S.C. 2634) is amended by add-
ing the following at the end thereof: ‘‘In the
case of each standard established by paragraphs
(11) through (13) of section 111(d), the ref-
erence contained in this subsection to the date
of enactment of this Act shall be deemed to be
a reference to the date of enactment of such
paragraphs (11) through (13).’’.
SEC. 1252. SMART METERING.
(a) IN GENERAL.—Section 111(d) of the Public Utili-
ties Regulatory Policies Act of 1978 (16 U.S.C. 2621(d))
is amended by adding at the end the following:
‘‘(14) TIME-BASED
METERING
AND
COMMU-
NICATIONS.—
‘‘(A) Not later than 18 months after the
date of enactment of this paragraph, each elec-
722
tric utility shall offer each of its customer class-
es, and provide individual customers upon cus-
tomer request, a time-based rate schedule under
which the rate charged by the electric utility
varies during different time periods and reflects
the variance, if any, in the utility’s costs of gen-
erating and purchasing electricity at the whole-
sale level. The time-based rate schedule shall
enable the electric consumer to manage energy
use and cost through advanced metering and
communications technology.
‘‘(B) The types of time-based rate sched-
ules that may be offered under the schedule re-
ferred to in subparagraph (A) include, among
others—
‘‘(i) time-of-use pricing whereby elec-
tricity prices are set for a specific time pe-
riod on an advance or forward basis, typi-
cally not changing more often than twice a
year, based on the utility’s cost of gener-
ating and/or purchasing such electricity at
the wholesale level for the benefit of the
consumer. Prices paid for energy consumed
during these periods shall be pre-estab-
lished and known to consumers in advance
723
of such consumption, allowing them to
vary their demand and usage in response
to such prices and manage their energy
costs by shifting usage to a lower cost pe-
riod or reducing their consumption overall;
‘‘(ii) critical peak pricing whereby
time-of-use prices are in effect except for
certain peak days, when prices may reflect
the costs of generating and/or purchasing
electricity at the wholesale level and when
consumers may receive additional discounts
for reducing peak period energy consump-
tion; and
‘‘(iii) real-time pricing whereby elec-
tricity prices are set for a specific time pe-
riod on an advanced or forward basis, re-
flecting the utility’s cost of generating and/
or purchasing electricity at the wholesale
level, and may change as often as hourly.
‘‘(C) Each electric utility subject to sub-
paragraph (A) shall provide each customer re-
questing a time-based rate with a time-based
meter capable of enabling the utility and cus-
tomer to offer and receive such rate, respec-
tively.
724
‘‘(D) For purposes of implementing this
paragraph, any reference contained in this sec-
tion to the date of enactment of the Public Util-
ity Regulatory Policies Act of 1978 shall be
deemed to be a reference to the date of enact-
ment of this paragraph.
‘‘(E) In a State that permits third-party
marketers to sell electric energy to retail elec-
tric consumers, such consumers shall be entitled
to receive the same time-based metering and
communications device and service as a retail
electric consumer of the electric utility.
‘‘(F) Notwithstanding subsections (b) and
(c) of section 112, each State regulatory au-
thority shall, not later than 18 months after the
date of enactment of this paragraph conduct an
investigation in accordance with section 115(i)
and issue a decision whether it is appropriate to
implement the standards set out in subpara-
graphs (A) and (C).’’.
(b) STATE INVESTIGATION OF DEMAND RESPONSE
AND TIME-BASED METERING.—Section 115 of the Public
Utilities Regulatory Policies Act of 1978 (16 U.S.C. 2625)
is amended as follows:
725
(1) By inserting in subsection (b) after the
phrase ‘‘the standard for time-of-day rates estab-
lished by section 111(d)(3)’’ the following: ‘‘and the
standard for time-based metering and communica-
tions established by section 111(d)(14)’’.
(2) By inserting in subsection (b) after the
phrase ‘‘are likely to exceed the metering’’ the fol-
lowing: ‘‘and communications’’.
(3) By adding the at the end the following:
‘‘(i) TIME-BASED
METERING
AND
COMMUNICA-
TIONS.—In making a determination with respect to the
standard established by section 111(d)(14), the investiga-
tion requirement of section 111(d)(14)(F) shall be as fol-
lows: Each State regulatory authority shall conduct an in-
vestigation and issue a decision whether or not it is appro-
priate for electric utilities to provide and install time-based
meters and communications devices for each of their cus-
tomers which enable such customers to participate in time-
based pricing rate schedules and other demand response
programs.’’.
(c) 
FEDERAL
ASSISTANCE
ON
DEMAND
RE-
SPONSE.—Section 132(a) of the Public Utility Regulatory
Policies Act of 1978 (16 U.S.C. 2642(a)) is amended by
striking ‘‘and’’ at the end of paragraph (3), striking the
726
period at the end of paragraph (4) and inserting ‘‘; and’’,
and by adding the following at the end thereof:
‘‘(5) technologies, techniques, and rate-making
methods related to advanced metering and commu-
nications and the use of these technologies, tech-
niques and methods in demand response programs.’’.
(d) FEDERAL GUIDANCE.—Section 132 of the Public
Utility Regulatory Policies Act of 1978 (16 U.S.C. 2642)
is amended by adding the following at the end thereof:
‘‘(d) DEMAND RESPONSE.—The Secretary shall be
responsible for—
‘‘(1) educating consumers on the availability,
advantages, and benefits of advanced metering and
communications technologies, including the funding
of demonstration or pilot projects;
‘‘(2) working with States, utilities, other energy
providers and advanced metering and communica-
tions experts to identify and address barriers to the
adoption of demand response programs; and
‘‘(3) not later than 180 days after the date of
enactment of the Energy Policy Act of 2003, pro-
viding Congress with a report that identifies and
quantifies the national benefits of demand response
and makes a recommendation on achieving specific
levels of such benefits by January 1, 2005.’’.
727
(e) DEMAND RESPONSE AND REGIONAL COORDINA-
TION.—
(1) IN GENERAL.—It is the policy of the United
States to encourage States to coordinate, on a re-
gional basis, State energy policies to provide reliable
and affordable demand response services to the pub-
lic.
(2) TECHNICAL ASSISTANCE.—The Secretary of
Energy shall provide technical assistance to States
and regional organizations formed by 2 or more
States to assist them in—
(A) identifying the areas with the greatest
demand response potential;
(B) identifying and resolving problems in
transmission and distribution networks, includ-
ing through the use of demand response;
(C) developing plans and programs to use
demand response to respond to peak demand or
emergency needs; and
(D) identifying specific measures con-
sumers can take to participate in these demand
response programs.
(3) REPORT.—Not later than 1 year after the
date of enactment of the Energy Policy Act of 2003,
the Commission shall prepare and publish an annual
728
report, by appropriate region, that assesses demand
response resources, including those available from all
consumer classes, and which identifies and reviews—
(A) saturation and penetration rate of ad-
vanced 
meters 
and 
communications 
tech-
nologies, devices and systems;
(B) existing demand response programs
and time-based rate programs;
(C) the annual resource contribution of de-
mand resources;
(D) the potential for demand response as
a quantifiable, reliable resource for regional
planning purposes; and
(E) steps taken to ensure that, in regional
transmission planning and operations, demand
resources are provided equitable treatment as a
quantifiable, reliable resource relative to the re-
source obligations of any load-serving entity,
transmission provider, or transmitting party.
(f) FEDERAL ENCOURAGEMENT
OF DEMAND RE-
SPONSE DEVICES.—It is the policy of the United States
that time-based pricing and other forms of demand re-
sponse, whereby electricity customers are provided with
electricity price signals and the ability to benefit by re-
sponding to them, shall be encouraged, and the deploy-
729
ment of such technology and devices that enable electricity
customers to participate in such pricing and demand re-
sponse systems shall be facilitated. It is further the policy
of the United States that the benefits of such demand re-
sponse that accrue to those not deploying such technology
and devices, but who are part of the same regional elec-
tricity entity, shall be recognized.
(g) TIME LIMITATIONS.—Section 112(b) of the Pub-
lic Utility Regulatory Policies Act of 1978 (16 U.S.C.
2622(b)) is amended by adding at the end the following:
‘‘(4)(A) Not later than 1 year after the enact-
ment of this paragraph, each State regulatory au-
thority (with respect to each electric utility for which
it has ratemaking authority) and each nonregulated
electric utility shall commence the consideration re-
ferred to in section 111, or set a hearing date for
such consideration, with respect to the standard es-
tablished by paragraph (14) of section 111(d).
‘‘(B) Not later than 2 years after the date of
the enactment of this paragraph, each State regu-
latory authority (with respect to each electric utility
for which it has ratemaking authority), and each
nonregulated electric utility, shall complete the con-
sideration, and shall make the determination, re-
730
ferred to in section 111 with respect to the standard
established by paragraph (14) of section 111(d).’’.
(h) FAILURE TO COMPLY.—Section 112(c) of the
Public Utility Regulatory Policies Act of 1978 (16 U.S.C.
2622(c)) is amended by adding at the end the following:
‘‘In the case of the standard established by paragraph (14)
of section 111(d), the reference contained in this sub-
section to the date of enactment of this Act shall be
deemed to be a reference to the date of enactment of such
paragraph (14).’’.
(i) PRIOR STATE ACTIONS REGARDING SMART ME-
TERING STANDARDS.—
(1) IN GENERAL.—Section 112 of the Public
Utility Regulatory Policies Act of 1978 (16 U.S.C.
2622) is amended by adding at the end the fol-
lowing:
‘‘(e) PRIOR STATE ACTIONS.—Subsections (b) and
(c) of this section shall not apply to the standard estab-
lished by paragraph (14) of section 111(d) in the case of
any electric utility in a State if, before the enactment of
this subsection—
‘‘(1) the State has implemented for such utility
the standard concerned (or a comparable standard);
‘‘(2) the State regulatory authority for such
State or relevant nonregulated electric utility has
731
conducted a proceeding to consider implementation
of the standard concerned (or a comparable stand-
ard) for such utility within the previous 3 years; or
‘‘(3) the State legislature has voted on the im-
plementation of such standard (or a comparable
standard) for such utility within the previous 3
years.’’.
(2) CROSS REFERENCE.—Section 124 of such
Act (16 U.S.C. 2634) is amended by adding the fol-
lowing at the end thereof: ‘‘In the case of the stand-
ard established by paragraph (14) of section 111(d),
the reference contained in this subsection to the date
of enactment of this Act shall be deemed to be a ref-
erence to the date of enactment of such paragraph
(14).’’.
SEC. 1253. COGENERATION AND SMALL POWER PRODUC-
TION PURCHASE AND SALE REQUIREMENTS.
(a) TERMINATION OF MANDATORY PURCHASE AND
SALE REQUIREMENTS.—Section 210 of the Public Utility
Regulatory Policies Act of 1978 (16 U.S.C. 824a–3) is
amended by adding at the end the following:
‘‘(m) TERMINATION OF MANDATORY PURCHASE AND
SALE REQUIREMENTS.—
‘‘(1) OBLIGATION
TO
PURCHASE.—After the
date of enactment of this subsection, no electric util-
732
ity shall be required to enter into a new contract or
obligation to purchase electric energy from a quali-
fying cogeneration facility or a qualifying small
power production facility under this section if the
Commission finds that the qualifying cogeneration
facility or qualifying small power production facility
has nondiscriminatory access to—
‘‘(A)(i) independently administered, auc-
tion-based day ahead and real time wholesale
markets for the sale of electric energy; and (ii)
wholesale markets for long-term sales of capac-
ity and electric energy; or
‘‘(B)(i) transmission and interconnection
services that are provided by a Commission-ap-
proved regional transmission entity and admin-
istered pursuant to an open access transmission
tariff that affords nondiscriminatory treatment
to all customers; and (ii) competitive wholesale
markets that provide a meaningful opportunity
to sell capacity, including long-term and short-
term sales, and electric energy, including long-
term, short-term and real-time sales, to buyers
other than the utility to which the qualifying fa-
cility is interconnected. In determining whether
a meaningful opportunity to sell exists, the
733
Commission shall consider, among other fac-
tors, evidence of transactions within the rel-
evant market; or
‘‘(C) wholesale markets for the sale of ca-
pacity and electric energy that are, at a min-
imum, of comparable competitive quality as
markets described in subparagraphs (A) and
(B).
‘‘(2) REVISED PURCHASE AND SALE OBLIGA-
TION FOR NEW FACILITIES.—(A) After the date of
enactment of this subsection, no electric utility shall
be required pursuant to this section to enter into a
new contract or obligation to purchase from or sell
electric energy to a facility that is not an existing
qualifying cogeneration facility unless the facility
meets the criteria for qualifying cogeneration facili-
ties established by the Commission pursuant to the
rulemaking required by subsection (n).
‘‘(B) For the purposes of this paragraph, the
term ‘existing qualifying cogeneration facility’ means
a facility that—
‘‘(i) was a qualifying cogeneration facility
on the date of enactment of subsection (m); or
‘‘(ii) had filed with the Commission a no-
tice of self-certification, self recertification or
734
an application for Commission certification
under 18 C.F.R. 292.207 prior to the date on
which the Commission issues the final rule re-
quired by subsection (n).
‘‘(3) COMMISSION REVIEW.—Any electric utility
may file an application with the Commission for re-
lief from the mandatory purchase obligation pursu-
ant to this subsection on a service territory-wide
basis. Such application shall set forth the factual
basis upon which relief is requested and describe
why the conditions set forth in subparagraphs (A),
(B) or (C) of paragraph (1) of this subsection have
been met. After notice, including sufficient notice to
potentially affected qualifying cogeneration facilities
and qualifying small power production facilities, and
an opportunity for comment, the Commission shall
make a final determination within 90 days of such
application regarding whether the conditions set
forth in subparagraphs (A), (B) or (C) of paragraph
(1) have been met.
‘‘(4) REINSTATEMENT OF OBLIGATION TO PUR-
CHASE.—At any time after the Commission makes a
finding under paragraph (3) relieving an electric
utility of its obligation to purchase electric energy,
a qualifying cogeneration facility, a qualifying small
735
power production facility, a State agency, or any
other affected person may apply to the Commission
for an order reinstating the electric utility’s obliga-
tion to purchase electric energy under this section.
Such application shall set forth the factual basis
upon which the application is based and describe
why the conditions set forth in subparagraphs (A),
(B) or (C) of paragraph (1) of this subsection are
no longer met. After notice, including sufficient no-
tice to potentially affected utilities, and opportunity
for comment, the Commission shall issue an order
within 90 days of such application reinstating the
electric utility’s obligation to purchase electric en-
ergy under this section if the Commission finds that
the conditions set forth in subparagraphs (A), (B) or
(C) of paragraph (1) which relieved the obligation to
purchase, are no longer met.
‘‘(5) OBLIGATION TO SELL.—After the date of
enactment of this subsection, no electric utility shall
be required to enter into a new contract or obliga-
tion to sell electric energy to a qualifying cogenera-
tion facility or a qualifying small power production
facility under this section if the Commission finds
that—
736
‘‘(A) competing retail electric suppliers are
willing and able to sell and deliver electric en-
ergy to the qualifying cogeneration facility or
qualifying small power production facility; and
‘‘(B) the electric utility is not required by
State law to sell electric energy in its service
territory.
‘‘(6) NO
EFFECT
ON
EXISTING
RIGHTS
AND
REMEDIES.—Nothing in this subsection affects the
rights or remedies of any party under any contract
or obligation, in effect or pending approval before
the appropriate State regulatory authority or non-
regulated electric utility on the date of enactment of
this subsection, to purchase electric energy or capac-
ity from or to sell electric energy or capacity to a
qualifying cogeneration facility or qualifying small
power production facility under this Act (including
the right to recover costs of purchasing electric en-
ergy or capacity).
‘‘(7) RECOVERY OF COSTS.—(A) The Commis-
sion shall issue and enforce such regulations as are
necessary to ensure that an electric utility that pur-
chases electric energy or capacity from a qualifying
cogeneration facility or qualifying small power pro-
duction facility in accordance with any legally en-
737
forceable obligation entered into or imposed under
this section recovers all prudently incurred costs as-
sociated with the purchase.
‘‘(B) A regulation under subparagraph (A) shall
be enforceable in accordance with the provisions of
law applicable to enforcement of regulations under
the Federal Power Act (16 U.S.C. 791a et seq.).
‘‘(n) RULEMAKING FOR NEW QUALIFYING FACILI-
TIES.—(1)(A) Not later than 180 days after the date of
enactment of this section, the Commission shall issue a
rule revising the criteria in 18 C.F.R. 292.205 for new
qualifying cogeneration facilities seeking to sell electric en-
ergy pursuant to section 210 of this Act to ensure—
‘‘(i) that the thermal energy output of a new
qualifying cogeneration facility is used in a produc-
tive and beneficial manner;
‘‘(ii) the electrical, thermal, and chemical out-
put of the cogeneration facility is used fundamen-
tally for industrial, commercial, or institutional pur-
poses and is not intended fundamentally for sale to
an electric utility, taking into account technological,
efficiency, economic, and variable thermal energy re-
quirements, as well as State laws applicable to sales
of electric energy from a qualifying facility to its
host facility; and
738
‘‘(iii) continuing progress in the development of
efficient electric energy generating technology.
‘‘(B) The rule issued pursuant to section (n)(1)(A)
shall be applicable only to facilities that seek to sell electric
energy pursuant to section 210 of this Act. For all other
purposes, except as specifically provided in section
(m)(2)(A), qualifying facility status shall be determined
in accordance with the rules and regulations of this Act.
‘‘(2) Notwithstanding rule revisions under paragraph
(1), the Commission’s criteria for qualifying cogeneration
facilities in effect prior to the date on which the Commis-
sion issues the final rule required by paragraph (1) shall
continue to apply to any cogeneration facility that—
‘‘(A) was a qualifying cogeneration facility on
the date of enactment of subsection (m), or
‘‘(B) had filed with the Commission a notice of
self-certification, self-recertification or an application
for Commission certification under 18 C.F.R.
292.207 prior to the date on which the Commission
issues the final rule required by paragraph (1).’’.
(b) ELIMINATION OF OWNERSHIP LIMITATIONS.—
(1) QUALIFYING
SMALL
POWER
PRODUCTION
FACILITY.—Section 3(17)(C) of the Federal Power
Act (16 U.S.C. 796(17)(C)) is amended to read as
follows:
739
‘‘(C) ‘qualifying small power production fa-
cility’ means a small power production facility
that the Commission determines, by rule, meets
such requirements (including requirements re-
specting fuel use, fuel efficiency, and reliability)
as the Commission may, by rule, prescribe;’’.
(2) QUALIFYING
COGENERATION
FACILITY.—
Section 3(18)(B) of the Federal Power Act (16
U.S.C. 796(18)(B)) is amended to read as follows:
‘‘(B) 
‘qualifying 
cogeneration 
facility’
means a cogeneration facility that the Commis-
sion determines, by rule, meets such require-
ments (including requirements respecting min-
imum size, fuel use, and fuel efficiency) as the
Commission may, by rule, prescribe;’’.
Subtitle F—Repeal of PUHCA
SEC. 1261. SHORT TITLE.
This subtitle may be cited as the ‘‘Public Utility
Holding Company Act of 2004’’.
SEC. 1262. DEFINITIONS.
For purposes of this subtitle:
(1) AFFILIATE.—The term ‘‘affiliate’’ of a com-
pany means any company, 5 percent or more of the
outstanding voting securities of which are owned,
740
controlled, or held with power to vote, directly or in-
directly, by such company.
(2) ASSOCIATE COMPANY.—The term ‘‘associate
company’’ of a company means any company in the
same holding company system with such company.
(3) COMMISSION.—The term ‘‘Commission’’
means the Federal Energy Regulatory Commission.
(4) COMPANY.—The term ‘‘company’’ means a
corporation, partnership, association, joint stock
company, business trust, or any organized group of
persons, whether incorporated or not, or a receiver,
trustee, or other liquidating agent of any of the fore-
going.
(5) ELECTRIC
UTILITY
COMPANY.—The term
‘‘electric utility company’’ means any company that
owns or operates facilities used for the generation,
transmission, or distribution of electric energy for
sale.
(6) EXEMPT
WHOLESALE
GENERATOR
AND
FOREIGN
UTILITY
COMPANY.—The terms ‘‘exempt
wholesale generator’’ and ‘‘foreign utility company’’
have the same meanings as in sections 32 and 33,
respectively, of the Public Utility Holding Company
Act of 1935 (15 U.S.C. 79z–5a, 79z–5b), as those
741
sections existed on the day before the effective date
of this subtitle.
