I
107TH CONGRESS
1ST SESSION
H. R. 2511
To amend the Internal Revenue Code of 1986 to provide tax incentives
to encourage energy conservation, energy reliability, and energy production.
IN THE HOUSE OF REPRESENTATIVES
JULY 17, 2001
Mr. MCCRERY introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax incentives to encourage energy conservation, energy
reliability, and energy production.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Energy Tax Policy Act
of 2001’’.
(a) SHORT TITLE.—
(c) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
TITLE I—CONSERVATION
Sec. 101. Credit for residential solar energy property.
sections 23 and 25B) and section 27 for the
taxable year.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED SOLAR WATER HEATING PROP-
ERTY
EXPENDITURE.—The term ‘qualified solar
water heating property expenditure’ means an ex-
penditure for property to heat water for use in a
dwelling unit located in the United States and used
as a residence if at least half of the energy used by
such property for such purpose is derived from the
sun.
‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property
that uses solar energy to generate electricity for use
in a dwelling unit.
‘‘(3) SOLAR PANELS.—No expenditure relating
to a solar panel or other property installed as a roof
(or portion thereof) shall fail to be treated as prop-
erty described in paragraph (1) or (2) solely because
it constitutes a structural component of the struc-
ture on which it is installed.
‘‘(4) LABOR
COSTS.—Expenditures for labor
costs properly allocable to the onsite preparation, as-
sembly, or original installation of the property de-
scribed in paragraph (1) or (2) and for piping or
wiring to interconnect such property to the dwelling
unit shall be taken into account for purposes of this
section.
‘‘(5) SWIMMING POOLS, ETC., USED AS STOR-
AGE MEDIUM.—Expenditures which are properly al-
locable to a swimming pool, hot tub, or any other
energy storage medium which has a function other
than the function of such storage shall not be taken
into account for purposes of this section.
‘‘(d) SPECIAL RULES.—
‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC-
CUPANCY.—In the case of any dwelling unit which is
jointly occupied and used during any calendar year
as a residence by 2 or more individuals the following
shall apply:
‘‘(A) The amount of the credit allowable
under subsection (a) by reason of expenditures
(as the case may be) made during such cal-
endar year by any of such individuals with re-
spect to such dwelling unit shall be determined
by treating all of such individuals as 1 taxpayer
whose taxable year is such calendar year.
‘‘(B) There shall be allowable with respect
to such expenditures to each of such individ-
uals, a credit under subsection (a) for the tax-
able year in which such calendar year ends in
an amount which bears the same ratio to the
amount determined under subparagraph (A) as
the amount of such expenditures made by such
individual during such calendar year bears to
the aggregate of such expenditures made by all
of such individuals during such calendar year.
‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE
HOUSING CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as
defined in such section), such individual shall be
treated as having made his tenant-stockholder’s pro-
portionate share (as defined in section 216(b)(3)) of
any expenditures of such corporation.
‘‘(3) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be
treated as having made his proportionate share
of any expenditures of such association.
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the
term ‘condominium management association’
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other
than subparagraph (E) thereof) with respect to
a condominium project substantially all of the
units of which are used as residences.
‘‘(4) ALLOCATION IN CERTAIN CASES.—If less
than 80 percent of the use of an item is for nonbusi-
ness purposes, only that portion of the expenditures
for such item which is properly allocable to use for
nonbusiness purposes shall be taken into account.
‘‘(5) WHEN EXPENDITURE MADE; AMOUNT OF
EXPENDITURE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), an expenditure with respect
to an item shall be treated as made when the
original installation of the item is completed.
‘‘(B) EXPENDITURES PART OF BUILDING
CONSTRUCTION.—In the case of an expenditure
in connection with the construction or recon-
struction of a structure, such expenditure shall
be treated as made when the original use of the
constructed or reconstructed structure by the
taxpayer begins.
‘‘(C) AMOUNT.—The amount of any ex-
penditure shall be the cost thereof.
‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—For purposes of determining the
amount of nonbusiness qualified stationary fuel cell
powerplant expenditures made by any individual
with respect to any dwelling unit, there shall not be
taken in to account expenditures which are made
from subsidized energy financing (as defined in sec-
tion 48(a)(4)(A)).
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this
subtitle, if a credit is allowed under this section for any
expenditure with respect to any property, the increase in
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(f) TERMINATION.—The credit allowed under this
section shall not apply to taxable years beginning after
December 31, 2006 (December 31, 2008, with respect to
qualified photovoltaic property expenditure).’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 is amended
by striking ‘‘and’’ at the end of paragraph (27), by
striking the period at the end of paragraph (28) and
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(29) to the extent provided in section 25C(e),
in the case of amounts with respect to which a credit
has been allowed under section 25C.’’.
(2) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25B the fol-
lowing new item:
‘‘Sec. 25C. Residential solar energy property.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2001.
SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR
ELECTRICITY PRODUCED FROM RENEWABLE
RESOURCES.
(a) EXTENSION OF CREDIT FOR WIND AND CLOSED-
LOOP BIOMASS FACILITIES.—Subparagraphs (A) and (B)
of section 45(c)(3) are each amended by striking ‘‘2002’’
and inserting ‘‘2007’’.
(b) EXPANSION OF CREDIT FOR OPEN-LOOP BIO-
MASS AND LANDFILL GAS FACILITIES.—Paragraph (3) of
section 45(c) is amended by adding at the end the fol-
lowing new subparagraphs:
‘‘(D) OPEN-LOOP BIOMASS FACILITIES.—
In the case of a facility using open-loop biomass
to produce electricity, the term ‘qualified facil-
ity’ means any facility owned by the taxpayer
which is originally placed in service before Jan-
uary 1, 2007.
‘‘(E) LANDFILL GAS FACILITIES.—In the
case of a facility producing electricity from gas
derived from the biodegradation of municipal
solid waste, the term ‘qualified facility’ means
any facility owned by the taxpayer which is
originally placed in service before January 1,
2007.’’.
(c) DEFINITION AND SPECIAL RULES.—Subsection
(c) of section 45 is amended by adding at the end the
following new paragraphs:
‘‘(5) OPEN-LOOP
BIOMASS.—The term ‘open-
loop biomass’ means any solid, nonhazardous, cel-
lulosic waste material which is segregated from other
waste materials and which is derived from—
‘‘(A) any of the following forest-related re-
sources: mill residues, precommercial thinnings,
slash, and brush, but not including old-growth
timber,
‘‘(B) solid wood waste materials, including
waste pallets, crates, dunnage, manufacturing
and construction wood wastes (other than pres-
sure-treated, 
chemically-treated, 
or 
painted
wood wastes), and landscape or right-of-way
tree trimmings, but not including municipal
solid waste (garbage), gas derived from the bio-
degradation of solid waste, or paper that is
commonly recycled, or
‘‘(C) agriculture sources, including orchard
tree crops, vineyard, grain, legumes, sugar, and
other crop by-products or residues.
Such term shall not include closed-loop biomass.
‘‘(6) 
REDUCED
CREDIT
FOR
CERTAIN
PREEFFECTIVE DATE FACILITIES.—In the case of
any facility described in subparagraph (D) or (E) of
paragraph (3) which is placed in service before the
date of the enactment of this subparagraph—
‘‘(A) subsection (a)(1) shall be applied by
substituting ‘1.0 cents’ for ‘1.5 cents’, and
‘‘(B) the 5-year period beginning on the
date of the enactment of this paragraph shall
be substituted in lieu of the 10-year period in
subsection (a)(2)(A)(ii).
‘‘(7) COORDINATION
WITH
SECTION
29.—The
term ‘qualified facility’ shall not include any facility
the production from which is allowed as a credit
under section 29 for the taxable year or any prior
taxable year.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to electricity sold after the date
of the enactment of this Act.
SEC. 103. CREDIT FOR CERTAIN ENERGY-EFFICIENT PROP-
ERTY.
(a) BUSINESS PROPERTY.—
(1) IN GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by
striking ‘‘or’’ at the end of clause (i), by adding
‘‘or’’ at the end of clause (ii), and by inserting after
clause (ii) the following new clause:
‘‘(iii) equipment which is part of a
qualified stationary fuel cell powerplant,’’.
(2) QUALIFIED STATIONARY FUEL CELL POW-
ERPLANT.—Subsection (a) of section 48 is amended
by redesignating paragraphs (4) and (5) as para-
graphs (5) and (6), respectively, and by inserting
after paragraph (3) the following new paragraph:
‘‘(4) QUALIFIED STATIONARY FUEL CELL POW-
ERPLANT.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
stationary fuel cell powerplant’ means a sta-
tionary fuel cell power plant that has an elec-
tricity-only generation efficiency greater than
30 percent.
‘‘(B) LIMITATION.—In the case of quali-
fied stationary fuel cell powerplant placed in
service during the taxable year, the credit under
subsection (a) for such year may not exceed
$1,000 for each kilowatt of capacity.
‘‘(C) STATIONARY
FUEL
CELL
POWER
PLANT.—The term ‘stationary fuel cell power
plant’ means an integrated system comprised of
a fuel cell stack assembly and associated bal-
ance of plant components that converts a fuel
into electricity using electrochemical means.
‘‘(D) TERMINATION.—Such term shall not
include any property placed in service after De-
cember 31, 2006.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service after December 31, 2001, under rules similar
to the rules of section 48(m) of the Internal Revenue
Code of 1986 (as in effect on the day before the
date of the enactment of the Revenue Reconciliation
Act of 1990).
(b) NONBUSINESS PROPERTY.—
(1) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable
personal credits) is amended by inserting after sec-
tion 25C the following new section:
‘‘SEC. 25D. NONBUSINESS QUALIFIED STATIONARY FUEL
CELL POWERPLANT.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to
10 percent of the qualified stationary fuel cell powerplant
expenditures which are paid or incurred during such year.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The credit allowed under
subsection (a) for the taxable year and all prior tax-
able years shall not exceed $1,000 for each kilowatt
of capacity.
‘‘(2) LIMITATION
BASED
ON
AMOUNT
OF
TAX.—The credit allowed under subsection (a) for
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under this subpart (other than this section and
sections 23, 25B, and 25C) and section 27 for
the taxable year.
‘‘(c) QUALIFIED STATIONARY FUEL CELL POWER-
PLANT EXPENDITURES.—For purposes of this section,
the term ‘qualified stationary fuel cell powerplant expendi-
tures’ means expenditures by the taxpayer for any quali-
fied stationary fuel cell powerplant (as defined in section
48(a)(4))—
‘‘(1) which meets the requirements of subpara-
graphs (B) and (D) of section 48(a)(3), and
‘‘(2) which is installed on or in connection with
a dwelling unit—
‘‘(A) which is located in the United States,
and
‘‘(B) which is used by the taxpayer as a
residence.
Such term includes expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property.
‘‘(d) SPECIAL RULES.—For purposes of this section,
rules similar to the rules of section 25C(d) shall apply.
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this
subtitle, if a credit is allowed under this section for any
expenditure with respect to any property, the increase in
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(f) TERMINATION.—This section shall not apply to
any expenditure made after December 31, 2006.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (a) of section 1016 is
amended by striking ‘‘and’’ at the end of para-
graph (28), by striking the period at the end of
paragraph (29) and inserting ‘‘, and’’, and by
adding at the end the following new paragraph:
‘‘(30) to the extent provided in section 25D(e),
in the case of amounts with respect to which a credit
has been allowed under section 25D.’’.
(B) The table of sections for subpart A of
part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section
25C the following new item:
‘‘Sec. 25D. Nonbusiness qualified stationary fuel cell power-
plant.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to expenditures paid
or incurred after December 31, 2001.
SEC. 104. ALTERNATIVE MOTOR VEHICLE CREDIT.
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to foreign tax credit, etc.)
is amended by adding at the end the following:
‘‘SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the sum of—
‘‘(1) the new qualified fuel cell motor vehicle
credit determined under subsection (b),
‘‘(2) the new qualified hybrid motor vehicle
credit determined under subsection (c),
‘‘(3) the new qualified alternative fuel motor ve-
hicle credit determined under subsection (d), and
‘‘(4) the advanced lean burn technology motor
vehicle credit determined under subsection (e).
‘‘(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
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-
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
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
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
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—
‘‘(i) for 2002 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,
hybrid motor vehicle and which provides
the following percentage of the maximum
available power:
‘‘(I) If such vehicle has a gross
vehicle weight rating of not more than
14,000 pounds:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 20 percent but less than 30 percent ..........................
$1,500
At least 30 percent but less than 40 percent ..........................
$1,750
At least 40 percent but less than 50 percent ..........................
$2,000
At least 50 percent but less than 60 percent ..........................
$2,250
At least 60 percent ..................................................................
$2,500.
‘‘(II) If such vehicle has a gross
vehicle weight rating of more than
14,000 but not more than 26,000
pounds:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 20 percent but less than 30 percent ..........................
$4,000
At least 30 percent but less than 40 percent ..........................
$4,500
At least 40 percent but less than 50 percent ..........................
$5,000
At least 50 percent but less than 60 percent ..........................
$5,500
At least 60 percent ..................................................................
$6,000.
‘‘(III) If such vehicle has a gross
vehicle weight rating of more than
26,000 pounds:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 20 percent but less than 30 percent ..........................
$6,000
At least 30 percent but less than 40 percent ..........................
$7,000
At least 40 percent but less than 50 percent ..........................
$8,000
At least 50 percent but less than 60 percent ..........................
$9,000
At least 60 percent ..................................................................
$10,000.
‘‘(B) INCREASE FOR FUEL EFFICIENCY.—
‘‘(i) AMOUNT.—The amount deter-
mined under subparagraph (A)(i) with re-
spect to a passenger automobile or light
truck shall be increased by—
‘‘(I) $1,000, if such vehicle
achieves at least 125 percent but less
than 150 percent of the 2000 model
year city fuel economy,
‘‘(II) $1,500, if such vehicle
achieves at least 150 percent but less
than 175 percent of the 2000 model
year city fuel economy,
‘‘(III) $2,000, if such vehicle
achieves at least 175 percent but less
than 200 percent of the 2000 model
year city fuel economy,
‘‘(IV) $2,500, if such vehicle
achieves at least 200 percent but less
than 225 percent of the 2000 model
year city fuel economy,
‘‘(V) $3,000, if such vehicle
achieves at least 225 percent but less
than 250 percent of the 2000 model
year city fuel economy, and
‘‘(VI) $3,500, if such vehicle
achieves at least 250 percent of the
2000 model year city fuel economy.
‘‘(ii) 2000 MODEL YEAR CITY FUEL
ECONOMY.—For purposes of clause (i), the
2000 model year city fuel economy with re-
spect to a vehicle shall be determined using
the tables provided in subsection (b)(2)(B)
with respect to such vehicle.
‘‘(iii) OPTION
TO
USE
LIKE
VEHI-
CLE.—For purposes of clause (i), at the
option of the vehicle manufacturer, the in-
crease for fuel efficiency may be calculated
by comparing the new qualified hybrid
motor vehicle to a ‘like vehicle’.
‘‘(C) INCREASE FOR ACCELERATED EMIS-
SIONS
PERFORMANCE.—The amount deter-
mined under subparagraph (A)(ii) with respect
to an applicable heavy duty hybrid motor vehi-
cle shall be increased by the increase credit
amount determined in accordance with the fol-
lowing tables:
‘‘(i) In the case of a vehicle which has
a gross vehicle weight rating of not more
than 14,000 pounds:
‘‘If the model year is:
The increase credit amount is:
2002 .........................................................................................
$3,500
2003 .........................................................................................
$3,000
2004 .........................................................................................
$2,500
2005 .........................................................................................
$2,000
2006 .........................................................................................
$1,500.
‘‘(ii) In the case of a vehicle which
has a gross vehicle weight rating of more
than 14,000 pounds but not more than
26,000 pounds:
‘‘If the model year is:
The increase credit amount is:
2002 .........................................................................................
$9,000
2003 .........................................................................................
$7,750
2004 .........................................................................................
$6,500
2005 .........................................................................................
$5,250
2006 .........................................................................................
$4,000.
‘‘(iii) In the case of a vehicle which
has a gross vehicle weight rating of more
than 26,000 pounds:
‘‘If the model year is:
The increase credit amount is:
2002 .........................................................................................
$14,000
2003 .........................................................................................
$12,000
2004 .........................................................................................
$10,000
2005 .........................................................................................
$8,000
2006 .........................................................................................
$6,000.
‘‘(D) CONSERVATION CREDIT.—
‘‘(i) AMOUNT.—The amount deter-
mined under subparagraph (A)(i) with re-
spect to a passenger automobile or light
truck shall be increased by—
‘‘(I) 
$250, 
if 
such 
vehicle
achieves a lifetime fuel savings of at
least 1,500 gallons of gasoline, and
‘‘(II) 
$500, 
if 
such 
vehicle
achieves a lifetime fuel savings of at
least 2,500 gallons of gasoline.
‘‘(ii) LIFETIME
FUEL
SAVINGS
FOR
LIKE
VEHICLE.—For purposes of clause
(i), at the option of the vehicle manufac-
turer, the lifetime fuel savings fuel may be
calculated by comparing the new qualified
hybrid motor vehicle to a ‘like vehicle’.
‘‘(E) DEFINITIONS.—
‘‘(i) APPLICABLE
HEAVY
DUTY
HY-
BRID MOTOR VEHICLE.—For purposes of
subparagraph (C), the term ‘applicable
heavy duty hybrid motor vehicle’ means a
heavy duty hybrid motor vehicle which is
powered by an internal combustion or heat
engine which is certified as meeting the
emission standards set in the regulations
prescribed by the Administrator of the En-
vironmental Protection Agency for 2007
and later model year diesel heavy duty en-
gines or 2008 and later model year
ottocycle heavy duty engines, as applicable.
‘‘(ii) HEAVY DUTY HYBRID MOTOR VE-
HICLE.—For purposes of this paragraph,
the term ‘heavy duty hybrid motor vehicle’
means a new qualified hybrid motor vehicle
which has a gross vehicle weight rating of
more than 10,000 pounds and draws pro-
pulsion energy from both of the following
onboard sources of stored energy:
‘‘(I) An internal combustion or
heat engine using consumable fuel
which, for 2002 and later model vehi-
cles, has received a certificate of con-
formity under the Clean Air Act and
meets or exceeds a level of not greater
than 3.0 grams per brake horsepower-
hour of oxides of nitrogen and 0.01
per brake horsepower-hour of particu-
late matter.
‘‘(II) A rechargeable energy stor-
age system.
‘‘(iii) MAXIMUM AVAILABLE POWER.—
‘‘(I) PASSENGER
AUTOMOBILE
OR LIGHT TRUCK.—For purposes of
subparagraph (A)(i), the term ‘max-
imum available power’ means the
maximum power available from the
battery or other electrical storage de-
vice, during a standard 10 second
pulse power test, divided by the sum
of the battery or other electrical stor-
age device and the SAE net power of
the heat engine.
‘‘(II) 
HEAVY
DUTY
HYBRID
MOTOR
VEHICLE.—For purposes of
subparagraph (A)(ii), the term ‘max-
imum available power’ means the
maximum power available from the
battery or other electrical storage de-
vice, during a standard 10 second
pulse power test, divided by the vehi-
cle’s total traction power. The term
‘total traction power’ means the sum
of the electric motor peak power and
the heat engine peak power of the ve-
hicle, except that if the electric motor
is the sole means by which the vehicle
can be driven, the total traction power
is the peak electric motor power.
‘‘(iv) LIKE
VEHICLE.—For purposes
of subparagraph (B)(iii), the term ‘like ve-
hicle’ for a new qualified hybrid motor ve-
hicle derived from a conventional produc-
tion 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
manual).
‘‘(III) Acceleration performance
(± 0.05 seconds).
‘‘(IV) Drivetrain (2-wheel drive
or 4-wheel drive).
‘‘(V) Certification by the Admin-
istrator of the Environmental Protec-
tion Agency.
‘‘(v) LIFETIME FUEL SAVINGS.—For
purposes of subsection (c)(2)(D), the term
‘lifetime fuel savings’ shall be calculated by
dividing 120,000 by the difference between
the 2000 model year city fuel economy for
the vehicle inertia weight class and the city
fuel economy for the new qualified hybrid
motor vehicle.
‘‘(3) NEW
QUALIFIED
HYBRID
MOTOR
VEHI-
CLE.—For purposes of this subsection, the term
‘new qualified hybrid motor vehicle’ means a motor
vehicle—
‘‘(A) which draws propulsion energy from
onboard sources of stored energy which are
both—
‘‘(i) an internal combustion or heat
engine using combustible fuel, and
‘‘(ii) a rechargeable energy storage
system,
‘‘(B) which, in the case of a passenger
automobile or light truck, for 2002 and later
model vehicles, has received a certificate of con-
formity under the Clean Air Act and meets or
exceeds the equivalent qualifying California low
emission 
vehicle 
standard 
under 
section
243(e)(2) of the Clean Air Act for that make
and model year,
‘‘(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.
‘‘(d) NEW QUALIFIED ALTERNATIVE FUEL MOTOR
VEHICLE CREDIT.—
‘‘(1) ALLOWANCE OF CREDIT.—Except as pro-
vided in paragraph (5), the credit determined under
this subsection is an amount equal to the applicable
percentage of the incremental cost of any new quali-
fied alternative fuel motor vehicle placed in service
by the taxpayer during the taxable year.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage with re-
spect to any new qualified alternative fuel motor ve-
hicle is—
‘‘(A) 50 percent, plus
‘‘(B) 30 percent, if such vehicle—
‘‘(i) has received a certificate of con-
formity under the Clean Air Act and meets
or exceeds the most stringent standard
available for certification under the Clean
Air Act for that make and model year vehi-
cle (other than a zero emission standard),
or
‘‘(ii) has received an order from an
applicable State certifying the vehicle for
sale or lease in California and meets or ex-
ceeds the most stringent standard available
for certification under the State laws of
California (enacted in accordance with a
waiver granted under section 209(b) of the
Clean Air Act) for that make and model
year vehicle (other than a zero emission
standard).
‘‘(3) INCREMENTAL
COST.—For purposes of
this subsection, the incremental cost of any new
qualified alternative fuel motor vehicle is equal to
the amount of the excess of the manufacturer’s sug-
gested retail price for such vehicle over such price
for a gasoline or diesel fuel motor vehicle of the
same model, to the extent such amount does not
exceed—
‘‘(A) $5,000, if such vehicle has a gross ve-
hicle weight rating of not more than 8,500
pounds,
‘‘(B) $10,000, if such vehicle has a gross
vehicle weight rating of more than 8,500
pounds but not more than 14,000 pounds,
‘‘(C) $25,000, if such vehicle has a gross
vehicle weight rating of more than 14,000
pounds but not more than 26,000 pounds, and
‘‘(D) $40,000, if such vehicle has a gross
vehicle weight rating of more than 26,000
pounds.
‘‘(4) QUALIFIED
ALTERNATIVE
FUEL
MOTOR
VEHICLE
DEFINED.—For 
purposes 
of 
this
subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
alternative fuel motor vehicle’ means any motor
vehicle—
‘‘(i) which is only capable of operating
on an alternative fuel,
‘‘(ii) the original use of which com-
mences with the taxpayer,
‘‘(iii) which is acquired by the tax-
payer for use or lease, but not for resale,
and
‘‘(iv) which is made by a manufac-
turer.
‘‘(B) ALTERNATIVE FUEL.—The term ‘al-
ternative fuel’ means compressed natural gas,
liquefied natural gas, liquefied petroleum gas,
hydrogen, and any liquid at least 85 percent of
the volume of which consists of methanol.
‘‘(5) CREDIT FOR MIXED-FUEL VEHICLES.—
‘‘(A) IN
GENERAL.—In the case of a
mixed-fuel vehicle placed in service by the tax-
payer during the taxable year, the credit deter-
mined under this subsection is an amount equal
to—
‘‘(i) in the case of a 75/25 mixed-fuel
vehicle, 70 percent of the credit which
would have been allowed under this sub-
section if such vehicle was a qualified alter-
native fuel motor vehicle, and
‘‘(ii) in the case of a 95/5 mixed-fuel
vehicle, 95 percent of the credit which
would have been allowed under this sub-
section if such vehicle was a qualified alter-
native fuel motor vehicle.
‘‘(B) MIXED-FUEL
VEHICLE.—For pur-
poses of this subsection, the term ‘mixed-fuel
vehicle’ means any motor vehicle described in
subparagraph (C) or (D) of paragraph (3),
which—
‘‘(i) is certified by the manufacturer
as being able to perform efficiently in nor-
mal operation on a combination of an al-
ternative fuel and a petroleum-based fuel,
‘‘(ii) either—
‘‘(I) has received a certificate of
conformity under the Clean Air Act,
or
‘‘(II) has received an order from
an applicable State certifying the vehi-
cle for sale or lease in California and
meets or exceeds the low emission ve-
hicle standard under section 88.105–
94 of title 40, Code of Federal Regu-
lations, for that make and model year
vehicle,
‘‘(iii) the original use of which com-
mences with the taxpayer,
‘‘(iv) which is acquired by the tax-
payer for use or lease, but not for resale,
and
‘‘(v) which is made by a manufac-
turer.
‘‘(C) 75/25 MIXED-FUEL
VEHICLE.—For
purposes of this subsection, the term ‘75/25
mixed-fuel vehicle’ means a mixed-fuel vehicle
which operates using at least 75 percent alter-
native fuel and not more than 25 percent petro-
leum-based fuel.
‘‘(D) 95/5 MIXED-FUEL
VEHICLE.—For
purposes of this subsection, the term ‘95/5
mixed-fuel vehicle’ means a mixed-fuel vehicle
which operates using at least 95 percent alter-
native fuel and not more than 5 percent petro-
leum-based fuel.
‘‘(e) 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
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) $1,000, if such vehicle achieves at
least 125 percent but less than 150 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(ii) $1,500, if such vehicle achieves
at least 150 percent but less than 175 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iii) $2,000, if such vehicle achieves
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iv) $2,500, if such vehicle achieves
at least 200 percent but less than 225 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(v) $3,000, 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) $3,500, 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.—
‘‘(i) AMOUNT.—The amount deter-
mined under subparagraph (A)(i) with re-
spect to an advanced lean burn technology
motor vehicle shall be increased by—
‘‘(I) 
$250, 
if 
such 
vehicle
achieves a lifetime fuel savings of at
least 1,500 gallons of gasoline, and
‘‘(II) 
$500, 
if 
such 
vehicle
achieves a lifetime fuel savings of at
least 2,500 gallons of gasoline.
‘‘(C) OPTION TO USE LIKE VEHICLE.—For
purposes of paragraph (2), at the option of the
vehicle manufacturer, the increase for fuel effi-
ciency and conservation credit may be cal-
culated by comparing the new advanced lean-
burn technology motor vehicle to a ‘‘like vehi-
cle’’.
‘‘(D) DEFINITIONS.—
‘‘(i) ADVANCED
LEAN
BURN
TECH-
NOLOGY MOTOR VEHICLE.—For purposes
of subparagraph (E), the term ‘advanced
lean burn technology motor vehicle’ means
a motor vehicle with an internal combus-
tion engine that—
‘‘(I) is designed to operate pri-
marily using more air than is nec-
essary for complete combustion of the
fuel,
‘‘(II) incorporates direct injec-
tion,
‘‘(III) achieves at least 125 per-
cent of the 2000 model year city fuel
economy, and
‘‘(IV) for 2004 and later model
vehicles, has received a certificate that
such vehicle meets or exceeds the Bin
5, Tier 2 emission levels (for pas-
senger vehicles) or Bin 8, Tier 2 emis-
sion levels (for light trucks) estab-
lished in regulations prescribed by the
Administrator of the Environmental
Protection 
Agency 
under 
section
202(i) of the Clean Air Act for that
make and model year vehicle.
‘‘(ii) LIKE VEHICLE.—For purposes of
subparagraph (E), the term ‘like vehicle’
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 equiva-
lent in the following areas:
‘‘(I) Body style (2-door or 4-
door),
‘‘(II) Transmission (automatic or
manual),
‘‘(III) Acceleration performance
(± 0.05 seconds).
‘‘(IV) Drivetrain (2-wheel drive
or 4-wheel drive).
‘‘(V) Certification by the Admin-
istrator of the Environmental Protec-
tion Agency.
‘‘(iii) LIFETIME FUEL SAVINGS.—For
purposes of subsection (c)(2)(D), the term
‘lifetime fuel savings’ shall be calculated by
dividing 120,000 by the difference between
the 2000 model year city fuel economy for
the vehicle inertia weight class and the city
fuel economy for the new qualified hybrid
motor vehicle.
‘‘(f) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed under subsection (a) for the taxable year
shall not exceed the excess of—
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by sec-
tion 55, over
‘‘(2) the sum of the credits allowable under sub-
part A and sections 27, 29, and 30A for the taxable
year.
‘‘(g) 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-
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, the basis of any property for which a
credit is allowable under subsection (a) shall be re-
duced by the amount of such credit so allowed.
‘‘(6) NO
DOUBLE
BENEFIT.—The amount of
any deduction or credit allowable under this
chapter—
‘‘(A) for any incremental cost taken into
account in computing the amount of the credit
determined under subsection (d) shall be re-
duced by the amount of such credit attributable
to such cost, and
‘‘(B) with respect to a vehicle described
under subsection (b) or (c), 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
any sale or lease document the specific amount of
any credit otherwise allowable to the entity under
this section and reduces the sale or lease price of
such vehicle by an equivalent amount of such credit.
‘‘(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 (f) for such taxable year (referred to
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.
‘‘(h) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall pro-
mulgate such regulations as necessary to carry out
the provisions of this section.
‘‘(2) 
ADMINISTRATOR
OF
ENVIRONMENTAL
PROTECTION
AGENCY.—The Administrator of the
Environmental Protection Agency, in coordination
with the Secretary of Transportation and the Sec-
retary of the Treasury, shall prescribe such regula-
tions as necessary to determine whether a motor ve-
hicle meets the requirements to be eligible for a
credit under this section.
‘‘(i) 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, 2011, and
‘‘(2) in the case of any other property, Decem-
ber 31, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (29), by striking the
period at the end of paragraph (30) and inserting ‘‘,
and’’, and by adding at the end the following:
‘‘(31) to the extent provided in section
30B(g)(5).’’.
(2) Section 6501(m) is amended by inserting
‘‘30B(g)(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-
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, 2001, in taxable years ending after such
date.
SEC. 105. EXTENSION OF DEDUCTION FOR CERTAIN RE-
FUELING PROPERTY.
(a) IN GENERAL.—Section 179A(f) (relating to ter-
mination) is amended by striking ‘‘2004’’ and inserting
‘‘2007’’.
(b) MODIFICATION
OF PHASEOUT.—Subparagraph
(B) of section 179A(b)(1) is amended—
(1) in clause (i), by striking ‘‘2002’’ and insert-
ing ‘‘2005’’,
(2) in clause (ii), by striking ‘‘2003’’ and in-
serting ‘‘2006’’, and
(3) in clause (iii), by striking ‘‘2004’’ and in-
serting ‘‘2007’’.
SEC. 106. MODIFICATION OF CREDIT FOR QUALIFIED ELEC-
TRIC VEHICLES.
(a) AMOUNT OF CREDIT.—
(1) IN GENERAL.—Section 30(a) (relating to al-
lowance of credit) is amended by striking ‘‘10 per-
cent of’’.
(2) LIMITATION
OF
CREDIT
ACCORDING
TO
TYPE OF VEHICLE.—Section 30(b) (relating to limi-
tations) is amended—
(A) by striking paragraphs (1) and (2) and
inserting the following:
‘‘(1) LIMITATION ACCORDING TO TYPE OF VE-
HICLE.—The amount of the credit allowed under
subsection (a) for any vehicle shall not exceed the
greatest of the following amounts applicable to such
vehicle:
‘‘(A) In the case of a vehicle which con-
forms to the Motor Vehicle Safety Standard
500 prescribed by the Secretary of Transpor-
tation, the lesser of—
‘‘(i) 10 percent of the manufacturer’s
suggested retail price of the vehicle, or
‘‘(ii) $4,000.
‘‘(B) In the case of a vehicle with a gross
vehicle weight rating not exceeding 8,500
pounds—
‘‘(i) $4,000, or
‘‘(ii) $5,000, if such vehicle is—
‘‘(I) capable of a driving range of
at least 70 miles on a single charge of
the vehicle’s rechargeable batteries
and measured pursuant to the urban
dynamometer schedules under appen-
dix I to part 86 of title 40, Code of
Federal Regulations, or
‘‘(II) capable of a payload capac-
ity of at least 1,000 pounds.
‘‘(C) In the case of a vehicle with a gross
vehicle weight rating exceeding 8,500 pounds
but not exceeding 14,000 pounds, $10,000.
‘‘(D) In the case of a vehicle with a gross
vehicle weight rating exceeding 14,000 pounds
but not exceeding 26,000 pounds, $20,000.
‘‘(E) In the case of a vehicle with a gross
vehicle weight rating exceeding 26,000 pounds,
$40,000.’’, and
(B) by redesignating paragraph (3) as
paragraph (2).
(3) CONFORMING AMENDMENTS.—
(A) Section 53(d)(1)(B)(iii) is amended by
striking ‘‘section 30(b)(3)(B)’’ and inserting
‘‘section 30(b)(2)(B)’’.
(B) Section 55(c)(2) is amended by strik-
ing ‘‘30(b)(3)’’ and inserting ‘‘30(b)(2)’’.
(b) QUALIFIED BATTERY ELECTRIC VEHICLE.—
(1) IN GENERAL.—Section 30(c)(1)(A) (defin-
ing qualified electric vehicle) is amended to read as
follows:
‘‘(A) which is—
‘‘(i) operated solely by use of a bat-
tery or battery pack, or
‘‘(ii) powered primarily through the
use of an electric battery or battery pack
using a flywheel or capacitor which stores
energy produced by an electric motor
through regenerative braking to assist in
vehicle operation,’’.
(2) LEASED VEHICLES.—Section 30(c)(1)(C) is
amended by inserting ‘‘or lease’’ after ‘‘use’’.
(3) CONFORMING AMENDMENTS.—
(A) Subsections (a), (b)(2), and (c) of sec-
tion 30 are each amended by inserting ‘‘bat-
tery’’ after ‘‘qualified’’ each place it appears.
(B) The heading of subsection (c) of sec-
tion 30 is amended by inserting ‘‘BATTERY’’
after ‘‘QUALIFIED’’.
(C) The heading of section 30 is amended
by inserting ‘‘BATTERY’’ after ‘‘QUALIFIED’’.
(D) The item relating to section 30 in the
table of sections for subpart B of part IV of
subchapter A of chapter 1 is amended by in-
serting ‘‘battery’’ after ‘‘qualified’’.
(E) Section 179A(c)(3) is amended by in-
serting ‘‘battery’’ before ‘‘electric’’.
(F) The heading of paragraph (3) of sec-
tion 179A(c) is amended by inserting ‘‘BAT-
TERY’’ before ‘‘ELECTRIC’’.
(c) ADDITIONAL SPECIAL RULES.—Section 30(d)
(relating to special rules) is amended by adding at the end
the following:
‘‘(5) NO
DOUBLE
BENEFIT.—The amount of
any deduction or credit allowable under this chapter
for any cost taken into account in computing the
amount of the credit determined under subsection
(a) shall be reduced by the amount of such credit at-
tributable to such cost.
‘‘(6) PROPERTY USED BY TAX-EXEMPT ENTI-
TIES.—In the case of a credit amount which is al-
lowable with respect to a vehicle which is acquired
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 per-
son clearly discloses to the entity in any sale or lease
contract the specific amount of any credit otherwise
allowable to the entity under this section and re-
duces the sale or lease price of such vehicle by an
equivalent amount of such credit.
‘‘(7) 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 (b)(3) for such taxable year, such ex-
cess shall be allowed as a credit carryforward
for each of the 20 taxable years following such
taxable year.
‘‘(B) RULES.—Rules similar to the rules of
section 39 shall apply with respect to the credit
carryforward under subparagraph (A).
(d) EXTENSION.—Section 30(e) (relating to termi-
nation) is amended by striking ‘‘2004’’ and inserting
‘‘2007’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
December 31, 2001, in taxable years ending after such
date.
SEC. 107. TAX CREDIT FOR ENERGY EFFICIENT APPLI-
ANCES.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its) is amended by adding at the end the following new
section:
‘‘SEC. 45G. ENERGY EFFICIENT APPLIANCE CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the energy efficient appliance credit determined under this
section for the taxable year is an amount equal to the ap-
plicable amount determined under subsection (b) with re-
spect to the eligible production of qualified energy efficient
appliances produced by the taxpayer during the calendar
year ending with or within the taxable year.
‘‘(b) APPLICABLE
AMOUNT; ELIGIBLE
PRODUC-
TION.—For purposes of subsection (a)—
‘‘(1) APPLICABLE
AMOUNT.—The applicable
amount is—
‘‘(A) $50 in the case of an energy efficient
clothes washer described in subsection (d)(2)(A)
or an energy efficient refrigerator described in
subsection (d)(3)(B)(i), and
‘‘(B) $100 in the case of any other energy
efficient clothes washer or energy efficient re-
frigerator.
‘‘(2) ELIGIBLE PRODUCTION.—
‘‘(A) IN GENERAL.—The eligible produc-
tion of each category of qualified energy effi-
cient appliances is the excess of—
‘‘(i) the number of appliances in such
category which are produced by the tax-
payer during such calendar year, over
‘‘(ii) the average number of appliances
in such category which were produced by
the taxpayer during calendar years 1998,
1999, and 2000.
‘‘(B) CATEGORIES.—For purposes of sub-
paragraph (A), the categories are—
‘‘(i) energy efficient clothes washers
described in subsection (d)(2)(A),
‘‘(ii) energy efficient clothes washers
described in subsection (d)(2)(B),
‘‘(iii) energy efficient refrigerators de-
scribed in subsection (d)(3)(B)(i), and
‘‘(iv) energy efficient refrigerators de-
scribed in subsection (d)(3)(B)(ii).
‘‘(C) SPECIAL
RULE
FOR
2001
PRODUC-
TION.—For purposes of determining eligible
production for calendar year 2001—
‘‘(i) only production after the date of
the enactment of this section shall be
taken into account under subparagraph
(A)(i), and
‘‘(ii) the amount taken into account
under subparagraph (A)(ii) shall be an
amount which bears the same ratio to the
amount which would (but for this subpara-
graph) be taken into account under sub-
paragraph (A)(ii) as—
‘‘(I) the number of days in cal-
endar year 2001 after the date of the
enactment of this section, bears to
‘‘(II) 365.
‘‘(c) LIMITATION ON MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The maximum amount of
credit allowed under subsection (a) with respect to
a taxpayer for all taxable years shall be—
‘‘(A) $30,000,000 with respect to the cred-
it determined under subsection (b)(1)(A), and
‘‘(B) $30,000,000 with respect to the cred-
it determined under subsection (b)(1)(B).
‘‘(2) 
LIMITATION
BASED
ON
GROSS
RE-
CEIPTS.—The credit allowed under subsection (a)
with respect to a taxpayer for the taxable year shall
not exceed an amount equal to 2 percent of the aver-
age annual gross receipts of the taxpayer for the 3
taxable years preceding the taxable year in which
the credit is determined.
‘‘(3) GROSS RECEIPTS.—For purposes of this
subsection, the rules of paragraphs (2) and (3) of
section 448(c) shall apply.
‘‘(d) QUALIFIED ENERGY EFFICIENT APPLIANCE.—
For purposes of this section:
‘‘(1) IN GENERAL.—The term ‘qualified energy
efficient appliance’ means—
‘‘(A) an energy efficient clothes washer, or
‘‘(B) an energy efficient refrigerator.
‘‘(2) ENERGY EFFICIENT CLOTHES WASHER.—
The term ‘energy efficient clothes washer’ means a
residential clothes washer, including a residential
style coin operated washer, which is manufactured
with—
‘‘(A) a 1.26 MEF or greater, or
‘‘(B) a 1.42 MEF (1.5 MEF for washers
produced after 2004) or greater.
‘‘(3) ENERGY EFFICIENT REFRIGERATOR.—The
term ‘energy efficient refrigerator’ means an auto-
matic defrost refrigerator-freezer which—
‘‘(A) has an internal volume of at least
16.5 cubic feet, and
‘‘(B) consumes—
‘‘(i) 10 percent less kw/hr/yr than the
energy conservation standards promulgated
by the Department of Energy for refrig-
erators produced during 2001, and
‘‘(ii) 15 percent less kw/hr/yr than
such energy conservation standards for re-
frigerators produced after 2001.
‘‘(4) MEF.—The term ‘MEF’ means Modified
Energy Factor (as determined by the Secretary of
Energy).
‘‘(e) SPECIAL RULES.—
‘‘(1) IN GENERAL.—Rules similar to the rules
of subsections (c), (d), and (e) of section 52 shall
apply for purposes of this section.
‘‘(2) AGGREGATION RULES.—All persons treat-
ed as a single employer under subsection (a) or (b)
of section 52 or subsection (m) or (o) of section 414
shall be treated as 1 person for purposes of sub-
section (a).
‘‘(f) VERIFICATION.—The taxpayer shall submit such
information or certification as the Secretary, in consulta-
tion with the Secretary of Energy, determines necessary
to claim the credit amount under subsection (a).
‘‘(g) TERMINATION.—This section shall not apply—
‘‘(1) with respect to energy efficient refrig-
erators described in subsection (d)(3)(B)(i) produced
after 2004, and
‘‘(2) with respect to all other qualified energy
efficient appliances produced after 2006.’’.
(b) LIMITATION ON CARRYBACK.—Section 39(d) (re-
lating to transition rules) is amended by adding at the
end the following new paragraph:
‘‘(11) NO CARRYBACK OF ENERGY EFFICIENT
APPLIANCE CREDIT BEFORE EFFECTIVE DATE.—No
portion of the unused business credit for any taxable
year which is attributable to the energy efficient ap-
pliance credit determined under section 45G may be
carried to a taxable year ending before the date of
the enactment of section 45G.’’.
(c) CONFORMING AMENDMENT.—Section 38(b) (re-
lating to general business credit) is amended by striking
‘‘plus’’ at the end of paragraph (14), by striking the period
at the end of paragraph (15) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(16) the energy efficient appliance credit de-
termined under section 45G(a).’’.
(d) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by inserting after the item relating to section
45F the following new item:
‘‘Sec. 45G. Energy efficient appliance credit.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
SEC. 108. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 25D the fol-
lowing new section:
‘‘SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount
equal to 20 percent of the amount paid or incurred by
the taxpayer for qualified energy efficiency improvements
installed during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—The credit allowed by
this section with respect to a dwelling shall not ex-
ceed $2,000.
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER
ON SAME DWELLING TAKEN INTO ACCOUNT.—If a
credit was allowed to the taxpayer under subsection
(a) with respect to a dwelling in 1 or more prior tax-
able years, the amount of the credit otherwise allow-
able for the taxable year with respect to that dwell-
ing shall not exceed the amount of $2,000 reduced
by the sum of the credits allowed under subsection
(a) to the taxpayer with respect to the dwelling for
all prior taxable years.
‘‘(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
sections 23, 25B, 25C, and 25D) and section
27 for the taxable year.
‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the limita-
tion imposed by subsection (b)(3) for such taxable year,
such excess shall be carried to the succeeding taxable year
and added to the credit allowable under subsection (a) for
such succeeding taxable year.
‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified
energy efficiency improvements’ means any energy effi-
cient building envelope component that is certified to meet
or exceed the prescriptive criteria for such component es-
tablished by the 1998 International Energy Conservation
Code, if—
‘‘(1) such component is installed in or on a
dwelling—
‘‘(A) located in the United States, and
‘‘(B) owned and used by the taxpayer as
the taxpayer’s principal residence (within the
meaning of section 121),
‘‘(2) the original use of such component com-
mences with the taxpayer, and
‘‘(3) such component reasonably can be ex-
pected to remain in use for at least 5 years.
The certification requirement of the preceding sentence
shall apply only to the extent that the aggregate cost of
such components exceeds $1,000.
‘‘(e) CERTIFICATION.—The certification described in
subsection (d) shall be—
‘‘(1) determined on the basis of the technical
specifications or applicable ratings (including prod-
uct labeling requirements) for the measurement of
energy efficiency, based upon energy use or building
envelope component performance, for the energy effi-
cient building envelope component,
‘‘(2) provided by a local building regulatory au-
thority, a utility, a manufactured home production
inspection primary inspection agency (IPIA), or an
accredited home energy rating system provider who
is accredited by or otherwise authorized to use ap-
proved energy performance measurement methods by
the Home Energy Ratings Systems Council or the
National Association of State Energy Officials, and
‘‘(3) made in writing in a manner that specifies
in readily verifiable fashion the energy efficient
building envelope components installed and their re-
spective energy efficiency levels.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) TENANT-STOCKHOLDER IN COOPERATIVE
HOUSING CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as
defined in such section), such individual shall be
treated as having paid his tenant-stockholder’s pro-
portionate share (as defined in section 216(b)(3)) of
the cost of qualified energy efficiency improvements
made by such corporation.
‘‘(2) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be
treated as having paid his proportionate share
of the cost of qualified energy efficiency im-
provements made by such association.
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the
term ‘condominium management association’
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other
than subparagraph (E) thereof) with respect to
a condominium project substantially all of the
units of which are used as residences.
‘‘(3) BUILDING ENVELOPE COMPONENT.—The
term ‘building envelope component’ means insulation
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and
metal roofs with appropriate pigmented coatings
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in
or on such dwelling.
‘‘(4) MANUFACTURED HOMES INCLUDED.—For
purposes of this section, the term ‘dwelling’ includes
a manufactured home which conforms to Federal
Manufactured Home Construction and Safety Stand-
ards (24 C.F.R. 3280).
‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(h) APPLICATION OF SECTION.—This section shall
apply to qualified energy efficiency improvements installed
after December 31, 2001 and before January 1, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 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 fol-
lowing new paragraph:
‘‘(32) to the extent provided in section 25E(g),
in the case of amounts with respect to which a credit
has been allowed under section 25E.’’.
(2) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25D the
following new item:
‘‘Sec. 25E. Energy efficiency improvements to existing homes.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2001.
SEC. 109. BUSINESS CREDIT FOR CONSTRUCTION OF NEW
ENERGY EFFICIENT HOME.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by inserting after section 45G the fol-
lowing new section:
‘‘SEC. 45H. NEW ENERGY EFFICIENT HOME CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, in
the case of an eligible contractor, the credit determined
under this section for the taxable year is an amount equal
to the aggregate adjusted bases of all energy efficient
property installed in a qualified new energy efficient home
during construction of such home.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The credit allowed by
this section with respect to a dwelling shall not
exceed $2,000.
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME
DWELLING TAKEN INTO ACCOUNT.—If a credit
was allowed under subsection (a) with respect
to a dwelling in 1 or more prior taxable years,
the amount of the credit otherwise allowable for
the taxable year with respect to that dwelling
shall not exceed the amount of $2,000 reduced
by the sum of the credits allowed under sub-
section (a) with respect to the dwelling for all
prior taxable years.
‘‘(2) COORDINATION
WITH
REHABILITATION
AND
ENERGY
CREDITS.—For purposes of this
section—
‘‘(A) the basis of any property referred to
in subsection (a) shall be reduced by that por-
tion of the basis of any property which is attrib-
utable to qualified rehabilitation expenditures
(as defined in section 47(c)(2)) or to the energy
percentage of energy property (as determined
under section 48(a)), and
‘‘(B) expenditures taken into account
under either section 47 or 48(a) shall not be
taken into account under this section.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi-
ble contractor’ means the person who constructed
the new energy efficient home, or in the case of a
manufactured home which conforms to Federal
Manufactured Home Construction and Safety Stand-
ards (24 C.F.R. 3280), the manufactured home pro-
ducer of such home.
‘‘(2) ENERGY
EFFICIENT
PROPERTY.—The
term ‘energy efficient property’ means any energy
efficient building envelope component, and any en-
ergy efficient heating or cooling appliance.
‘‘(3) QUALIFIED
NEW
ENERGY
EFFICIENT
HOME.—The term ‘qualified new energy efficient
home’ means a dwelling—
‘‘(A) located in the United States,
‘‘(B) the construction of which is substan-
tially completed after December 31, 2001,
‘‘(C) the original use of which is as a prin-
cipal residence (within the meaning of section
121) which commences with the person who ac-
quires such dwelling from the eligible con-
tractor, and
‘‘(D) which is certified to have a level of
annual heating and cooling energy consumption
that is at least 30 percent below the annual
level of heating and cooling energy consumption
of a comparable dwelling constructed in accord-
ance with the standards of the 1998 Inter-
national Energy Conservation Code.
‘‘(4) CONSTRUCTION.—The term ‘construction’
includes reconstruction and rehabilitation.
‘‘(5) ACQUIRE.—The term ‘acquire’ includes
purchase and, in the case of reconstruction and re-
habilitation, such term includes a binding written
contract for such reconstruction or rehabilitation.
‘‘(6) BUILDING ENVELOPE COMPONENT.—The
term ‘building envelope component’ means insulation
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and
metal roofs with appropriate pigmented coatings
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in
or on such dwelling.
‘‘(7) MANUFACTURED HOME INCLUDED.—The
term ‘dwelling’ includes a manufactured home con-
forming to Federal Manufactured Home Construc-
tion and Safety Standards (24 C.F.R. 3280).
‘‘(d) CERTIFICATION.—
‘‘(1) METHOD.—A certification described in
subsection (c)(3)(D) shall be determined on the
basis of one of the following methods:
‘‘(A) The technical specifications or appli-
cable ratings (including product labeling re-
quirements) for the measurement of energy effi-
ciency for the energy efficient building envelope
component or energy efficient heating or cooling
appliance, based upon energy use or building
envelope component performance.
‘‘(B) An energy performance measurement
method that utilizes computer software ap-
proved by organizations designated by the Sec-
retary.
‘‘(2) PROVIDER.—Such certification shall be
provided by—
‘‘(A) in the case of a method described in
paragraph (1)(A), a local building regulatory
authority, a utility, a manufactured home pro-
duction inspection primary inspection agency
(IPIA), or an accredited home energy rating
systems provider who is accredited by, or other-
wise authorized to use, approved energy per-
formance measurement methods by the Home
Energy Ratings Systems Council or the Na-
tional Association of State Energy Officials, or
‘‘(B) in the case of a method described in
paragraph (1)(B), an individual recognized by
an organization designated by the Secretary for
such purposes.
‘‘(3) FORM.—Such certification shall be made
in writing in a manner that specifies in readily
verifiable fashion the energy efficient building enve-
lope components and energy efficient heating or
cooling appliances installed and their respective en-
ergy efficiency levels, and in the case of a method
described in subparagraph (B) of paragraph (1), ac-
companied by written analysis documenting the
proper application of a permissible energy perform-
ance measurement method to the specific cir-
cumstances of such dwelling.
‘‘(4) REGULATIONS.—
‘‘(A) IN GENERAL.—In prescribing regula-
tions under this subsection for energy perform-
ance measurement methods, the Secretary shall
prescribe procedures for calculating annual en-
ergy costs for heating and cooling and cost sav-
ings and for the reporting of the results. Such
regulations shall—
‘‘(i) be based on the National Home
Energy Rating Technical Guidelines of the
National Association of State Energy Offi-
cials, the Home Energy Rating Guidelines
of the Home Energy Rating Systems
Council, or the modified 1998 California
Residential ACM manual,
‘‘(ii) provide that any calculation pro-
cedures be developed such that the same
energy efficiency measures allow a home to
qualify for the credit under this section re-
gardless of whether the house uses a gas
or oil furnace or boiler or an electric heat
pump, and
‘‘(iii) require that any computer soft-
ware allow for the printing of the Federal
tax forms necessary for the credit under
this section and explanations for the home-
buyer of the energy efficient features that
were used to comply with the requirements
of this section.
‘‘(B) PROVIDERS.—For purposes of para-
graph (2)(B), the Secretary shall establish re-
quirements for the designation of individuals
based on the requirements for energy consult-
ants and home energy raters specified by the
National Association of State Energy Officials.
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(f) TERMINATION.—Subsection (a) shall apply to
dwellings purchased during the period beginning on Janu-
ary 1, 2002, and ending on December 31, 2006.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to current
year business credit) is amended by striking ‘‘plus’’ at the
end of paragraph (15), by striking the period at the end
of paragraph (16) and inserting ‘‘, plus’’, and by adding
at the end thereof the following new paragraph:
‘‘(17) the new energy efficient home credit de-
termined under section 45H.’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C
(relating to certain expenses for which credits are allow-
able) is amended by adding at the end thereof the fol-
lowing new subsection:
‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—
No deduction shall be allowed for that portion of expenses
for a new energy efficient home otherwise allowable as a
deduction for the taxable year which is equal to the
amount of the credit determined for such taxable year
under section 45H.’’.
(d) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 is amended by adding at the end the following
new paragraph:
‘‘(12) NO CARRYBACK OF NEW ENERGY EFFI-
CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—
No portion of the unused business credit for any
taxable year which is attributable to the credit deter-
mined under section 45H may be carried back to
any taxable year ending before January 1, 2002.’’.
(f) DEDUCTION FOR CERTAIN UNUSED BUSINESS
CREDITS.—Subsection (c) of section 196 is amended by
striking ‘‘and’’ at the end of paragraph (9), by striking
the period at the end of paragraph (10) and inserting ‘‘,
and’’, and by adding after paragraph (10) the following
new paragraph:
‘‘(11) the new energy efficient home credit de-
termined under section 45H.’’.
(g) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by inserting after the item relating to section
45G the following new item:
‘‘Sec. 45H. New energy efficient home credit.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2001.
SEC. 110. ALLOWANCE OF DEDUCTION FOR ENERGY EFFI-
CIENT COMMERCIAL BUILDING PROPERTY.
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and
corporations) is amended by inserting after section 179A
the following new section:
‘‘SEC. 179B. DEDUCTION FOR ENERGY EFFICIENT COMMER-
CIAL BUILDING PROPERTY.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction an amount equal to energy efficient com-
mercial building property expenditures made by a
taxpayer for the taxable year.
‘‘(2) MAXIMUM AMOUNT OF DEDUCTION.—The
amount of energy efficient commercial building prop-
erty expenditures taken into account under para-
graph (1) shall not exceed an amount equal to the
product of—
‘‘(A) $2.25, and
‘‘(B) the square footage of the building
with respect to which the expenditures are
made.
‘‘(3) YEAR DEDUCTION ALLOWED.—The deduc-
tion under paragraph (1) shall be allowed for the
taxable year in which the building is placed in serv-
ice.
‘‘(b) ENERGY EFFICIENT COMMERCIAL BUILDING
PROPERTY EXPENDITURES.—For purposes of this sec-
tion, the term ‘energy efficient commercial building prop-
erty expenditures’ means an amount paid or incurred for
energy efficient commercial building property installed on
or in connection with new construction or reconstruction
of property—
‘‘(1) for which depreciation is allowable under
section 167,
‘‘(2) which is located in the United States, and
‘‘(3) the construction or erection of which is
completed by the taxpayer.
Such property includes all residential rental property, in-
cluding low-rise multifamily structures and single family
housing property which is not within the scope of Stand-
ard 90.1–1999 (described in subsection (c)). Such term
includes expenditures for labor costs properly allocable to
the onsite preparation, assembly, or original installation
of the property.
‘‘(c) ENERGY EFFICIENT COMMERCIAL BUILDING
PROPERTY.—For purposes of subsection (b)—
‘‘(1) IN GENERAL.—The term ‘energy efficient
commercial building property’ means any property
which reduces total annual energy and power costs
with respect to the lighting, heating, cooling, ventila-
tion, and hot water supply systems of the building
by 50 percent or more in comparison to a reference
building which meets the requirements of Standard
90.1–1999 of the American Society of Heating, Re-
frigerating, and Air Conditioning Engineers and the
Illuminating Engineering Society of North America
using methods of calculation under paragraph (2)
and certified by qualified professionals as provided
under subsection (f).
‘‘(2) METHODS
OF
CALCULATION.—The Sec-
retary, in consultation with the Secretary of Energy,
shall promulgate regulations which describe in detail
methods for calculating and verifying energy and
power consumption and cost, taking into consider-
ation the provisions of the 1998 California Nonresi-
dential ACM Manual. These procedures shall meet
the following requirements:
‘‘(A) In calculating tradeoffs and energy
performance, the regulations shall prescribe the
costs per unit of energy and power, such as kil-
owatt hour, kilowatt, gallon of fuel oil, and
cubic foot or Btu of natural gas, which may be
dependent on time of usage.
‘‘(B) The calculational methodology shall
require that compliance be demonstrated for a
whole building. If some systems of the building,
such as lighting, are designed later than other
systems of the building, the method shall pro-
vide that either—
‘‘(i) the expenses taken into account
under subsection (a) shall not occur until
the date designs for all energy-using sys-
tems of the building are completed,
‘‘(ii) the energy performance of all
systems and components not yet designed
shall be assumed to comply minimally with
the requirements of such Standard 90.1–
1999, or
‘‘(iii) the expenses taken into account
under subsection (a) shall be a fraction of
such expenses based on the performance of
less than all energy-using systems in ac-
cordance with subparagraph (C).
‘‘(C) The expenditures in connection with
the design of subsystems in the building, such
as the envelope, the heating, ventilation, air
conditioning and water heating system, and the
lighting system shall be allocated to the appro-
priate building subsystem based on system-spe-
cific energy cost savings targets in regulations
promulgated by the Secretary of Energy which
are equivalent, using the calculation method-
ology, to the whole building requirement of 50
percent savings.
‘‘(D) The calculational methods under this
subparagraph need not comply fully with sec-
tion 11 of such Standard 90.1–1999.
‘‘(E) The calculational methods shall be
fuel neutral, such that the same energy effi-
ciency features shall qualify a building for the
deduction under this subsection regardless of
whether the heating source is a gas or oil fur-
nace or an electric heat pump.
‘‘(F) The calculational methods shall pro-
vide appropriate calculated energy savings for
design methods and technologies not otherwise
credited in either such Standard 90.1–1999 or
in the 1998 California Nonresidential ACM
Manual, including the following:
‘‘(i) Natural ventilation.
‘‘(ii) Evaporative cooling.
‘‘(iii) Automatic lighting controls such
as occupancy sensors, photocells, and time-
clocks.
‘‘(iv) Daylighting.
‘‘(v) Designs utilizing semi-condi-
tioned spaces that maintain adequate com-
fort conditions without air conditioning or
without heating.
‘‘(vi) Improved fan system efficiency,
including reductions in static pressure.
‘‘(vii) Advanced unloading mecha-
nisms for mechanical cooling, such as mul-
tiple or variable speed compressors.
‘‘(viii) The calculational methods may
take into account the extent of commis-
sioning in the building, and allow the tax-
payer to take into account measured per-
formance that exceeds typical performance.
‘‘(3) COMPUTER SOFTWARE.—
‘‘(A) IN GENERAL.—Any calculation under
this subsection shall be prepared by qualified
computer software.
‘‘(B) QUALIFIED COMPUTER SOFTWARE.—
For purposes of this paragraph, the term
‘qualified computer software’ means software—
‘‘(i) for which the software designer
has certified that the software meets all
procedures and detailed methods for calcu-
lating energy and power consumption and
costs as required by the Secretary,
‘‘(ii) which provides such forms as re-
quired to be filed by the Secretary in con-
nection with energy efficiency of property
and the deduction allowed under this sec-
tion, and
‘‘(iii) which provides a notice form
which summarizes the energy efficiency
features of the building and its projected
annual energy costs.
‘‘(d) ALLOCATION
OF
DEDUCTION
FOR
PUBLIC
PROPERTY.—In the case of energy efficient commercial
building property installed on or in public property, the
Secretary shall promulgate a regulation to allow the allo-
cation of the deduction to the person primarily responsible
for designing the property in lieu of the public entity which
is the owner of such property. Such person shall be treated
as the taxpayer for purposes of this section.
‘‘(e) NOTICE TO OWNER.—The qualified individual
shall provide an explanation to the owner of the building
regarding the energy efficiency features of the building
and its projected annual energy costs as provided in the
notice under subsection (c)(3)(B)(iii).
‘‘(f) CERTIFICATION.—The Secretary, in consultation
with the Secretary of Energy, shall establish requirements
for certification and compliance procedures similar to the
procedures under section 45H(d).
‘‘(g) TERMINATION.—This section shall not apply to
property placed in service after December 31, 2006.’’.
(b) CONFORMING AMENDMENTS.—
(1) 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 ‘‘,
and’’, and by inserting the following new paragraph:
‘‘(33) for amounts allowed as a deduction under
section 179B.’’.
(2) Section 1245(a) is amended by inserting
‘‘179B,’’ after ‘‘179A,’’ both places it appears in
paragraphs (2)(C) and (3)(C).
(3) Section 1250(b)(3) is amended by inserting
before the period at the end of the first sentence ‘‘or
by section 179B’’.
(4) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting
‘‘, or’’, and by inserting after subparagraph (H) the
following new subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 179B.’’.
(5) Section 312(k)(3)(B) is amended by strik-
ing ‘‘or 179A’’ each place it appears in the heading
and text and inserting ‘‘, 179A, or 179B’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part VI of subchapter B of chapter 1 is amended by
adding after section 179B the following new item:
‘‘Sec. 179B. Energy property deduction.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 111. ALLOWANCE OF DEDUCTION FOR QUALIFIED EN-
ERGY MANAGEMENT DEVICES AND RETRO-
FITTED QUALIFIED METERS.
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and
corporations) is amended by inserting after section 179B
the following new section:
‘‘SEC. 179C. DEDUCTION FOR QUALIFIED ENERGY MANAGE-
MENT DEVICES AND RETROFITTED METERS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a
taxpayer who is a supplier of electric energy or natural
gas or a provider of electric energy or natural gas services,
there shall be allowed as a deduction an amount equal to
the cost of each qualified energy management device
placed in service during the taxable year.
‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed
by this section with respect to each qualified energy man-
agement device shall not exceed $30.
‘‘(c) QUALIFIED ENERGY MANAGEMENT DEVICE.—
The term ‘qualified energy management device’ means any
tangible property to which section 168 applies if such
property is a meter or metering device—
‘‘(1) which is acquired and used by the tax-
payer to enable consumers or others to manage their
purchase, sale, or use of electricity or natural gas in
response to energy price and usage signals, and
‘‘(2) which permits reading of energy price and
usage signals on at least a daily basis.
‘‘(d) PROPERTY
USED
OUTSIDE
THE
UNITED
STATES NOT QUALIFIED.—No deduction shall be allowed
under subsection (a) with respect to property which is
used predominantly outside the United States or with re-
spect to the portion of the cost of any property taken into
account under section 179.
‘‘(e) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title,
the basis of any property shall be reduced by the
amount of the deduction with respect to such prop-
erty which is allowed by 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 that is of a character subject to the al-
lowance for depreciation shall be treated as a deduc-
tion allowed for depreciation under section 167.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (H), by striking
the period at the end of subparagraph (I) and in-
serting ‘‘, or’’, and by inserting after subparagraph
(I) the following new subparagraph:
‘‘(J) expenditures for which a deduction is
allowed under section 179C.’’.
(2) Section 312(k)(3)(B) is amended by strik-
ing ‘‘or 179B’’ each place it appears in the heading
and text and inserting ‘‘, 179B, or 179C’’.
(3) Section 1016(a) 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 inserting after paragraph (33) the fol-
lowing new paragraph:
‘‘(34) to the extent provided in section
179C(d)(1),’’.
(4) Section 1245(a) is amended by inserting
‘‘179C,’’ after ‘‘179B,’’ both places it appears in
paragraphs (2)(C) and (3)(C).
(5) The table of contents for subpart B of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 179B the
following new item:
‘‘Sec. 179C. Deduction for qualified energy management devices
and retrofitted meters.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to qualified energy management
devices placed in service after the date of the enactment
of this Act.
SEC. 112. 3-YEAR APPLICABLE RECOVERY PERIOD FOR DE-
PRECIATION OF QUALIFIED ENERGY MAN-
AGEMENT DEVICES.
(a) IN GENERAL.—Subparagraph (A) of section
168(e)(3) (relating to classification of property) is amend-
ed by striking ‘‘and’’ at the end of clause (ii), by striking
the period at the end of clause (iii) and inserting ‘‘, and’’,
and by adding at the end the following new clause:
‘‘(iv) any qualified energy manage-
ment device.’’.
(b) DEFINITION OF QUALIFIED ENERGY MANAGE-
MENT DEVICE.—Section 168(i) (relating to definitions
and special rules) is amended by inserting at the end the
following new paragraph:
‘‘(15) QUALIFIED
ENERGY
MANAGEMENT
DE-
VICE.—The term ‘qualified energy management de-
vice’ means any qualified energy management device
as defined in section 179C(c) which is placed in
service by a taxpayer who is a supplier of electric en-
ergy or natural gas or a provider of electric energy
or natural gas services.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act.
SEC. 113. ENERGY CREDIT FOR COMBINED HEAT AND
POWER SYSTEM PROPERTY.
(a) IN GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by strik-
ing ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at the
end of clause (iii), and by inserting after clause (iii) the
following new clause:
‘‘(iv) combined heat and power system
property,’’.
(b) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—Subsection (a) of section 48 is amended by redes-
ignating paragraphs (5) and (6) as paragraphs (6) and
(7), respectively, and by inserting after paragraph (4) the
following new paragraph:
‘‘(5) COMBINED
HEAT
AND
POWER
SYSTEM
PROPERTY.—For purposes of this subsection—
‘‘(A) COMBINED HEAT AND POWER SYS-
TEM PROPERTY.—The term ‘combined heat and
power system property’ means property com-
prising a system—
‘‘(i) which uses the same energy
source for the simultaneous or sequential
generation of electrical power, mechanical
shaft power, or both, in combination with
the generation of steam or other forms of
useful thermal energy (including heating
and cooling applications),
‘‘(ii) which has an electrical capacity
of more than 50 kilowatts or a mechanical
energy capacity of more than 67 horse-
power or an equivalent combination of elec-
trical and mechanical energy capacities,
‘‘(iii) which produces—
‘‘(I) at least 20 percent of its
total useful energy in the form of
thermal energy, and
‘‘(II) at least 20 percent of its
total useful energy in the form of elec-
trical or mechanical power (or com-
bination thereof),
‘‘(iv) the energy efficiency percentage
of which exceeds 60 percent (70 percent in
the case of a system with an electrical ca-
pacity in excess of 50 megawatts or a me-
chanical energy capacity in excess of
67,000 horsepower, or an equivalent com-
bination of electrical and mechanical en-
ergy capacities), and
‘‘(v) which is placed in service after
December 31, 2001, and before January 1,
2007.
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph
(A)(iv), the energy efficiency percentage of
a system is the fraction—
‘‘(I) the numerator of which is
the total useful electrical, thermal,
and mechanical power produced by
the system at normal operating rates,
and
‘‘(II) the denominator of which is
the lower heating value of the primary
fuel source for the system.
‘‘(ii) DETERMINATIONS MADE ON BTU
BASIS.—The energy efficiency percentage
and the percentages under subparagraph
(A)(iii) shall be determined on a Btu basis.
‘‘(iii) INPUT AND OUTPUT PROPERTY
NOT INCLUDED.—The term ‘combined heat
and power system property’ does not in-
clude property used to transport the en-
ergy source to the facility or to distribute
energy produced by the facility.
‘‘(iv) PUBLIC UTILITY PROPERTY.—
‘‘(I) ACCOUNTING
RULE
FOR
PUBLIC
UTILITY
PROPERTY.—If the
combined heat and power system
property is public utility property (as
defined in section 168(i)(1)), the tax-
payer may only claim the credit under
the subsection if, with respect to such
property, the taxpayer uses a normal-
ization method of accounting.
‘‘(II) CERTAIN
EXCEPTION
NOT
TO APPLY.—The matter in paragraph
(3) which follows subparagraph (D)
shall not apply to combined heat and
power system property.
‘‘(C) EXTENSION
OF
DEPRECIATION
RE-
COVERY PERIOD.—If a taxpayer is allowed cred-
it under this section for combined heat and
power system property and such property would
(but for this subparagraph) have a class life of
15 years or less under section 168, such prop-
erty shall be treated as having a 22-year class
life for purposes of section 168.’’.
(c) NO CARRYBACK OF ENERGY CREDIT BEFORE
EFFECTIVE DATE.—Subsection (d) of section 39 is
amended by adding at the end the following new para-
graph:
‘‘(13) 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, 2002.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
December 31, 2001.
SEC. 114. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM
TAXES.
(a) IN GENERAL.—Paragraph (1) of section 26(a) is
amended by striking ‘‘and 25B’’ and inserting ‘‘25B, 25C,
25D, and 25E’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 24(b)(3)(B) is amended by striking
‘‘and 25B’’ ‘‘section 23’’ and inserting ‘‘25B, 25C,
25D, and 25E’’.
(2) Section 25(e)(1)(C) is amended by inserting
‘‘25C, 25D, and 25E’’ after ‘‘25B,’’.
(3) Section 904(h) is amended by striking ‘‘and
25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’.
(4) 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, 2001.
SEC. 115. PHASEOUT 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.—Clause (ii) of section
4041(a)(1)(A) is amended by striking subclauses (I),
(II), and (III) and inserting the following new sub-
clauses:
‘‘(I) 3.3 cents per gallon after
September 30, 2001, and before Jan-
uary 1, 2005,
‘‘(II) 2.3 cents per gallon after
December 31, 2004, and before Janu-
ary 1, 2007,
‘‘(III) 1.3 cents per gallon after
December 31, 2006, and before Janu-
ary 1, 2009,
‘‘(IV) 0.3 cent per gallon after
December 31, 2008, and before Janu-
ary 1, 2010, and
‘‘(V) 
after 
December 
31,
2009.’’.
(2) CONFORMING AMENDMENTS.—
(A) 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.—In the
case of any sale for use (or use) after September 30,
2010, there is hereby imposed a tax of 0.1 cent per
gallon on any liquid other than gasoline (as defined
in section 4083)—
‘‘(A) sold by any person to an owner, les-
see, or other operator of a diesel-powered train
for use as a fuel in such train, or
‘‘(B) used by any person as a fuel in a die-
sel-powered train unless there was a taxable
sale of such fuel under subparagraph (A).
No tax shall be imposed by this paragraph on the
sale or use of any liquid if tax was imposed on such
liquid under section 4081.’’
(B) Subsection (f) of section 4082 is
amended by striking ‘‘section 4041(a)(1)’’ and
inserting ‘‘subsections (a)(1) and (d)(3) of sec-
tion 4041’’.
(C) 
Subparagraph 
(B) 
of 
section
6421(f)(3) is amended to read as follows:
‘‘(B) so much of the rate specified in sec-
tion 4081(a)(2)(A) as does not exceed the rate
applicable under section 4041(a)(1)(C)(ii).’’.
(D) 
Subparagraph 
(B) 
of 
section
6427(l)(3) is amended to read as follows:
‘‘(B) so much of the rate specified in sec-
tion 4081(a)(2)(A) as does not exceed the rate
applicable under section 4041(a)(1)(C)(ii).’’.
(b) FUEL USED ON INLAND WATERWAYS.—Subpara-
graph (C) of section 4042(b)(2) is amended to read as
follows:
‘‘(C) The deficit reduction rate is—
‘‘(i) 3.3 cents per gallon after Sep-
tember 30, 2001, and before January 1,
2004,
‘‘(ii) 2.3 cents per gallon after Decem-
ber 31, 2004, and before January 1, 2007,
‘‘(iii) 1.3 cents per gallon after De-
cember 31, 2006, and before January 1,
2009,
‘‘(iv) 0.3 cent per gallon after Decem-
ber 31, 2008, and before January 1, 2010,
and
‘‘(v) 0 after December 31, 2009.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on October 1, 2001.
SEC. 116. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN
MIXTURES OF DIESEL FUEL.
(a) 
IN
GENERAL.—Clause 
(iii) 
of 
section
4081(a)(2)(A) is amended by inserting before the period
‘‘(19.7 cents per gallon in the case of a diesel-water fuel
emulsion at least 14 percent of which is water)’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on October 1, 2001.
TITLE II—RELIABILITY
SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-
YEAR PROPERTY.
(a) IN GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property) is
amended by 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
‘‘(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 clause (ii) of section
168(e)(3)(C)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act.
SEC. 202. PETROLEUM REFINING PROPERTY TREATED AS 7-
YEAR PROPERTY.
(a) IN GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property),
as amended by section 201, is amended by striking ‘‘and’’
at the end of clause (ii), by redesignating clause (iii) as
clause (iv), and by inserting after clause (ii) the following
new clause:
‘‘(iii) any property used for the dis-
tillation, fractionation, and catalytic crack-
ing of crude petroleum into gasoline and
its other components, and’’.
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B), as amended by section 201, is
amended by inserting after the item relating to subpara-
graph (C)(ii) the following:
‘‘(C)(iii) ......................................................................................................
10’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1), as amended by section
201, is amended by inserting ‘‘or (iii)’’ after ‘‘clause (ii)’’.
(d) EFFECTIVE DATE.—The amendment made by
this section shall apply to property placed in service after
the date of the enactment of this Act.
SEC. 203. EXPENSING OF CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS.
(a) IN GENERAL.—Section 179(b) (relating to elec-
tion to expense certain depreciable business assets) is
amended by adding at the end the following new para-
graph:
‘‘(5) LIMITATION FOR SMALL BUSINESS REFIN-
ERS.—
‘‘(A) IN GENERAL.—In the case of a small
business refiner electing to expense qualified
costs, in lieu of the dollar limitations in para-
graph (1), the limitation on the aggregate costs
which may be taken into account under sub-
section (a) for any taxable year shall not exceed
75 percent of the qualified costs.
‘‘(B) QUALIFIED COSTS.—For purposes of
this paragraph, the term ‘qualified costs’ means
costs paid or incurred by a small business re-
finer for the purpose of complying with the
Highway Diesel Fuel Sulfur Control Require-
ments of the Environmental Protection Agency.
‘‘(C) SMALL
BUSINESS
REFINER.—For
purposes of this paragraph, the term ‘small
business refiner’ means, with respect to any
taxable year, a refiner which, within the refin-
ing operations of the business, employs not
more than 1,500 employees on business days
during such taxable year performing services in
the refining operations of such businesses and
has an average total capacity of 155,000 bar-
rels per day or less.’’.
100
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to expenses paid or incurred after
the date of the enactment of this Act.
SEC. 204. ENVIRONMENTAL TAX CREDIT.
(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. 45I. ENVIRONMENTAL TAX CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the environmental tax credit determined under
this section with respect to any small business refiner for
any taxable year is an amount equal to 5 cents for every
gallon of 15 parts per million or less sulfur diesel produced
at a facility by such small business refiner.
‘‘(b) MAXIMUM CREDIT.—For any small business re-
finer, the aggregate amount allowable as a credit under
subsection (a) for any taxable year with respect to any
facility shall not exceed 25 percent of the qualified capital
costs incurred by such small business refiner with respect
to such facility not taken into account in determining the
credit under subsection (a) for any preceding taxable year.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) SMALL
BUSINESS
REFINER.—The term
‘small business refiner’ means, with respect to any
101
taxable year, a refiner which, within the refining op-
erations of the business, employs not more than
1,500 employees on business days during such tax-
able year performing services in the refining oper-
ations of such businesses and has an average total
capacity of 155,000 barrels per day or less.
‘‘(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 15 parts per million or less sulfur diesel
fuel, associated adjacent or offsite equipment (in-
cluding tankage, catalyst, and power supply), engi-
neering, construction period interest, and sitework.
‘‘(3) APPLICABLE
EPA
REGULATIONS.—The
term ‘applicable EPA regulations’ means the High-
way Diesel Fuel Sulfur Control Requirements of the
Environmental Protection Agency.
‘‘(4) APPLICABLE PERIOD.—The term ‘applica-
ble period’ means, with respect to any facility, the
period beginning on the day after the date of the en-
102
actment of this section and ending with the date
which is one year after the date on which the tax-
payer must comply with the applicable EPA regula-
tions with respect to such facility.
‘‘(d) REDUCTION IN BASIS.—For purposes of this
subtitle, if a credit is determined under this section with
respect to any property by reason of qualified capital
costs, the basis of such property shall be reduced by the
amount of the credit so determined.
‘‘(e) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date
which is 30 months after the first day of the first
taxable year in which the environmental tax credit is
allowed with respect to a facility, the small business
refiner must obtain certification from the Secretary,
in consultation with the Administrator of the Envi-
ronmental Protection Agency, that the taxpayer’s
qualified capital costs with respect 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-
103
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) RECAPTURE.—Notwithstanding subsection
(f), failure to obtain certification under paragraph
(1) constitutes a recapture event under subsection
(f) with an applicable percentage of 100 percent.
‘‘(f) RECAPTURE OF ENVIRONMENTAL TAX CRED-
IT.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (e), if, as of the close of any taxable year,
there is a recapture event with respect to any facility
of the small business refiner, then the tax of such
refiner under this chapter for such taxable year shall
be increased by an amount equal to the product of—
‘‘(A) the applicable recapture percentage,
and
‘‘(B) the aggregate decrease in the credits
allowed under section 38 for all prior taxable
years which would have resulted if the qualified
capital costs of the taxpayer described in sub-
104
section (c)(2) with respect to such facility had
been zero.
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
The applicable
recapture
‘‘If the recapture event occurs in:
percentage is:
Year 1 ........................................................................
100
Year 2 ........................................................................
Year 3 ........................................................................
Year 4 ........................................................................
Year 5 ........................................................................
Years 6 and thereafter ..............................................
0.
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the first day
of the taxable year in which the qualified cap-
ital costs with respect to a facility described in
subsection (c)(2) are paid or incurred by the
taxpayer.
‘‘(3) RECAPTURE EVENT DEFINED.—For pur-
poses of this subsection, the term ