642
67,000 horsepower, or an equivalent com-
bination of electrical and mechanical en-
ergy capacities), and 
‘‘(v) which is placed in service after 
December 31, 2003, and before January 1, 
2007. 
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph 
(A)(iv), the energy efficiency percentage of 
a system is the fraction—
‘‘(I) the numerator of which is 
the total useful electrical, thermal, 
and mechanical power produced by 
the system at normal operating rates, 
and 
‘‘(II) the denominator of which is 
the lower heating value of the primary 
fuel source for the system. 
‘‘(ii) DETERMINATIONS MADE ON BTU 
BASIS.—The energy efficiency percentage 
and the percentages under subparagraph 
(A)(iii) shall be determined on a Btu basis. 
‘‘(iii) INPUT AND OUTPUT PROPERTY 
NOT INCLUDED.—The term ‘combined heat
643
and power system property’ does not in-
clude property used to transport the en-
ergy source to the facility or to distribute 
energy produced by the facility. 
‘‘(iv) PUBLIC UTILITY PROPERTY.—
‘‘(I) ACCOUNTING
RULE
FOR 
PUBLIC
UTILITY
PROPERTY.—If the 
combined heat and power system 
property is public utility property (as 
defined in section 168(i)(1)), the tax-
payer may only claim the credit under 
the subsection if, with respect to such 
property, the taxpayer uses a normal-
ization method of accounting. 
‘‘(II) CERTAIN
EXCEPTION
NOT 
TO APPLY.—The matter in paragraph 
(3) which follows subparagraph (D) 
shall not apply to combined heat and 
power system property. 
‘‘(C) EXTENSION
OF
DEPRECIATION
RE-
COVERY PERIOD.—If a taxpayer is allowed cred-
it under this section for combined heat and 
power system property and such property would 
(but for this subparagraph) have a class life of 
15 years or less under section 168, such prop-
644
erty shall be treated as having a 22-year class 
life for purposes of section 168.’’. 
(c) NO CARRYBACK OF ENERGY CREDIT BEFORE 
EFFECTIVE DATE.—Subsection (d) of section 39 is 
amended by adding at the end the following new para-
graph: 
‘‘(12) NO CARRYBACK OF ENERGY CREDIT BE-
FORE EFFECTIVE DATE.—No portion of the unused 
business credit for any taxable year which is attrib-
utable to the energy credit with respect to property 
described in section 48(a)(5) may be carried back to 
a taxable year ending before January 1, 2004.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
December 31, 2003, in taxable years ending after such 
date. 
SEC. 41007. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM 
TAXES. 
(a) IN GENERAL.—
(1) SECTION 25C.—Section 25C(b), as added 
by section 41001, is amended by adding at the end 
the following new paragraph:
645
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section and 
section 25D and 25E) and section 27 for the 
taxable year.’’. 
(2) SECTION 25D.—Section 25D(b), as added 
by section 103, is amended to read as follows: 
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The credit allowed under 
subsection (a) with respect to any qualified fuel cell 
power plant for any taxable year shall not exceed—
‘‘(A) $500 for each 1⁄2 kilowatt of capacity 
of the power plant, reduced by 
‘‘(B) the aggregate energy credits allowed 
with respect to such power plant for all prior 
taxable years. 
‘‘(2) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of—
646
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section and 
section 25E) and section 27 for the taxable 
year.’’. 
(3) SECTION 25E.—Section 25E(b), as added 
by section 41004, is amended by adding at the end 
the following new paragraph: 
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section) and 
section 27 for the taxable year.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 23(b)(4)(B) is amended by inserting 
‘‘and sections 25C, 25D, and 25E’’ after ‘‘this sec-
tion’’.
647
(2) Section 24(b)(3)(B) is amended by striking 
‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and 
25E’’. 
(3) Section 25(e)(1)(C) is amended by inserting 
‘‘25C, 25D, and 25E’’ after ‘‘25B,’’. 
(4) Section 25B(g)(2) is amended by striking 
‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D, 
and 25E’’. 
(5) Section 25E(c), as added by section 41004, 
is amended by striking ‘‘section 26(a) for such tax-
able year reduced by the sum of the credits allowable 
under this subpart (other than this section)’’ and in-
serting ‘‘subsection (b)(3)’’. 
(6) Section 26(a)(1) is amended by striking 
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 
25E’’. 
(7) Section 904(h) is amended by striking ‘‘and 
25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 
(8) Section 1400C(d) is amended by striking 
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 
25E’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
648
SEC. 41008. 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.—
(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)—
649
‘‘(A) sold by any person to an owner, les-
see, or other operator of a diesel-powered train 
for use as a fuel in such train, or 
‘‘(B) used by any person as a fuel in a die-
sel-powered train unless there was a taxable 
sale of such fuel under subparagraph (A). 
No tax shall be imposed by this paragraph on the 
sale or use of any liquid if tax was imposed on such 
liquid under section 4081.’’
(D) Subsection (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:
650
‘‘(3) REFUND
OF
CERTAIN
TAXES
ON
FUEL 
USED IN DIESEL-POWERED TRAINS.—For purposes 
of this subsection, the term ‘nontaxable use’ includes 
fuel used in a diesel-powered train. The preceding 
sentence shall not apply to the tax imposed by sec-
tion 4041(d) and the Leaking Underground Storage 
Tank Trust Fund financing rate under section 4081 
except with respect to fuel sold for exclusive use by 
a State or any political subdivision thereof.’’
(b) FUEL USED ON INLAND WATERWAYS.—
(1) IN
GENERAL.—Paragraph (1) of section 
4042(b) is amended by adding ‘‘and’’ at the end of 
subparagraph (A), by striking ‘‘, and’’ at the end of 
subparagraph (B) and inserting a period, and by 
striking subparagraph (C). 
(2) CONFORMING AMENDMENT.—Paragraph (2) 
of section 4042(b) is amended by striking subpara-
graph (C). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2004. 
SEC. 41009. 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:
651
‘‘(C) DIESEL-WATER FUEL EMULSION.—In 
the case of diesel-water fuel emulsion at least 
14 percent of which is water and with respect 
to which the emulsion additive is registered by 
a United States manufacturer with the Envi-
ronmental Protection Agency pursuant to sec-
tion 211 of the Clean Air Act (as in effect on 
March 31, 2003), subparagraph (A)(iii) shall be 
applied by substituting ‘19.7 cents’ for ‘24.3 
cents’.’’. 
(b) SPECIAL RULES
FOR DIESEL-WATER FUEL 
EMULSIONS.—
(1) REFUNDS FOR TAX-PAID PURCHASES.—Sec-
tion 6427 is amended by redesignating subsections 
(m) through (p) as subsections (n) through (q), re-
spectively, and by inserting after subsection (l) the 
following new subsection: 
‘‘(m) DIESEL FUEL USED TO PRODUCE EMUL-
SION.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (k), if any diesel fuel on which tax was im-
posed by section 4081 at the regular tax rate is used 
by any person in producing an emulsion described in 
section 4081(a)(2)(C) which is sold or used in such 
person’s trade or business, the Secretary shall pay
652
(without interest) to such person an amount equal to 
the excess of the regular tax rate over the incentive 
tax rate with respect to such fuel. 
‘‘(2) DEFINITIONS.—For purposes of paragraph 
(1)—
‘‘(A) REGULAR TAX RATE.—The term ‘reg-
ular tax rate’ means the aggregate rate of tax 
imposed by section 4081 determined without re-
gard to section 4081(a)(2)(C). 
‘‘(B) INCENTIVE
TAX
RATE.—The term 
‘incentive tax rate’ means the aggregate rate of 
tax imposed by section 4081 determined with 
regard to section 4081(a)(2)(C).’’. 
(2) LATER SEPARATION OF FUEL.—
(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-
653
tion 6427), such person shall be treated as the refiner of 
such taxable fuel. The amount of tax imposed on any re-
moval of such fuel by such person shall be reduced by the 
amount of tax imposed (and not credited or refunded) on 
any prior removal or entry of such fuel.’’. 
(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 October 1, 2003. 
SEC. 41010. 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
654
under subsection (a)(1)(A) with respect to any 
motor vehicle shall not exceed— 
‘‘(A) in the case of a motor vehicle not de-
scribed in subparagraph (B) or (C), $2,000, 
‘‘(B) in the case of any truck or van with 
a gross vehicle weight rating greater than 
10,000 pounds but not greater than 26,000 
pounds, $5,000, or 
‘‘(C) $50,000 in the case of— 
‘‘(i) a truck or van with a gross vehi-
cle weight rating greater than 26,000 
pounds, or 
‘‘(ii) any bus which has a seating ca-
pacity of at least 20 adults (not including 
the driver).’’. 
SEC. 41011. 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), and
655
‘‘(2) the advanced lean burn technology motor 
vehicle credit determined under subsection (c). 
‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE 
CREDIT.—
‘‘(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 is—
‘‘(A) $4,000, 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, 
‘‘(C) $20,000, 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. 
‘‘(2) INCREASE FOR FUEL EFFICIENCY.—
‘‘(A) IN
GENERAL.—The amount deter-
mined under paragraph (1)(A) with respect to 
a new qualified fuel cell motor vehicle which is
656
a passenger automobile or light truck shall be 
increased by—
‘‘(i) $1,000, if such vehicle achieves at 
least 150 percent but less than 175 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(ii) $1,500, if such vehicle achieves 
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(iii) $2,000, if such vehicle achieves 
at least 200 percent but less than 225 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(iv) $2,500, if such vehicle achieves 
at least 225 percent but less than 250 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(v) $3,000, if such vehicle achieves 
at least 250 percent but less than 275 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(vi) $3,500, if such vehicle achieves 
at least 275 percent but less than 300 per-
657
cent of the 2000 model year city fuel econ-
omy, and 
‘‘(vii) $4,000, if such vehicle achieves 
at least 300 percent of the 2000 model 
year city fuel economy. 
‘‘(B) 2000 MODEL YEAR CITY FUEL ECON-
OMY.—For purposes of subparagraph (A), the 
2000 model year city fuel economy with respect 
to a vehicle shall be determined in accordance 
with the following tables: 
‘‘(i) In the case of a passenger auto-
mobile:
‘‘If 
vehicle 
inertia 
weight 
class is: 
The 2000 model year city fuel 
economy is: 
1,500 or 1,750 lbs ....................................................................
43.7 mpg
2,000 lbs ..................................................................................
38.3 mpg
2,250 lbs ..................................................................................
34.1 mpg
2,500 lbs ..................................................................................
30.7 mpg
2,750 lbs ..................................................................................
27.9 mpg
3,000 lbs ..................................................................................
25.6 mpg
3,500 lbs ..................................................................................
22.0 mpg
4,000 lbs ..................................................................................
19.3 mpg
4,500 lbs ..................................................................................
17.2 mpg
5,000 lbs ..................................................................................
15.5 mpg
5,500 lbs ..................................................................................
14.1 mpg
6,000 lbs ..................................................................................
12.9 mpg
6,500 lbs ..................................................................................
11.9 mpg
7,000 or 8,500 lbs ....................................................................
11.1 mpg.
‘‘(ii) In the case of a light truck:
‘‘If 
vehicle 
inertia 
weight 
class is: 
The 2000 model year city fuel 
economy is: 
1,500 or 1,750 lbs ....................................................................
37.6 mpg
2,000 lbs ..................................................................................
33.7 mpg
2,250 lbs ..................................................................................
30.6 mpg
2,500 lbs ..................................................................................
28.0 mpg
2,750 lbs ..................................................................................
25.9 mpg
3,000 lbs ..................................................................................
24.1 mpg
3,500 lbs ..................................................................................
21.3 mpg
4,000 lbs ..................................................................................
19.0 mpg
658
‘‘If 
vehicle 
inertia 
weight 
class is: 
The 2000 model year city fuel 
economy is: 
4,500 lbs ..................................................................................
17.3 mpg
5,000 lbs ..................................................................................
15.8 mpg
5,500 lbs ..................................................................................
14.6 mpg
6,000 lbs ..................................................................................
13.6 mpg
6,500 lbs ..................................................................................
12.8 mpg
7,000 or 8,500 lbs ....................................................................
12.0 mpg.
‘‘(C) VEHICLE INERTIA WEIGHT CLASS.—
For purposes of subparagraph (B), 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.). 
‘‘(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—
659
‘‘(i) for 2004 and later model vehicles, 
has received a certificate of conformity 
under the Clean Air Act and meets or ex-
ceeds the equivalent qualifying California 
low emission vehicle standard under sec-
tion 243(e)(2) of the Clean Air Act for 
that make and model year, and 
‘‘(ii) for 2004 and later model vehi-
cles, has received a certificate that such ve-
hicle meets or exceeds the Bin 5 Tier II 
emission level 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, 
‘‘(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) ADVANCED LEAN BURN TECHNOLOGY MOTOR 
VEHICLE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the advanced lean burn technology motor vehicle 
credit determined under this subsection with respect
660
to a new qualified 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) INCREASE FOR FUEL EFFICIENCY.—
The credit amount determined under this para-
graph shall be—
‘‘(i) $500, if such vehicle achieves at 
least 125 percent but less than 150 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(ii) $1,000, if such vehicle achieves 
at least 150 percent but less than 175 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(iii) $1,500, if such vehicle achieves 
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(iv) $2,000, if such vehicle achieves 
at least 200 percent but less than 225 per-
cent of the 2000 model year city fuel econ-
omy,
661
‘‘(v) $2,500, if such vehicle achieves 
at least 225 percent but less than 250 per-
cent of the 2000 model year city fuel econ-
omy, and 
‘‘(vi) $3,000, if such vehicle achieves 
at least 250 percent of the 2000 model 
year city fuel economy. 
For purposes of clause (i), the 2000 model year 
city fuel economy with respect to a vehicle shall 
be determined using the tables provided in sub-
section (b)(2)(B) with respect to such vehicle. 
‘‘(B) 
CONSERVATION
CREDIT.—The 
amount determined under subparagraph (A) 
with respect to an advanced lean burn tech-
nology motor vehicle shall be increased by—
‘‘(i) $250, if such vehicle achieves a 
lifetime fuel savings of at least 1,500 gal-
lons of gasoline, and 
‘‘(ii) $500, if such vehicle achieves a 
lifetime fuel savings of at least 2,500 gal-
lons of gasoline. 
‘‘(C) OPTION TO USE LIKE VEHICLE.—At 
the option of the vehicle manufacturer, the in-
crease for fuel efficiency and conservation credit 
may be calculated by comparing the new ad-
662
vanced lean-burn technology motor vehicle to a 
like vehicle. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) ADVANCED LEAN BURN TECHNOLOGY 
MOTOR
VEHICLE.—The term ‘advanced lean 
burn technology motor vehicle’ means a motor 
vehicle with an internal combustion engine 
that—
‘‘(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 2000 model year city fuel economy, 
and 
‘‘(iv) for 2004 and later model vehi-
cles, has received a certificate that such ve-
hicle meets or exceeds the Bin 8 Tier II 
emission level 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.
663
‘‘(B) LIKE VEHICLE.—The term ‘like vehi-
cle’ for an advanced lean burn technology motor 
vehicle derived from a conventional production 
vehicle produced in the same model year means 
a model that is equivalent in the following 
areas: 
‘‘(i) Body style (2-door or 4-door). 
‘‘(ii) Transmission (automatic or man-
ual). 
‘‘(iii) Acceleration performance (± 
0.05 seconds). 
‘‘(iv) Drivetrain (2-wheel drive or 4-
wheel drive). 
‘‘(v) Certification by the Adminis-
trator of the Environmental Protection 
Agency. 
‘‘(C) LIFETIME FUEL SAVINGS.—The term 
‘lifetime fuel savings’ shall be calculated by di-
viding 120,000 by the difference between the 
2000 model year city fuel economy for the vehi-
cle inertia weight class and the city fuel econ-
omy for the new qualified hybrid motor vehicle. 
‘‘(d) LIMITATION BASED ON AMOUNT OF TAX.—The 
credit allowed under subsection (a) for the taxable year 
shall not exceed the excess of—
664
‘‘(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, 29, and 30A for the taxable 
year. 
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) 
CONSUMABLE
FUEL.—The 
term 
‘consumable fuel’ means any solid, liquid, or gaseous 
matter which releases energy when consumed by an 
auxiliary power unit. 
‘‘(2) MOTOR VEHICLE.—The term ‘motor vehi-
cle’ has the meaning given such term by section 
30(c)(2). 
‘‘(3) 2000 MODEL
YEAR
CITY
FUEL
ECON-
OMY.—The 2000 model year city fuel economy with 
respect to any vehicle shall be measured under rules 
similar to the rules under section 4064(c). 
‘‘(4) 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-
665
ministration of title II of the Clean Air Act (42 
U.S.C. 7521 et seq.). 
‘‘(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 
(other than the credit allowable under this section), 
with respect to a vehicle described under subsection 
(b), shall be reduced by the amount of credit allowed 
under subsection (a) for such vehicle for the taxable 
year. 
‘‘(7) PROPERTY USED BY TAX-EXEMPT ENTI-
TIES.—In the case of a credit amount which is al-
lowable with respect to a motor vehicle which is ac-
quired by an entity exempt from tax under this 
chapter, the person which sells or leases such vehicle 
to the entity shall be treated as the taxpayer with 
respect to the vehicle for purposes of this section 
and the credit shall be allowed to such person, but 
only if the person clearly discloses to the entity in
666
any sale or lease document the specific amount of 
any credit otherwise allowable to the entity under 
this section. 
‘‘(8) 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). 
‘‘(9) 
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. 
‘‘(10) ELECTION TO NOT 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. 
‘‘(11) CARRYFORWARD ALLOWED.—
‘‘(A) IN GENERAL.—If the credit amount 
allowable under subsection (a) for a taxable 
year exceeds the amount of the limitation under 
subsection (d) for such taxable year (referred to
667
as the ‘unused credit year’ in this paragraph), 
such excess shall be allowed as a credit 
carryforward for each of the 20 taxable years 
following the unused credit year. 
‘‘(B) RULES.—Rules similar to the rules of 
section 39 shall apply with respect to the credit 
carryforward under subparagraph (A). 
‘‘(12) INTERACTION
WITH
AIR
QUALITY
AND 
MOTOR VEHICLE SAFETY STANDARDS.—Unless oth-
erwise provided in this section, a motor vehicle shall 
not be considered eligible for a credit under this sec-
tion unless such vehicle is in compliance with—
‘‘(A) the applicable provisions of the Clean 
Air Act for the applicable make and model year 
of the vehicle (or applicable air quality provi-
sions of State law in the case of a State which 
has adopted such provision under a waiver 
under section 209(b) of the Clean Air Act), and 
‘‘(B) the motor vehicle safety provisions of 
sections 30101 through 30169 of title 49, 
United States Code. 
‘‘(f) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall pro-
mulgate such regulations as necessary to carry out 
the provisions of this section.
668
‘‘(2) DETERMINATION OF MOTOR VEHICLE ELI-
GIBILITY.—The Secretary, in coordination with the 
Secretary of Transportation and the Administrator 
of the Environmental Protection Agency, shall pre-
scribe such regulations as necessary to determine 
whether a motor vehicle meets the requirements to 
be eligible for a credit under this section. 
‘‘(g) TERMINATION.—This section shall not apply to 
any property placed in service after—
‘‘(1) in the case of a new qualified fuel cell 
motor vehicle (as described in subsection (b)), De-
cember 31, 2012, and 
‘‘(2) in the case of any other property, Decem-
ber 31, 2006.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking 
‘‘and’’ at the end of paragraph (30), by striking the 
period at the end of paragraph (31) and inserting ‘‘, 
and’’, and by adding at the end the following: 
‘‘(32) to the extent provided in section 
30B(e)(5).’’. 
(2) Section 6501(m) is amended by inserting 
‘‘30B(e)(10),’’ after ‘‘30(d)(4),’’. 
(3) The table of sections for subpart B of part 
IV of subchapter A of chapter 1 is amended by in-
669
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 
December 31, 2003, in taxable years ending after such 
date. 
TITLE II—RELIABILITY 
SEC. 42001. 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 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
670
‘‘(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 certificated by the Federal 
Energy Regulatory Commission as an 
interstate transmission pipeline, 
‘‘(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) .......................................................................................................
10’’.
(d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(C)(ii)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act, in taxable years 
ending after such date.
671
SEC. 42002. NATURAL GAS DISTRIBUTION LINES TREATED 
AS 15-YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ‘‘and’’ at the end of clause (ii), by 
striking the period at the end of clause (iii) and by insert-
ing ‘‘, and’’, and by adding at the end the following new 
clause: 
‘‘(iv) any natural gas distribution 
line.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (E)(iii) the following:
‘‘(E)(iv) ......................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(E)(iv)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act, in taxable years 
ending after such date. 
SEC. 42003. ELECTRIC TRANSMISSION PROPERTY TREATED 
AS 15-YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is
672
amended by striking ‘‘and’’ at the end of clause (iii), by 
striking the period at the end of clause (iv) and by insert-
ing ‘‘, and’’, and by adding at the end the following new 
clause: 
‘‘(v) any section 1245 property (as de-
fined in section 1245(a)(3)) used in the 
transmission at 69 or more kilovolts of 
electricity for sale.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (E)(iv) the following:
‘‘(E)(v) .......................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(E)(v)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act, in taxable years 
ending after such date. 
SEC. 42004. 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
673
corporations) is amended by inserting after section 179A 
the following new section: 
‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
‘‘(a) TREATMENT AS EXPENSES.—A small business 
refiner (as defined in section 45H(c)(1)) may elect to treat 
75 percent of qualified capital costs (as defined in section 
45H(c)(2)) which are paid or incurred by the taxpayer 
during the taxable year as expenses which are not charge-
able to capital account. Any cost so treated shall be al-
lowed as a deduction for the taxable year in which paid 
or incurred. 
‘‘(b) REDUCED PERCENTAGE.—In the case of a small 
business refiner with average daily domestic refinery runs 
for the 1-year period ending on March 31, 2003, in excess 
of 155,000 barrels, the number of percentage points de-
scribed in subsection (a) shall be reduced (not below zero) 
by the product of such number (before the application of 
this subsection) and the ratio of such excess to 50,000 
barrels. 
‘‘(c) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title, 
the basis of any property shall be reduced by the
674
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-
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.’’. 
(b) CONFORMING AMENDMENTS.—
(1) 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 adding at the end the following new 
subparagraph: 
‘‘(I) expenditures for which a deduction is 
allowed under section 179B.’’. 
(2) Section 312(k)(3)(B) is amended—
(A) by striking ‘‘section 179 or 179A’’ 
each place it appears and inserting ‘‘section 
179, 179A, or 179B’’, and 
(B) in the heading, by striking ‘‘179 OR 
179A’’ and inserting ‘‘179, 179A, OR 179B’’. 
(3) Section 1016(a) is amended by striking 
‘‘and’’ at the end of paragraph (31), by striking the 
period at the end of paragraph (32) and inserting ‘‘,
675
and’’, and by adding at the end the following new 
paragraph: 
‘‘(33) to the extent provided in section 
179B(c).’’
(4) Paragraphs (2)(C) and (3)(C) of section 
1245(a) are each amended by inserting ‘‘179B,’’ 
after ‘‘179A,’’. 
(5) The table of sections for part VI of sub-
chapter B of chapter 1 is amended by inserting after 
the item relating to section 179A the following new 
item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying 
with Environmental Protection Agency sulfur regu-
lations.’’.
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to expenses paid or incurred after 
March 31, 2003, in taxable years ending after such date. 
SEC. 42005. CREDIT FOR PRODUCTION OF LOW SULFUR 
DIESEL FUEL. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its) is amended by adding at the end the following new 
section: 
‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIE-
SEL FUEL. 
‘‘(a) IN GENERAL.—For purposes of section 38, the 
amount of the low sulfur diesel fuel production credit de-
676
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 March 
31, 2003, in excess of 155,000 barrels, the number 
of percentage points described in paragraph (1) shall 
be reduced (not below zero) by the product of such 
number (before the application of this paragraph) 
and the ratio of such excess to 50,000 barrels. 
‘‘(c) DEFINITIONS.—For purposes of this section—
677
‘‘(1) SMALL
BUSINESS
REFINER.—The term 
‘small business refiner’ means, with respect to any 
taxable year, a refiner of crude oil with respect to 
which not more than 1,500 persons are engaged in 
the refinery operations of the business on any day 
during such taxable year and whose average daily 
domestic refinery run for the 1-year period ending 
on March 31, 2003, did not exceed 205,000 barrels. 
‘‘(2) QUALIFIED
CAPITAL
COSTS.—The term 
‘qualified capital costs’ means, with respect to any 
facility, those costs paid or incurred during the ap-
plicable period for compliance with the applicable 
EPA regulations with respect to such facility, includ-
ing expenditures for the construction of new process 
operation units or the dismantling and reconstruc-
tion of existing process units to be used in the pro-
duction of low sulfur diesel fuel, associated adjacent 
or offsite equipment (including tankage, catalyst, 
and power supply), engineering, construction period 
interest, and sitework. 
‘‘(3) APPLICABLE
EPA
REGULATIONS.—The 
term ‘applicable EPA regulations’ means the High-
way Diesel Fuel Sulfur Control Requirements of the 
Environmental Protection Agency.
678
‘‘(4) APPLICABLE PERIOD.—The term ‘applica-
ble period’ means, with respect to any facility, the 
period beginning on April 1, 2003, and ending with 
the date which is 1 year after the date on which the 
taxpayer must comply with the applicable EPA regu-
lations with respect to such facility. 
‘‘(5) LOW SULFUR DIESEL FUEL.—The term 
‘low sulfur diesel fuel’ means diesel fuel with a sul-
fur content of 15 parts per million or less. 
‘‘(d) REDUCTION IN BASIS.—For purposes of this 
subtitle, if a credit is determined under this section 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) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date 
which is 30 months after the first day of the first 
taxable year in which the low sulfur diesel fuel pro-
duction credit is allowed with respect to a facility, 
the small business refiner must obtain certification 
from the Secretary, in consultation with the Admin-
istrator of the Environmental Protection Agency, 
that the taxpayer’s qualified capital costs with re-
679
spect to such facility will result in compliance with 
the applicable EPA regulations. 
‘‘(2) CONTENTS OF APPLICATION.—An applica-
tion for certification shall include relevant informa-
tion regarding unit capacities and operating charac-
teristics sufficient for the Secretary, in consultation 
with the Administrator of the Environmental Protec-
tion Agency, to determine that such qualified capital 
costs are necessary for compliance with the applica-
ble EPA regulations. 
‘‘(3) REVIEW
PERIOD.—Any application shall 
be reviewed and notice of certification, if applicable, 
shall be made within 60 days of receipt of such ap-
plication. 
‘‘(4) STATUTE OF LIMITATIONS.—With respect 
to the credit allowed under this section—
‘‘(A) the statutory period for the assess-
ment of any deficiency attributable to such 
credit shall not expire before the end of the 3-
year period ending on the date that the review 
period described in paragraph (3) ends, and 
‘‘(B) such deficiency may be assessed be-
fore the expiration of such 3-year period not-
withstanding the provisions of any other law or
680
rule of law which would otherwise prevent such 
assessment. 
‘‘(f) CONTROLLED GROUPS.—For purposes of this 
section, all persons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 shall be treated 
as 1 taxpayer.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 (relating to general 
business credit) is amended by striking ‘‘plus’’ at the end 
of paragraph (15), by striking the period at the end of 
paragraph (16) and inserting ‘‘, plus’’, and by adding at 
the end the following new paragraph: 
‘‘(17) in the case of a small business refiner, 
the low sulfur diesel fuel production credit deter-
mined under section 45H(a).’’. 
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C 
(relating to certain expenses for which credits are allow-
able) is amended by adding after subsection (d) the fol-
lowing new subsection: 
‘‘(e) LOW
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 45H(a).’’.
681
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating 
to adjustments to basis) is amended by striking ‘‘and’’ at 
the end of paragraph (32), by striking the period at the 
end of paragraph (33) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph: 
‘‘(34) in the case of a facility with respect to 
which a credit was allowed under section 45H, to 
the extent provided in section 45H(d).’’. 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new item:
‘‘Sec. 45H. Credit for production of low sulfur diesel fuel.’’.
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to expenses paid or incurred after 
March 31, 2003, in taxable years ending after such date. 
SEC. 42006. DETERMINATION OF SMALL REFINER EXCEP-
TION TO OIL DEPLETION DEDUCTION. 
(a) IN GENERAL.—Paragraph (4) of section 613A(d) 
(relating to certain refiners excluded) is amended to read 
as follows: 
‘‘(4) CERTAIN
REFINERS
EXCLUDED.—If the 
taxpayer or a related person engages in the refining 
of crude oil, subsection (c) shall not apply to the 
taxpayer for a taxable year if the average daily refin-
ery runs of the taxpayer and the related person for 
the taxable year exceed 75,000 barrels. For purposes
682
of this paragraph, the average daily refinery runs for 
any taxable year shall be determined by dividing the 
aggregate refinery runs for the taxable year by the 
number of days in the taxable year.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 42007. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION 
OR STATE ELECTRIC RESTRUCTURING POL-
ICY. 
(a) IN GENERAL.—Section 451 (relating to general 
rule for taxable year of inclusion) is amended by adding 
at the end the following new subsection: 
‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO 
IMPLEMENT FEDERAL ENERGY REGULATORY COMMIS-
SION OR STATE ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—In the case of any quali-
fying electric transmission transaction to which the 
taxpayer elects the application of this section, quali-
fied gain from such transaction shall be recog-
nized—
‘‘(A) in the taxable year which includes the 
date of such transaction to the extent the
683
amount realized from such transaction ex-
ceeds—
‘‘(i) the cost of exempt utility property 
which is purchased by the taxpayer during 
the 4-year period beginning on such date, 
reduced (but not below zero) by 
‘‘(ii) any portion of such cost pre-
viously taken into account under this sub-
section, and 
‘‘(B) ratably over the 8-taxable year period 
beginning with the taxable year which includes 
the date of such transaction, in the case of any 
such gain not recognized under subparagraph 
(A). 
‘‘(2) QUALIFIED GAIN.—For purposes of this 
subsection, the term ‘qualified gain’ means, with re-
spect to any qualifying electric transmission trans-
action in any taxable year— 
‘‘(A) any ordinary income derived from 
such transaction which would be required to be 
recognized under section 1245 or 1250 for such 
taxable year (determined without regard to this 
subsection), and 
‘‘(B) any income derived from such trans-
action in excess of the amount described in sub-
686
under the operational control of a person 
described in clause (i). 
‘‘(5) EXEMPT
UTILITY
PROPERTY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘exempt 
utility property’ means property used in the 
trade or business of—
‘‘(i) generating, transmitting, distrib-
uting, or selling electricity, or 
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas. 
‘‘(B) NONRECOGNITION OF GAIN BY REA-
SON OF ACQUISITION OF STOCK.—Acquisition of 
control of a corporation shall be taken into ac-
count under this subsection with respect to a 
qualifying electric transmission transaction only 
if the principal trade or business of such cor-
poration is a trade or business referred to in 
subparagraph (A). 
‘‘(6) 
SPECIAL
RULE
FOR
CONSOLIDATED 
GROUPS.—In the case of a corporation which is a 
member of an affiliated group filing a consolidated 
return, any exempt utility property purchased by an-
other member of such group shall be treated as pur-
687
chased by such corporation for purposes of applying 
paragraph (1)(A). 
‘‘(7) 
TIME
FOR
ASSESSMENT
OF
DEFI-
CIENCIES.—If the taxpayer has made the election 
under paragraph (1) and any gain is recognized by 
such taxpayer as provided in paragraph (1)(B), 
then—
‘‘(A) the statutory period for the assess-
ment of any deficiency, for any taxable year in 
which any part of the gain on the transaction 
is realized, attributable to such gain shall not 
expire prior to the expiration of 3 years from 
the date the Secretary is notified by the tax-
payer (in such manner as the Secretary may by 
regulations prescribe) of the purchase of exempt 
utility property or of an intention not to pur-
chase such property, and 
‘‘(B) such deficiency may be assessed be-
fore the expiration of such 3-year period not-
withstanding any law or rule of law which 
would otherwise prevent such assessment. 
‘‘(8) PURCHASE.—For purposes of this sub-
section, the taxpayer shall be considered to have 
purchased any property if the unadjusted basis of
688
such property is its cost within the meaning of sec-
tion 1012. 
‘‘(9) ELECTION.—An election under paragraph 
(1) shall be made at such time and in such manner 
as the Secretary may require and, once made, shall 
be irrevocable.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions occurring after the 
date of the enactment of this Act, in taxable years ending 
after such date. 
SEC. 42008. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS. 
(a) REPEAL
OF LIMITATION
ON DEPOSITS INTO 
FUND BASED ON COST OF SERVICE; CONTRIBUTIONS 
AFTER FUNDING PERIOD.—Subsection (b) of section 
468A is amended to read as follows: 
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the Fund for any taxable year 
shall not exceed the ruling amount applicable to 
such taxable year. 
‘‘(2) CONTRIBUTIONS
AFTER
FUNDING
PE-
RIOD.—Notwithstanding any other provision of this 
section, a taxpayer may pay into the Fund in any 
taxable year after the last taxable year to which the
689
ruling amount applies. Payments may not be made 
under the preceding sentence to the extent such pay-
ments would cause the assets of the Fund to exceed 
the nuclear decommissioning costs allocable to the 
taxpayer’s current or former interest in the nuclear 
power plant to which the Fund relates. The limita-
tion under the preceding sentence shall be deter-
mined by taking into account a reasonable rate of 
inflation for the nuclear decommissioning costs and 
a reasonable after-tax rate of return on the assets 
of the Fund until such assets are anticipated to be 
expended.’’. 
(b) CLARIFICATION
OF
TREATMENT
OF
FUND 
TRANSFERS.—Subsection (e) of section 468A is amended 
by adding at the end the following new paragraph: 
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in 
connection with the transfer of the taxpayer’s inter-
est in a nuclear power plant, the taxpayer transfers 
the Fund with respect to such power plant to the 
transferee of such interest and the transferee elects 
to continue the application of this section to such 
Fund—
‘‘(A) the transfer of such Fund shall not 
cause such Fund to be disqualified from the ap-
plication of this section, and
690
‘‘(B) no amount shall be treated as distrib-
uted from such Fund, or be includible in gross 
income, by reason of such transfer.’’. 
(c) TREATMENT
OF CERTAIN DECOMMISSIONING 
COSTS.—
(1) IN GENERAL.—Section 468A is amended by 
redesignating subsections (f) and (g) as subsections 
(g) and (h), respectively, and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection 
(b), any taxpayer maintaining a Fund to which this 
section applies with respect to a nuclear power plant 
may transfer into such Fund up to an amount equal 
to the excess of the total nuclear decommissioning 
costs with respect to such nuclear power plant over 
the portion of such costs taken into account in de-
termining the ruling amount in effect immediately 
before the transfer. 
‘‘(2) 
DEDUCTION
FOR
AMOUNTS
TRANS-
FERRED.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (C), the deduction allowed by 
subsection (a) for any transfer permitted by 
this subsection shall be allowed ratably over the
691
remaining estimated useful life (within the 
meaning of subsection (d)(2)(A)) of the nuclear 
power plant beginning with the taxable year 
during which the transfer is made. 
‘‘(B) DENIAL
OF
DEDUCTION
FOR
PRE-
VIOUSLY DEDUCTED AMOUNTS.—No deduction 
shall be allowed for any transfer under this sub-
section of an amount for which a deduction was 
previously allowed or a corresponding amount 
was not included in gross income. For purposes 
of the preceding sentence, a ratable portion of 
each transfer shall be treated as being from 
previously deducted or excluded amounts to the 
extent thereof. 
‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—
If—
‘‘(i) any transfer permitted by this 
subsection is made to any Fund to which 
this section applies, and 
‘‘(ii) such Fund is transferred there-
after, 
any deduction under this subsection for taxable 
years ending after the date that such Fund is 
transferred shall be allowed to the transferor 
for the taxable year which includes such date.
692
‘‘(D) SPECIAL RULES.—
‘‘(i) GAIN
OR
LOSS
NOT
RECOG-
NIZED.—No gain or loss shall be recog-
nized on any transfer permitted by this 
subsection. 
‘‘(ii) TRANSFERS
OF
APPRECIATED 
PROPERTY.—If appreciated property is 
transferred in a transfer permitted by this 
subsection, the amount of the deduction 
shall be the adjusted basis of such prop-
erty. 
‘‘(3) NEW RULING AMOUNT REQUIRED.—Para-
graph (1) shall not apply to any transfer unless the 
taxpayer requests from the Secretary a new schedule 
of ruling amounts in connection with such transfer. 
‘‘(4) NO
BASIS
IN
QUALIFIED
FUNDS.—Not-
withstanding any other provision of law, the tax-
payer’s basis in any Fund to which this section ap-
plies shall not be increased by reason of any transfer 
permitted by this subsection.’’. 
(2) NEW RULING AMOUNT TO TAKE INTO AC-
COUNT TOTAL COSTS.—Subparagraph (A) of section 
468A(d)(2) is amended to read as follows: 
‘‘(A) fund the total nuclear decommis-
sioning costs with respect to such power plant
693
over the estimated useful life of such power 
plant, and’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 42009. TREATMENT OF CERTAIN INCOME OF CO-
OPERATIVES. 
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section 
501(c)(12) is amended by striking ‘‘or’’ at the end 
of clause (i), by striking clause (ii), and by adding 
at the end the following new clauses: 
‘‘(ii) from any provision or sale of 
transmission service or ancillary services if 
such services are provided on a non-
discriminatory open access basis under an 
independent transmission provider agree-
ment approved by FERC (other than in-
come received or accrued directly or indi-
rectly from a member), 
‘‘(iii) from any nuclear decommis-
sioning transaction, or 
‘‘(iv) from any asset exchange or con-
version transaction.’’.
694
(2) DEFINITIONS AND SPECIAL RULES.—Para-
graph (12) of section 501(c) is amended by adding 
at the end the following new subparagraphs: 
‘‘(E) For purposes of subparagraph (C)(ii), 
the term ‘FERC’ means the Federal Energy 
Regulatory Commission and references to such 
term shall be treated as including the Public 
Utility Commission of Texas with respect to 
any ERCOT utility (as defined in section 
212(k)(2)(B) of the Federal Power Act (16 
U.S.C. 824k(k)(2)(B))). 
‘‘(F) 
For 
purposes 
of 
subparagraph 
(C)(iii), the term ‘nuclear decommissioning 
transaction’ means—
‘‘(i) any transfer into a trust, fund, or 
instrument established to pay any nuclear 
decommissioning costs if the transfer is in 
connection with the transfer of the mutual 
or cooperative electric company’s interest 
in a nuclear power plant or nuclear power 
plant unit, 
‘‘(ii) any distribution from any trust, 
fund, or instrument established to pay any 
nuclear decommissioning costs, or
695
‘‘(iii) any earnings from any trust, 
fund, or instrument established to pay any 
nuclear decommissioning costs. 
‘‘(G) 
For 
purposes 
of 
subparagraph 
(C)(iv), the term ‘asset exchange or conversion 
transaction’ means any voluntary exchange or 
involuntary conversion of any property related 
to generating, transmitting, distributing, or sell-
ing electric energy by a mutual or cooperative 
electric company, the gain from which qualifies 
for deferred recognition under section 1031 or 
1033, but only if the replacement property ac-
quired by such company pursuant to such sec-
tion constitutes property which is used, or to be 
used, for—
‘‘(i) generating, transmitting, distrib-
uting, or selling electric energy, or 
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.’’. 
(b) TREATMENT
OF INCOME FROM LOAD LOSS 
TRANSACTIONS, ETC.—Paragraph (12) of section 501(c), 
as amended by subsection (a)(2), is amended by adding 
after subparagraph (G) the following new subparagraph: 
‘‘(H)(i) In the case of a mutual or coopera-
tive electric company described in this para-
696
graph or an organization described in section 
1381(a)(2)(C), income received or accrued from 
a load loss transaction shall be treated as an 
amount collected from members for the sole 
purpose of meeting losses and expenses. 
‘‘(ii) For purposes of clause (i), the term 
‘load loss transaction’ means any wholesale or 
retail sale of electric energy (other than to 
members) to the extent that the aggregate sales 
during the recovery period do not exceed the 
load loss mitigation sales limit for such period. 
‘‘(iii) For purposes of clause (ii), the load 
loss mitigation sales limit for the recovery pe-
riod is the sum of the annual load losses for 
each year of such period. 
‘‘(iv) For purposes of clause (iii), a mutual 
or cooperative electric company’s annual load 
loss for each year of the recovery period is the 
amount (if any) by which—
‘‘(I) the megawatt hours of electric 
energy sold during such year to members 
of such electric company are less than 
‘‘(II) the megawatt hours of electric 
energy sold during the base year to such 
members.
697
‘‘(v) For purposes of clause (iv)(II), the 
term ‘base year’ means—
‘‘(I) the calendar year preceding the 
start-up year, or 
‘‘(II) at the election of the electric 
company, the second or third calendar 
years preceding the start-up year. 
‘‘(vi) For purposes of this subparagraph, 
the recovery period is the 7-year period begin-
ning with the start-up year. 
‘‘(vii) For purposes of this subparagraph, 
the start-up year is the calendar year which in-
cludes the date of the enactment of this sub-
paragraph or, if later, at the election of the mu-
tual or cooperative electric company—
‘‘(I) the first year that such electric 
company offers nondiscriminatory open ac-
cess, or 
‘‘(II) the first year in which at least 
10 percent of such electric company’s sales 
are not to members of such electric com-
pany. 
‘‘(viii) A company shall not fail to be treat-
ed as a mutual or cooperative company for pur-
poses of this paragraph or as a corporation op-
698
erating on a cooperative basis for purposes of 
section 1381(a)(2)(C) by reason of the treat-
ment under clause (i). 
‘‘(ix) For purposes of subparagraph (A), in 
the case of a mutual or cooperative electric 
company, income received, or accrued, indirectly 
from a member shall be treated as an amount 
collected from members for the sole purpose of 
meeting losses and expenses.’’. 
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(18) TREATMENT OF MUTUAL OR COOPERA-
TIVE ELECTRIC COMPANIES.—In the case of a mu-
tual or cooperative electric company described in sec-
tion 501(c)(12), there shall be excluded income 
which is treated as member income under subpara-
graph (H) thereof.’’. 
(d) CROSS REFERENCE.—Section 1381 is amended 
by adding at the end the following new subsection:
699
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss trans-
actions of organizations described in subsection 
(a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 42010. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS. 
(a) IN GENERAL.—Subsection (b) of section 148 (re-
lating to higher yielding investments) is amended by add-
ing at the end the following new paragraph: 
‘‘(4) SAFE
HARBOR
FOR
PREPAID
NATURAL 
GAS.—
‘‘(A) IN GENERAL.—The term ‘investment-
type property’ does not include a prepayment 
under a qualified natural gas supply contract. 
‘‘(B) QUALIFIED
NATURAL
GAS
SUPPLY 
CONTRACT.—For purposes of this paragraph, 
the term ‘qualified natural gas supply contract’ 
means any contract to acquire natural gas for 
resale by a utility owned by a governmental 
unit if the amount of gas permitted to be ac-
quired under the contract by the utility during 
any year does not exceed the sum of—
‘‘(i) the annual average amount dur-
ing the testing period of natural gas pur-
700
chased (other than for resale) by cus-
tomers of such utility who are located 
within the service area of such utility, and 
‘‘(ii) the amount of natural gas to be 
used to transport the prepaid natural gas 
to the utility during such year. 
‘‘(C) NATURAL GAS USED TO GENERATE 
ELECTRICITY.—Natural gas used to generate 
electricity shall be taken into account in deter-
mining 
the 
average 
under 
subparagraph 
(B)(i)—
‘‘(i) only if the electricity is generated 
by a utility owned by a governmental unit, 
and 
‘‘(ii) only to the extent that the elec-
tricity is sold (other than for resale) to 
customers of such utility who are located 
within the service area of such utility. 
‘‘(D) ADJUSTMENTS
FOR
CHANGES
IN 
CUSTOMER BASE.—
‘‘(i) NEW
BUSINESS
CUSTOMERS.—
If—
‘‘(I) after the close of the testing 
period and before the date of issuance 
of the issue, the utility owned by a
701
governmental unit enters into a con-
tract to supply natural gas (other 
than for resale) for a business use at 
a property within the service area of 
such utility, and 
‘‘(II) the utility did not supply 
natural gas to such property during 
the testing period or the ratable 
amount of natural gas to be supplied 
under the contract is significantly 
greater than the ratable amount of 
gas supplied to such property during 
the testing period, 
then a contract shall not fail to be treated 
as a qualified natural gas supply contract 
by reason of supplying the additional nat-
ural gas under the contract referred to in 
subclause (I). 
‘‘(ii) LOST CUSTOMERS.—The average 
under subparagraph (B)(i) shall not exceed 
the annual amount of natural gas reason-
ably expected to be purchased (other than 
for resale) by persons who are located 
within the service area of such utility and
702
who, as of the date of issuance of the 
issue, are customers of such utility. 
‘‘(E) RULING REQUESTS.—The Secretary 
may increase the average under subparagraph 
(B)(i) for any period if the utility owned by the 
governmental unit establishes to the satisfaction 
of the Secretary that, based on objective evi-
dence of growth in natural gas consumption or 
population, such average would otherwise be in-
sufficient for such period. 
‘‘(F) ADJUSTMENT
FOR
NATURAL
GAS 
OTHERWISE ON HAND.—
‘‘(i) IN GENERAL.—The amount oth-
erwise permitted to be acquired under the 
contract for any period shall be reduced 
by—
‘‘(I) the applicable share of nat-
ural gas held by the utility on the 
date of issuance of the issue, and 
‘‘(II) the natural gas (not taken 
into account under subclause (I)) 
which the utility has a right to ac-
quire during such period (determined 
as of the date of issuance of the 
issue).
703
‘‘(ii) APPLICABLE SHARE.—For pur-
poses of the clause (i), the term ‘applicable 
share’ means, with respect to any period, 
the natural gas allocable to such period if 
the gas were allocated ratably over the pe-
riod to which the prepayment relates. 
‘‘(G) INTENTIONAL ACTS.—Subparagraph 
(A) shall cease to apply to any issue if the util-
ity owned by the governmental unit engages in 
any intentional act to render the volume of nat-
ural gas acquired by such prepayment to be in 
excess of the sum of—
‘‘(i) the amount of natural gas needed 
(other than for resale) by customers of 
such utility who are located within the 
service area of such utility, and 
‘‘(ii) the amount of natural gas used 
to transport such natural gas to the utility. 
‘‘(H) TESTING PERIOD.—For purposes of 
this paragraph, the term ‘testing period’ means, 
with respect to an issue, the most recent 5 cal-
endar years ending before the date of issuance 
of the issue.
704
‘‘(I) SERVICE AREA.—For purposes of this 
paragraph, the service area of a utility owned 
by a governmental unit shall be comprised of—
‘‘(i) any area throughout which such 
utility provided at all times during the 
testing period—
‘‘(I) in the case of a natural gas 
utility, natural gas transmission or 
distribution services, and 
‘‘(II) in the case of an electric 
utility, electricity distribution services, 
‘‘(ii) any area within a county contig-
uous to the area described in clause (i) in 
which retail customers of such utility are 
located if such area is not also served by 
another utility providing natural gas or 
electricity services, as the case may be, and 
‘‘(iii) any area recognized as the serv-
ice area of such utility under State or Fed-
eral law.’’. 
(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY 
TO PREPAYMENTS FOR NATURAL GAS.—Paragraph (2) of 
section 141(c) (providing exceptions to the private loan fi-
nancing test) is amended by striking ‘‘or’’ at the end of 
subparagraph (A), by striking the period at the end of
705
subparagraph (B) and inserting ‘‘, or’’, and by adding at 
the end the following new subparagraph: 
‘‘(C) is a qualified natural gas supply con-
tract (as defined in section 148(b)(4)).’’. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to obligations issued after the date 
of the enactment of this Act. 
SEC. 42011. PREPAYMENT OF PREMIUM LIABILITY FOR 
COAL INDUSTRY HEALTH BENEFITS. 
(a) IN GENERAL.—Section 9704 (relating to liability 
of assigned operators) is amended by adding at the end 
the following new subsection: 
‘‘(j) PREPAYMENT OF PREMIUM LIABILITY.—
‘‘(1) IN GENERAL.—If—
‘‘(A) any assigned operator who is a mem-
ber of a controlled group of corporations (with-
in the meaning of section 52(a)) makes a pay-
ment meeting the requirements of paragraph 
(2) to the Combined Fund, and 
‘‘(B) the common parent of such group—
‘‘(i) is jointly and severally liable for 
any premium which would (but for this 
subsection) be required to be paid by such 
operator, and
706
‘‘(ii) provides security which meets the 
requirements of paragraph (3), 
then no person (other than such common parent) 
shall be liable for any premium for which such oper-
ator would otherwise be liable. 
‘‘(2) REQUIREMENTS.—A payment meets the 
requirements of this paragraph if—
‘‘(A) the amount of the payment is not less 
than the present value of the total premium li-
ability of the assigned operator for its assignees 
under this chapter with respect to the Com-
bined Fund (as determined by the operator’s 
enrolled 
actuary, 
as 
defined 
in 
section 
7701(a)(35)), using actuarial methods and as-
sumptions each of which is reasonable and 
which are reasonable in the aggregate, as deter-
mined by such enrolled actuary, 
‘‘(B) a signed actuarial report is filed with 
the Secretary of Labor by such enrolled actuary 
containing—
‘‘(i) the date of the actuarial valuation 
applicable to the report, and 
‘‘(ii) a statement by the enrolled actu-
ary signing the report that to the best of 
the actuary’s knowledge the report is com-
707
plete and accurate and that in the actu-
ary’s opinion the actuarial assumptions 
used are in the aggregate reasonably re-
lated to the experience of the operator and 
to reasonable expectations, 
‘‘(C) a description of the security described 
in paragraph (3) is filed with the Secretary of 
Labor by the common parent, and 
‘‘(D) 30 calendar days have elapsed after 
the report required by subparagraph (B), and 
the description required by subparagraph (C), 
are filed with the Secretary of Labor, and the 
Secretary of Labor has not notified the as-
signed operator in writing that the require-
ments of this paragraph have not been satisfied. 
‘‘(3) SECURITY.—Security meets the require-
ments of this paragraph if—
‘‘(A) the security (in the form of a bond, 
letter of credit, or cash escrow) is provided to 
the trustees of the 1992 UMWA Benefit Plan, 
solely for the purpose of paying premiums for 
beneficiaries described in section 9712(b)(2)(B), 
equal in amount to one year’s liability of the as-
signed operator under section 9711, determined
708
by using the average cost of such operator’s li-
ability during its prior 3 calendar years; and 
‘‘(B) the security will remain in place for 
5 years. 
‘‘(4) USE OF PREPAYMENT.—Any payment to 
which this subsection applies (and earnings thereon) 
shall be used exclusively to pay premiums which 
would (but for this subsection) be required to be 
paid by the assigned operator making such pay-
ment.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act. 
TITLE III—PRODUCTION 
SEC. 43001. OIL AND GAS FROM MARGINAL WELLS. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business credits) is 
amended by adding at the end the following: 
‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM 
MARGINAL WELLS. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
the marginal well production credit for any taxable year 
is an amount equal to the product of—
‘‘(1) the credit amount, and
709
‘‘(2) the qualified credit oil production and the 
qualified natural gas production which is attrib-
utable to the taxpayer. 
‘‘(b) CREDIT AMOUNT.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The credit amount is—
‘‘(A) $3 per barrel of qualified crude oil 
production, and 
‘‘(B) 50 cents per 1,000 cubic feet of 
qualified natural gas production. 
‘‘(2) REDUCTION AS OIL AND GAS PRICES IN-
CREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents 
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which 
bears the same ratio to such amount (deter-
mined without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for 
qualified natural gas production), bears to 
‘‘(ii) $3 ($0.33 for qualified natural 
gas production). 
The applicable reference price for a taxable 
year is the reference price of the calendar year
710
preceding the calendar year in which the tax-
able year begins. 
‘‘(B) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning in a calendar 
year after 2003, each of the dollar amounts 
contained in subparagraph (A) shall be in-
creased to an amount equal to such dollar 
amount multiplied by the inflation adjustment 
factor for such calendar year (determined under 
section 43(b)(3)(B) by substituting ‘2002’ for 
‘1990’). 
‘‘(C) REFERENCE PRICE.—For purposes of 
this paragraph, the term ‘reference price’ 
means, with respect to any calendar year—
‘‘(i) in the case of qualified crude oil 
production, the reference price determined 
under section 29(d)(2)(C), and 
‘‘(ii) in the case of qualified natural 
gas production, the Secretary’s estimate of 
the annual average wellhead price per 
1,000 cubic feet for all domestic natural 
gas. 
‘‘(c) QUALIFIED CRUDE OIL
AND NATURAL GAS 
PRODUCTION.—For purposes of this section—
711
‘‘(1) IN GENERAL.—The terms ‘qualified crude 
oil production’ and ‘qualified natural gas production’ 
mean domestic crude oil or natural gas which is pro-
duced from a qualified marginal well. 
‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION 
WHICH MAY QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural 
gas produced during any taxable year from any 
well shall not be treated or qualified crude oil 
production or qualified natural gas production 
to the extent production from the well during 
the taxable year exceeds 1,095 barrels or barrel 
equivalents. 
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the 
case of a short taxable year, the limitations 
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the 
number of days in such taxable year bears 
to 365. 
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is 
not capable of production during each day 
of a taxable year, the limitations under 
this paragraph applicable to the well shall
712
be proportionately reduced to reflect the 
ratio which the number of days of produc-
tion bears to the total number of days in 
the taxable year. 
‘‘(3) DEFINITIONS.—
‘‘(A) QUALIFIED
MARGINAL
WELL.—The 
term ‘qualified marginal well’ means a domestic 
well—
‘‘(i) the production from which during 
the taxable year is treated as marginal 
production under section 613A(c)(6), or 
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production 
of not more than 25 barrel equiva-
lents, and 
‘‘(II) produces water at a rate 
not less than 95 percent of total well 
effluent. 
‘‘(B) CRUDE OIL, ETC.—The terms ‘crude 
oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have 
the meanings given such terms by section 
613A(e). 
‘‘(C) BARREL
EQUIVALENT.—The term 
‘barrel equivalent’ means, with respect to nat-
713
ural gas, a conversation ratio of 6,000 cubic 
feet of natural gas to 1 barrel of crude oil. 
‘‘(d) OTHER RULES.—
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX-
PAYER.—In the case of a qualified marginal well in 
which there is more than one owner of operating in-
terests in the well and the crude oil or natural gas 
production exceeds the limitation under subsection 
(c)(2), qualifying crude oil production or qualifying 
natural gas production attributable to the taxpayer 
shall be determined on the basis of the ratio which 
taxpayer’s revenue interest in the production bears 
to the aggregate of the revenue interests of all oper-
ating interest owners in the production. 
‘‘(2) OPERATING
INTEREST
REQUIRED.—Any 
credit under this section may be claimed only on 
production which is attributable to the holder of an 
operating interest. 
‘‘(3) PRODUCTION
FROM
NONCONVENTIONAL 
SOURCES
EXCLUDED.—In the case of production 
from a qualified marginal well which is eligible for 
the credit allowed under section 29 for the taxable 
year, no credit shall be allowable under this section 
unless the taxpayer elects not to claim the credit 
under section 29 with respect to the well.’’.
714
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b) is amended by striking ‘‘plus’’ at the end of 
paragraph (16), by striking the period at the end of para-
graph (17) and inserting ‘‘, plus’’, and by adding at the 
end the following: 
‘‘(18) the marginal oil and gas well production 
credit determined under section 45I(a).’’. 
(c) CARRYBACK.—Subsection (a) of section 39 (relat-
ing to carryback and carryforward of unused credits gen-
erally) is amended by adding at the end the following: 
‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL 
AND GAS WELL PRODUCTION CREDIT.—In the case 
of the marginal oil and gas well production credit—
‘‘(A) this section shall be applied sepa-
rately from the business credit (other than the 
marginal oil and gas well production credit), 
‘‘(B) paragraph (1) shall be applied by 
substituting ‘10 taxable years’ for ‘1 taxable 
years’ in subparagraph (A) thereof, and 
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘31 taxable years’ 
for ‘21 taxable years’ in subparagraph (A) 
thereof, and
715
‘‘(ii) by substituting ‘30 taxable years’ 
for ‘20 taxable years’ in subparagraph (A) 
thereof.’’. 
(d) COORDINATION WITH SECTION 29.—Section 
29(a) is amended by striking ‘‘There’’ and inserting ‘‘At 
the election of the taxpayer, there’’. 
(e) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following:
‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to production in taxable years be-
ginning after December 31, 2003. 
SEC. 43002. TEMPORARY SUSPENSION OF LIMITATION 
BASED ON 65 PERCENT OF TAXABLE INCOME 
AND EXTENSION OF SUSPENSION OF TAX-
ABLE INCOME LIMIT WITH RESPECT TO MAR-
GINAL PRODUCTION. 
(a) LIMITATION BASED ON 65 PERCENT OF TAX-
ABLE INCOME.—Subsection (d) of section 613A (relating 
to limitation on percentage depletion in case of oil and 
gas wells) is amended by adding at the end the following 
new paragraph: 
‘‘(6) TEMPORARY SUSPENSION OF TAXABLE IN-
COME LIMIT.—Paragraph (1) shall not apply to tax-
able years beginning after December 31, 2003, and
716
before January 1, 2007, including with respect to 
amounts carried under the second sentence of para-
graph (1) to such taxable years.’’. 
(b) EXTENSION OF SUSPENSION OF TAXABLE IN-
COME LIMIT WITH RESPECT
TO MARGINAL PRODUC-
TION.—Subparagraph (H) of section 613A(c)(6) (relating 
to temporary suspension of taxable income limit with re-
spect to marginal production) is amended by striking 
‘‘2004’’ and inserting ‘‘2007’’. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 43003. AMORTIZATION OF DELAY RENTAL PAYMENTS. 
(a) IN GENERAL.—Section 167 (relating to deprecia-
tion) is amended by redesignating subsection (h) as sub-
section (i) and by inserting after subsection (g) the fol-
lowing new subsection: 
‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS 
FOR DOMESTIC OIL AND GAS WELLS.—
‘‘(1) IN GENERAL.—Any delay rental payment 
paid or incurred in connection with the development 
of oil or gas wells within the United States (as de-
fined in section 638) shall be allowed as a deduction 
ratably over the 24-month period beginning on the 
date that such payment was paid or incurred.
717
‘‘(2) HALF-YEAR CONVENTION.—For purposes 
of paragraph (1), any payment paid or incurred dur-
ing the taxable year shall be treated as paid or in-
curred on the mid-point of such taxable year. 
‘‘(3) EXCLUSIVE METHOD.—Except as provided 
in this subsection, no depreciation or amortization 
deduction shall be allowed with respect to such pay-
ments. 
‘‘(4) TREATMENT
UPON
ABANDONMENT.—If 
any property to which a delay rental payment relates 
is retired or abandoned during the 24-month period 
described in paragraph (1), no deduction shall be al-
lowed on account of such retirement or abandon-
ment and the amortization deduction under this sub-
section shall continue with respect to such payment. 
‘‘(5) DELAY RENTAL PAYMENTS.—For purposes 
of this subsection, the term ‘delay rental payment’ 
means an amount paid for the privilege of deferring 
development of an oil or gas well under an oil or gas 
lease.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2003.
718
SEC. 43004. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES. 
(a) IN GENERAL.—Section 167 (relating to deprecia-
tion) is amended by redesignating subsection (i) as sub-
section (j) and by inserting after subsection (h) the fol-
lowing new subsection: 
‘‘(i) AMORTIZATION
OF GEOLOGICAL
AND GEO-
PHYSICAL EXPENDITURES.—
‘‘(1) IN
GENERAL.—Any geological and geo-
physical expenses paid or incurred in connection 
with the exploration for, or development of, oil or 
gas within the United States (as defined in section 
638) shall be allowed as a deduction ratably over the 
24-month period beginning on the date that such ex-
pense was paid or incurred. 
‘‘(2) SPECIAL
RULES.—For purposes of this 
subsection, rules similar to the rules of paragraphs 
(2), (3), and (4) of subsection (h) shall apply.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to costs paid or incurred in taxable 
years beginning after December 31, 2003. 
SEC. 43005. EXTENSION AND MODIFICATION OF CREDIT 
FOR PRODUCING FUEL FROM A NONCONVEN-
TIONAL SOURCE. 
(a) IN GENERAL.—Section 29 is amended by adding 
at the end the following new subsection:
719
‘‘(h) EXTENSION FOR OTHER FACILITIES.—
‘‘(1) EXTENSION FOR OIL AND CERTAIN GAS.—
In the case of a well for producing qualified fuels de-
scribed in subparagraph (A) or (B)(i) of subsection 
(c)(1)—
‘‘(A) APPLICATION OF CREDIT FOR NEW 
WELLS.—Notwithstanding subsection (f), this 
section shall apply with respect to such fuels—
‘‘(i) which are produced from a well 
drilled after the date of the enactment of 
this subsection and before January 1, 
2007, and 
‘‘(ii) which are sold not later than the 
close of the 4-year period beginning on the 
date that such well is drilled, or, if earlier, 
January 1, 2010. 
‘‘(B) EXTENSION
OF
CREDIT
FOR
OLD 
WELLS.—Subsection (f)(2) shall be applied by 
substituting ‘2007’ for ‘2003’ with respect to 
wells described in subsection (f)(1)(A) with re-
spect to such fuels. 
‘‘(2) EXTENSION FOR FACILITIES PRODUCING 
QUALIFIED FUEL FROM LANDFILL GAS.—
‘‘(A) IN GENERAL.—In the case of a facil-
ity for producing qualified fuel from landfill gas
720
which was placed in service after June 30, 
1998, and before January 1, 2007, this section 
shall apply to fuel produced at such facility dur-
ing the 5-year period beginning on the later 
of—
‘‘(i) the date such facility was placed 
in service, or 
‘‘(ii) the date of the enactment of this 
subsection. 
‘‘(B) REDUCTION OF CREDIT FOR CERTAIN 
LANDFILL FACILITIES.—In the case of a facility 
to which paragraph (1) applies and which is lo-
cated at a landfill which is required pursuant to 
section 60.751(b)(2) or section 60.33c of title 
40, Code of Federal Regulations (as in effect on 
April 3, 2003) to install and operate a collec-
tion and control system which captures gas gen-
erated within the landfill, subsection (a)(1) 
shall be applied to gas so captured by sub-
stituting ‘$2’ for ‘$3’ for the taxable year dur-
ing which such system is required to be in-
stalled and operated. 
‘‘(3) SPECIAL
RULES.—In determining the 
amount of credit allowable under this section solely 
by reason of this subsection—
721
‘‘(A) DAILY LIMIT.—The amount of quali-
fied fuels sold during any taxable year which 
may be taken into account by reason of this 
subsection with respect to any project shall not 
exceed an average barrel-of-oil equivalent of 
200,000 cubic feet of natural gas per day. Days 
before the date the project is placed in service 
shall not be taken into account in determining 
such average. 
‘‘(B) EXTENSION PERIOD TO COMMENCE 
WITH UNADJUSTED CREDIT AMOUNT.—In the 
case of fuels sold during 2003, the dollar 
amount applicable under subsection (a)(1) shall 
be $3 (without regard to subsection (b)(2)). In 
the case of fuels sold after 2003, subparagraph 
(B) of subsection (d)(2) shall be applied by sub-
stituting ‘2003’ for ‘1979’.’’. 
(b) TREATMENT AS BUSINESS CREDIT.—
(1) CREDIT MOVED TO SUBPART RELATING TO 
BUSINESS
RELATED
CREDITS.—The Internal Rev-
enue Code of 1986 is amended by redesignating sec-
tion 29 as section 45J and by moving section 45J 
(as so redesignated) from subpart B of part IV of 
subchapter A of chapter 1 to the end of subpart D 
of part IV of subchapter A of chapter 1.
722
(2) CREDIT TREATED AS BUSINESS CREDIT.—
Section 38(b) 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: 
‘‘(19) the nonconventional source production 
credit determined under section 45J(a).’’. 
(3) CONFORMING AMENDMENTS.—
(A) Section 30(b)(2)(A), as redesignated 
by section 110(a), is amended by striking ‘‘sec-
tions 27 and 29’’ and inserting ‘‘section 27’’. 
(B) Section 30B(d), as added by section 
41011, is amended by striking ‘‘, 29,’’. 
(C) Section 39(d) is amended by adding at 
the end the following new paragraph: 
‘‘(13) NO CARRYBACK FOR NONCONVENTIONAL 
SOURCE PRODUCTION CREDIT.—No portion of the 
unused business credit for any taxable year which is 
attributable to the credit under section 45J may be 
carried back to a taxable year ending before April 1, 
2003.’’. 
(D) Sections 43(b)(2), 45I(b)(2)(C) (as 
added by section 43001), and 613A(c)(6)(C) 
are 
each 
amended 
by 
striking 
‘‘section
723
29(d)(2)(C)’’ 
and 
inserting 
‘‘section 
45J(d)(2)(C)’’. 
(E) Paragraph (9) of section 45(c), as 
added by section 41002(c), is amended by strik-
ing ‘‘section 29’’ and inserting ‘‘section 45J’’ 
and by striking ‘‘SECTION 29’’ in the heading of 
such paragraph and inserting ‘‘SECTION 45J’’. 
(F) Section 45I(d)(3), as added by section 
43001, is amended by striking ‘‘section 29’’ 
each place it appears and inserting ‘‘section 
45J’’. 
(G) Section 45J(a), as amended by section 
43001(d) and redesignated by paragraph (1), is 
amended by striking ‘‘At the election of the tax-
payer, there shall be allowed as a credit against 
the tax imposed by this chapter for the taxable 
year’’ and inserting ‘‘For purposes of section 
38, if the taxpayer elects to have this section 
apply, the nonconventional source production 
credit determined under this section for the tax-
able year is’’. 
(H) Section 45J(b), as so redesignated, is 
amended by striking paragraph (6).
724
(I) Section 53(d)(1)(B)(iii) is amended by 
striking ‘‘under section 29’’ and all that follows 
through ‘‘or not allowed’’. 
(J) Section 55(c)(2) is amended by strik-
ing ‘‘29(b)(6),’’. 
(K) Subsection (a) of section 772 is 
amended by inserting ‘‘and’’ at the end of para-
graph (9), by striking paragraph (10), and by 
redesignating paragraph (11) as paragraph 
(10). 
(L) Paragraph (5) of section 772(d) is 
amended by striking ‘‘the foreign tax credit, 
and the credit allowable under section 29’’ and 
inserting ‘‘and the foreign tax credit’’. 
(M) The table of sections for subpart B of 
part IV of subchapter A of chapter 1 is amend-
ed by striking the item relating to section 29. 
(N) The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section 
45I the following new item:
‘‘Sec. 45J. Credit for producing fuel from a nonconventional 
source.’’.
(c) EFFECTIVE DATES.—
725
(1) IN
GENERAL.—The amendment made by 
subsection (a) shall apply to fuel sold after March 
31, 2003, in taxable years ending after such date. 
(2) TREATMENT
AS
BUSINESS
CREDIT.—The 
amendments made by subsection (b) shall apply to 
taxable years ending after March 31, 2003. 
SEC. 43006. BUSINESS RELATED ENERGY CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM 
TAX. 
(a) IN GENERAL.—Subsection (c) of section 38 (re-
lating to limitation based on amount of tax) is amended 
by redesignating paragraph (4) as paragraph (5) and by 
inserting after paragraph (3) the following new paragraph: 
‘‘(4) SPECIAL RULES FOR SPECIFIED ENERGY 
CREDITS.—
‘‘(A) IN GENERAL.—In the case of speci-
fied energy credits—
‘‘(i) this section and section 39 shall 
be applied separately with respect to such 
credits, and 
‘‘(ii) in applying paragraph (1) to 
such credits—
‘‘(I) the tentative minimum tax 
shall be treated as being zero, and
726
‘‘(II) the limitation under para-
graph (1) (as modified by subclause 
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the 
taxable year (other than the specified 
energy credits). 
‘‘(B) SPECIFIED
ENERGY
CREDITS.—For 
purposes of this subsection, the term ‘specified 
energy credits’ means the credits determined 
under sections 45G, 45H, and 45I. 
‘‘(C) SPECIAL RULE FOR QUALIFIED WIND 
FACILITIES.—For purposes of this subsection, 
the term ‘specified energy credits’ shall include 
the credit determined under section 45 to the 
extent that such credit is attributable to elec-
tricity produced—
‘‘(i) at a facility using wind to 
produce electricity which is originally 
placed in service after the date of the en-
actment of this paragraph, and 
‘‘(ii) during the 4-year period begin-
ning on the date that such facility was 
originally placed in service.’’. 
(b) 
CONFORMING
AMENDMENTS.—Paragraphs 
(2)(A)(ii)(II) and (3)(A)(ii)(II) of section 38(c) are each
727
amended by inserting ‘‘or the specified energy credits’’ 
after ‘‘employee credit’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after the 
date of the enactment of this Act. 
SEC. 43007. TEMPORARY REPEAL OF ALTERNATIVE MIN-
IMUM TAX PREFERENCE FOR INTANGIBLE 
DRILLING COSTS. 
(a) IN GENERAL.—Clause (ii) of section 57(a)(2)(E) 
is amended by adding at the end the following new sen-
tence: ‘‘The preceding sentence shall not apply to taxable 
years beginning after December 31, 2003, and before Jan-
uary 1, 2006.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 43008. ALLOWANCE OF ENHANCED RECOVERY CREDIT 
AGAINST THE ALTERNATIVE MINIMUM TAX. 
(a) IN GENERAL.—Subparagraph (B) of section 
38(c)(4), as amended by section 43006, is amended by 
adding at the end the following new sentence: ‘‘For taxable 
years beginning after December 31, 2003, and before Jan-
uary 1, 2006, such term includes the credit determined 
under section 43.’’.
728
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
TITLE IV—CORPORATE 
EXPATRIATION
SEC. 44001. TAX TREATMENT OF CORPORATE EXPATRIA-
TION. 
(a) IN GENERAL.—Subchapter C of chapter 80 (re-
lating to provisions affecting more than one subtitle) is 
amended by adding at the end the following new section: 
‘‘SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIA-
TION. 
‘‘(a) INVERTED CORPORATIONS TREATED AS DOMES-
TIC CORPORATIONS.—
‘‘(1) IN GENERAL.—If a foreign incorporated 
entity is treated as an inverted domestic corporation, 
then, notwithstanding section 7701(a)(4), such enti-
ty shall be treated for purposes of this title as a do-
mestic corporation. 
‘‘(2) INVERTED DOMESTIC CORPORATION.—For 
purposes of this section, a foreign incorporated enti-
ty shall be treated as an inverted domestic corpora-
tion if, pursuant to a plan (or a series of related 
transactions)—
729
‘‘(A) the entity completes after March 4, 
2003, the direct or indirect acquisition of sub-
stantially all of the properties held directly or 
indirectly by a domestic corporation or substan-
tially all of the properties constituting a trade 
or business of a domestic partnership, 
‘‘(B) after the acquisition at least 80 per-
cent of the stock (by vote or value) of the entity 
is held—
‘‘(i) in the case of an acquisition with 
respect to a domestic corporation, by 
former shareholders of the domestic cor-
poration by reason of holding stock in the 
domestic corporation, or 
‘‘(ii) in the case of an acquisition with 
respect to a domestic partnership, by 
former partners of the domestic partner-
ship by reason of holding a capital or prof-
its interest in the domestic partnership, 
and 
‘‘(C) the expanded affiliated group which 
after the acquisition includes the entity does 
not have substantial business activities in the 
foreign country in which or under the law of 
which the entity is created or organized when
730
compared to the total business activities of such 
expanded affiliated group. 
‘‘(3) TERMINATION.—This subsection shall not 
apply to any acquisition completed after December 
31, 2004. 
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) FOREIGN
INCORPORATED
ENTITY.—The 
term ‘foreign incorporated entity’ means any entity 
which is, or but for subsection (a) would be, treated 
as a foreign corporation for purposes of this title. 
‘‘(2) EXPANDED
AFFILIATED
GROUP.—The 
term ‘expanded affiliated group’ means an affiliated 
group as defined in section 1504(a) but without re-
gard to paragraphs (2), (3), and (4) of section 
1504(b), except that section 1504(a) shall be applied 
by substituting ‘more than 50 percent’ for ‘at least 
80 percent’ each place it appears. 
‘‘(3) CERTAIN
STOCK
DISREGARDED.—There 
shall not be taken into account in determining own-
ership under subsection (a)(3)(B)—
‘‘(A) stock held by members of the ex-
panded affiliated group which includes the for-
eign incorporated entity, or
731
‘‘(B) stock of such foreign incorporated en-
tity which is sold in a public offering related to 
the 
acquisition 
described 
in 
subsection 
(a)(3)(A). 
‘‘(4) PLAN DEEMED IN CERTAIN CASES.—If a 
foreign incorporated entity acquires directly or indi-
rectly substantially all of the properties of a domes-
tic corporation or partnership during the 4-year pe-
riod beginning on the date which is 2 years before 
the ownership requirements of subsection (a)(3)(B) 
are met, such actions shall be treated as pursuant 
to a plan. 
‘‘(5) CERTAIN TRANSFERS DISREGARDED.—The 
transfer of properties or liabilities (including by con-
tribution or distribution) shall be disregarded if such 
transfers are part of a plan a principal purpose of 
which is to avoid the purposes of this section. 
‘‘(6) SPECIAL RULE FOR RELATED PARTNER-
SHIPS.—For 
purposes 
of 
applying 
subsection 
(a)(3)(B) to the acquisition of a domestic partner-
ship, except as provided in regulations, all partner-
ships which are under common control (within the 
meaning of section 482) shall be treated as 1 part-
nership.
732
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to de-
termine whether a corporation is an inverted domes-
tic corporation, including regulations—
‘‘(A) to treat warrants, options, contracts 
to acquire stock, convertible debt interests, and 
other similar interests as stock, and 
‘‘(B) to treat stock as not stock. 
‘‘(c) SPECIAL RULE FOR TREATIES.—Nothing in sec-
tion 894 or 7852(d) or in any other provision of law shall 
be construed as permitting an exemption, by reason of any 
treaty obligation of the United States heretofore or here-
after entered into, from the provisions of this section. 
‘‘(d) REGULATIONS.—The Secretary shall provide 
such regulations as are necessary to carry out this section, 
including regulations providing for such adjustments to 
the application of this section as are necessary to prevent 
the avoidance of the purposes of this section, including the 
avoidance of such purposes through—
‘‘(1) the use of related persons, pass-through or 
other noncorporate entities, or other intermediaries, 
or 
‘‘(2) transactions designed to have persons 
cease to be (or not become) members of expanded 
affiliated groups or related persons.’’.
733
(b) CONFORMING AMENDMENT.—The table of sec-
tions for subchapter C of chapter 80 is amended by adding 
at the end the following new item:
‘‘Sec. 7874. Tax treatment of corporate expatriation.’’
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after 
March 4, 2003.
SEC. 44002. EXPRESSING THE SENSE OF THE CONGRESS 
THAT TAX REFORM IS NEEDED TO ADDRESS 
THE ISSUE OF CORPORATE EXPATRIATION. 
(a) FINDINGS.—The Congress finds that—
(1) the tax laws of the United States are overly 
complex; 
(2) the tax laws of the United States are among 
the most burdensome and uncompetitive in the 
world; 
(3) the tax laws of the United States make it 
difficult for domestically-owned United States com-
panies to compete abroad and in the United States; 
(4) a domestically-owned corporation is dis-
advantaged compared to a United States subsidiary 
of a foreign-owned corporation; and 
(5) international competitiveness is forcing 
many United States corporations to make a choice 
they do not want to make–go out of business, sell 
the business to a foreign competitor, or become a
734
subsidiary of a foreign corporation (i.e., engage in 
an inversion transaction). 
(b) SENSE OF CONGRESS.—It is the sense of Con-
gress that passage of legislation to fix the underlying prob-
lems with our tax laws is essential and should occur as 
soon as possible, so United States corporations will not 
face the current pressures to engage in inversion trans-
actions.
DIVISION E—CLEAN COAL
SEC. 50001. AUTHORIZATION OF APPROPRIATIONS. 
(a) CLEAN COAL POWER INITIATIVE.—Except as 
provided in subsection (b), there are authorized to be ap-
propriated to the Secretary to carry out the activities au-
thorized by this division $200,000,000 for each of the fis-
cal years 2004 through 2012, to remain available until ex-
pended. 
(b) LIMIT ON USE OF FUNDS.—The Secretary shall 
transmit to the Committee on Energy and Commerce and 
the Committee on Science of the House of Representa-
tives, and to the Senate, the report required by this sub-
section not later than March 31, 2005. Notwithstanding 
subsection (a), no funds may be used to carry out the ac-
tivities authorized by this division after September 30, 
2005, unless the report has been transmitted and one 
month has elapsed since that transmission. The report
735
shall include, with respect to subsection (a), a 10-year 
plan containing—
(1) a detailed assessment of whether the aggre-
gate funding levels provided under subsection (a) are 
the appropriate funding levels for that program; 
(2) a detailed description of how proposals will 
be solicited and evaluated, including a list of all ac-
tivities expected to be undertaken; 
(3) a detailed list of technical milestones for 
each coal and related technology that will be pur-
sued; and 
(4) a detailed description of how the program 
will avoid problems enumerated in General Account-
ing Office reports on the Clean Coal Technology 
Program, including problems that have resulted in 
unspent funds and projects that failed either finan-
cially or scientifically. 
(c) APPLICABILITY.—Subsection (b) shall not apply 
to any project begun before September 30, 2005. 
SEC. 50002. PROJECT CRITERIA. 
(a) IN GENERAL.—The Secretary shall not provide 
funding under this division for any project that does not 
advance efficiency, environmental performance, and cost 
competitiveness well beyond the level of technologies that 
are in commercial service or have been demonstrated on
736
a scale that the Secretary determines is sufficient to dem-
onstrate that commercial service is viable as of the date 
of the enactment of this Act. 
(b) TECHNICAL CRITERIA FOR CLEAN COAL POWER 
INITIATIVE.—
(1) GASIFICATION.—(A) In allocating the funds 
made available under section 50001(a), the Sec-
retary shall ensure that at least 60 percent of the 
funds are used only for projects on coal-based gasifi-
cation technologies, including gasification combined 
cycle, gasification fuel cells, gasification coproduc-
tion, and hybrid gasification/combustion. 
(B) The Secretary shall periodically set tech-
nical milestones specifying the emission and thermal 
efficiency levels that coal gasification projects must 
be designed to and reasonably expected to achieve. 
The technical milestones shall get more restrictive 
during the life of the program. The Secretary shall 
set the periodic milestones so as to achieve by 2020 
coal gasification projects able—
(i) to remove 99 percent of sulfur dioxide; 
(ii) to emit no more than .05 lbs of NOx 
per million BTU; 
(iii) to achieve substantial reductions in 
mercury emissions; and
737
(iv) to achieve a thermal efficiency of— 
(I) 60 percent for coal of more than 
9,000 Btu; 
(II) 59 percent for coal of 7,000 to 
9,000 Btu; and 
(III) 50 percent for coal of less than 
7,000 Btu. 
(2) OTHER PROJECTS.—The Secretary shall pe-
riodically set technical milestones for projects not 
described in paragraph (1). The milestones shall 
specify the emission and thermal efficiency levels 
that projects funded under this paragraph must be 
designed to and reasonably expected to achieve. The 
technical milestones shall get more restrictive during 
the life of the program. The Secretary shall set the 
periodic milestones so as to achieve by 2010 projects 
able—
(A) to remove 97 percent of sulfur dioxide; 
(B) to emit no more than .08 lbs of NOx 
per million BTU; 
(C) to achieve substantial reductions in 
mercury emissions; and 
(D) to achieve a thermal efficiency of—
(i) 45 percent for coal of more than 
9,000 Btu;
738
(ii) 44 percent for coal of 7,000 to 
9,000 Btu; and 
(iii) 40 percent for coal of less than 
7,000 Btu. 
(3) CONSULTATION.—Before setting the tech-
nical milestones under paragraphs (1)(B) and (2), 
the Secretary shall consult with the Administrator of 
the Environmental Protection Agency and interested 
entities, including coal producers, industries using 
coal, organizations to promote coal or advanced coal 
technologies, environmental organizations, and orga-
nizations representing workers. 
(4) EXISTING UNITS.—In the case of projects 
at existing units, in lieu of the thermal efficiency re-
quirements set forth in paragraph (1)(B)(iv) and 
(2)(D), the milestones shall be designed to achieve 
an overall thermal design efficiency improvement 
compared to the efficiency of the unit as operated, 
of not less than— 
(A) 7 percent for coal of more than 9,000 
Btu; 
(B) 6 percent for coal of 7,000 to 9,000 
Btu; or 
(C) 4 percent for coal of less than 7,000 
Btu.
739
(5) PERMITTED
USES.—In allocating funds 
made available under section 50001, the Secretary 
may fund projects that include, as part of the 
project, the separation and capture of carbon diox-
ide. 
(c) FINANCIAL CRITERIA.—The Secretary shall not 
provide a funding award under this division unless the re-
cipient has documented to the satisfaction of the Secretary 
that—
(1) the award recipient is financially viable 
without the receipt of additional Federal funding; 
(2) the recipient will provide sufficient informa-
tion to the Secretary for the Secretary to ensure 
that the award funds are spent efficiently and effec-
tively; and 
(3) a market exists for the technology being 
demonstrated or applied, as evidenced by statements 
of interest in writing from potential purchasers of 
the technology. 
(d) FINANCIAL ASSISTANCE.—The Secretary shall 
provide financial assistance to projects that meet the re-
quirements of subsections (a), (b), and (c) and are likely 
to—
(1) achieve overall cost reductions in the utiliza-
tion of coal to generate useful forms of energy;
740
(2) improve the competitiveness of coal among 
various forms of energy in order to maintain a diver-
sity of fuel choices in the United States to meet elec-
tricity generation requirements; and 
(3) demonstrate methods and equipment that 
are applicable to 25 percent of the electricity gener-
ating facilities, using different types of coal, that use 
coal as the primary feedstock as of the date of the 
enactment of this Act. 
(e) FEDERAL SHARE.—The Federal share of the cost 
of a coal or related technology project funded by the Sec-
retary under this division shall not exceed 50 percent. 
(f) APPLICABILITY.—No technology, or level of emis-
sion reduction, shall be treated as adequately dem-
onstrated for purposes of section 111 of the Clean Air Act, 
achievable for purposes of section 169 of that Act, or 
achievable in practice for purposes of section 171 of that 
Act solely by reason of the use of such technology, or the 
achievement of such emission reduction, by one or more 
facilities receiving assistance under this division. 
SEC. 50003. REPORT. 
Not later than 1 year after the date of the enactment 
of this Act, and once every 2 years thereafter through 
2011, the Secretary, in consultation with other appro-
priate Federal agencies, shall transmit to the Committee
741
on Energy and Commerce and the Committee on Science 
of the House of Representatives, and to the Senate, a re-
port describing—
(1) the technical milestones set forth in section 
50002 and how those milestones ensure progress to-
ward meeting the requirements of subsections 
(b)(1)(B) and (b)(2) of section 50002; and 
(2) the status of projects funded under this di-
vision. 
SEC. 50004. CLEAN COAL CENTERS OF EXCELLENCE. 
As part of the program authorized in section 50001, 
the Secretary shall award competitive, merit-based grants 
to universities for the establishment of Centers of Excel-
lence for Energy Systems of the Future. The Secretary 
shall provide grants to universities that can show the 
greatest potential for advancing new clean coal tech-
nologies.
DIVISION F—HYDROGEN 
SEC. 60001. DEFINITIONS. 
In this division: 
(1) The term ‘‘Advisory Committee’’ means the 
Hydrogen Technical and Fuel Cell Advisory Com-
mittee established under section 60005 of this Act. 
(2) The term ‘‘Department’’ means the Depart-
ment of Energy.
742
(3) The term ‘‘fuel cell’’ means a device that di-
rectly converts the chemical energy of a fuel and an 
oxidant into electricity by an electrochemical process 
taking place at separate electrodes in the device. 
(4) The term ‘‘infrastructure’’ means the equip-
ment, systems, or facilities used to produce, dis-
tribute, deliver, or store hydrogen and other ad-
vanced clean fuels. 
(5) The term ‘‘light duty vehicle’’ means a car 
or truck, classified by the Department of Transpor-
tation as a Class I or IIA vehicle. 
(6) The term ‘‘Secretary’’ means the Secretary 
of Energy. 
SEC. 60002. PLAN. 
Not later than six months after the date of enactment 
of this Act, the Secretary shall transmit to the Congress 
a coordinated plan for the programs described in this divi-
sion and any other programs of the Department that are 
directly related to fuel cells or hydrogen. The plan shall 
describe, at a minimum—
(1) the agenda for the next five years for the 
programs authorized under this division, including 
the agenda for each activity enumerated in section 
60003(a);
743
(2) the types of entities that will carry out the 
activities under this division and what role each enti-
ty is expected to play; 
(3) the milestones that will be used to evaluate 
the programs for the next five years; 
(4) the most significant technical and nontech-
nical hurdles that stand in the way of achieving the 
goals described in section 60003(b), and how the 
programs will address those hurdles; and 
(5) the policy assumptions that are implicit in 
the plan, including any assumptions that would af-
fect the sources of hydrogen or the marketability of 
hydrogen-related products. 
SEC. 60003. PROGRAM. 
(a) ACTIVITIES.—The Secretary, in partnership with 
the private sector, shall conduct a program to address—
(1) production of hydrogen from diverse energy 
sources, including—
(A) fossil fuels, which may include carbon 
capture and sequestration; 
(B) hydrogen-carrier fuels (including eth-
anol and methanol); 
(C) renewable energy resources; and 
(D) nuclear energy;
744
(2) the safe delivery of hydrogen or hydrogen-
carrier fuels, including—
(A) transmission by pipeline and other dis-
tribution methods; and 
(B) convenient and economic refueling of 
vehicles either at central refueling stations or 
through distributed on-site generation; 
(3) advanced vehicle technologies, including—
(A) engine and emission control systems; 
(B) energy storage, electric propulsion, and 
hybrid systems; 
(C) automotive materials; 
(D) clean fuels in addition to hydrogen; 
and 
(E) other advanced vehicle technologies; 
(4) storage of hydrogen or hydrogen-carrier 
fuels, including development of materials for safe 
and economic storage in gaseous, liquid, or solid 
form at refueling facilities and onboard vehicles; 
(5) development of safe, durable, affordable, 
and efficient fuel cells, including research and devel-
opment on fuel-flexible fuel cell power systems, im-
proved manufacturing processes, high-temperature 
membranes, cost-effective fuel processing for natural
745
gas, fuel cell stack and system reliability, low tem-
perature operation, and cold start capability; and 
(6) development of necessary codes and stand-
ards (including international codes and standards) 
and safety practices for the production, distribution, 
storage, and use of hydrogen, hydrogen-carrier fuels 
and related products. 
(b) PROGRAM GOALS.—
(1) VEHICLES.—For vehicles, the goals of the 
program are—
(A) to enable a commitment by auto-
makers no later than year 2015 to offer safe, 
affordable, and technically viable hydrogen fuel 
cell vehicles in the mass consumer market; and 
(B) to enable production, delivery, and ac-
ceptance by consumers of model year 2020 hy-
drogen fuel cell and other vehicles that will 
have—
(i) a range of at least three hundred 
miles; 
(ii) improved performance and ease of 
driving; 
(iii) safety and performance com-
parable to vehicle technologies in the mar-
ket;
746
(iv) when compared to light duty vehi-
cles in model year 2003—
(I) a fuel economy that is two 
and one half times the equivalent fuel 
economy of comparable light duty ve-
hicles in model year 2003; and 
(II) near zero emissions of air 
pollutants; and 
(v) vehicle fuel system crash integrity 
and occupant protection. 
(2) HYDROGEN ENERGY AND ENERGY INFRA-
STRUCTURE.—For hydrogen energy and energy in-
frastructure, the goals of the program are to enable 
a commitment not later than 2015 that will lead to 
infrastructure by 2020 that will provide—
(A) safe and convenient refueling; 
(B) improved overall efficiency; 
(C) widespread availability of hydrogen 
from domestic energy sources through—
(i) production, with consideration of 
emissions levels; 
(ii) delivery, including transmission by 
pipeline and other distribution methods for 
hydrogen; and
747
(iii) storage, including storage in sur-
face transportation vehicles; 
(D) hydrogen for fuel cells, internal com-
bustion engines, and other energy conversion 
devices for portable, stationary, and transpor-
tation applications; and 
(E) other technologies consistent with the 
Department’s plan. 
(3) FUEL CELLS.—The goals for fuel cells and 
their portable, stationary, and transportation appli-
cations are to enable—
(A) safe, economical, and environmentally 
sound hydrogen fuel cells; 
(B) fuel cells for light duty and other vehi-
cles; and 
(C) other technologies consistent with the 
Department’s plan. 
(c) DEMONSTRATION.—In carrying out the program 
under this section, the Secretary shall fund a limited num-
ber of demonstration projects. In selecting projects under 
this subsection, the Secretary shall, to the extent prac-
ticable and in the public interest, select projects that—
(1) involve using hydrogen and related products 
at facilities or installations that would exist without 
the demonstration program, such as existing office
748
buildings, military bases, vehicle fleet centers, tran-
sit bus authorities, or parks; 
(2) depend on reliable power from hydrogen to 
carry out essential activities; 
(3) lead to the replication of hydrogen tech-
nologies and draw such technologies into the market-
place; 
(4) integrate in a single project both mobile and 
stationary applications of hydrogen fuel cells; 
(5) address the interdependency of demand for 
hydrogen fuel cell applications and hydrogen fuel in-
frastructure; and 
(6) raise awareness of hydrogen technology 
among the public. 
(d) DEPLOYMENT.—In carrying out the program 
under this section, the Secretary shall, in partnership with 
the private sector, conduct activities to facilitate the de-
ployment of—
(1) hydrogen energy and energy infrastructure; 
(2) fuel cells; 
(3) advanced vehicle technologies; and 
(4) clean fuels in addition to hydrogen. 
(e) FUNDING.—(1) The Secretary shall carry out the 
program under this section using a competitive, merit-re-
view process and consistent with the generally applicable
749
Federal laws and regulations governing awards of finan-
cial assistance, contracts, or other agreements. 
(2) Activities under this section may be carried out 
by funding nationally recognized university-based research 
centers. 
(3) The Secretary shall endeavor to avoid duplication 
or displacement of other research and development pro-
grams and activities. 
(f) COST SHARING.—
(1) REQUIREMENT.—For projects carried out 
through grants, cooperative agreements, or contracts 
under this section, the Secretary shall require a 
commitment from non-Federal sources of at least—
(A) 20 percent of the cost of a project, ex-
cept projects carried out under subsections (c) 
and (d); and 
(B) 50 percent of the cost of a project car-
ried out under subsection (c) or (d). 
(2) REDUCTION.—The Secretary may reduce 
the non-Federal requirement under paragraph (1) if 
the Secretary determines that—
(A) the reduction is appropriate consid-
ering the technological risks involved; or
750
(B) the project is for technical analyses or 
other activities that the Secretary does not ex-
pect to result in a marketable product. 
(3) SIZE OF NON-FEDERAL SHARE.—The Sec-
retary may consider the size of the non-Federal 
share in selecting projects. 
SEC. 60004. INTERAGENCY TASK FORCE. 
(a) ESTABLISHMENT.—Not later than 120 days after 
the date of enactment of this Act, the President shall es-
tablish an interagency task force chaired by the Secretary 
or his designee with representatives from each of the fol-
lowing: 
(1) The Office of Science and Technology Pol-
icy within the Executive Office of the President. 
(2) The Department of Transportation. 
(3) The Department of Defense. 
(4) The Department of Commerce (including 
the National Institute of Standards and Tech-
nology). 
(5) The Environmental Protection Agency. 
(6) The National Aeronautics and Space Ad-
ministration. 
(7) Other Federal agencies as the Secretary de-
termines appropriate. 
(b) DUTIES.—
751
(1) PLANNING.—The interagency task force 
shall work toward—
(A) a safe, economical, and environ-
mentally sound fuel infrastructure for hydrogen 
and hydrogen-carrier fuels, including an infra-
structure that supports buses and other fleet 
transportation; 
(B) fuel cells in government and other ap-
plications, including portable, stationary, and 
transportation applications; 
(C) distributed power generation, including 
the generation of combined heat, power, and 
clean fuels including hydrogen; 
(D) uniform hydrogen codes, standards, 
and safety protocols; and 
(E) vehicle hydrogen fuel system integrity 
safety performance. 
(2) ACTIVITIES.—The interagency task force 
may organize workshops and conferences, may issue 
publications, and may create databases to carry out 
its duties. The interagency task force shall—
(A) foster the exchange of generic, non-
proprietary information and technology among 
industry, academia, and government;
752
(B) develop and maintain an inventory and 
assessment of hydrogen, fuel cells, and other 
advanced technologies, including the commercial 
capability of each technology for the economic 
and environmentally safe production, distribu-
tion, delivery, storage, and use of hydrogen; 
(C) integrate technical and other informa-
tion made available as a result of the programs 
and activities under this division; 
(D) promote the marketplace introduction 
of infrastructure for hydrogen and other clean 
fuel vehicles; and 
(E) conduct an education program to pro-
vide hydrogen and fuel cell information to po-
tential end-users. 
(c) AGENCY COOPERATION.—The heads of all agen-
cies, including those whose agencies are not represented 
on the interagency task force, shall cooperate with and 
furnish information to the interagency task force, the Ad-
visory Committee, and the Department. 
SEC. 60005. ADVISORY COMMITTEE. 
(a) ESTABLISHMENT.—The Hydrogen Technical and 
Fuel Cell Advisory Committee is established to advise the 
Secretary on the programs and activities under this divi-
sion.
753
(b) MEMBERSHIP.—
(1) MEMBERS.—The Advisory Committee is 
comprised of not fewer than 12 nor more than 25 
members. These members shall be appointed by the 
Secretary to represent domestic industry, academia, 
professional societies, government agencies, and fi-
nancial, environmental, and other appropriate orga-
nizations based on the Department’s assessment of 
the technical and other qualifications of committee 
members and the needs of the Advisory Committee. 
(2) TERMS.—The term of a member of the Ad-
visory Committee shall not be more than 3 years. 
The Secretary may appoint members of the Advisory 
Committee in a manner that allows the terms of the 
members serving at any time to expire at spaced in-
tervals so as to ensure continuity in the functioning 
of the Advisory Committee. A member of the Advi-
sory Committee whose term is expiring may be re-
appointed. 
(3) CHAIRPERSON.—The Advisory Committee 
shall have a chairperson, who is elected by the mem-
bers from among their number. 
(c) REVIEW.—The Advisory Committee shall review 
and make recommendations to the Secretary on—
754
(1) the implementation of programs and activi-
ties under this division; 
(2) the safety, economical, and environmental 
consequences of technologies for the production, dis-
tribution, delivery, storage, or use of hydrogen en-
ergy and fuel cells; and 
(3) the plan under section 60002. 
(d) RESPONSE.—(1) The Secretary shall consider, 
but need not adopt, any recommendations of the Advisory 
Committee under subsection (c). 
(2) The Secretary shall transmit a biennial report to 
the Congress describing any recommendations made by 
the Advisory Committee since the previous report. The re-
port shall include a description of how the Secretary has 
implemented or plans to implement the recommendations, 
or an explanation of the reasons that a recommendation 
will not be implemented. The report shall be transmitted 
along with the President’s budget proposal. 
(e) SUPPORT.—The Secretary shall provide resources 
necessary in the judgment of the Secretary for the Advi-
sory Committee to carry out its responsibilities under this 
division. 
SEC. 60006. EXTERNAL REVIEW. 
(a) PLAN.—The Secretary shall enter into an ar-
rangement with a competitively selected nongovernmental
755
entity, such as the National Academy of Sciences, to re-
view the plan prepared under section 60002, which shall 
be completed not later than six months after the entity 
receives the plan. Not later than 45 days after receiving 
the review, the Secretary shall transmit the review to the 
Congress along with a plan to implement the review’s rec-
ommendations or an explanation of the reasons that a rec-
ommendation will not be implemented. 
(b) ADDITIONAL REVIEW.—The Secretary shall enter 
into an arrangement with a competitively selected non-
governmental entity, such as the National Academy of 
Sciences, under which the entity will review the program 
under section 60003 during the fourth year following the 
date of enactment of this Act. The entity’s review shall 
include the research priorities and technical milestones, 
and evaluate the progress toward achieving them. The re-
view shall be completed no later than five years after the 
date of enactment of this Act. Not later than 45 days after 
receiving the review, the Secretary shall transmit the re-
view to the Congress along with a plan to implement the 
review’s recommendations or an explanation for the rea-
sons that a recommendation will not be implemented. 
SEC. 60007. MISCELLANEOUS PROVISIONS. 
(a) REPRESENTATION.—The Secretary may rep-
resent the United States interests with respect to activities
756
and programs under this division, in coordination with the 
Department of Transportation, the National Institute of 
Standards and Technology, and other relevant Federal 
agencies, before governments and nongovernmental orga-
nizations including—
(1) other Federal, State, regional, and local 
governments and their representatives; 
(2) industry and its representatives, including 
members of the energy and transportation indus-
tries; and 
(3) in consultation with the Department of 
State, foreign governments and their representatives 
including international organizations. 
(b) REGULATORY AUTHORITY.—Nothing in this divi-
sion shall be construed to alter the regulatory authority 
of the Department. 
SEC. 60008. AUTHORIZATION OF APPROPRIATIONS. 
There are authorized to be appropriated to carry out 
this division, in addition to any amounts made available 
for these purposes under other Acts—
(1) $273,500,000 for fiscal year 2004; 
(2) $325,000,000 for fiscal year 2005; 
(3) $375,000,000 for fiscal year 2006; 
(4) $400,000,000 for fiscal year 2007; and 
(5) $425,000,000 for fiscal year 2008.’’.
757
SEC. 60009. FUEL CELL PROGRAM AT NATIONAL PARKS. 
The Secretary of Energy, in cooperation with the Sec-
retary of Interior and the National Park Service, is au-
thorized to establish a program to provide matching funds 
to assist in the deployment of fuel cells at one or more 
prominent National Parks. The Secretary of Energy shall 
transmit to Congress within 1 year, and annually there-
after, a report describing any activities taken pursuant to 
such program. The report shall address whether activities 
taken pursuant to such program reduce the environmental 
impacts of energy use at National Parks. There are au-
thorized to be appropriated $2,000,000 for each of fiscal 
years 2004 through 2010 to carry out the purposes of this 
section. 
SEC. 60010. ADVANCED POWER SYSTEM TECHNOLOGY IN-
CENTIVE PROGRAM. 
(a) PROGRAM.—The Secretary of Energy is author-
ized to establish an Advanced Power System Technology 
Incentive Program to support the deployment of certain 
advanced power system technologies and to improve and 
protect certain critical governmental, industrial, and com-
mercial processes. Funds provided under this section shall 
be used by the Secretary to make incentive payments to 
eligible owners or operators of advanced power system 
technologies to increase power generation through en-
hanced operational, economic, and environmental perform-
758
ance. Payments under this section may only be made upon 
receipt by the Secretary of an incentive payment applica-
tion establishing an applicant as either—
(1) a qualifying advanced power system tech-
nology facility; or 
(2) a qualifying security and assured power fa-
cility. 
(b) INCENTIVES.—Subject to availability of funds, a 
payment of 1.8 cents per kilowatt-hour shall be paid to 
the owner or operator of a qualifying advanced power sys-
tem technology facility under this section for electricity 
generated at such facility. An additional 0.7 cents per kilo-
watt-hour shall be paid to the owner or operator of a quali-
fying security and assured power facility for electricity 
generated at such facility. Any facility qualifying under 
this section shall be eligible for an incentive payment for 
up to, but not more than, the first 10,000,000 kilowatt-
hours produced in any fiscal year. 
(c) ELIGIBILITY.—For purposes of this section—
(1) the term ‘‘qualifying advanced power system 
technology facility’’ means a facility using an ad-
vanced fuel cell, turbine, or hybrid power system or 
power storage system to generate or store electric 
energy; and
759
(2) the term ‘‘qualifying security and assured 
power facility’’ means a qualifying advanced power 
system technology facility determined by the Sec-
retary of Energy, in consultation with the Secretary 
of Homeland Security, to be in critical need of se-
cure, reliable, rapidly available, high-quality power 
for critical governmental, industrial, or commercial 
applications. 
(d) AUTHORIZATION.—There are authorized to be ap-
propriated to the Secretary of Energy for the purposes 
of this section, $10,000,000 for each of the fiscal years 
2004 through 2010.
DIVISION G—HOUSING
SEC. 70001. CAPACITY BUILDING FOR ENERGY-EFFICIENT, 
AFFORDABLE HOUSING. 
Section 4(b) of the HUD Demonstration Act of 1993 
(42 U.S.C. 9816 note) is amended—
(1) in paragraph (1), by inserting before the 
semicolon at the end the following: ‘‘, including ca-
pabilities regarding the provision of energy efficient, 
affordable housing and residential energy conserva-
tion measures’’; and 
(2) in paragraph (2), by inserting before the 
semicolon the following: ‘‘, including such activities 
relating to the provision of energy efficient, afford-
760
able housing and residential energy conservation 
measures that benefit low-income families’’. 
SEC. 70002. INCREASE OF CDBG PUBLIC SERVICES CAP FOR 
ENERGY CONSERVATION AND EFFICIENCY 
ACTIVITIES. 
Section 105(a)(8) of the Housing and Community 
Development Act of 1974 (42 U.S.C. 5305(a)(8)) is 
amended—
(1) by inserting ‘‘or efficiency’’ after ‘‘energy 
conservation’’; 
(2) by striking ‘‘, and except that’’ and insert-
ing ‘‘; except that’’; and 
(3) by inserting before the period at the end the 
following: ‘‘; and except that each percentage limita-
tion under this paragraph on the amount of assist-
ance provided under this title that may be used for 
the provision of public services is hereby increased 
by 10 percent, but such percentage increase may be 
used only for the provision of public services con-
cerning energy conservation or efficiency’’. 
SEC. 70003. FHA MORTGAGE INSURANCE INCENTIVES FOR 
ENERGY EFFICIENT HOUSING. 
(a) SINGLE FAMILY HOUSING MORTGAGE INSUR-
ANCE.—Section 203(b)(2) of the National Housing Act 
(12 U.S.C. 1709(b)(2)) is amended, in the first undesig-
761
nated paragraph beginning after subparagraph (B)(ii)(IV) 
(relating to solar energy systems), by striking ‘‘20 per-
cent’’ and inserting ‘‘30 percent’’. 
(b) MULTIFAMILY
HOUSING
MORTGAGE
INSUR-
ANCE.—Section 207(c) of the National Housing Act (12 
U.S.C. 1713(c)) is amended, in the second undesignated 
paragraph beginning after paragraph (3) (relating to solar 
energy systems and residential energy conservation meas-
ures), by striking ‘‘20 percent’’ and inserting ‘‘30 per-
cent’’. 
(c) COOPERATIVE
HOUSING
MORTGAGE
INSUR-
ANCE.—Section 213(p) of the National Housing Act (12 
U.S.C. 1715e(p)) is amended by striking ‘‘20 per centum’’ 
and inserting ‘‘30 percent’’. 
(d) REHABILITATION
AND NEIGHBORHOOD CON-
SERVATION HOUSING MORTGAGE INSURANCE.—Section 
220(d)(3)(B)(iii)(IV) of the National Housing Act (12 
U.S.C. 1715k(d)(3)(B)(iii)(IV)) is amended by striking 
‘‘20 per centum’’ and inserting ‘‘30 percent’’. 
(e) LOW-INCOME MULTIFAMILY HOUSING MORT-
GAGE INSURANCE.—Section 221(k) of the National Hous-
ing Act (12 U.S.C. 1715l(k)) is amended by striking ‘‘20 
per centum’’ and inserting ‘‘30 percent’’. 
(f) ELDERLY HOUSING MORTGAGE INSURANCE.—
Section 231(c)(2)(C) of the National Housing Act (12
762
U.S.C. 1715v(c)(2)(C)) is amended by striking ‘‘20 per 
centum’’ and inserting ‘‘30 percent’’. 
(g) CONDOMINIUM
HOUSING
MORTGAGE
INSUR-
ANCE.—Section 234(j) of the National Housing Act (12 
U.S.C. 1715y(j)) is amended by striking ‘‘20 per centum’’ 
and inserting ‘‘30 percent’’. 
SEC. 70004. PUBLIC HOUSING CAPITAL FUND. 
Section 9 of the United States Housing Act of 1937 
(42 U.S.C. 1437g) is amended—
(1) in subsection (d)(1)—
(A) in subparagraph (I), by striking ‘‘and’’ 
at the end; 
(B) in subparagraph (J), by striking the 
period at the end and inserting a semicolon; 
and 
(C) by adding at the end the following new 
subparagraphs: 
‘‘(K) improvement of energy and water-use 
efficiency by installing fixtures and fittings that 
conform to the American Society of Mechanical 
Engineers/American National Standards Insti-
tute standards A112.19.2-1998 and A112.18.1-
2000, or any revision thereto, applicable at the 
time of installation, and by increasing energy 
efficiency and water conservation by such other
763
means as the Secretary determines are appro-
priate; and 
‘‘(L) integrated utility management and 
capital planning to maximize energy conserva-
tion and efficiency measures.’’; and 
(2) in subsection (e)(2)(C)—
(A) by striking ‘‘The’’ and inserting the 
following: 
‘‘(i) IN GENERAL.—The’’; and 
(B) by adding at the end the following: 
‘‘(ii) THIRD
PARTY
CONTRACTS.—
Contracts described in clause (i) may in-
clude contracts for equipment conversions 
to less costly utility sources, projects with 
resident-paid utilities, and adjustments to 
frozen base year consumption, including 
systems repaired to meet applicable build-
ing and safety codes and adjustments for 
occupancy rates increased by rehabilita-
tion. 
‘‘(iii) TERM OF CONTRACT.—The total 
term of a contract described in clause (i) 
shall not exceed 20 years to allow longer 
payback periods for retrofits, including 
windows, heating system replacements,
764
wall insulation, site-based generations, ad-
vanced energy savings technologies, includ-
ing renewable energy generation, and other 
such retrofits.’’. 
SEC. 70005. GRANTS FOR ENERGY-CONSERVING IMPROVE-
MENTS FOR ASSISTED HOUSING. 
Section 251(b)(1) of the National Energy Conserva-
tion Policy Act (42 U.S.C. 8231(1)) is amended—
(1) by striking ‘‘financed with loans’’ and in-
serting ‘‘assisted’’; 
(2) by inserting after ‘‘1959,’’ the following: 
‘‘which are eligible multifamily housing projects (as 
such term is defined in section 512 of the Multi-
family Assisted Housing Reform and Affordability 
Act of 1997 (42 U.S.C. 1437f note)) and are subject 
to mortgage restructuring and rental assistance suf-
ficiency plans under such Act,’’; and 
(3) by inserting after the period at the end of 
the first sentence the following new sentence: ‘‘Such 
improvements may also include the installation of 
energy and water conserving fixtures and fittings 
that conform to the American Society of Mechanical 
Engineers/American National Standards Institute 
standards A112.19.2-1998 and A112.18.1-2000, or
765
any revision thereto, applicable at the time of instal-
lation.’’. 
SEC. 70006. NORTH AMERICAN DEVELOPMENT BANK. 
Part 2 of subtitle D of title V of the North American 
Free Trade Agreement Implementation Act (22 U.S.C. 
290m–290m-3) is amended by adding at the end the fol-
lowing: 
‘‘SEC. 545. SUPPORT FOR CERTAIN ENERGY POLICIES. 
‘‘Consistent with the focus of the Bank’s Charter on 
environmental infrastructure projects, the Board members 
representing the United States should use their voice and 
vote to encourage the Bank to finance projects related to 
clean and efficient energy, including energy conservation, 
that prevent, control, or reduce environmental pollutants 
or contaminants.’’. 
SEC. 70007. ENERGY-EFFICIENT APPLIANCES. 
In purchasing appliances, a public housing agency 
shall purchase energy-efficient appliances that are Energy 
Star products or FEMP-designated products, as such 
terms are defined in section 552 of the National Energy 
Policy and Conservation Act (as amended by this Act), 
unless the purchase of energy-efficient appliances is not 
cost-effective to the agency.
766
SEC. 70008. ENERGY EFFICIENCY STANDARDS. 
Section 109 of the Cranston-Gonzalez National Af-
fordable Housing Act (42 U.S.C. 12709) is amended—
(1) in subsection (a)—
(A) in paragraph (1)—
(i) by striking ‘‘1 year after the date 
of the enactment of the Energy Policy Act 
of 1992’’ and inserting ‘‘September 30, 
2004’’; 
(ii) in subparagraph (A), by striking 
‘‘and’’ at the end; 
(iii) in subparagraph (B), by striking 
the period at the end and inserting ‘‘; 
and’’; and 
(iv) by adding at the end the fol-
lowing: 
‘‘(C) rehabilitation and new construction of 
public and assisted housing funded by HOPE 
VI revitalization grants under section 24 of the 
United States Housing Act of 1937 (42 U.S.C. 
1437v), where such standards are determined 
to be cost effective by the Secretary of Housing 
and Urban Development.’’; and 
(B) in paragraph (2), by striking ‘‘Council 
of American’’ and all that follows through
767
‘‘90.1–1989’)’’ and inserting ‘‘2000 Inter-
national Energy Conservation Code’’; 
(2) in subsection (b)—
(A) by striking ‘‘1 year after the date of 
the enactment of the Energy Policy Act of 
1992’’ and inserting ‘‘September 30, 2004’’; 
and 
(B) by striking ‘‘CABO’’ and all that fol-
lows through ‘‘1989’’ and inserting ‘‘the 2000 
International Energy Conservation Code’’; and 
(3) in subsection (c)—
(A) in the heading, by striking ‘‘MODEL 
ENERGY CODE’’ and inserting ‘‘THE INTER-
NATIONAL
ENERGY
CONSERVATION
CODE’’; 
and 
(B) by striking ‘‘CABO’’ and all that fol-
lows through ‘‘1989’’ and inserting ‘‘the 2000 
International Energy Conservation Code’’. 
SEC. 70009. ENERGY STRATEGY FOR HUD. 
The Secretary of Housing and Urban Development 
shall develop and implement an integrated strategy to re-
duce utility expenses through cost-effective energy con-
servation and efficiency measures and energy efficient de-
sign and construction of public and assisted housing. The 
energy strategy shall include the development of energy
768
reduction goals and incentives for public housing agencies. 
The Secretary shall submit a report to Congress, not later 
than one year after the date of the enactment of this Act, 
on the energy strategy and the actions taken by the De-
partment of Housing and Urban Development to monitor 
the energy usage of public housing agencies and shall sub-
mit an update every two years thereafter on progress in 
implementing the strategy.
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