(7) GAS
UTILITY
COMPANY.—The term ‘‘gas
utility company’’ means any company that owns or
operates facilities used for distribution at retail
(other than the distribution only in enclosed portable
containers or distribution to tenants or employees of
the company operating such facilities for their own
use and not for resale) of natural or manufactured
gas for heat, light, or power.
(8) HOLDING
COMPANY.—The term ‘‘holding
company’’ means—
(A) any company that directly or indirectly
owns, controls, or holds, with power to vote, 10
percent or more of the outstanding voting secu-
rities of a public-utility company or of a holding
company of any public-utility company; and
(B) any person, determined by the Com-
mission, after notice and opportunity for hear-
ing, to exercise directly or indirectly (either
alone or pursuant to an arrangement or under-
standing with 1 or more persons) such a con-
trolling influence over the management or poli-
cies of any public-utility company or holding
company as to make it necessary or appropriate
742
for the rate protection of utility customers with
respect to rates that such person be subject to
the obligations, duties, and liabilities imposed
by this subtitle upon holding companies.
(9) HOLDING
COMPANY
SYSTEM.—The term
‘‘holding company system’’ means a holding com-
pany, together with its subsidiary companies.
(10) JURISDICTIONAL RATES.—The term ‘‘ju-
risdictional rates’’ means rates accepted or estab-
lished by the Commission for the transmission of
electric energy in interstate commerce, the sale of
electric energy at wholesale in interstate commerce,
the transportation of natural gas in interstate com-
merce, and the sale in interstate commerce of nat-
ural gas for resale for ultimate public consumption
for domestic, commercial, industrial, or any other
use.
(11) NATURAL GAS COMPANY.—The term ‘‘nat-
ural gas company’’ means a person engaged in the
transportation of natural gas in interstate commerce
or the sale of such gas in interstate commerce for
resale.
(12) PERSON.—The term ‘‘person’’ means an
individual or company.
743
(13) PUBLIC UTILITY.—The term ‘‘public util-
ity’’ means any person who owns or operates facili-
ties used for transmission of electric energy in inter-
state commerce or sales of electric energy at whole-
sale in interstate commerce.
(14) PUBLIC-UTILITY
COMPANY.—The term
‘‘public-utility company’’ means an electric utility
company or a gas utility company.
(15) STATE
COMMISSION.—The term ‘‘State
commission’’ means any commission, board, agency,
or officer, by whatever name designated, of a State,
municipality, or other political subdivision of a State
that, under the laws of such State, has jurisdiction
to regulate public utility companies.
(16) SUBSIDIARY COMPANY.—The term ‘‘sub-
sidiary company’’ of a holding company means—
(A) any company, 10 percent or more of
the outstanding voting securities of which are
directly or indirectly owned, controlled, or held
with power to vote, by such holding company;
and
(B) any person, the management or poli-
cies of which the Commission, after notice and
opportunity for hearing, determines to be sub-
ject to a controlling influence, directly or indi-
744
rectly, by such holding company (either alone or
pursuant to an arrangement or understanding
with 1 or more other persons) so as to make it
necessary for the rate protection of utility cus-
tomers with respect to rates that such person
be subject to the obligations, duties, and liabil-
ities imposed by this subtitle upon subsidiary
companies of holding companies.
(17) VOTING SECURITY.—The term ‘‘voting se-
curity’’ means any security presently entitling the
owner or holder thereof to vote in the direction or
management of the affairs of a company.
SEC. 1263. REPEAL OF THE PUBLIC UTILITY HOLDING COM-
PANY ACT OF 1935.
The Public Utility Holding Company Act of 1935 (15
U.S.C. 79 et seq.) is repealed.
SEC. 1264. FEDERAL ACCESS TO BOOKS AND RECORDS.
(a) IN GENERAL.—Each holding company and each
associate company thereof shall maintain, and shall make
available to the Commission, such books, accounts, memo-
randa, and other records as the Commission determines
are relevant to costs incurred by a public utility or natural
gas company that is an associate company of such holding
company and necessary or appropriate for the protection
of utility customers with respect to jurisdictional rates.
745
(b) AFFILIATE COMPANIES.—Each affiliate of a hold-
ing company or of any subsidiary company of a holding
company shall maintain, and shall make available to the
Commission, such books, accounts, memoranda, and other
records with respect to any transaction with another affil-
iate, as the Commission determines are relevant to costs
incurred by a public utility or natural gas company that
is an associate company of such holding company and nec-
essary or appropriate for the protection of utility cus-
tomers with respect to jurisdictional rates.
(c) HOLDING COMPANY SYSTEMS.—The Commission
may examine the books, accounts, memoranda, and other
records of any company in a holding company system, or
any affiliate thereof, as the Commission determines are
relevant to costs incurred by a public utility or natural
gas company within such holding company system and
necessary or appropriate for the protection of utility cus-
tomers with respect to jurisdictional rates.
(d) CONFIDENTIALITY.—No member, officer, or em-
ployee of the Commission shall divulge any fact or infor-
mation that may come to his or her knowledge during the
course of examination of books, accounts, memoranda, or
other records as provided in this section, except as may
be directed by the Commission or by a court of competent
jurisdiction.
746
SEC. 1265. STATE ACCESS TO BOOKS AND RECORDS.
(a) IN GENERAL.—Upon the written request of a
State commission having jurisdiction to regulate a public-
utility company in a holding company system, the holding
company or any associate company or affiliate thereof,
other than such public-utility company, wherever located,
shall produce for inspection books, accounts, memoranda,
and other records that—
(1) have been identified in reasonable detail in
a proceeding before the State commission;
(2) the State commission determines are rel-
evant to costs incurred by such public-utility com-
pany; and
(3) are necessary for the effective discharge of
the responsibilities of the State commission with re-
spect to such proceeding.
(b) LIMITATION.—Subsection (a) does not apply to
any person that is a holding company solely by reason of
ownership of 1 or more qualifying facilities under the Pub-
lic Utility Regulatory Policies Act of 1978 (16 U.S.C.
2601 et seq.).
(c) CONFIDENTIALITY OF INFORMATION.—The pro-
duction of books, accounts, memoranda, and other records
under subsection (a) shall be subject to such terms and
conditions as may be necessary and appropriate to safe-
747
guard against unwarranted disclosure to the public of any
trade secrets or sensitive commercial information.
(d) EFFECT ON STATE LAW.—Nothing in this sec-
tion shall preempt applicable State law concerning the pro-
vision of books, accounts, memoranda, and other records,
or in any way limit the rights of any State to obtain books,
accounts, memoranda, and other records under any other
Federal law, contract, or otherwise.
(e) COURT JURISDICTION.—Any United States dis-
trict court located in the State in which the State commis-
sion referred to in subsection (a) is located shall have ju-
risdiction to enforce compliance with this section.
SEC. 1266. EXEMPTION AUTHORITY.
(a) RULEMAKING.—Not later than 90 days after the
effective date of this subtitle, the Commission shall issue
a final rule to exempt from the requirements of section
1264 (relating to Federal access to books and records) any
person that is a holding company, solely with respect to
1 or more—
(1) qualifying facilities under the Public Utility
Regulatory Policies Act of 1978 (16 U.S.C. 2601 et
seq.);
(2) exempt wholesale generators; or
(3) foreign utility companies.
748
(b) OTHER AUTHORITY.—The Commission shall ex-
empt a person or transaction from the requirements of
section 1264 (relating to Federal access to books and
records) if, upon application or upon the motion of the
Commission—
(1) the Commission finds that the books, ac-
counts, memoranda, and other records of any person
are not relevant to the jurisdictional rates of a pub-
lic utility or natural gas company; or
(2) the Commission finds that any class of
transactions is not relevant to the jurisdictional
rates of a public utility or natural gas company.
SEC. 1267. AFFILIATE TRANSACTIONS.
(a) COMMISSION AUTHORITY UNAFFECTED.—Noth-
ing in this subtitle shall limit the authority of the Commis-
sion under the Federal Power Act (16 U.S.C. 791a et seq.)
to require that jurisdictional rates are just and reasonable,
including the ability to deny or approve the pass through
of costs, the prevention of cross-subsidization, and the
issuance of such rules and regulations as are necessary
or appropriate for the protection of utility consumers.
(b) RECOVERY OF COSTS.—Nothing in this subtitle
shall preclude the Commission or a State commission from
exercising its jurisdiction under otherwise applicable law
to determine whether a public-utility company, public util-
749
ity, or natural gas company may recover in rates any costs
of an activity performed by an associate company, or any
costs of goods or services acquired by such public-utility
company from an associate company.
SEC. 1268. APPLICABILITY.
Except as otherwise specifically provided in this sub-
title, no provision of this subtitle shall apply to, or be
deemed to include—
(1) the United States;
(2) a State or any political subdivision of a
State;
(3) any foreign governmental authority not op-
erating in the United States;
(4) any agency, authority, or instrumentality of
any entity referred to in paragraph (1), (2), or (3);
or
(5) any officer, agent, or employee of any entity
referred to in paragraph (1), (2), (3), or (4) acting
as such in the course of his or her official duty.
SEC. 1269. EFFECT ON OTHER REGULATIONS.
Nothing in this subtitle precludes the Commission or
a State commission from exercising its jurisdiction under
otherwise applicable law to protect utility customers.
750
SEC. 1270. ENFORCEMENT.
The Commission shall have the same powers as set
forth in sections 306 through 317 of the Federal Power
Act (16 U.S.C. 825e–825p) to enforce the provisions of
this subtitle.
SEC. 1271. SAVINGS PROVISIONS.
(a) IN GENERAL.—Nothing in this subtitle, or other-
wise in the Public Utility Holding Company Act of 1935,
or rules, regulations, or orders thereunder, prohibits a per-
son from engaging in or continuing to engage in activities
or transactions in which it is legally engaged or authorized
to engage on the date of enactment of this Act, if that
person continues to comply with the terms (other than an
expiration date or termination date) of any such author-
ization, whether by rule or by order.
(b) EFFECT ON OTHER COMMISSION AUTHORITY.—
Nothing in this subtitle limits the authority of the Com-
mission under the Federal Power Act (16 U.S.C. 791a et
seq.) or the Natural Gas Act (15 U.S.C. 717 et seq.).
SEC. 1272. IMPLEMENTATION.
Not later than 12 months after the date of enactment
of this subtitle, the Commission shall—
(1) issue such regulations as may be necessary
or appropriate to implement this subtitle (other than
section 1265, relating to State access to books and
records); and
751
(2) submit to Congress detailed recommenda-
tions on technical and conforming amendments to
Federal law necessary to carry out this subtitle and
the amendments made by this subtitle.
SEC. 1273. TRANSFER OF RESOURCES.
All books and records that relate primarily to the
functions transferred to the Commission under this sub-
title shall be transferred from the Securities and Exchange
Commission to the Commission.
SEC. 1274. EFFECTIVE DATE.
(a) IN GENERAL.—Except for section 1272 (relating
to implementation), this subtitle shall take effect 12
months after the date of enactment of this subtitle.
(b) COMPLIANCE WITH CERTAIN RULES.—If the
Commission approves and makes effective any final rule-
making modifying the standards of conduct governing en-
tities that own, operate, or control facilities for trans-
mission of electricity in interstate commerce or transpor-
tation of natural gas in interstate commerce prior to the
effective date of this subtitle, any action taken by a public-
utility company or utility holding company to comply with
the requirements of such rulemaking shall not subject
such public-utility company or utility holding company to
any regulatory requirement applicable to a holding com-
752
pany under the Public Utility Holding Company Act of
1935 (15 U.S.C. 79 et seq.).
SEC. 1275. SERVICE ALLOCATION.
(a) FERC REVIEW.—In the case of non-power goods
or administrative or management services provided by an
associate company organized specifically for the purpose
of providing such goods or services to any public utility
in the same holding company system, at the election of
the system or a State commission having jurisdiction over
the public utility, the Commission, after the effective date
of this subtitle, shall review and authorize the allocation
of the costs for such goods or services to the extent rel-
evant to that associate company in order to assure that
each allocation is appropriate for the protection of inves-
tors and consumers of such public utility.
(b) COST ALLOCATION.—Nothing in this section shall
preclude the Commission or a State commission from exer-
cising its jurisdiction under other applicable law with re-
spect to the review or authorization of any costs allocated
to a public utility in a holding company system located
in the affected State as a result of the acquisition of non-
power goods or administrative and management services
by such public utility from an associate company orga-
nized specifically for that purpose.
753
(c) RULES.—Not later than 6 months after the date
of enactment of this Act, the Commission shall issue rules
(which rules shall be effective no earlier than the effective
date of this subtitle) to exempt from the requirements of
this section any company in a holding company system
whose public utility operations are confined substantially
to a single State and any other class of transactions that
the Commission finds is not relevant to the jurisdictional
rates of a public utility.
(d) PUBLIC UTILITY.—As used in this section, the
term ‘‘public utility’’ has the meaning given that term in
section 201(e) of the Federal Power Act.
SEC. 1276. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated such funds
as may be necessary to carry out this subtitle.
SEC. 1277. CONFORMING AMENDMENTS TO THE FEDERAL
POWER ACT.
(a) CONFLICT OF JURISDICTION.—Section 318 of the
Federal Power Act (16 U.S.C. 825q) is repealed.
(b) DEFINITIONS.—(1) Section 201(g)(5) of the Fed-
eral Power Act (16 U.S.C. 824(g)(5)) is amended by strik-
ing ‘‘1935’’ and inserting ‘‘2003’’.
(2) Section 214 of the Federal Power Act (16 U.S.C.
824m) is amended by striking ‘‘1935’’ and inserting
‘‘2003’’.
754
Subtitle G—Market Transparency,
Enforcement, 
and 
Consumer
Protection
SEC. 1281. MARKET TRANSPARENCY RULES.
Part II of the Federal Power Act (16 U.S.C. 824 et
seq.) is amended by adding at the end the following:
‘‘SEC. 220. MARKET TRANSPARENCY RULES.
‘‘(a) IN GENERAL.—Not later than 180 days after
the date of enactment of this section, the Commission
shall issue rules establishing an electronic information sys-
tem to provide the Commission and the public with access
to such information as is necessary or appropriate to fa-
cilitate price transparency and participation in markets
subject to the Commission’s jurisdiction under this Act.
Such systems shall provide information about the avail-
ability and market price of wholesale electric energy and
transmission services to the Commission, State commis-
sions, buyers and sellers of wholesale electric energy, users
of transmission services, and the public on a timely basis.
The Commission shall have authority to obtain such infor-
mation from any electric utility or transmitting utility, in-
cluding any entity described in section 201(f).
‘‘(b) EXEMPTIONS.—The Commission shall exempt
from disclosure information it determines would, if dis-
closed, be detrimental to the operation of an effective mar-
755
ket or jeopardize system security. This section shall not
apply to transactions for the purchase or sale of wholesale
electric energy or transmission services within the area de-
scribed in section 212(k)(2)(A). In determining the infor-
mation to be made available under this section and time
to make such information available, the Commission shall
seek to ensure that consumers and competitive markets
are protected from the adverse effects of potential collu-
sion or other anti-competitive behaviors that can be facili-
tated by untimely public disclosure of transaction-specific
information.
‘‘(c) COMMODITY
FUTURES
TRADING
COMMIS-
SION.—This section shall not affect the exclusive jurisdic-
tion of the Commodity Futures Trading Commission with
respect to accounts, agreements, contracts, or transactions
in commodities under the Commodity Exchange Act (7
U.S.C. 1 et seq.). Any request for information to a des-
ignated contract market, registered derivatives transaction
execution facility, board of trade, exchange, or market in-
volving accounts, agreements, contracts, or transactions in
commodities (including natural gas, electricity and other
energy commodities) within the exclusive jurisdiction of
the Commodity Futures Trading Commission shall be di-
rected to the Commodity Futures Trading Commission.
756
‘‘(d) SAVINGS PROVISION.—In exercising its author-
ity under this section, the Commission shall not—
‘‘(1) compete with, or displace from the market
place, any price publisher; or
‘‘(2) regulate price publishers or impose any re-
quirements on the publication of information.’’.
SEC. 1282. MARKET MANIPULATION.
Part II of the Federal Power Act (16 U.S.C. 824 et
seq.) is amended by adding at the end the following:
‘‘SEC. 221. PROHIBITION ON FILING FALSE INFORMATION.
‘‘No person or other entity (including an entity de-
scribed in section 201(f)) shall willfully and knowingly re-
port any information relating to the price of electricity
sold at wholesale or availability of transmission capacity,
which information the person or any other entity knew to
be false at the time of the reporting, to a Federal agency
with intent to fraudulently affect the data being compiled
by such Federal agency.
‘‘SEC. 222. PROHIBITION ON ROUND TRIP TRADING.
‘‘(a) PROHIBITION.—No person or other entity (in-
cluding an entity described in section 201(f)) shall willfully
and knowingly enter into any contract or other arrange-
ment to execute a ‘round trip trade’ for the purchase or
sale of electric energy at wholesale.
757
‘‘(b) DEFINITION.—For the purposes of this section,
the term ‘round trip trade’ means a transaction, or com-
bination of transactions, in which a person or any other
entity—
‘‘(1) enters into a contract or other arrange-
ment to purchase from, or sell to, any other person
or other entity electric energy at wholesale;
‘‘(2) simultaneously with entering into the con-
tract or arrangement described in paragraph (1), ar-
ranges a financially offsetting trade with such other
person or entity for the same such electric energy,
at the same location, price, quantity and terms so
that, collectively, the purchase and sale transactions
in themselves result in no financial gain or loss; and
‘‘(3) enters into the contract or arrangement
with a specific intent to fraudulently affect reported
revenues, trading volumes, or prices.’’.
SEC. 1283. ENFORCEMENT.
(a) COMPLAINTS.—Section 306 of the Federal Power
Act (16 U.S.C. 825e) is amended as follows:
(1) By inserting ‘‘electric utility,’’ after ‘‘Any
person,’’.
(2) By inserting ‘‘, transmitting utility,’’ after
‘‘licensee’’ each place it appears.
758
(b) REVIEW
OF
COMMISSION
ORDERS.—Section
313(a) of the Federal Power Act (16 U.S.C. 8251) is
amended by inserting ‘‘electric utility,’’ after ‘‘person,’’ in
the first 2 places it appears and by striking ‘‘any person
unless such person’’ and inserting ‘‘any entity unless such
entity’’.
(c) INVESTIGATIONS.—Section 307(a) of the Federal
Power Act (16 U.S.C. 825f(a)) is amended as follows:
(1) By inserting ‘‘, electric utility, transmitting
utility, or other entity’’ after ‘‘person’’ each time it
appears.
(2) By striking the period at the end of the
first sentence and inserting the following: ‘‘or in ob-
taining information about the sale of electric energy
at wholesale in interstate commerce and the trans-
mission of electric energy in interstate commerce.’’.
(d) CRIMINAL PENALTIES.—Section 316 of the Fed-
eral Power Act (16 U.S.C. 825o) is amended—
(1) in subsection (a), by striking ‘‘$5,000’’ and
inserting ‘‘$1,000,000’’, and by striking ‘‘two years’’
and inserting ‘‘5 years’’;
(2) in subsection (b), by striking ‘‘$500’’ and
inserting ‘‘$25,000’’; and
(3) by striking subsection (c).
759
(e) CIVIL PENALTIES.—Section 316A of the Federal
Power Act (16 U.S.C. 825o–1) is amended as follows:
(1) In subsections (a) and (b), by striking ‘‘sec-
tion 211, 212, 213, or 214’’ each place it appears
and inserting ‘‘Part II’’.
(2) In subsection (b), by striking ‘‘$10,000’’
and inserting ‘‘$1,000,000’’.
SEC. 1284. REFUND EFFECTIVE DATE.
Section 206(b) of the Federal Power Act (16 U.S.C.
824e(b)) is amended as follows:
(1) By striking ‘‘the date 60 days after the fil-
ing of such complaint nor later than 5 months after
the expiration of such 60-day period’’ in the second
sentence and inserting ‘‘the date of the filing of such
complaint nor later than 5 months after the filing of
such complaint’’.
(2) By striking ‘‘60 days after’’ in the third
sentence and inserting ‘‘of’’.
(3) By striking ‘‘expiration of such 60-day pe-
riod’’ in the third sentence and inserting ‘‘publica-
tion date’’.
(4) By striking the fifth sentence and inserting
the following: ‘‘If no final decision is rendered by the
conclusion of the 180-day period commencing upon
initiation of a proceeding pursuant to this section,
760
the Commission shall state the reasons why it has
failed to do so and shall state its best estimate as
to when it reasonably expects to make such deci-
sion.’’.
SEC. 1285. REFUND AUTHORITY.
Section 206 of the Federal Power Act (16 U.S.C.
824e) is amended by adding the following new subsection
at the end thereof:
‘‘(e)(1) Except as provided in paragraph (2), if an
entity described in section 201(f) voluntarily makes a
short-term sale of electric energy and the sale violates
Commission rules in effect at the time of the sale, such
entity shall be subject to the Commission’s refund author-
ity under this section with respect to such violation.
‘‘(2) This section shall not apply to—
‘‘(A) any entity that sells less than 8,000,000
megawatt hours of electricity per year; or
‘‘(B) any electric cooperative.
‘‘(3) For purposes of this subsection, the term ‘short-
term sale’ means an agreement for the sale of electric en-
ergy at wholesale in interstate commerce that is for a pe-
riod of 31 days or less (excluding monthly contracts sub-
ject to automatic renewal).
‘‘(4) The Commission shall have refund authority
under subsection (e)(1) with respect to a voluntary short-
761
term sale of electric energy by the Bonneville Power Ad-
ministration (in this section ‘Bonneville’) only if the sale
is at an unjust and unreasonable rate and, in that event,
may order a refund only for short-term sales made by
Bonneville at rates that are higher than the highest just
and reasonable rate charged by any other entity for a
short-term sale of electric energy in the same geographic
market for the same, or most nearly comparable, period
as the sale by Bonneville.
‘‘(5) With respect to any Federal power marketing
agency or the Tennessee Valley Authority, the Commission
shall not assert or exercise any regulatory authority or
powers under subsection (e)(1) other than the ordering of
refunds to achieve a just and reasonable rate.’’.
SEC. 1286. SANCTITY OF CONTRACT.
(a) IN GENERAL.—The Federal Energy Regulatory
Commission (in this section, ‘‘the Commission’’) shall have
no authority to abrogate or modify any provision of an
executed contract or executed contract amendment de-
scribed in subsection (b) that has been entered into or
taken effect, except upon a finding that failure to take
such action would be contrary to the public interest.
(b) LIMITATION.—Except as provided in subsection
(c), this section shall apply only to a contract or contract
amendment—
762
(1) executed on or after the date of enactment
of this Act; and
(2) entered into—
(A) for the purchase or sale of electric en-
ergy under section 205 of the Federal Power
Act (16 U.S.C. 824d) where the seller has been
authorized by the Commission to charge mar-
ket-based rates; or
(B) under section 4 of the Natural Gas
Act (15 U.S.C. 717c) where the natural gas
company has been authorized by the Commis-
sion to charge market-based rates for the serv-
ice described in the contract.
(c) EXCLUSION.—This section shall not apply to an
executed contract or executed contract amendment that
expressly provides for a standard of review other than the
public interest standard.
(d) SAVINGS PROVISION.—With respect to contracts
to which this section does not apply, nothing in this sec-
tion alters existing law regarding the applicable standard
of review for a contract subject to the jurisdiction of the
Commission.
763
SEC. 1287. CONSUMER PRIVACY AND UNFAIR TRADE PRAC-
TICES.
(a) PRIVACY.—The Federal Trade Commission may
issue rules protecting the privacy of electric consumers
from the disclosure of consumer information obtained in
connection with the sale or delivery of electric energy to
electric consumers.
(b) SLAMMING.—The Federal Trade Commission
may issue rules prohibiting the change of selection of an
electric utility except with the informed consent of the
electric consumer or if approved by the appropriate State
regulatory authority.
(c) CRAMMING.—The Federal Trade Commission
may issue rules prohibiting the sale of goods and services
to an electric consumer unless expressly authorized by law
or the electric consumer.
(d) RULEMAKING.—The Federal Trade Commission
shall proceed in accordance with section 553 of title 5,
United States Code, when prescribing a rule under this
section.
(e) STATE AUTHORITY.—If the Federal Trade Com-
mission determines that a State’s regulations provide
equivalent or greater protection than the provisions of this
section, such State regulations shall apply in that State
in lieu of the regulations issued by the Commission under
this section.
764
(f) DEFINITIONS.—For purposes of this section:
(1) STATE
REGULATORY
AUTHORITY.—The
term ‘‘State regulatory authority’’ has the meaning
given that term in section 3(21) of the Federal
Power Act (16 U.S.C. 796(21)).
(2) ELECTRIC CONSUMER AND ELECTRIC UTIL-
ITY.—The terms ‘‘electric consumer’’ and ‘‘electric
utility’’ have the meanings given those terms in sec-
tion 3 of the Public Utility Regulatory Policies Act
of 1978 (16 U.S.C. 2602).
Subtitle H—Merger Reform
SEC. 1291. MERGER REVIEW REFORM AND ACCOUNT-
ABILITY.
(a) MERGER REVIEW REFORM.—Within 180 days
after the date of enactment of this Act, the Secretary of
Energy, in consultation with the Federal Energy Regu-
latory Commission and the Attorney General of the United
States, shall prepare, and transmit to Congress each of
the following:
(1) A study of the extent to which the authori-
ties vested in the Federal Energy Regulatory Com-
mission under section 203 of the Federal Power Act
are duplicative of authorities vested in—
(A) other agencies of Federal and State
Government; and
765
(B) the Federal Energy Regulatory Com-
mission, including under sections 205 and 206
of the Federal Power Act.
(2) Recommendations on reforms to the Fed-
eral Power Act that would eliminate any unneces-
sary duplication in the exercise of regulatory author-
ity or unnecessary delays in the approval (or dis-
approval) of applications for the sale, lease, or other
disposition of public utility facilities.
(b) MERGER REVIEW ACCOUNTABILITY.—Not later
than 1 year after the date of enactment of this Act and
annually thereafter, with respect to all orders issued with-
in the preceding year that impose a condition on a sale,
lease, or other disposition of public utility facilities under
section 203(b) of the Federal Power Act, the Federal En-
ergy Regulatory Commission shall transmit a report to
Congress explaining each of the following:
(1) The condition imposed.
(2) Whether the Commission could have im-
posed such condition by exercising its authority
under any provision of the Federal Power Act other
than under section 203(b).
(3) If the Commission could not have imposed
such condition other than under section 203(b), why
766
the Commission determined that such condition was
consistent with the public interest.
SEC. 1292. ELECTRIC UTILITY MERGERS.
(a) AMENDMENT.—Section 203(a) of the Federal
Power Act (16 U.S.C. 824b(a)) is amended to read as fol-
lows:
‘‘(a)(1) No public utility shall, without first having
secured an order of the Commission authorizing it to do
so—
‘‘(A) sell, lease, or otherwise dispose of the
whole of its facilities subject to the jurisdiction of
the Commission, or any part thereof of a value in
excess of $10,000,000;
‘‘(B) merge or consolidate, directly or indi-
rectly, such facilities or any part thereof with those
of any other person, by any means whatsoever; or
‘‘(C) purchase, acquire, or take any security
with a value in excess of $10,000,000 of any other
public utility.
‘‘(2) No holding company in a holding company sys-
tem that includes a public utility shall purchase, acquire,
or take any security with a value in excess of $10,000,000
of, or, by any means whatsoever, directly or indirectly,
merge or consolidate with, a public utility or a holding
company in a holding company system that includes a
767
public utility with a value in excess of $10,000,000 with-
out first having secured an order of the Commission au-
thorizing it to do so.
‘‘(3) Upon receipt of an application for such approval
the Commission shall give reasonable notice in writing to
the Governor and State commission of each of the States
in which the physical property affected, or any part there-
of, is situated, and to such other persons as it may deem
advisable.
‘‘(4) After notice and opportunity for hearing, the
Commission shall approve the proposed disposition, con-
solidation, acquisition, or change in control, if it finds that
the proposed transaction will be consistent with the public
interest. In evaluating whether a transaction will be con-
sistent with the public interest, the Commission shall con-
sider whether the proposed transaction—
‘‘(A) will adequately protect consumer interests;
‘‘(B) will be consistent with competitive whole-
sale markets;
‘‘(C) will impair the financial integrity of any
public utility that is a party to the transaction or an
associate company of any party to the transaction;
and
‘‘(D) satisfies such other criteria as the Com-
mission considers consistent with the public interest.
768
‘‘(5) The Commission shall, by rule, adopt procedures
for the expeditious consideration of applications for the
approval of dispositions, consolidations, or acquisitions
under this section. Such rules shall identify classes of
transactions, or specify criteria for transactions, that nor-
mally meet the standards established in paragraph (4).
The Commission shall provide expedited review for such
transactions. The Commission shall grant or deny any
other application for approval of a transaction not later
than 180 days after the application is filed. If the Com-
mission does not act within 180 days, such application
shall be deemed granted unless the Commission finds,
based on good cause, that further consideration is required
to determine whether the proposed transaction meets the
standards of paragraph (4) and issues an order tolling the
time for acting on the application for not more than 180
days, at the end of which additional period the Commis-
sion shall grant or deny the application.
‘‘(6) For purposes of this subsection, the terms ‘asso-
ciate company’, ‘holding company’, and ‘holding company
system’ have the meaning given those terms in the Public
Utility Holding Company Act of 2004.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect 12 months after the date of
enactment of this section.
769
Subtitle I—Definitions
SEC. 1295. DEFINITIONS.
(a) ELECTRIC UTILITY.—Section 3(22) of the Fed-
eral Power Act (16 U.S.C. 796(22)) is amended to read
as follows:
‘‘(22) ELECTRIC UTILITY.—The term ‘electric
utility’ means any person or Federal or State agency
(including any entity described in section 201(f))
that sells electric energy; such term includes the
Tennessee Valley Authority and each Federal power
marketing administration.’’.
(b) TRANSMITTING UTILITY.—Section 3(23) of the
Federal Power Act (16 U.S.C. 796(23)) is amended to
read as follows:
‘‘(23) 
TRANSMITTING
UTILITY.—The 
term
‘transmitting utility’ means an entity, including any
entity described in section 201(f), that owns, oper-
ates, or controls facilities used for the transmission
of electric energy—
‘‘(A) in interstate commerce; or
‘‘(B) for the sale of electric energy at
wholesale.’’.
(c) ADDITIONAL DEFINITIONS.—Section 3 of the
Federal Power Act (16 U.S.C. 796) is amended by adding
at the end the following:
770
‘‘(26) ELECTRIC
COOPERATIVE.—The term
‘electric cooperative’ means a cooperatively owned
electric utility.
‘‘(27) RTO.—The term ‘Regional Transmission
Organization’ or ‘RTO’ means an entity of sufficient
regional scope approved by the Commission to exer-
cise operational or functional control of facilities
used for the transmission of electric energy in inter-
state commerce and to ensure nondiscriminatory ac-
cess to such facilities.
‘‘(28) ISO.—The term ‘Independent System
Operator’ or ‘ISO’ means an entity approved by the
Commission to exercise operational or functional
control of facilities used for the transmission of elec-
tric energy in interstate commerce and to ensure
nondiscriminatory access to such facilities.’’.
(d) COMMISSION.—For the purposes of this title, the
term ‘‘Commission’’ means the Federal Energy Regu-
latory Commission.
(e) APPLICABILITY.—Section 201(f) of the Federal
Power Act (16 U.S.C. 824(f)) is amended by adding after
‘‘political subdivision of a state,’’ the following: ‘‘an elec-
tric cooperative that has financing under the Rural Elec-
trification Act of 1936 (7 U.S.C. 901 et seq.) or that sells
771
less than 4,000,000 megawatt hours of electricity per
year,’’.
Subtitle J—Technical and
Conforming Amendments
SEC. 1297. CONFORMING AMENDMENTS.
The Federal Power Act is amended as follows:
(1) Section 201(b)(2) of such Act (16 U.S.C.
824(b)(2)) is amended as follows:
(A) In the first sentence by striking ‘‘210,
211, and 212’’ and inserting ‘‘203(a)(2),
206(e), 210, 211, 211A, 212, 215, 216, 217,
218, 219, 220, 221, and 222’’.
(B) In the second sentence by striking
‘‘210 or 211’’ and inserting ‘‘203(a)(2), 206(e),
210, 211, 211A, 212, 215, 216, 217, 218, 219,
220, 221, and 222’’.
(C) Section 201(b)(2) of such Act is
amended by striking ‘‘The’’ in the first place it
appears and inserting ‘‘Notwithstanding section
201(f), the’’ and in the second sentence after
‘‘any order’’ by inserting ‘‘or rule’’.
(2) Section 201(e) of such Act is amended by
striking ‘‘210, 211, or 212’’ and inserting ‘‘206(e),
206(f), 210, 211, 211A, 212, 215, 216, 217, 218,
219, 220, 221, and 222’’.
772
(3) Section 206 of such Act (16 U.S.C. 824e)
is amended as follows:
(A) In subsection (b), in the seventh sen-
tence, by striking ‘‘the public utility to make’’.
(B) In the first sentence of subsection (a),
by striking ‘‘hearing had’’ and inserting ‘‘hear-
ing held’’.
(4) Section 211(c) of such Act (16 U.S.C.
824j(c)) is amended by—
(A) striking ‘‘(2)’’;
(B) striking ‘‘(A)’’ and inserting ‘‘(1)’’
(C) striking ‘‘(B)’’ and inserting ‘‘(2)’’;
and
(D) striking ‘‘termination of modification’’
and inserting ‘‘termination or modification’’.
(5) Section 211(d)(1) of such Act (16 U.S.C.
824j(d)(1)) is amended by striking ‘‘electric utility’’
the second time it appears and inserting ‘‘transmit-
ting utility’’.
(6) Section 315 (c) of such Act (16 U.S.C.
825n(c)) is amended by striking ‘‘subsection’’ and
inserting ‘‘section’’.
773
TITLE XIII—ENERGY TAX
INCENTIVES
SEC. 1300. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This title may be cited as the
‘‘Energy Tax Policy Act of 2004’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this title 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.
Subtitle A—Conservation
PART I—RESIDENTIAL AND BUSINESS PROPERTY
SEC. 1301. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT
PROPERTY.
(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 ENERGY EFFICIENT 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—
774
‘‘(1) 15 percent of the qualified solar water
heating property expenditures made by the taxpayer
during such year,
‘‘(2) 15 percent of the qualified photovoltaic
property expenditures made by the taxpayer during
such year,
‘‘(3) 15 percent of the qualified wind energy
property expenditures made by the taxpayer during
such year, and
‘‘(4) 20 percent of the qualified fuel cell prop-
erty expenditures made by the taxpayer during such
year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN
GENERAL.—The credit allowed
under subsection (a) shall not exceed—
‘‘(i) $2,000 for property described in
paragraph (1), (2), or (3) of subsection
(c), and
‘‘(ii) $500 for each 0.5 kilowatt of ca-
pacity of property described in subsection
(c)(4).
‘‘(B) PRIOR EXPENDITURES BY TAXPAYER
ON SAME RESIDENCE TAKEN INTO ACCOUNT.—
In determining the amount of the credit allowed
775
to a taxpayer with respect to any dwelling unit
under this section, the dollar amount under
subparagraph (A)(i) with respect to each type
of property described in such subparagraph
shall be reduced by the credit allowed to the
taxpayer under this section with respect to such
property for all preceding taxable years with re-
spect to such dwelling unit.
‘‘(2) PROPERTY STANDARDS.—No credit shall
be allowed under this section for an item of property
unless—
‘‘(A) the original use of such property com-
mences with the taxpayer,
‘‘(B) such property reasonably can be ex-
pected to remain in use for at least 5 years,
‘‘(C) such property is installed on or in
connection with a dwelling unit located in the
United States and used as a residence by the
taxpayer,
‘‘(D) in the case of solar water heating
property, such property is certified for perform-
ance by the non-profit Solar Rating and Certifi-
cation Corporation or a comparable entity en-
dorsed by the government of the State in which
such property is installed,
776
‘‘(E) in the case of fuel cell property, such
property meets the performance and quality
standards (if any) which have been prescribed
by the Secretary by regulations (after consulta-
tion with the Secretary of Energy), and
‘‘(F) in the case of any photovoltaic prop-
erty, fuel cell property, or wind energy property,
such property meets appropriate fire and elec-
tric 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 which uses solar energy to
heat water for use in a dwelling unit.
‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property
which uses solar energy to generate electricity for
use in a dwelling unit and which is not described in
paragraph (1).
‘‘(3) QUALIFIED WIND ENERGY PROPERTY EX-
PENDITURE.—The term ‘qualified wind energy prop-
erty expenditure’ means an expenditure for property
777
which uses wind energy to generate electricity for
use in a dwelling unit.
‘‘(4) QUALIFIED
FUEL
CELL
PROPERTY
EX-
PENDITURE.—The term ‘qualified fuel cell property
expenditure’ means an expenditure for any qualified
fuel cell property (as defined in section 48(c)(1)).
‘‘(d) SPECIAL
RULES.—For purposes of this
section—
‘‘(1) 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) of subsection
(c) solely because it constitutes a structural compo-
nent of the structure on which it is installed.
‘‘(2) 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.
‘‘(3) 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 fol-
lowing rules shall apply:
778
‘‘(A) The amount of the credit allowable
under subsection (a) by reason of expenditures
made during such calendar year by any of such
individuals with respect to such dwelling unit
shall be determined by treating all of such indi-
viduals 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.
‘‘(C) Subparagraphs (A) and (B) shall be
applied separately with respect to expenditures
described in paragraphs (1), (2), (3), and (4) of
subsection (c).
‘‘(4) 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
779
defined in such section), such individual shall be
treated as having made the individual’s tenant-stock-
holder’s proportionate share (as defined in section
216(b)(3)) of any expenditures of such corporation.
‘‘(5) 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 the individual owns, such indi-
vidual shall be treated as having made the indi-
vidual’s 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.
‘‘(6) ALLOCATION IN CERTAIN CASES.—Except
in the case of qualified wind energy property expend-
itures, if less than 80 percent of the use of an item
is for nonbusiness purposes, only that portion of the
expenditures for such item which is properly allo-
780
cable to use for nonbusiness purposes shall be taken
into account.
‘‘(7) 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.
‘‘(8) 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
into account expenditures which are made from sub-
sidized energy financing (as defined in section
48(a)(4)(C)).
781
‘‘(9) DENIAL OF DEPRECIATION ON WIND EN-
ERGY PROPERTY FOR WHICH CREDIT ALLOWED.—
No deduction shall be allowed under section 167 for
property which uses wind energy to generate elec-
tricity if the taxpayer is allowed a credit under this
section with respect to such property.
‘‘(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) Section 1016(a) 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 following 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.’’.
782
(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 energy efficient property.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2003.
SEC. 1302. EXTENSION AND EXPANSION OF CREDIT FOR
ELECTRICITY PRODUCED FROM CERTAIN RE-
NEWABLE RESOURCES.
(a) EXPANSION
OF
QUALIFIED
ENERGY
RE-
SOURCES.—Subsection (c) of section 45 (relating to elec-
tricity produced from certain renewable resources) is
amended to read as follows:
‘‘(c) QUALIFIED ENERGY RESOURCES.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified energy
resources’ means—
‘‘(A) wind,
‘‘(B) closed-loop biomass,
‘‘(C) open-loop biomass,
‘‘(D) geothermal energy,
‘‘(E) solar energy,
‘‘(F) small irrigation power, and
‘‘(G) municipal solid waste.
783
‘‘(2) 
CLOSED-LOOP
BIOMASS.—The 
term
‘closed-loop biomass’ means any organic material
from a plant which is planted exclusively for pur-
poses of being used at a qualified facility to produce
electricity.
‘‘(3) OPEN-LOOP BIOMASS.—
‘‘(A) IN GENERAL.—The term ‘open-loop
biomass’ means—
‘‘(i) any agricultural livestock waste
nutrients, or
‘‘(ii) any solid, nonhazardous, cel-
lulosic waste material which is segregated
from other waste materials and which is
derived from—
‘‘(I) any of the following forest-
related resources: mill and harvesting
residues, 
precommercial 
thinnings,
slash, and brush,
‘‘(II) solid wood waste materials,
including 
waste 
pallets, 
crates,
dunnage, manufacturing and con-
struction wood wastes (other than
pressure-treated, 
chemically-treated,
or painted wood wastes), and land-
scape or right-of-way tree trimmings,
784
but not including municipal solid
waste, gas derived from the bio-
degradation of solid waste, or paper
which is commonly recycled, or
‘‘(III) agriculture sources, includ-
ing orchard tree crops, vineyard,
grain, legumes, sugar, and other crop
by-products or residues.
Such term shall not include closed-loop biomass.
‘‘(B) AGRICULTURAL
LIVESTOCK
WASTE
NUTRIENTS.—
‘‘(i) IN GENERAL.—The term ‘agricul-
tural livestock waste nutrients’ means agri-
cultural livestock manure and litter, includ-
ing wood shavings, straw, rice hulls, and
other bedding material for the disposition
of manure.
‘‘(ii) AGRICULTURAL
LIVESTOCK.—
The term ‘agricultural livestock’ includes
bovine, swine, poultry, and sheep.
‘‘(4) GEOTHERMAL ENERGY.—The term ‘geo-
thermal energy’ means energy derived from a geo-
thermal deposit (within the meaning of section
613(e)(2)).
785
‘‘(5) SMALL
IRRIGATION
POWER.—The term
‘small irrigation power’ means power—
‘‘(A) generated without any dam or im-
poundment of water through an irrigation sys-
tem canal or ditch, and
‘‘(B) the nameplate capacity rating of
which is not less than 150 kilowatts but is less
than 5 megawatts.
‘‘(6) MUNICIPAL
SOLID
WASTE.—The term
‘municipal solid waste’ has the meaning given the
term ‘solid waste’ under section 2(27) of the Solid
Waste Disposal Act (42 U.S.C. 6903).’’.
(b) EXTENSION AND EXPANSION OF QUALIFIED FA-
CILITIES.—
(1) IN GENERAL.—Section 45 is amended by
redesignating subsection (d) as subsection (e) and by
inserting after subsection (c) the following new sub-
section:
‘‘(d) QUALIFIED FACILITIES.—For purposes of this
section—
‘‘(1) WIND FACILITY.—In the case of a facility
using wind to produce electricity, the term ‘qualified
facility’ means any facility owned by the taxpayer
which is originally placed in service after December
31, 1993, and before January 1, 2007.
786
‘‘(2) CLOSED-LOOP BIOMASS FACILITY.—
‘‘(A) IN GENERAL.—In the case of a facil-
ity using closed-loop biomass to produce elec-
tricity, the term ‘qualified facility’ means any
facility—
‘‘(i) owned by the taxpayer which is
originally placed in service after December
31, 1992, and before January 1, 2007, or
‘‘(ii) owned by the taxpayer which be-
fore January 1, 2007, is originally placed
in service and modified to use closed-loop
biomass to co-fire with coal, with other bio-
mass, or with both, but only if the modi-
fication is approved under the Biomass
Power for Rural Development Programs or
is part of a pilot project of the Commodity
Credit Corporation as described in 65 Fed.
Reg. 63052.
‘‘(B) SPECIAL RULES.—In the case of a
qualified facility described in subparagraph
(A)(ii)—
‘‘(i) the 10-year period referred to in
subsection (a) shall be treated as beginning
no earlier than the date of the enactment
of the Energy Tax Policy Act of 2004,
787
‘‘(ii) the amount of the credit deter-
mined under subsection (a) with respect to
the facility shall be an amount equal to the
amount determined without regard to this
clause multiplied by the ratio of the ther-
mal content of the closed-loop biomass
used in such facility to the thermal content
of all fuels used in such facility, and
‘‘(iii) if the owner of such facility is
not the producer of the electricity, the per-
son eligible for the credit allowable under
subsection (a) shall be the lessee or the op-
erator of such facility.
‘‘(3) OPEN-LOOP BIOMASS FACILITIES.—
‘‘(A) IN GENERAL.—In the case of a facil-
ity using open-loop biomass to produce elec-
tricity, the term ‘qualified facility’ means any
facility owned by the taxpayer which—
‘‘(i) in the case of a facility using ag-
ricultural livestock waste nutrients—
‘‘(I) is originally placed in service
after the date of the enactment of the
Energy Tax Policy Act of 2004 and
before January 1, 2007, and
788
‘‘(II) the nameplate capacity rat-
ing of which is not less than 150 kilo-
watts, and
‘‘(ii) in the case of any other facility,
is originally placed in service before Janu-
ary 1, 2007.
‘‘(B) CREDIT ELIGIBILITY.—In the case of
any facility described in subparagraph (A), if
the owner of such facility is not the producer of
the electricity, the person eligible for the credit
allowable under subsection (a) shall be the les-
see or the operator of such facility.
‘‘(4) GEOTHERMAL OR SOLAR ENERGY FACIL-
ITY.—In the case of a facility using geothermal or
solar energy to produce electricity, the term ‘quali-
fied facility’ means any facility owned by the tax-
payer which is originally placed in service after the
date of the enactment of the Energy Tax Policy Act
of 2004 and before January 1, 2007. Such term
shall not include any property described in section
48(a)(3) the basis of which is taken into account by
the taxpayer for purposes of determining the energy
credit under section 48.
‘‘(5) SMALL IRRIGATION POWER FACILITY.—In
the case of a facility using small irrigation power to
789
produce electricity, the term ‘qualified facility’
means any facility owned by the taxpayer which is
originally placed in service after the date of the en-
actment of the Energy Tax Policy Act of 2004 and
before January 1, 2007.
‘‘(6) LANDFILL GAS FACILITIES.—In the case
of a facility producing electricity from gas derived
from the biodegradation of municipal solid waste,
the term ‘qualified facility’ means any facility owned
by the taxpayer which is originally placed in service
after the date of the enactment of the Energy Tax
Policy Act of 2004 and before January 1, 2007.
‘‘(7) 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 service after the date of the en-
actment of the Energy Tax Policy Act of 2004 and
before January 1, 2007.’’.
(2) CONFORMING AMENDMENT.—Section 45(e),
as so redesignated, is amended by striking ‘‘sub-
section (c)(3)(A)’’ in paragraph (7)(A)(i) and insert-
ing ‘‘subsection (d)(1)’’.
(c) SPECIAL CREDIT RATE AND PERIOD FOR ELEC-
TRICITY
PRODUCED
AND
SOLD
AFTER
ENACTMENT
790
DATE.—Section 45(b) is amended by adding at the end
the following new paragraph:
‘‘(4) CREDIT
RATE
AND
PERIOD
FOR
ELEC-
TRICITY PRODUCED AND SOLD FROM CERTAIN FA-
CILITIES.—
‘‘(A) CREDIT RATE.—In the case of elec-
tricity produced and sold in any calendar year
after 2003 at any qualified facility described in
paragraph (3), (5), (6), or (7) of subsection (d),
the amount in effect under subsection (a)(1) for
such calendar year (determined before the ap-
plication of the last sentence of paragraph (2)
of this subsection) shall be reduced by one-
third.
‘‘(B) CREDIT PERIOD.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in the case of any facil-
ity described in paragraph (3), (4), (5),
(6), or (7) of subsection (d), the 5-year pe-
riod beginning on the date the facility was
originally placed in service shall be sub-
stituted for the 10-year period in sub-
section (a)(2)(A)(ii).
‘‘(ii) CERTAIN
OPEN-LOOP
BIOMASS
FACILITIES.—In the case of any facility de-
791
scribed in subsection (d)(3)(A)(ii) placed in
service before the date of the enactment of
this paragraph, the 5-year period begin-
ning on January 1, 2004, shall be sub-
stituted for the 10-year period in sub-
section (a)(2)(A)(ii).’’.
(d) COORDINATION WITH OTHER CREDITS.—Section
45(e), as so redesignated, is amended by adding at the
end the following new paragraph:
‘‘(8) COORDINATION WITH OTHER CREDITS.—
The term ‘qualified facility’ shall not include—
‘‘(A) any property with respect to which a
credit is allowed under section 25C, and
‘‘(B) any facility the production from
which is allowed as a credit under section 45K,
for the taxable year or any prior taxable year.’’.
(e) COORDINATION
WITH
SECTION
48.—Section
48(a)(3) (defining energy property) is amended by adding
at the end the following new sentence: ‘‘Such term shall
not include any property which is part of a facility the
production from which is allowed as a credit under section
45 for the taxable year or any prior taxable year.’’.
(f) ELIMINATION
OF
CERTAIN
CREDIT
REDUC-
TIONS.—Section 45(b)(3) (relating to credit reduced for
792
grants, tax-exempt bonds, subsidized energy financing,
and other credits) is amended—
(1) by inserting ‘‘the lesser of 1⁄2 or’’ before ‘‘a
fraction’’ in the matter preceding subparagraph (A),
and
(2) by adding at the end the following new sen-
tence: ‘‘This paragraph shall not apply with respect
to any facility described in subsection (d)(2)(A)(ii).’’.
(g) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to electricity produced and
sold after the date of the enactment of this Act, in
taxable years ending after such date.
(2) CERTAIN
BIOMASS
FACILITIES.—With re-
spect 
to 
any 
facility 
described 
in 
section
45(d)(3)(A)(ii) of the Internal Revenue Code of
1986, as added by subsection (b)(1), which is placed
in service before the date of the enactment of this
Act, the amendments made by this section shall
apply to electricity produced and sold after Decem-
ber 31, 2003, in taxable years ending after such
date.
(3) CREDIT RATE AND PERIOD FOR NEW FA-
CILITIES.—The amendments made by subsection (c)
793
shall apply to electricity produced and sold after De-
cember 31, 2003, in taxable years ending after such
date.
(4) NONAPPLICATION
OF
AMENDMENTS
TO
PREEFFECTIVE
DATE
POULTRY
WASTE
FACILI-
TIES.—The amendments made by this section shall
not apply with respect to any poultry waste facility
(within the meaning of section 45(c)(3)(C), as in ef-
fect on the day before the date of the enactment of
this Act) placed in service before January 1, 2004.
(h) GAO STUDY.—The Comptroller General of the
United States shall conduct a study on the market viabil-
ity of producing electricity from resources with respect to
which credit is allowed under section 45 of the Internal
Revenue Code of 1986 but without such credit. In the case
of open-loop biomass and municipal solid waste resources,
the study should take into account savings associated with
not having to dispose of such resources. In conducting
such study, the Comptroller shall estimate the dollar value
of the environmental impact of producing electricity from
such resources relative to producing electricity from fossil
fuels using the latest generation of technology. Not later
than June 30, 2006, the Comptroller shall report on such
study to the Committee on Ways and Means of the House
794
of Representatives and the Committee on Finance of the
Senate.
SEC. 1303. CREDIT FOR BUSINESS INSTALLATION OF
QUALIFIED FUEL CELLS.
(a) IN GENERAL.—Section 48(a)(3)(A) (defining en-
ergy 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) qualified fuel cell property,’’.
(b) QUALIFIED FUEL CELL PROPERTY.—Section 48
(relating to energy credit; reforestation credit) is amended
by adding at the end the following new subsection:
‘‘(c) QUALIFIED FUEL CELL PROPERTY.—For pur-
poses of subsection (a)(3)(A)(iii)—
‘‘(1) IN
GENERAL.—The term ‘qualified fuel
cell property’ means a fuel cell power plant which
generates at least 0.5 kilowatt of electricity using an
electrochemical process.
‘‘(2) LIMITATION.—The energy credit with re-
spect to any qualified fuel cell property shall not ex-
ceed an amount equal to $500 for each 0.5 kilowatt
of capacity of such property.
‘‘(3) FUEL
CELL
POWER
PLANT.—The term
‘fuel cell power plant’ means an integrated system,
comprised of a fuel cell stack assembly and associ-
795
ated balance of plant components, which converts a
fuel into electricity using electrochemical means.
‘‘(4) TERMINATION.—The term ‘qualified fuel
cell property’ shall not include any property placed
in service after December 31, 2006.’’.
(c) ENERGY PERCENTAGE.—Subparagraph (A) of
section 48(a)(2) (relating to energy percentage) is amend-
ed to read as follows:
‘‘(A) IN GENERAL.—The energy percent-
age is—
‘‘(i) in the case of qualified fuel cell
property, 20 percent, and
‘‘(ii) in the case of any other energy
property, 10 percent.’’.
(d) CONFORMING AMENDMENT.—Section 48(a)(1) is
amended by inserting ‘‘except as provided in subsection
(c)(2),’’ before ‘‘the energy’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to periods 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 Rec-
onciliation Act of 1990).
796
SEC. 1304. 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), as amended by this Act, is amended by inserting
after section 25C the following new section:
‘‘SEC. 25D. 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 unit shall not
exceed $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 unit in 1 or more prior
taxable years, the amount of the credit otherwise al-
lowable for the taxable year with respect to that
dwelling unit shall be reduced by the sum of the
credits allowed under subsection (a) to the taxpayer
797
with respect to the dwelling unit for all prior taxable
years.
‘‘(c) 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, as such
Code (including supplements) is in effect on the date of
the enactment of this section (or, in the case of a metal
roof with appropriate pigmented coatings which meet the
Energy Star program requirements), if—
‘‘(1) such component is installed in or on a
dwelling unit—
‘‘(A) located in the United States,
‘‘(B) owned and used by the taxpayer as
the taxpayer’s principal residence (within the
meaning of section 121), and
‘‘(C) which has not been treated as a
qualified new energy efficient home for pur-
poses of any credit allowed under section 45G,
‘‘(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.
798
If the aggregate cost of such components with respect to
any dwelling unit exceeds $1,000, such components shall
be treated as qualified energy efficiency improvements
only if such components are also certified in accordance
with subsection (d) as meeting such prescriptive criteria.
‘‘(d) CERTIFICATION.—The certification described in
subsection (c) 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 ef-
ficient 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 which speci-
fies in readily verifiable fashion the energy efficient
building envelope components installed and their re-
spective energy efficiency levels.
799
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) BUILDING ENVELOPE COMPONENT.—The
term ‘building envelope component’ means—
‘‘(A) any insulation material or system
which is specifically and primarily designed to
reduce the heat loss or gain of a dwelling unit
when installed in or on such dwelling unit,
‘‘(B) exterior windows (including sky-
lights),
‘‘(C) exterior doors, and
‘‘(D) any metal roof installed on a dwelling
unit, but only if such roof has appropriate pig-
mented coatings which are specifically and pri-
marily designed to reduce the heat gain of such
dwelling unit.
‘‘(2) MANUFACTURED HOMES INCLUDED.—The
term ‘dwelling unit’ includes a manufactured home
which conforms to Federal Manufactured Home
Construction and Safety Standards (section 3280 of
title 24, Code of Federal Regulations).
‘‘(3) APPLICATION OF RULES.—Rules similar to
the rules under paragraphs (3), (4), and (5) of sec-
tion 25C(d) shall apply.
800
‘‘(f) 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.
‘‘(g) 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 (a) of section 1016, as amended
by this Act, is amended by striking ‘‘and’’ at the end
of paragraph (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(f),
in the case of amounts with respect to which a credit
has been allowed under section 25D.’’.
(2) The table of sections for subpart A of part
IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after the item relating
to section 25C the following new item:
‘‘Sec. 25D. 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.
801
SEC. 1305. CREDIT FOR CONSTRUCTION OF NEW ENERGY
EFFICIENT HOMES.
(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. 45G. NEW ENERGY EFFICIENT HOME CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, in
the case of an eligible contractor with respect to a quali-
fied new energy efficient home, the credit determined
under this section for the taxable year with respect to such
home is an amount equal to the aggregate adjusted bases
of all energy efficient property installed in such home dur-
ing construction of such home.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The credit allowed by
this section with respect to a dwelling unit shall
not exceed—
‘‘(i) in the case of a dwelling unit de-
scribed in clause (i) or (iii) of subsection
(c)(3)(D), $1,000, and
‘‘(ii) in the case of a dwelling unit de-
scribed in subsection (c)(3)(D)(ii), $2,000.
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME
DWELLING UNIT TAKEN INTO ACCOUNT.—If a
802
credit was allowed under subsection (a) with re-
spect to a dwelling unit in 1 or more prior tax-
able years, the amount of the credit otherwise
allowable for the taxable year with respect to
such dwelling unit shall be reduced by the sum
of the credits allowed under subsection (a) with
respect to the dwelling unit for all prior taxable
years.
‘‘(2) COORDINATION WITH CERTAIN CREDITS.—
For purposes of this section—
‘‘(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 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—
‘‘(A) the person who constructed the quali-
fied new energy efficient home, or
803
‘‘(B) in the case of a qualified new energy
efficient home which is a manufactured home,
the manufactured home producer of such home.
If more than 1 person is described in subparagraph
(A) or (B) with respect to any qualified new energy
efficient home, such term means the person des-
ignated as such by the owner 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 equipment or sys-
tem, which can, individually or in combination with
other components, result in a dwelling unit meeting
the requirements of this section.
‘‘(3) QUALIFIED
NEW
ENERGY
EFFICIENT
HOME.—The term ‘qualified new energy efficient
home’ means a dwelling unit—
‘‘(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, after such
construction, is reasonably expected to be as a
residence by the person who acquires such
dwelling unit from the eligible contractor,
‘‘(D) which is—
804
‘‘(i) certified to have a level of annual
heating and cooling energy consumption
which is at least 30 percent below the an-
nual level of heating and cooling energy
consumption of a comparable dwelling unit
constructed in accordance with the stand-
ards of chapter 4 of the 2000 International
Energy Conservation Code, as such Code
(including supplements) is in effect on the
date of the enactment of this section, and
to have building envelope component im-
provements account for at least 1⁄3 of such
30 percent,
‘‘(ii) certified to have a level of annual
heating and cooling energy consumption
which is at least 50 percent below such an-
nual level and to have building envelope
component improvements account for at
least 1⁄5 of such 50 percent, or
‘‘(iii) a manufactured home which—
‘‘(I) conforms to Federal Manu-
factured 
Home 
Construction 
and
Safety Standards (section 3280 of
title 24, Code of Federal Regulations),
and
805
‘‘(II) meets the applicable stand-
ards required by the Administrator of
the Environmental Protection Agency
under 
the 
Energy 
Star 
Labeled
Homes program.
‘‘(4) CONSTRUCTION.—The term ‘construction’
includes substantial reconstruction and rehabilita-
tion.
‘‘(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—
‘‘(A) any insulation material or system
which is specifically and primarily designed to
reduce the heat loss or gain of a dwelling unit
when installed in or on such dwelling unit,
‘‘(B) exterior windows (including sky-
lights),
‘‘(C) exterior doors, and
‘‘(D) any metal roof installed on a dwelling
unit, but only if such roof has appropriate pig-
mented coatings which—
806
‘‘(i) are specifically and primarily de-
signed to reduce the heat gain of such
dwelling unit, and
‘‘(ii) meet the Energy Star program
requirements.
‘‘(d) CERTIFICATION.—
‘‘(1) METHOD OF CERTIFICATION.—A certifi-
cation described in subsection (c)(3)(D) shall be de-
termined in accordance with guidance prescribed by
the Secretary. Such guidance shall specify proce-
dures and methods for calculating energy and cost
savings.
‘‘(2) FORM.—A certification described in sub-
section (c)(3)(D) shall be made in writing—
‘‘(A) in a manner which specifies in readily
verifiable fashion the energy efficient building
envelope components and energy efficient heat-
ing or cooling equipment installed and their re-
spective rated energy efficiency performance,
and
‘‘(B) in the case of a qualified new energy
efficient home which is a manufactured home,
accompanied by such documentation as required
by the Administrator of the Environmental Pro-
807
tection Agency under the Energy Star Labeled
Homes program.
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is determined 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 determined.
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall
apply to qualified new energy efficient homes acquired
during the period beginning on January 1, 2004, and end-
ing on December 31, 2006.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Section 38(b) (relating to current year business
credit) is amended by striking ‘‘plus’’ at the end of para-
graph (14), by striking the period at the end of paragraph
(15) and inserting ‘‘, plus’’, and by adding at the end the
following new paragraph:
‘‘(16) the new energy efficient home credit de-
termined under section 45G(a).’’.
(c) BASIS ADJUSTMENT.—Subsection (a) of section
1016, as amended by this Act, 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 following new paragraph:
808
‘‘(31) to the extent provided in section 45G(e),
in the case of amounts with respect to which a credit
has been allowed under section 45G.’’.
(d) LIMITATION ON CARRYBACK.—
(1) IN GENERAL.—Subsection (d) of section 39
is amended to read as follows:
‘‘(d) TRANSITIONAL RULE.—No portion of the un-
used business credit for any taxable year which is attrib-
utable to a credit specified in section 38(b) or any portion
thereof may be carried back to any taxable year before
the first taxable year for which such specified credit or
such portion is allowable (without regard to subsection
(a)).’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply with respect to taxable
years ending after December 31, 2002.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS
CREDITS.—Section 196(c) (defining qualified business
credits) is amended by striking ‘‘and’’ at the end of para-
graph (10), by striking the period at the end of paragraph
(11) and inserting ‘‘, and’’, and by adding after paragraph
(11) the following new paragraph:
‘‘(12) the new energy efficient home credit de-
termined under section 45G(a).’’.
809
(f) 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. 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. 1306. ENERGY CREDIT FOR COMBINED HEAT AND
POWER SYSTEM PROPERTY.
(a) IN GENERAL.—Section 48(a)(3)(A) (defining en-
ergy property), as amended by this Act, is amended by
striking ‘‘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.—Section 48 (relating to energy credit; reforestation
credit), as amended by this Act, is amended by adding
at the end the following new subsection:
‘‘(d) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—For purposes of subsection (a)(3)(A)(iv)—
‘‘(1) COMBINED
HEAT
AND
POWER
SYSTEM
PROPERTY.—The term ‘combined heat and power
system property’ means property comprising a
system—
810
‘‘(A) 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),
‘‘(B) which has an electrical capacity of
not more than 15 megawatts or a mechanical
energy capacity of not more than 2,000 horse-
power or an equivalent combination of electrical
and mechanical energy capacities,
‘‘(C) which produces—
‘‘(i) at least 20 percent of its total
useful energy in the form of thermal en-
ergy which is not used to produce electrical
or mechanical power (or combination
thereof), and
‘‘(ii) at least 20 percent of its total
useful energy in the form of electrical or
mechanical power (or combination thereof),
‘‘(D) the energy efficiency percentage of
which exceeds 60 percent, and
‘‘(E) which is placed in service before Jan-
uary 1, 2007.
‘‘(2) SPECIAL RULES.—
811
‘‘(A) 
ENERGY
EFFICIENCY
PERCENT-
AGE.—For purposes of this subsection, the en-
ergy efficiency percentage of a system is the
fraction—
‘‘(i) the numerator of which is the
total useful electrical, thermal, and me-
chanical power produced by the system at
normal operating rates, and expected to be
consumed in its normal application, and
‘‘(ii) the denominator of which is the
lower heating value of the fuel sources for
the system.
‘‘(B) DETERMINATIONS
MADE
ON
BTU
BASIS.—The energy efficiency percentage and
the percentages under paragraph (1)(C) shall
be determined on a Btu basis.
‘‘(C) INPUT AND OUTPUT PROPERTY NOT
INCLUDED.—The term ‘combined heat and
power system property’ does not include prop-
erty used to transport the energy source to the
facility or to distribute energy produced by the
facility.
‘‘(D) PUBLIC UTILITY PROPERTY.—
‘‘(i) ACCOUNTING RULE FOR PUBLIC
UTILITY PROPERTY.—If the combined heat
812
and power system property is public utility
property (as defined in section 168(i)(10)),
the taxpayer may only claim the credit
under subsection (a) if, with respect to
such property, the taxpayer uses a normal-
ization method of accounting.
‘‘(ii) CERTAIN
EXCEPTION
NOT
TO
APPLY.—The matter in subsection (a)(3)
which follows subparagraph (D) thereof
shall not apply to combined heat and
power system property.
‘‘(3) SYSTEMS USING BAGASSE.—If a system is
designed to use bagasse for at least 90 percent of
the energy source—
‘‘(A) paragraph (1)(D) shall not apply, but
‘‘(B) the amount of credit determined
under subsection (a) with respect to such sys-
tem shall not exceed the amount which bears
the same ratio to such amount of credit (deter-
mined without regard to this paragraph) as the
energy efficiency percentage of such system
bears to 60 percent.’’.
(c) EFFECTIVE DATE.—The amendments made by
this subsection shall apply to periods after December 31,
2003, in taxable years ending after such date, under rules
813
similar to the rules of section 48(m) of the Internal Rev-
enue Code of 1986 (as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act of
1990).
SEC. 1307. CREDIT FOR ENERGY EFFICIENT APPLIANCES.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its), as amended by this Act, is amended by adding at
the end the following new section:
‘‘SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec-
tion 38, the energy efficient appliance credit determined
under this section for the taxable year is an amount equal
to the sum of—
‘‘(1) the tier I appliance amount, and
‘‘(2) the tier II appliance amount,
with respect to qualified energy efficient appliances pro-
duced by the taxpayer during the calendar year ending
with or within the taxable year.
‘‘(b) APPLIANCE AMOUNTS.—For purposes of sub-
section (a)—
‘‘(1) TIER I APPLIANCE AMOUNT.—The tier I
appliance amount is equal to—
‘‘(A) $100, multiplied by
814
‘‘(B) an amount (rounded to the nearest
whole number) equal to the applicable percent-
age of the eligible production.
‘‘(2) TIER II APPLIANCE AMOUNT.—The tier II
appliance amount is equal to $150, multiplied by an
amount equal to the eligible production reduced by
the amount determined under paragraph (1)(B).
‘‘(3) APPLICABLE PERCENTAGE.—The applica-
ble percentage is the percentage determined by di-
viding the tier I appliances produced by the taxpayer
during the calendar year by the sum of the tier I
and tier II appliances so produced.
‘‘(4) ELIGIBLE PRODUCTION.—The eligible pro-
duction of qualified energy efficient appliances by
the taxpayer for any calendar year is the excess of—
‘‘(A) the number of such appliances which
are produced by the taxpayer during such cal-
endar year, over
‘‘(B) 110 percent of the average annual
number of such appliances which were produced
by the taxpayer (or any predecessor) during the
preceding 3-calendar year period.
‘‘(c) QUALIFIED ENERGY EFFICIENT APPLIANCE.—
For purposes of this section—
815
‘‘(1) IN GENERAL.—The term ‘qualified energy
efficient appliance’ means any tier I appliance or tier
II appliance which is produced in the United States.
‘‘(2) TIER I APPLIANCE.—The term ‘tier I ap-
pliance’ means—
‘‘(A) a clothes washer which is produced
with at least a 1.50 MEF, and
‘‘(B) a refrigerator which consumes at
least 15 percent (20 percent in the case of a re-
frigerator produced after 2006) less kilowatt
hours per year than the energy conservation
standards for refrigerators promulgated by the
Department of Energy and effective on July 1,
2001.
‘‘(3) TIER II APPLIANCE.—The term ‘tier II ap-
pliance’ means a refrigerator produced before 2007
which consumes at least 20 percent less kilowatt
hours per year than the energy conservation stand-
ards described in paragraph (2)(B).
‘‘(4) CLOTHES
WASHER.—The term ‘clothes
washer’ means a residential clothes washer, includ-
ing a residential style coin operated washer.
‘‘(5) REFRIGERATOR.—The term ‘refrigerator’
means an automatic defrost refrigerator-freezer
816
which has an internal volume of at least 16.5 cubic
feet.
‘‘(6) MEF.—The term ‘MEF’ means Modified
Energy Factor (as determined by the Secretary of
Energy).
‘‘(7) PRODUCED.—The term ‘produced’ in-
cludes manufactured.
‘‘(d) LIMITATION ON MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The amount of credit al-
lowed under subsection (a) with respect to a tax-
payer for any taxable year shall not exceed
$60,000,000, reduced by the amount of the credit
allowed under subsection (a) to the taxpayer (or any
predecessor) for any prior taxable year.
‘‘(2) 
LIMITATION
BASED
ON
GROSS
RE-
CEIPTS.—The credit allowed under subsection (a)
with respect to a taxpayer for the taxable year shall
not exceed an amount equal to 2 percent of the aver-
age annual gross receipts of the taxpayer for the 3
taxable years preceding the taxable year for which
the credit is determined.
‘‘(3) GROSS RECEIPTS.—For purposes of this
subsection, the rules of paragraphs (2) and (3) of
section 448(c) shall apply.
817
‘‘(e) 
SPECIAL
RULES.—For 
purposes 
of 
this
section—
‘‘(1) IN GENERAL.—Rules similar to the rules
of subsections (c), (d), and (e) of section 52 shall
apply.
‘‘(2) CONTROLLED GROUPS.—
‘‘(A) IN GENERAL.—All persons treated as
a single employer under subsection (a) or (b) of
section 52 or subsection (m) or (o) of section
414 shall be treated as a single manufacturer.
‘‘(B) INCLUSION
OF
FOREIGN
CORPORA-
TIONS.—For purposes of subparagraph (A), in
applying subsections (a) and (b) of section 52
to this section, section 1563 shall be applied
without regard to subsection (b)(2)(C) thereof.
‘‘(f) VERIFICATION.—The taxpayer shall submit such
information or certification as the Secretary, after con-
sultation with the Secretary of Energy, determines nec-
essary to claim the credit amount under subsection (a).
‘‘(g) TERMINATION.—This section shall not apply
with respect to appliances produced after December 31,
2007.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Section 38(b) (relating to current year business
credit), as amended by this Act, is amended by striking
818
‘‘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) the energy efficient appliance credit de-
termined under section 45H(a).’’.
(c) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1,
as amended by this Act, is amended by adding at the end
the following new item:
‘‘Sec. 45H. Energy efficient appliance credit.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to appliances produced after De-
cember 31, 2003, in taxable years ending after such date.
SEC. 1308. ENERGY EFFICIENT COMMERCIAL BUILDINGS
DEDUCTION.
(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. ENERGY EFFICIENT COMMERCIAL BUILDINGS
DEDUCTION.
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction an amount equal to the cost of energy efficient
commercial building property placed in service during the
taxable year.
819
‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The de-
duction under subsection (a) with respect to any building
for the taxable year and all prior taxable years shall not
exceed an amount equal to the product of—
‘‘(1) $1.50, and
‘‘(2) the square footage of the building.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ENERGY EFFICIENT COMMERCIAL BUILD-
ING PROPERTY.—The term ‘energy efficient commer-
cial building property’ means property—
‘‘(A) which is installed on or in a
building—
‘‘(i) which is located in the United
States, and
‘‘(ii) which is the type of structure to
which the Standard 90.1–2001 is applica-
ble,
‘‘(B) which is installed as part of—
‘‘(i) the lighting systems,
‘‘(ii) the heating, cooling, ventilation,
and hot water systems, or
‘‘(iii) the building envelope, and
‘‘(C) which is certified in accordance with
subsection (d)(4) as being installed as part of
a plan designed to reduce the total annual en-
820
ergy and power costs with respect to the light-
ing systems, heating, cooling, ventilation, and
hot water systems of the building by 50 percent
or more in comparison to a reference building
which meets the minimum requirements of
Standard 90.1–2001 using methods of calcula-
tion under subsection (d)(2).
‘‘(2) STANDARD 90.1–2001.—The term ‘Stand-
ard 90.1–2001’ means Standard 90.1–2001 of the
American Society of Heating, Refrigerating, and Air
Conditioning Engineers and the Illuminating Engi-
neering Society of North America (as in effect on
April 2, 2003).
‘‘(d) SPECIAL RULES.—
‘‘(1) PARTIAL ALLOWANCE.—
‘‘(A) IN GENERAL.—Except as provided in
subsection (f), in the case of a building placed
in service on or before the date of the enact-
ment of this section, if—
‘‘(i) the requirement of subsection
(c)(1)(C) is not met, but
‘‘(ii) there is a certification in accord-
ance with subsection (d)(4) that any sys-
tem referred to in subsection (c)(1)(B) sat-
isfies the energy-savings targets estab-
821
lished by the Secretary under subpara-
graph (B) with respect to such system,
then the requirement of subsection (c)(1)(C)
shall be treated as met with respect to such sys-
tem, and the deduction under subsection (a)
shall be allowed with respect to energy efficient
commercial building property installed as part
of such system and as part of a plan to meet
such targets, except that subsection (b) shall be
applied to such property by substituting ‘$.50’
for ‘$1.50’.
‘‘(B) REGULATIONS.—The Secretary, after
consultation with the Secretary of Energy, shall
establish a target for each system described in
subsection (c)(1)(B) which, if such targets were
met for all such systems, the building would
meet the requirements of subsection (c)(1)(C).
‘‘(2) METHODS
OF
CALCULATION.—The Sec-
retary, after consultation with the Secretary of En-
ergy, shall promulgate regulations which describe in
detail methods for calculating and verifying energy
and power cost for purposes of this section.
‘‘(3) NOTICE
TO
OWNER.—Each certification
required under this section shall include an expla-
nation to the building owner regarding the energy
822
efficiency features of the building and its projected
annual energy costs.
‘‘(4) CERTIFICATION.—
‘‘(A) IN
GENERAL.—The Secretary shall
prescribe the manner and method for the mak-
ing of certifications under this section.
‘‘(B) PROCEDURES.—The Secretary shall
include as part of the certification process pro-
cedures for inspection and testing by qualified
individuals described in subparagraph (C) to
ensure compliance of buildings with energy-sav-
ings plans and targets. Such procedures shall
be—
‘‘(i) comparable, given the difference
between commercial and residential build-
ings, to the requirements in the Mortgage
Industry National Accreditation Proce-
dures for Home Energy Rating Systems,
and
‘‘(ii) fuel neutral such that the same
energy efficiency measures allow a building
to be eligible for the deduction under this
section regardless of whether such building
uses a gas or oil furnace or boiler, an elec-
tric heat pump, or other fuel source.
823
‘‘(C) QUALIFIED
INDIVIDUALS.—Individ-
uals qualified to determine compliance shall be
only those individuals who are recognized by an
organization certified by the Secretary for such
purposes.
‘‘(e) BASIS REDUCTION.—For purposes of this sub-
title, if a deduction is allowed under this section with re-
spect to any energy efficient commercial building property,
the basis of such property shall be reduced by the amount
of the deduction so allowed.
‘‘(f) INTERIM RULES
FOR LIGHTING SYSTEMS.—
Until such time as the Secretary issues final regulations
under subsection (d)(1)(B) with respect to property which
is part of a lighting system—
‘‘(1) IN GENERAL.—The lighting system target
under subsection (d)(1)(A)(ii) shall be a reduction in
lighting power density of 25 percent (50 percent in
the case of a warehouse) of the minimum require-
ments in Table 9.3.1.1 or Table 9.3.1.2 (not includ-
ing additional interior lighting power allowances) of
Standard 90.1–2001.
‘‘(2) REDUCTION IN DEDUCTION IF REDUCTION
LESS THAN 40 PERCENT.—
‘‘(A) IN GENERAL.—If, with respect to the
lighting system of any building other than a
824
warehouse, the reduction in lighting power den-
sity of the lighting system is not at least 40
percent, only the applicable percentage of the
amount of deduction otherwise allowable under
this section with respect to such property shall
be allowed.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A), the applicable
percentage is the number of percentage points
(not greater than 100) equal to the sum of—
‘‘(i) 50, and
‘‘(ii) the amount which bears the same
ratio to 50 as the excess of the reduction
of lighting power density of the lighting
system over 25 percentage points bears to
15.
‘‘(C) EXCEPTIONS.—This subsection shall
not apply to any system—
‘‘(i) the controls and circuiting of
which do not comply fully with the manda-
tory and prescriptive requirements of
Standard 90.1–2001 and which do not in-
clude provision for bilevel switching in all
occupancies except hotel and motel guest
825
rooms, store rooms, restrooms, and public
lobbies, or
‘‘(ii) which does not meet the min-
imum requirements for calculated lighting
levels as set forth in the Illuminating Engi-
neering Society of North America Lighting
Handbook, Performance and Application,
Ninth Edition, 2000.
‘‘(g) REGULATIONS.—The Secretary shall promul-
gate such regulations as necessary—
‘‘(1) to take into account new technologies re-
garding energy efficiency and renewable energy for
purposes of determining energy efficiency and sav-
ings under this section, and
‘‘(2) to provide for a recapture of the deduction
allowed under this section if the plan described in
subsection (c)(1)(C) or (d)(1)(A) is not fully imple-
mented.
‘‘(h) TERMINATION.—This section shall not apply
with respect to property placed in service after December
31, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a), as amended by this sec-
tion, is amended by striking ‘‘and’’ at the end of
paragraph (30), by striking the period at the end of
826
paragraph (31) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
‘‘(32) to the extent provided in section
179B(e).’’.
(2) Section 1245(a) is amended by inserting
‘‘179B,’’ after ‘‘179A,’’ both places it appears in
paragraphs (2)(C) and (3)(C).
(3) Section 1250(b)(3) is amended by inserting
before the period at the end of the first sentence ‘‘or
by section 179B’’.
(4) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting
‘‘, or’’, and by inserting after subparagraph (H) the
following new subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 179B.’’.
(5) Section 312(k)(3)(B) is amended by strik-
ing ‘‘or 179A’’ each place it appears in the heading
and text and inserting ‘‘, 179A, or 179B’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part VI of subchapter B of chapter 1 is amended by
inserting after section 179A the following new item:
‘‘Sec. 179B. Energy efficient commercial buildings deduction.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
827
the date of the enactment of this Act in taxable years end-
ing after such date.
SEC. 1309. THREE-YEAR APPLICABLE RECOVERY PERIOD
FOR DEPRECIATION OF QUALIFIED ENERGY
MANAGEMENT DEVICES.
(a) IN GENERAL.—Section 168(e)(3)(A) (defining 3-
year property) is amended by striking ‘‘and’’ at the end
of clause (ii), by striking the period at the end of clause
(iii) and inserting ‘‘, and’’, and by adding at the end the
following new clause:
‘‘(iv) any qualified energy manage-
ment device.’’.
(b) DEFINITION OF QUALIFIED ENERGY MANAGE-
MENT DEVICE.—Section 168(i) (relating to definitions
and special rules) is amended by inserting at the end the
following new paragraph:
‘‘(15) QUALIFIED
ENERGY
MANAGEMENT
DE-
VICE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
energy management device’ means any energy
management device which is placed in service
before January 1, 2008, by a taxpayer who is
a supplier of electric energy or a provider of
electric energy services.
828
‘‘(B) ENERGY
MANAGEMENT
DEVICE.—
For purposes of subparagraph (A), the term
‘energy management device’ means any meter
or metering device which is used by the
taxpayer—
‘‘(i) to measure and record electricity
usage data on a time-differentiated basis
in at least 4 separate time segments per
day, and
‘‘(ii) to provide such data on at least
a monthly basis to both consumers and the
taxpayer.’’.
(c) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the
item relating to subparagraph (A)(iii) the following:
‘‘(A) (iv) ....................................................................................................
20’’.
(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, in taxable years
ending after such date.
SEC. 1310. CREDIT FOR PRODUCTION FROM ADVANCED NU-
CLEAR POWER FACILITIES.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its), as amended by this Act, is amended by adding after
section 45K the following new section:
829
‘‘SEC. 45L. CREDIT FOR PRODUCTION FROM ADVANCED NU-
CLEAR POWER FACILITIES.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the advanced nuclear power facility production credit of
any taxpayer for any taxable year is equal to the product
of—
‘‘(1) 1.8 cents, multiplied by
‘‘(2) the kilowatt hours of electricity—
‘‘(A) produced by the taxpayer at an ad-
vanced nuclear power facility during the 8-year
period beginning on the date the facility was
originally placed in service, and
‘‘(B) sold by the taxpayer to an unrelated
person during the taxable year.
‘‘(b) NATIONAL LIMITATION.—
‘‘(1) IN
GENERAL.—The amount of credit
which would (but for this subsection and subsection
(c)) be allowed with respect to any facility for any
taxable year shall not exceed the amount which
bears the same ratio to such amount of credit as—
‘‘(A) the national megawatt capacity limi-
tation allocated to the facility, bears to
‘‘(B) the total megawatt nameplate capac-
ity of such facility.
830
‘‘(2) AMOUNT OF NATIONAL LIMITATION.—The
national megawatt capacity limitation shall be 6,000
megawatts.
‘‘(3) ALLOCATION OF LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity
limitation in such manner as the Secretary may pre-
scribe.
‘‘(4) REGULATIONS.—Not later than 6 months
after the date of the enactment of this section, the
Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes
of this subsection. Such regulations shall provide a
certification process under which the Secretary, after
consultation with the Secretary of Energy, shall ap-
prove and allocate the national megawatt capacity
limitation.
‘‘(c) OTHER LIMITATIONS.—
‘‘(1) ANNUAL LIMITATION.—The amount of the
credit allowable under subsection (a) (after the ap-
plication of subsection (b)) for any taxable year with
respect to any facility shall not exceed an amount
which bears the same ratio to $125,000,000 as—
‘‘(A) the national megawatt capacity limi-
tation allocated under subsection (b) to the fa-
cility, bears to
831
‘‘(B) 1,000.
‘‘(2) OTHER
LIMITATIONS.—Rules similar to
the rules of section 45(b) shall apply for purposes of
this section, except that paragraph (2) thereof shall
not apply to the 1.8 cents under subsection (a)(1).
‘‘(d) ADVANCED NUCLEAR POWER FACILITY.—For
purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘advanced nu-
clear power facility’ means any advanced nuclear
facility—
‘‘(A) which is owned by the taxpayer and
which uses nuclear energy to produce elec-
tricity, and
‘‘(B) which is placed in service after the
date of the enactment of this paragraph and be-
fore January 1, 2021.
‘‘(2) ADVANCED NUCLEAR FACILITY.—For pur-
poses of paragraph (1), the term ‘advanced nuclear
facility’ means any nuclear facility the reactor design
for which is approved after the date of the enact-
ment of this paragraph by the Nuclear Regulatory
Commission (and such design or a substantially
similar design of comparable capacity was not ap-
proved on or before such date).
832
‘‘(e) OTHER RULES TO APPLY.—Rules similar to the
rules of paragraphs (1), (2), (3), (4), and (5) of section
45(e) shall apply for purposes of this section.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (20), by striking the period
at the end of paragraph (21) and inserting ‘‘, plus’’, and
by adding at the end the following:
‘‘(22) the advanced nuclear power facility pro-
duction credit determined under section 45L(a).’’.
(c) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1,
as amended by this Act, is amended by adding at the end
the following:
‘‘Sec. 45L. Credit for production from advanced nuclear power facilities.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to production in taxable years be-
ginning after December 31, 2003.
PART II—FUELS AND ALTERNATIVE MOTOR
VEHICLES
SEC. 1311. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE
TAXES ON RAILROADS AND INLAND WATER-
WAY TRANSPORTATION WHICH REMAIN IN
GENERAL FUND.
(a) TAXES ON TRAINS.—
833
(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
834
‘‘(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 (f) 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
835
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 January 1, 2004.
SEC. 1312. REDUCED MOTOR FUEL EXCISE TAX ON CER-
TAIN 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
836
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.
837
‘‘(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.—
(A) IN GENERAL.—Section 4081 (relating
to imposition of tax) is amended by redesig-
nating subsections (d) and (e) as subsections
(e) and (f), respectively, and by inserting after
subsection (c) the following new subsection:
‘‘(d) 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
838
amount of tax imposed (and not credited or refunded) on
any prior removal or entry of such fuel.’’.
(B) 
CONFORMING
AMENDMENT.—Sub-
section (d) of section 6416 is amended by strik-
ing ‘‘section 4081(e)’’ and inserting ‘‘section
4081(f)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 2004.
SEC. 1313. SMALL ETHANOL PRODUCER CREDIT.
(a) ALLOCATION OF ALCOHOL FUELS CREDIT TO
PATRONS OF A COOPERATIVE.—Section 40(g) (relating to
definitions and special rules for eligible small ethanol pro-
ducer credit) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(6) ALLOCATION
OF
SMALL
ETHANOL
PRO-
DUCER CREDIT TO PATRONS OF COOPERATIVE.—
‘‘(A) ELECTION TO ALLOCATE.—
‘‘(i) IN GENERAL.—In the case of a
cooperative organization described in sec-
tion 1381(a), any portion of the credit de-
termined under subsection (a)(3) for the
taxable year may, at the election of the or-
ganization, be apportioned pro rata among
patrons of the organization on the basis of
839
the quantity or value of business done with
or for such patrons for the taxable year.
‘‘(ii) FORM
AND
EFFECT
OF
ELEC-
TION.—An election under clause (i) for any
taxable year shall be made on a timely
filed return for such year. Such election,
once made, shall be irrevocable for such
taxable year.
‘‘(B) TREATMENT OF ORGANIZATIONS AND
PATRONS.—The amount of the credit appor-
tioned to patrons under subparagraph (A)—
‘‘(i) shall not be included in the
amount determined under subsection (a)
with respect to the organization for the
taxable year, and
‘‘(ii) shall be included in the amount
determined under subsection (a) for the
taxable year of each patron for which the
patronage dividends for the taxable year
described in subparagraph (A) are included
in gross income.
‘‘(C) SPECIAL RULE.—If the amount of a
credit which has been apportioned to any pa-
tron under this paragraph is decreased for any
reason—
840
‘‘(i) such amount shall not increase
the tax imposed on such patron, and
‘‘(ii) the tax imposed by this chapter
on such organization shall be increased by
such amount.
The increase under clause (ii) shall not be
treated as tax imposed by this chapter for pur-
poses of determining the amount of any credit
under this chapter or for purposes of section
55.’’.
(b) DEFINITION OF SMALL ETHANOL PRODUCER.—
Section 40(g) (relating to definitions and special rules for
eligible small ethanol producer credit) is amended by strik-
ing ‘‘30,000,000’’ each place it appears and inserting
‘‘60,000,000’’.
(c) CONFORMING AMENDMENT.—Section 1388 (re-
lating to definitions and special rules for cooperative orga-
nizations) is amended by adding at the end the following
new subsection:
‘‘(k) CROSS REFERENCE.—For provisions relating to
the apportionment of the alcohol fuels credit between coop-
erative organizations and their patrons, see section
40(g)(6).’’.
841
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2003.
SEC. 1314. INCENTIVES FOR BIODIESEL.
(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 40 the following
new section:
‘‘SEC. 40A. BIODIESEL USED AS FUEL.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the biodiesel fuels credit determined under this section for
the taxable year is an amount equal to the sum of—
‘‘(1) the biodiesel mixture credit, plus
‘‘(2) the biodiesel credit.
‘‘(b) DEFINITION OF BIODIESEL MIXTURE CREDIT
AND BIODIESEL CREDIT.—For purposes of this section—
‘‘(1) BIODIESEL MIXTURE CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel mixture
credit of any taxpayer for any taxable year is
50 cents for each gallon of biodiesel used by the
taxpayer in the production of a qualified bio-
diesel mixture.
‘‘(B) QUALIFIED
BIODIESEL
MIXTURE.—
The term ‘qualified biodiesel mixture’ means a
842
mixture of biodiesel and a taxable fuel (within
the meaning of section 4083(a)(1)) which—
‘‘(i) is sold by the taxpayer producing
such mixture to any person for use as a
fuel, or
‘‘(ii) is used as a fuel by the taxpayer
producing such mixture.
‘‘(C) SALE OR USE MUST BE IN TRADE OR
BUSINESS, ETC.—Biodiesel used in the produc-
tion of a qualified biodiesel mixture shall be
taken into account—
‘‘(i) only if the sale or use described
in subparagraph (B) is in a trade or busi-
ness of the taxpayer, and
‘‘(ii) for the taxable year in which
such sale or use occurs.
‘‘(D) CASUAL OFF-FARM PRODUCTION NOT
ELIGIBLE.—No credit shall be allowed under
this section with respect to any casual off-farm
production of a qualified biodiesel mixture.
‘‘(2) BIODIESEL CREDIT.—
‘‘(A) IN GENERAL.—The biodiesel credit of
any taxpayer for any taxable year is 50 cents
for each gallon of biodiesel which is not in a
mixture and which during the taxable year—
843
‘‘(i) is used by the taxpayer as a fuel
in a trade or business, or
‘‘(ii) is sold by the taxpayer at retail
to a person and placed in the fuel tank of
such person’s vehicle.
‘‘(B) USER CREDIT NOT TO APPLY TO BIO-
DIESEL SOLD AT RETAIL.—No credit shall be
allowed under subparagraph (A)(i) with respect
to any biodiesel which was sold in a retail sale
described in subparagraph (A)(ii).
‘‘(3) CREDIT
FOR
AGRI-BIODIESEL.—In the
case of any biodiesel which is agri-biodiesel, para-
graphs (1)(A) and (2)(A) shall be applied by sub-
stituting ‘$1.00’ for ‘50 cents’.
‘‘(4) 
CERTIFICATION
FOR
BIODIESEL.—No
credit shall be allowed under this section unless the
taxpayer obtains a certification (in such form and
manner as prescribed by the Secretary) from the
producer of the biodiesel which identifies the product
produced and the percentage of biodiesel and agri-
biodiesel in the product.
‘‘(c) COORDINATION WITH CREDIT AGAINST EXCISE
TAX.—The amount of the credit determined under this
section with respect to any biodiesel shall be properly re-
duced to take into account any benefit provided with re-
844
spect to such biodiesel solely by reason of the application
of section 6426.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) BIODIESEL.—The term ‘biodiesel’ means
the monoalkyl esters of long chain fatty acids de-
rived from plant or animal matter which meet—
‘‘(A) the registration requirements for
fuels and fuel additives established by the Envi-
ronmental Protection Agency under section 211
of the Clean Air Act (42 U.S.C. 7545), and
‘‘(B) the requirements of the American So-
ciety of Testing and Materials D6751.
‘‘(2) AGRI-BIODIESEL.—The term ‘agri-bio-
diesel’ means biodiesel derived solely from virgin oils,
including esters derived from virgin vegetable oils
from corn, soybeans, sunflower seeds, cottonseeds,
canola, crambe, rapeseeds, safflowers, flaxseeds, rice
bran, and mustard seeds, and from animal fats.
‘‘(3) MIXTURE OR BIODIESEL NOT USED AS A
FUEL, ETC.—
‘‘(A) MIXTURES.—If—
‘‘(i) any credit was determined under
this section with respect to biodiesel used
845
in the production of any qualified biodiesel
mixture, and
‘‘(ii) any person—
‘‘(I) separates the biodiesel from
the mixture, or
‘‘(II) without separation, uses the
mixture other than as a fuel,
then there is hereby imposed on such person a
tax equal to the product of the rate applicable
under subsection (b)(1)(A) and the number of
gallons of such biodiesel in such mixture.
‘‘(B) BIODIESEL.—If—
‘‘(i) any credit was determined under
this section with respect to the retail sale
of any biodiesel, and
‘‘(ii) any person mixes such biodiesel
or uses such biodiesel other than as a fuel,
then there is hereby imposed on such person a
tax equal to the product of the rate applicable
under subsection (b)(2)(A) and the number of
gallons of such biodiesel.
‘‘(C) APPLICABLE LAWS.—All provisions of
law, including penalties, shall, insofar as appli-
cable and not inconsistent with this section,
apply in respect of any tax imposed under sub-
846
paragraph (A) or (B) as if such tax were im-
posed by section 4081 and not by this chapter.
‘‘(4) PASS-THRU IN THE CASE OF ESTATES AND
TRUSTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of subsection (d) of
section 52 shall apply.
‘‘(e) TERMINATION.—This section shall not apply to
any sale or use after December 31, 2005.’’.
(b) CREDIT TREATED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (relating to current year
business credit) is amended by striking ‘‘plus’’ at the end
of paragraph (16), by striking the period at the end of
paragraph (17) and inserting ‘‘, plus’’, and by adding at
the end the following new paragraph:
‘‘(18) the biodiesel fuels credit determined
under section 40A(a).’’.
(c) CONFORMING AMENDMENTS.—
(1)(A) Section 87 is amended to read as fol-
lows:
‘‘SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.
‘‘Gross income includes—
‘‘(1) the amount of the alcohol fuels credit de-
termined with respect to the taxpayer for the taxable
year under section 40(a), and
847
‘‘(2) the biodiesel fuels credit determined with
respect to the taxpayer for the taxable year under
section 40A(a).’’.
(B) The item relating to section 87 in the table
of sections for part II of subchapter B of chapter 1
is amended by striking ‘‘fuel credit’’ and inserting
‘‘and biodiesel fuels credits’’.
(2) Section 196(c), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(11), by striking the period at the end of paragraph
(12) and inserting ‘‘, and’’, and by adding at the
end the following new paragraph:
‘‘(13) the biodiesel fuels credit determined
under section 40A(a).’’.
(3) The table of sections for subpart D of part
IV of subchapter A of chapter 1 is amended by add-
ing after the item relating to section 40 the fol-
lowing new item:
‘‘Sec. 40A. Biodiesel used as fuel.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to fuel produced, and sold or used,
after December 31, 2003, in taxable years ending after
such date.
848
SEC. 1315. ALCOHOL FUEL AND BIODIESEL MIXTURES EX-
CISE TAX CREDIT.
(a) IN GENERAL.—Subchapter B of chapter 65 (re-
lating to rules of special application) is amended by insert-
ing after section 6425 the following new section:
‘‘SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL
MIXTURES.
‘‘(a) ALLOWANCE OF CREDITS.—There shall be al-
lowed as a credit against the tax imposed by section 4081
an amount equal to the sum of—
‘‘(1) the alcohol fuel mixture credit, plus
‘‘(2) the biodiesel mixture credit.
‘‘(b) ALCOHOL FUEL MIXTURE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the alcohol fuel mixture credit is the product
of the applicable amount and the number of gallons
of alcohol used by the taxpayer in producing any al-
cohol fuel mixture for sale or use in a trade or busi-
ness of the taxpayer.
‘‘(2) APPLICABLE AMOUNT.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the applicable amount is 52
cents (51 cents in the case of any sale or use
after 2004).
849
‘‘(B) MIXTURES
NOT
CONTAINING
ETH-
ANOL.—In the case of an alcohol fuel mixture
in which none of the alcohol consists of ethanol,
the applicable amount is 60 cents.
‘‘(3) ALCOHOL FUEL MIXTURE.—For purposes
of this subsection, the term ‘alcohol fuel mixture’
means a mixture of alcohol and a taxable fuel
which—
‘‘(A) is sold by the taxpayer producing
such mixture to any person for use as a fuel,
‘‘(B) is used as a fuel by the taxpayer pro-
ducing such mixture, or
‘‘(C) is removed from the refinery by a
person producing such mixture.
‘‘(4) OTHER
DEFINITIONS.—For purposes of
this subsection—
‘‘(A) ALCOHOL.—The term ‘alcohol’ in-
cludes methanol and ethanol but does not
include—
‘‘(i) alcohol produced from petroleum,
natural gas, or coal (including peat), or
‘‘(ii) alcohol with a proof of less than
190 (determined without regard to any
added denaturants).
850
Such term also includes an alcohol gallon equiv-
alent of ethyl tertiary butyl ether or other
ethers produced from such alcohol.
‘‘(B) TAXABLE FUEL.—The term ‘taxable
fuel’ has the meaning given such term by sec-
tion 4083(a)(1).
‘‘(5) TERMINATION.—This subsection shall not
apply to any sale, use, or removal for any period
after December 31, 2010.
‘‘(c) BIODIESEL MIXTURE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the biodiesel mixture credit is the product of
the applicable amount and the number of gallons of
biodiesel used by the taxpayer in producing any bio-
diesel mixture for sale or use in a trade or business
of the taxpayer.
‘‘(2) APPLICABLE AMOUNT.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the applicable amount is 50
cents.
‘‘(B) AMOUNT
FOR
AGRI-BIODIESEL.—In
the case of any biodiesel which is agri-biodiesel,
the applicable amount is $1.00.
851
‘‘(3) BIODIESEL
MIXTURE.—For purposes of
this section, the term ‘biodiesel mixture’ means a
mixture of biodiesel and a taxable fuel which—
‘‘(A) is sold by the taxpayer producing
such mixture to any person for use as a fuel,
‘‘(B) is used as a fuel by the taxpayer pro-
ducing such mixture, or
‘‘(C) is removed from the refinery by a
person producing such mixture.
‘‘(4) 
CERTIFICATION
FOR
BIODIESEL.—No
credit shall be allowed under this section unless the
taxpayer obtains a certification (in such form and
manner as prescribed by the Secretary) from the
producer of the biodiesel which identifies the product
produced and the percentage of biodiesel and agri-
biodiesel in the product.
‘‘(5) OTHER DEFINITIONS.—Any term used in
this subsection which is also used in section 40A
shall have the meaning given such term by section
40A.
‘‘(6) TERMINATION.—This subsection shall not
apply to any sale, use, or removal for any period
after December 31, 2005.
‘‘(d) MIXTURE NOT USED AS A FUEL, ETC.—
‘‘(1) IMPOSITION OF TAX.—If—
852
‘‘(A) any credit was determined under this
section with respect to alcohol or biodiesel used
in the production of any alcohol fuel mixture or
biodiesel mixture, respectively, and
‘‘(B) any person—
‘‘(i) separates the alcohol or biodiesel
from the mixture, or
‘‘(ii) without separation, uses the mix-
ture other than as a fuel,
then there is hereby imposed on such person a
tax equal to the product of the applicable
amount and the number of gallons of such alco-
hol or biodiesel.
‘‘(2) APPLICABLE LAWS.—All provisions of law,
including penalties, shall, insofar as applicable and
not inconsistent with this section, apply in respect of
any tax imposed under paragraph (1) as if such tax
were imposed by section 4081 and not by this sec-
tion.
‘‘(e) COORDINATION WITH EXEMPTION FROM EX-
CISE TAX.—Rules similar to the rules under section 40(c)
shall apply for purposes of this section.’’.
(b) REGISTRATION REQUIREMENT.—Section 4101(a)
(relating to registration) is amended by inserting ‘‘and
every person producing biodiesel (as defined in section
853
40A(d)(1)) 
or 
alcohol 
(as 
defined 
in 
section
6426(b)(4)(A))’’ after ‘‘4091’’.
(c) ADDITIONAL AMENDMENTS.—
(1) Section 40(c) is amended by striking ‘‘or
section 4091(c)’’ and inserting ‘‘section 4091(c), or
section 6426’’.
(2) Section 40(e)(1) is amended—
(A) by striking ‘‘2007’’ in subparagraph
(A) and inserting ‘‘2010’’, and
(B) by striking ‘‘2008’’ in subparagraph
(B) and inserting ‘‘2011’’.
(3) Section 40(h) is amended—
(A) by striking ‘‘2007’’ in paragraph (1)
and inserting ‘‘2010’’, and
(B) by striking ‘‘, 2006, or 2007’’ in the
table contained in paragraph (2) and inserting
‘‘through 2010’’.
(4)(A) Subpart C of part III of subchapter A
of chapter 32 is amended by adding at the end the
following new section:
‘‘SEC. 4104. INFORMATION REPORTING FOR PERSONS
CLAIMING CERTAIN TAX BENEFITS.
‘‘(a) IN GENERAL.—The Secretary shall require any
person claiming tax benefits under the provisions of sec-
tion 34, 40, 40A, 4041(b)(2), 4041(k), 4081(c), 6426, or
854
6427(f) to file a quarterly return (in such manner as the
Secretary may prescribe) providing such information relat-
ing to such benefits and the coordination of such benefits
as the Secretary may require to ensure the proper admin-
istration and use of such benefits.
‘‘(b) ENFORCEMENT.—With respect to any person
described in subsection (a) and subject to registration re-
quirements under this title, rules similar to rules of section
4222(c) shall apply with respect to any requirement under
this section.’’.
(B) The table of sections for subpart C of part
III of subchapter A of chapter 32 is amended by
adding at the end the following new item:
‘‘Sec. 4104. Information reporting for persons claiming certain tax benefits.’’.
(5) Section 6427(i)(3) is amended—
(A) by adding at the end of subparagraph
(A) the following new flush sentence:
‘‘In the case of an electronic claim, this sub-
paragraph shall be applied without regard to
clause (i).’’, and
(B) by striking ‘‘20 days of the date of the
filing of such claim’’ in subparagraph (B) and
inserting ‘‘45 days of the date of the filing of
such claim (20 days in the case of an electronic
claim)’’.
855
(6) Section 9503(b)(1) is amended by adding at
the end the following new flush sentence:
‘‘For purposes of this paragraph, taxes received
under sections 4041 and 4081 shall be determined
without reduction for credits under section 6426.’’.
(d) CLERICAL AMENDMENT.—The table of sections
for subchapter B of chapter 65 is amended by inserting
after the item relating to section 6425 the following new
item:
‘‘Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amendments made by this
section shall apply to fuel sold, used, or removed
after December 31, 2003.
(2) SUBSECTION
(c)(4).—The amendments
made by subsection (c)(4) shall take effect on Janu-
ary 1, 2004.
(3) SUBSECTION
(c)(5).—The amendments
made by subsection (c)(5) shall apply to claims filed
after December 31, 2004.
(f) FORMAT
FOR FILING.—The Secretary of the
Treasury shall prescribe the electronic format for filing
claims described in section 6427(i)(3)(B) of the Internal
Revenue Code of 1986 (as amended by subsection
(c)(5)(A)) not later than December 31, 2004.
856
SEC. 1316. NONAPPLICATION OF EXPORT EXEMPTION TO
DELIVERY OF FUEL TO MOTOR VEHICLES RE-
MOVED FROM UNITED STATES.
(a) IN GENERAL.—Section 4221(d)(2) (defining ex-
port) is amended by adding at the end the following new
sentence: ‘‘Such term does not include the delivery of a
taxable fuel (as defined in section 4083(a)(1)) into a fuel
tank of a motor vehicle which is shipped or driven out
of the United States.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 4041(g) (relating to other exemp-
tions) is amended by adding at the end the following
new sentence: ‘‘Paragraph (3) shall not apply to the
sale for delivery of a liquid into a fuel tank of a
motor vehicle which is shipped or driven out of the
United States.’’.
(2) Clause (iv) of section 4081(a)(1)(A) (relat-
ing to tax on removal, entry, or sale) is amended by
inserting ‘‘or at a duty-free sales enterprise (as de-
fined in section 555(b)(8) of the Tariff Act of
1930)’’ after ‘‘section 4101’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales or deliveries made after
the date of the enactment of this Act.
857
SEC. 1317. 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
858
‘‘(ii) any bus which has a seating ca-
pacity of at least 20 adults (not including
the driver).’’.
(c) 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. 1318. ALTERNATIVE MOTOR VEHICLE CREDIT.
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to foreign tax credit, etc.)
is amended by adding at the end the following:
‘‘SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the sum of—
‘‘(1) the new qualified fuel cell motor vehicle
credit determined under subsection (b),
‘‘(2) the new advanced lean burn technology
motor vehicle credit determined under subsection (c),
‘‘(3) the new qualified hybrid motor vehicle
credit determined under subsection (d), and
‘‘(4) the new qualified alternative fuel motor ve-
hicle credit determined under subsection (e).
‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE
CREDIT.—
859
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the new qualified fuel cell motor vehicle credit
determined under this subsection with respect to a
new qualified fuel cell motor vehicle placed in service
by the taxpayer during the taxable year shall be de-
termined in accordance with the following table:
‘‘In the case of a vehicle which
has a gross vehicle weight rat-
ing of—
The new qualified fuel cell
motor vehicle credit is—
Not more than 8,500 lbs .................................................................... $4,000
More than 8,500 lbs but not more than 14,000 lbs ..........................$10,000
More than 14,000 lbs but not more than 26,000 lbs ........................$20,000
More than 26,000 lbs .........................................................................$40,000.
‘‘(2) INCREASE FOR FUEL EFFICIENCY.—
‘‘(A) IN
GENERAL.—The amount deter-
mined under paragraph (1) with respect to a
new qualified fuel cell motor vehicle which is a
passenger automobile or light truck shall be in-
creased by the additional credit amount.
‘‘(B) ADDITIONAL CREDIT AMOUNT.—For
purposes of subparagraph (A), the additional
credit amount shall be determined in accord-
ance with the following table:
‘‘In the case of a vehicle which
achieves a fuel economy (ex-
pressed as a percentage of the
2002 model year city fuel econ-
omy) of—
The additional credit
amount is—
At least 150 percent but less than 175 percent ................................ $1,000
At least 175 percent but less than 200 percent ................................ $1,500
At least 200 percent but less than 225 percent ................................ $2,000
At least 225 percent but less than 250 percent ................................ $2,500
At least 250 percent but less than 275 percent ................................ $3,000
At least 275 percent but less than 300 percent ................................ $3,500
At least 300 percent .......................................................................... $4,000.
860
‘‘(3) NEW QUALIFIED FUEL CELL MOTOR VEHI-
CLE.—For purposes of this subsection, the term
‘new qualified fuel cell motor vehicle’ means a motor
vehicle—
‘‘(A) which is propelled by power derived
from one or more cells which convert chemical
energy directly into electricity by combining ox-
ygen with hydrogen fuel which is stored on
board the vehicle in any form and may or may
not require reformation prior to use,
‘‘(B) which, in the case of a passenger
automobile or light truck, has received—
‘‘(i) a certificate of conformity under
the Clean Air Act and meets or exceeds the
equivalent qualifying California low emis-
sion 
vehicle 
standard 
under 
section
243(e)(2) of the Clean Air Act for that
make and model year, and
‘‘(ii) a certificate that such vehicle
meets or exceeds the Bin 5 Tier II emis-
sion standard established in regulations
prescribed by the Administrator of the En-
vironmental Protection Agency under sec-
tion 202(i) of the Clean Air Act for that
make and model year vehicle,
861
‘‘(C) the original use of which commences
with the taxpayer,
‘‘(D) which is acquired for use or lease by
the taxpayer and not for resale, and
‘‘(E) which is made by a manufacturer.
‘‘(c) NEW ADVANCED LEAN BURN TECHNOLOGY
MOTOR VEHICLE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the new advanced lean burn technology motor
vehicle credit determined under this subsection with
respect to a new advanced lean burn technology
motor vehicle placed in service by the taxpayer dur-
ing the taxable year is the credit amount determined
under paragraph (2).
‘‘(2) CREDIT AMOUNT.—
‘‘(A) FUEL ECONOMY.—The credit amount
determined under this paragraph shall be deter-
mined in accordance with the following table:
‘‘In the case of a vehicle which
achieves a fuel economy (ex-
pressed as a percentage of the
2002 model year city fuel econ-
omy) of—
The credit amount is—
At least 125 percent but less than 150 percent ................................
$400
At least 150 percent but less than 175 percent ................................
$800
At least 175 percent but less than 200 percent ................................ $1,200
At least 200 percent but less than 225 percent ................................ $1,600
At least 225 percent but less than 250 percent ................................ $2,000
At least 250 percent .......................................................................... $2,400.
‘‘(B) 
CONSERVATION
CREDIT.—The
amount determined under subparagraph (A)
862
with respect to a new advanced lean burn tech-
nology motor vehicle shall be increased by the
conservation credit amount determined in ac-
cordance with the following table:
‘‘In the case of a vehicle which
achieves a lifetime fuel savings
(expressed in gallons of gaso-
line) of—
The conservation credit
amount is—
At least 1,200 but less than 1,800 ....................................................
$250
At least 1,800 but less than 2,400 ....................................................
$500
At least 2,400 but less than 3,000 ....................................................
$750
At least 3,000 .................................................................................... $1,000.
‘‘(3) NEW ADVANCED LEAN BURN TECHNOLOGY
MOTOR VEHICLE.—For purposes of this subsection,
the term ‘new advanced lean burn technology motor
vehicle’ means a passenger automobile or a light
truck—
‘‘(A) with an internal combustion engine
which—
‘‘(i) is designed to operate primarily
using more air than is necessary for com-
plete combustion of the fuel,
‘‘(ii) incorporates direct injection,
‘‘(iii) achieves at least 125 percent of
the 2002 model year city fuel economy,
‘‘(iv) for 2004 and later model vehi-
cles, has received a certificate that such ve-
hicle meets or exceeds—
863
‘‘(I) in the case of a vehicle hav-
ing a gross vehicle weight rating of
6,000 pounds or less, the Bin 5 Tier
II emission standard established in
regulations prescribed by the Adminis-
trator of the Environmental Protec-
tion Agency under section 202(i) of
the Clean Air Act for that make and
model year vehicle, and
‘‘(II) in the case of a vehicle hav-
ing a gross vehicle weight rating of
more than 6,000 pounds but not more
than 8,500 pounds, the Bin 8 Tier II
emission standard which is so estab-
lished.
‘‘(B) the original use of which commences
with the taxpayer,
‘‘(C) which is acquired for use or lease by
the taxpayer and not for resale, and
‘‘(D) which is made by a manufacturer.
‘‘(4) LIFETIME FUEL SAVINGS.—For purposes
of this subsection, the term ‘lifetime fuel savings’
means, in the case of any new advanced lean burn
technology motor vehicle, an amount equal to the ex-
cess (if any) of—
864
‘‘(A) 120,000 divided by the 2002 model
year city fuel economy for the vehicle inertia
weight class, over
‘‘(B) 120,000 divided by the city fuel econ-
omy for such vehicle.
‘‘(d) NEW QUALIFIED HYBRID MOTOR VEHICLE
CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the new qualified hybrid motor vehicle credit de-
termined under this subsection with respect to a new
qualified hybrid motor vehicle placed in service by
the taxpayer during the taxable year is the credit
amount determined under paragraph (2).
‘‘(2) CREDIT AMOUNT.—
‘‘(A) CREDIT
AMOUNT
FOR
PASSENGER
AUTOMOBILES
AND
LIGHT
TRUCKS.—In the
case of a new qualified hybrid motor vehicle
which is a passenger automobile or light truck
and which has a gross vehicle weight rating of
not more than 8,500 pounds, the amount deter-
mined under this paragraph is the sum of the
amounts determined under clauses (i) and (ii).
‘‘(i) FUEL
ECONOMY.—The amount
determined under this clause is the amount
which would be determined under sub-
865
section (c)(2)(A) if such vehicle were a ve-
hicle referred to in such subsection.
‘‘(ii) CONSERVATION
CREDIT.—The
amount determined under this clause is the
amount which would be determined under
subsection (c)(2)(B) if such vehicle were a
vehicle referred to in such subsection.
‘‘(B) CREDIT AMOUNT FOR OTHER MOTOR
VEHICLES.—
‘‘(i) IN GENERAL.—In the case of any
new qualified hybrid motor vehicle to which
subparagraph (A) does not apply, the
amount determined under this paragraph
is the amount equal to the applicable per-
centage of the qualified incremental hybrid
cost of the vehicle as certified under clause
(v).
‘‘(ii) APPLICABLE PERCENTAGE.—For
purposes of clause (i), the applicable per-
centage is—
‘‘(I) 20 percent if the vehicle
achieves an increase in city fuel econ-
omy relative to a comparable vehicle
of at least 30 percent but less than 40
percent,
866
‘‘(II) 30 percent if the vehicle
achieves such an increase of at least
40 percent but less than 50 percent,
and
‘‘(III) 40 percent if the vehicle
achieves such an increase of at least
50 percent.
‘‘(iii) QUALIFIED
INCREMENTAL
HY-
BRID COST.—For purposes of this subpara-
graph, the qualified incremental hybrid
cost of any vehicle is equal to the amount
of the excess of the manufacturer’s sug-
gested retail price for such vehicle over
such price for a comparable vehicle, to the
extent such amount does not exceed—
‘‘(I) $7,500, if such vehicle has a
gross vehicle weight rating of not
more than 14,000 pounds,
‘‘(II) $15,000, if such vehicle has
a gross vehicle weight rating of more
than 14,000 pounds but not more
than 26,000 pounds, and
‘‘(III) $30,000, if such vehicle
has a gross vehicle weight rating of
more than 26,000 pounds.
867
‘‘(iv) COMPARABLE
VEHICLE.—For
purposes of this subparagraph, the term
‘comparable vehicle’ means, with respect to
any new qualified hybrid motor vehicle,
any vehicle which is powered solely by a
gasoline or diesel internal combustion en-
gine and which is comparable in weight,
size, and use to such vehicle.
‘‘(v) CERTIFICATION.—A certification
described in clause (i) shall be made by the
manufacturer and shall be determined in
accordance with guidance prescribed by the
Secretary. Such guidance shall specify pro-
cedures and methods for calculating fuel
economy savings and incremental hybrid
costs.
‘‘(3) NEW
QUALIFIED
HYBRID
MOTOR
VEHI-
CLE.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘new quali-
fied hybrid motor vehicle’ means a motor
vehicle—
‘‘(i) which draws propulsion energy
from onboard sources of stored energy
which are both—
868
‘‘(I) an internal combustion or
heat engine using consumable fuel,
and
‘‘(II) a rechargeable energy stor-
age system,
‘‘(ii) which, in the case of a vehicle to
which paragraph (2)(A) applies, has re-
ceived a certificate of conformity under the
Clean Air Act and meets or exceeds the
equivalent qualifying California low emis-
sion 
vehicle 
standard 
under 
section
243(e)(2) of the Clean Air Act for that
make and model year, and
‘‘(I) in the case of a vehicle hav-
ing a gross vehicle weight rating of
6,000 pounds or less, the Bin 5 Tier
II emission standard established in
regulations prescribed by the Adminis-
trator of the Environmental Protec-
tion Agency under section 202(i) of
the Clean Air Act for that make and
model year vehicle, and
‘‘(II) in the case of a vehicle hav-
ing a gross vehicle weight rating of
more than 6,000 pounds but not more
869
than 8,500 pounds, the Bin 8 Tier II
emission standard which is so estab-
lished,
‘‘(iii) which has a maximum available
power of at least—
‘‘(I) 4 percent in the case of a ve-
hicle to which paragraph (2)(A) ap-
plies,
‘‘(II) 10 percent in the case of a
vehicle which has a gross vehicle
weight rating or more than 8,500
pounds and not than 14,000 pounds,
and
‘‘(III) 15 percent in the case of a
vehicle in excess of 14,000 pounds,
‘‘(iv) which, in the case of a vehicle to
which paragraph (2)(B) applies, has an in-
ternal combustion or heat engine which
has received a certificate of conformity
under the Clean Air Act as meeting the
emission standards set in the regulations
prescribed by the Administrator of the En-
vironmental Protection Agency for 2004
through 2007 model year diesel heavy duty
870
engines or ottocycle heavy duty engines, as
applicable,
‘‘(v) the original use of which com-
mences with the taxpayer,
‘‘(vi) which is acquired for use or
lease by the taxpayer and not for resale,
and
‘‘(vii) which is made by a manufac-
turer.
Such term shall not include any vehicle which
is not a passenger automobile or light truck if
such vehicle has a gross vehicle weight rating of
less than 8,500 pounds.
‘‘(B) CONSUMABLE FUEL.—For purposes
of subparagraph (A)(i)(I), the term ‘consumable
fuel’ means any solid, liquid, or gaseous matter
which releases energy when consumed by an
auxiliary power unit.
‘‘(C) MAXIMUM AVAILABLE POWER.—
‘‘(i) 
CERTAIN
PASSENGER
AUTO-
MOBILES AND LIGHT TRUCKS.—In the case
of a vehicle to which paragraph (2)(A) ap-
plies, the term ‘maximum available power’
means the maximum power available from
the rechargeable energy storage system,
871
during a standard 10 second pulse power
or equivalent test, divided by such max-
imum power and the SAE net power of the
heat engine.
‘‘(ii) OTHER
MOTOR
VEHICLES.—In
the case of a vehicle to which paragraph
(2)(B) applies, the term ‘maximum avail-
able power’ means the maximum power
available from the rechargeable energy
storage system, during a standard 10 sec-
ond pulse power or equivalent test, divided
by the vehicle’s total traction power. For
purposes of the preceding sentence, the
term ‘total traction power’ means the sum
of the peak power from the rechargeable
energy storage system and the heat engine
peak power of the vehicle, except that if
such storage system is the sole means by
which the vehicle can be driven, the total
traction power is the peak power of such
storage system.
‘‘(e) NEW QUALIFIED ALTERNATIVE FUEL MOTOR
VEHICLE CREDIT.—
‘‘(1) ALLOWANCE OF CREDIT.—Except as pro-
vided in paragraph (5), the new qualified alternative
872
fuel motor vehicle credit determined under this sub-
section is an amount equal to the applicable percent-
age of the incremental cost of any new qualified al-
ternative fuel motor vehicle placed in service by the
taxpayer during the taxable year.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage with re-
spect to any new qualified alternative fuel motor ve-
hicle is—
‘‘(A) 40 percent, plus
‘‘(B) 30 percent, if such vehicle—
‘‘(i) has received a certificate of con-
formity under the Clean Air Act and meets
or exceeds the most stringent standard
available for certification under the Clean
Air Act for that make and model year vehi-
cle (other than a zero emission standard),
or
‘‘(ii) has received an order certifying
the vehicle as meeting the same require-
ments as vehicles which may be sold or
leased in California and meets or exceeds
the most stringent standard available for
certification under the State laws of Cali-
fornia (enacted in accordance with a waiv-
873
er granted under section 209(b) of the
Clean Air Act) for that make and model
year vehicle (other than a zero emission
standard).
For purposes of the preceding sentence, in the case
of any new qualified alternative fuel motor vehicle
which has a gross vehicle weight rating of more than
14,000 pounds, the most stringent standard avail-
able shall be such standard available for certification
on the date of the enactment of the Energy Tax Pol-
icy Act of 2003.
‘‘(3) INCREMENTAL
COST.—For purposes of
this subsection, the incremental cost of any new
qualified alternative fuel motor vehicle is equal to
the amount of the excess of the manufacturer’s sug-
gested retail price for such vehicle over such price
for a gasoline or diesel fuel motor vehicle of the
same model, to the extent such amount does not
exceed—
‘‘(A) $5,000, if such vehicle has a gross ve-
hicle weight rating of not more than 8,500
pounds,
‘‘(B) $10,000, if such vehicle has a gross
vehicle weight rating of more than 8,500
pounds but not more than 14,000 pounds,
874
‘‘(C) $25,000, if such vehicle has a gross
vehicle weight rating of more than 14,000
pounds but not more than 26,000 pounds, and
‘‘(D) $40,000, if such vehicle has a gross
vehicle weight rating of more than 26,000
pounds.
‘‘(4) NEW
QUALIFIED
ALTERNATIVE
FUEL
MOTOR
VEHICLE.—For 
purposes 
of 
this
subsection—
‘‘(A) IN GENERAL.—The term ‘new quali-
fied alternative fuel motor vehicle’ means any
motor vehicle—
‘‘(i) which is only capable of operating
on an alternative fuel,
‘‘(ii) the original use of which com-
mences with the taxpayer,
‘‘(iii) which is acquired by the tax-
payer for use or lease, but not for resale,
and
‘‘(iv) which is made by a manufac-
turer.
‘‘(B) ALTERNATIVE FUEL.—The term ‘al-
ternative fuel’ means compressed natural gas,
liquefied natural gas, liquefied petroleum gas,
875
hydrogen, and any liquid at least 85 percent of
the volume of which consists of methanol.
‘‘(5) CREDIT FOR MIXED-FUEL VEHICLES.—
‘‘(A) IN
GENERAL.—In the case of a
mixed-fuel vehicle placed in service by the tax-
payer during the taxable year, the credit deter-
mined under this subsection is an amount equal
to—
‘‘(i) in the case of a 75/25 mixed-fuel
vehicle, 70 percent of the credit which
would have been allowed under this sub-
section if such vehicle was a qualified alter-
native fuel motor vehicle, and
‘‘(ii) in the case of a 90/10 mixed-fuel
vehicle, 90 percent of the credit which
would have been allowed under this sub-
section if such vehicle was a qualified alter-
native fuel motor vehicle.
‘‘(B) MIXED-FUEL
VEHICLE.—For pur-
poses of this subsection, the term ‘mixed-fuel
vehicle’ means any motor vehicle described in
subparagraph (C) or (D) of paragraph (3),
which—
‘‘(i) is certified by the manufacturer
as being able to perform efficiently in nor-
876
mal operation on a combination of an al-
ternative fuel and a petroleum-based fuel,
‘‘(ii) either—
‘‘(I) has received a certificate of
conformity under the Clean Air Act,
or
‘‘(II) has received an order certi-
fying the vehicle as meeting the same
requirements as vehicles which may be
sold or leased in California and meets
or exceeds the low emission vehicle
standard under section 88.105–94 of
title 40, Code of Federal Regulations,
for that make and model year vehicle,
‘‘(iii) the original use of which com-
mences with the taxpayer,
‘‘(iv) which is acquired by the tax-
payer for use or lease, but not for resale,
and
‘‘(v) which is made by a manufac-
turer.
‘‘(C) 75/25
MIXED-FUEL
VEHICLE.—For
purposes of this subsection, the term ‘75/25
mixed-fuel vehicle’ means a mixed-fuel vehicle
which operates using at least 75 percent alter-
877
native fuel and not more than 25 percent petro-
leum-based fuel.
‘‘(D) 90/10
MIXED-FUEL
VEHICLE.—For
purposes of this subsection, the term ‘90/10
mixed-fuel vehicle’ means a mixed-fuel vehicle
which operates using at least 90 percent alter-
native fuel and not more than 10 percent petro-
leum-based fuel.
‘‘(f) LIMITATION ON NUMBER OF NEW QUALIFIED
HYBRID AND ADVANCED LEAN-BURN TECHNOLOGY VE-
HICLES ELIGIBLE FOR CREDIT.—
‘‘(1) IN GENERAL.—In the case of a qualified
vehicle sold during the phaseout period, only the ap-
plicable percentage of the credit otherwise allowable
under subsection (c) or (d) shall be allowed.
‘‘(2) PHASEOUT PERIOD.—For purposes of this
subsection, the phaseout period is the period begin-
ning with the second calendar quarter following the
calendar quarter which includes the first date on
which the number of qualified vehicles manufactured
by the manufacturer of the vehicle referred to in
paragraph (1) sold for use in the United States after
the date of the enactment of this section is at least
80,000.
878
‘‘(3) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage is—
‘‘(A) 50 percent for the first 2 calendar
quarters of the phaseout period,
‘‘(B) 25 percent for the 3d and 4th cal-
endar quarters of the phaseout period, and
‘‘(C) 0 percent for each calendar quarter
thereafter.
‘‘(4) CONTROLLED GROUPS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, all persons treated as a single em-
ployer under subsection (a) or (b) of section 52
or subsection (m) or (o) of section 414 shall be
treated as a single manufacturer.
‘‘(B) INCLUSION
OF
FOREIGN
CORPORA-
TIONS.—For purposes of subparagraph (A), in
applying subsections (a) and (b) of section 52
to this section, section 1563 shall be applied
without regard to subsection (b)(2)(C) thereof.
‘‘(5) QUALIFIED
VEHICLE.—For purposes of
this subsection, the term ‘qualified vehicle’ means
any new qualified hybrid motor vehicle and any new
advanced lean burn technology motor vehicle.
879
‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed under subsection (a) for the taxable year
shall not exceed the excess of—
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by sec-
tion 55, over
‘‘(2) the sum of the credits allowable under sub-
part A and sections 27 and 30 for the taxable year.
‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) MOTOR VEHICLE.—The term ‘motor vehi-
cle’ has the meaning given such term by section
30(c)(2).
‘‘(2) OTHER TERMS.—The terms ‘automobile’,
‘passenger automobile’, ‘light truck’, and ‘manufac-
turer’ have the meanings given such terms in regula-
tions prescribed by the Administrator of the Envi-
ronmental Protection Agency for purposes of the ad-
ministration of title II of the Clean Air Act (42
U.S.C. 7521 et seq.).
‘‘(3) 2002 MODEL
YEAR
CITY
FUEL
ECON-
OMY.—
‘‘(A) IN GENERAL.—The 2002 model year
city fuel economy with respect to a vehicle shall
880
be determined in accordance with the following
tables:
‘‘(i) In the case of a passenger auto-
mobile:
‘‘(ii) In the case of a light truck:
‘‘(B) VEHICLE INERTIA WEIGHT CLASS.—
For purposes of subparagraph (A), the term
‘vehicle inertia weight class’ has the same
meaning as when defined in regulations pre-
scribed by the Administrator of the Environ-
mental Protection Agency for purposes of the
administration of title II of the Clean Air Act
(42 U.S.C. 7521 et seq.).
‘‘(4) FUEL ECONOMY.—Fuel economy with re-
spect to any vehicle shall be measured under rules
similar to the rules under section 4064(c).
‘‘(5) REDUCTION IN BASIS.—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 paragraph) result from such expendi-
ture shall be reduced by the amount of the credit so
allowed.
‘‘(6) NO
DOUBLE
BENEFIT.—The amount of
any deduction or credit allowable under this chapter
881
(other than the credits allowable under this section
and section 30) shall be reduced by the amount of
credit allowed under subsection (a) for such vehicle
for the taxable year.
‘‘(7) RECAPTURE.—The Secretary shall, by reg-
ulations, provide for recapturing the benefit of any
credit allowable under subsection (a) with respect to
any property which ceases to be property eligible for
such credit (including recapture in the case of a
lease period of less than the economic life of a vehi-
cle).
‘‘(8) 
PROPERTY
USED
OUTSIDE
UNITED
STATES, ETC., NOT QUALIFIED.—No credit shall be
allowed under subsection (a) with respect to any
property referred to in section 50(b) or with respect
to the portion of the cost of any property taken into
account under section 179.
‘‘(9) ELECTION
NOT
TO
TAKE
CREDIT.—No
credit shall be allowed under subsection (a) for any
vehicle if the taxpayer elects to not have this section
apply to such vehicle.
‘‘(10) BUSINESS
CARRYOVERS
ALLOWED.—If
the credit allowable under subsection (a) for a tax-
able year exceeds the limitation under subsection (g)
for such taxable year, such excess (to the extent of
882
the credit allowable with respect to property subject
to the allowance for depreciation) shall be allowed as
a credit carryback and carryforward under rules
similar to the rules of section 39.
‘‘(11) INTERACTION
WITH
MOTOR
VEHICLE
SAFETY STANDARDS.—Unless otherwise provided in
this section, a motor vehicle shall not be considered
eligible for a credit under this section unless such
vehicle is in compliance with the motor vehicle safety
provisions of sections 30101 through 30169 of title
49, United States Code.
‘‘(i) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall pro-
mulgate such regulations as necessary to carry out
the provisions of this section.
‘‘(2) DETERMINATION OF MOTOR VEHICLE ELI-
GIBILITY.—The Secretary, after coordination with
the Secretary of Transportation and the Adminis-
trator of the Environmental Protection Agency, shall
prescribe such regulations as necessary to determine
whether a motor vehicle meets the requirements to
be eligible for a credit under this section.
‘‘(j) TERMINATION.—This section shall not apply to
any property placed in service after—
883
‘‘(1) in the case of a new qualified alternative
fuel motor vehicle, December 31, 2006,
‘‘(2) in the case of a new advanced lean burn
technology motor vehicle or a new qualified hybrid
motor vehicle, December 31, 2008, and
‘‘(3) in the case of a new qualified fuel cell
motor vehicle, December 31, 2012.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 30(d) (relating to special rules) is
amended by adding at the end the following new
paragraphs:
‘‘(5) NO DOUBLE BENEFIT.—No credit shall be
allowed under this section for any motor vehicle for
which a credit is also allowed under section 30B.’’.
(2) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(31), by striking the period at the end of paragraph
(32) and inserting ‘‘, and’’, and by adding at the
end the following:
‘‘(33) to the extent provided in section
30B(h)(5).’’.
(3) Section 6501(m) is amended by inserting
‘‘30B(h)(9),’’ after ‘‘30(d)(4),’’.
(4) The table of sections for subpart B of part
IV of subchapter A of chapter 1 is amended by in-
884
serting after the item relating to section 30A the fol-
lowing:
‘‘Sec. 30B. Alternative motor vehicle credit.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act, in taxable years
ending after such date.
(d) STICKER INFORMATION REQUIRED AT RETAIL
SALE.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall issue regulations under which each quali-
fied vehicle sold at retail shall display a notice—
(A) that such vehicle is a qualified vehicle,
and
(B) that the buyer may not benefit from
the credit allowed under section 30B of the In-
ternal Revenue Code of 1986 if such buyer has
insufficient tax liability.
(2) QUALIFIED
VEHICLE.—For purposes of
paragraph (1), the term ‘‘qualified vehicle’’ means a
vehicle with respect to which a credit is allowed
under section 30B of the Internal Revenue Code of
1986.
885
SEC. 1319. MODIFICATIONS OF DEDUCTION FOR CERTAIN
REFUELING PROPERTY.
(a) IN GENERAL.—Subsection (f) of section 179A is
amended to read as follows:
‘‘(f) TERMINATION.—This section shall not apply to
any property placed in service—
‘‘(1) in the case of property relating to hydro-
gen, after December 31, 2011, and
‘‘(2) in the case of any other property, after
December 31, 2008.’’.
(b) INCENTIVE FOR PRODUCTION OF HYDROGEN AT
QUALIFIED CLEAN-FUEL VEHICLE REFUELING PROP-
ERTY.—Section 179A(d) (defining qualified clean-fuel ve-
hicle refueling property) is amended by adding at the end
the following new flush sentence:
‘‘In the case of clean-burning fuel which is hydrogen pro-
duced from another clean-burning fuel, paragraph (3)(A)
shall be applied by substituting ‘production, storage, or
dispensing’ for ‘storage or dispensing’ both places it ap-
pears.’’.
(c) INCREASE IN LOCATION EXPENDITURES.—Sec-
tion 179A(b)(2)(A)(i) is amended by striking ‘‘$100,000’’
and inserting ‘‘$150,000’’.
(d) NONBUSINESS USE OF QUALIFIED CLEAN-FUEL
VEHICLE REFUELING PROPERTY.—Section 179A(d) is
amended by striking paragraph (1) and by redesignating
886
paragraphs (2) and (3) as paragraphs (1) and (2), respec-
tively.
(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, in taxable years
ending after such date.
Subtitle B—Reliability
SEC. 1321. 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’’.
(b) NATURAL GAS GATHERING LINE.—Subsection (i)
of section 168, as amended by this Act, is amended by
adding after paragraph (15) the following new paragraph:
‘‘(16) NATURAL
GAS
GATHERING
LINE.—The
term ‘natural gas gathering line’ means—
‘‘(A) the pipe, equipment, and appur-
tenances determined to be a gathering line by
the Federal Energy Regulatory Commission, or
887
‘‘(B) the pipe, equipment, and appur-
tenances used to deliver natural gas from the
wellhead or a commonpoint to the point at
which such gas first reaches—
‘‘(i) a gas processing plant,
‘‘(ii) an interconnection with a trans-
mission pipeline for which a certificate as
an interstate transmission pipeline has
been issued by the Federal Energy Regu-
latory Commission,
‘‘(iii) an interconnection with an
intrastate transmission pipeline, or
‘‘(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer.’’.
(c) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the
item relating to subparagraph (C)(i) the following:
‘‘(C) (ii) .....................................................................................................
14’’.
(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
888
the date of the enactment of this Act, in taxable years
ending after such date.
SEC. 1322. 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) ....................................................................................................
35’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act, in taxable years
ending after such date.
SEC. 1323. ELECTRIC TRANSMISSION PROPERTY TREATED
AS 15-YEAR PROPERTY.
(a) IN GENERAL.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property),
as amended by this Act, is amended by striking ‘‘and’’
at the end of clause (iii), by striking the period at the
889
end of clause (iv) and by inserting ‘‘, 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 the original use of which
commences with the taxpayer after the
date of the enactment of this clause.’’.
(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) .....................................................................................................
30’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act, in taxable years
ending after such date.
SEC. 1324. 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), as amended by this Act, is amended by in-
serting after section 179B the following new section:
890
‘‘SEC. 179C. 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 45I(c)(1)) may elect to treat
75 percent of qualified capital costs (as defined in section
45I(c)(2)) which are paid or incurred by the taxpayer dur-
ing the taxable year as expenses which are not chargeable
to capital account. Any cost so treated shall be allowed
as a deduction for the taxable year in which paid or in-
curred.
‘‘(b) REDUCED PERCENTAGE.—In the case of a small
business refiner with average daily domestic refinery runs
for the 1-year period ending on December 31, 2002, in
excess of 155,000 barrels, the number of percentage
points described 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.—
‘‘(1) IN GENERAL.—For purposes of this title,
the basis of any property shall be reduced by the
portion of the cost of such property taken into ac-
count under subsection (a).
‘‘(2) ORDINARY
INCOME
RECAPTURE.—For
purposes of section 1245, the amount of the deduc-
891
tion allowable under subsection (a) with respect to
any property which is of a character subject to the
allowance for depreciation shall be treated as a de-
duction allowed for depreciation under section 167.’’.
‘‘(d) COORDINATION WITH OTHER PROVISIONS.—
Section 280B shall not apply to amounts which are treated
as expenses under this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1), as amended by this Act,
is amended by striking ‘‘or’’ at the end of subpara-
graph (H), by striking the period at the end of sub-
paragraph (I) and inserting ‘‘; or’’, and by adding
at the end the following new subparagraph:
‘‘(J) expenditures for which a deduction is
allowed under section 179C.’’.
(2) Section 263A(c)(3) is amended by inserting
‘‘179C,’’ after ‘‘section’’.
(3) Section 312(k)(3)(B), as amended by this
Act, is amended by striking ‘‘or 179B’’ each place
it appears in the heading and text and inserting
‘‘179B, or 179C’’.
(4) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(32), by striking the period at the end of paragraph
892
(33) and inserting ‘‘, and’’, and by adding at the
end the following new paragraph:
‘‘(34) to the extent provided in section
179C(c).’’.
(5) Paragraphs (2)(C) and (3)(C) of section
1245(a), as amended by this Act, are each amended
by inserting ‘‘179C,’’ after ‘‘179B,’’.
(6) The table of sections for part VI of sub-
chapter B of chapter 1, as amended by this Act, is
amended by inserting after the item relating to sec-
tion 179B the following new item:
‘‘Sec. 179C. Deduction for capital costs incurred in complying with Environ-
mental Protection Agency sulfur regulations.’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to expenses paid or incurred after
December 31, 2002, in taxable years ending after such
date.
SEC. 1325. CREDIT FOR PRODUCTION OF LOW SULFUR DIE-
SEL FUEL.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its), as amended by this Act, is amended by adding at
the end the following new section:
893
‘‘SEC. 45I. CREDIT FOR PRODUCTION OF LOW SULFUR DIE-
SEL FUEL.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the low sulfur diesel fuel production credit de-
termined 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 De-
cember 31, 2002, 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 para-
894
graph) and the ratio of such excess to 50,000 bar-
rels.
‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur-
poses of this section—
‘‘(1) SMALL
BUSINESS
REFINER.—The term
‘small business refiner’ means, with respect to any
taxable year, a refiner of crude oil—
‘‘(A) with respect to which not more than
1,500 individuals are engaged in the refinery
operations of the business on any day during
such taxable year, and
‘‘(B) the average daily domestic refinery
run or average retained production of which for
all facilities of the taxpayer for the 1-year pe-
riod ending on December 31, 2002, did not ex-
ceed 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
895
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 January 1, 2003, and ending on
the earlier of the date which is 1 year after the date
on which the taxpayer must comply with the applica-
ble EPA regulations with respect to such facility or
December 31, 2009.
‘‘(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 for
any expenditure with respect to any property, the increase
in 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 determined.
‘‘(e) SPECIAL RULE FOR DETERMINATION OF REFIN-
ERY
RUNS.—For purposes this section and section
896
179C(b), in the calculation of average daily domestic refin-
ery run or retained production, only refineries which on
April 1, 2003, were refineries of the refiner or a related
person (within the meaning of section 613A(d)(3)), shall
be taken into account.
‘‘(f) CERTIFICATION.—
‘‘(1) REQUIRED.—No credit shall be allowed
unless, not later than the date which is 30 months
after the first day of the first taxable year in which
the low sulfur diesel fuel production credit is allowed
with respect to a facility, the small business refiner
obtains certification from the Secretary, after con-
sultation with the Administrator of the Environ-
mental Protection Agency, that the taxpayer’s quali-
fied capital costs with respect to such facility will re-
sult in compliance with the applicable EPA regula-
tions.
‘‘(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, after consulta-
tion with the Administrator of the Environmental
Protection Agency, to determine that such qualified
capital costs are necessary for compliance with the
applicable EPA regulations.
897
‘‘(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. In the event the Secretary does not notify
the taxpayer of the results of such certification with-
in such period, the taxpayer may presume the cer-
tification to be issued until so notified.
‘‘(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 with re-
spect to the taxpayer, 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.
‘‘(g) COOPERATIVE ORGANIZATIONS.—
‘‘(1) APPORTIONMENT OF CREDIT.—
‘‘(A) IN GENERAL.—In the case of a coop-
erative 
organization 
described 
in 
section
1381(a), any portion of the credit determined
898
under subsection (a) for the taxable year may,
at the election of the organization, be appor-
tioned among patrons eligible to share in pa-
tronage dividends on the basis of the quantity
or value of business done with or for such pa-
trons for the taxable year.
‘‘(B) FORM AND EFFECT OF ELECTION.—
An election under subparagraph (A) for any
taxable year shall be made on a timely filed re-
turn for such year. Such election, once made,
shall be irrevocable for such taxable year.
‘‘(2) TREATMENT OF ORGANIZATIONS AND PA-
TRONS.—
‘‘(A) ORGANIZATIONS.—The amount of the
credit not apportioned to patrons pursuant to
paragraph (1) shall be included in the amount
determined under subsection (a) for the taxable
year of the organization.
‘‘(B) PATRONS.—The amount of the credit
apportioned to patrons pursuant to paragraph
(1) shall be included in the amount determined
under subsection (a) for the first taxable year
of each patron ending on or after the last day
of the payment period (as defined in section
1382(d)) for the taxable year of the organiza-
899
tion or, if earlier, for the taxable year of each
patron ending on or after the date on which the
patron receives notice from the cooperative of
the apportionment.
‘‘(3) SPECIAL RULE.—If the amount of a credit
which has been apportioned to any patron under this
subsection is decreased for any reason—
‘‘(A) such amount shall not increase the
tax imposed on such patron, and
‘‘(B) the tax imposed by this chapter on
such organization shall be increased by such
amount.
The increase under subparagraph (B) shall not be
treated as tax imposed by this chapter for purposes
of determining the amount of any credit under this
chapter or for purposes of section 55.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to general
business credit), as amended by this Act, is amended by
striking ‘‘plus’’ at the end of paragraph (17), by striking
the period at the end of paragraph (18) and inserting ‘‘,
plus’’, and by adding at the end the following new para-
graph:
900
‘‘(19) in the case of a small business refiner,
the low sulfur diesel fuel production credit deter-
mined under section 45I(a).’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C
(relating to certain expenses for which credits are allow-
able) is amended by adding at the end the following new
subsection:
‘‘(d) LOW SULFUR 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 45I(a).’’.
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating
to adjustments to basis), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph (33),
by striking the period at the end of paragraph (34) and
inserting ‘‘, and’’, and by adding at the end the following
new paragraph:
‘‘(35) in the case of a facility with respect to
which a credit was allowed under section 45I, to the
extent provided in section 45I(d).’’.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS
CREDITS.—Section 196(c) (defining qualified business
credits), as amended by this Act, is amended by striking
‘‘and’’ at the end of paragraph (12), by striking the period
901
at the end of paragraph (13) and inserting ‘‘, and’’, and
by adding after paragraph (13) the following new para-
graph:
‘‘(14) the low sulfur diesel fuel production cred-
it determined under section 45I(a).’’.
(f) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1,
as amended by this Act, is amended by adding at the end
the following new item:
‘‘Sec. 45I. Credit for production of low sulfur diesel fuel.’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to expenses paid or incurred after
December 31, 2002, in taxable years ending after such
date.
SEC. 1326. DETERMINATION OF SMALL REFINER EXCEP-
TION TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to limitations on application of subsection (c))
is amended to read as follows:
‘‘(4) CERTAIN
REFINERS
EXCLUDED.—If the
taxpayer or 1 or more related persons engages in the
refining of crude oil, subsection (c) shall not apply
to the taxpayer for a taxable year if the average
daily refinery runs of the taxpayer and such persons
for the taxable year exceed 67,500 barrels. For pur-
poses of this paragraph, the average daily refinery
902
runs for any taxable year shall be determined by di-
viding 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 ending after the
date of the enactment of this Act.
SEC. 1327. 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 for which the
taxpayer elects the application of this section, quali-
fied 
gain 
from 
such 
transaction 
shall 
be
recognized—
‘‘(A) in the taxable year which includes the
date of such transaction to the extent the
amount 
realized 
from 
such 
transaction
exceeds—
903
‘‘(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
904
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
905
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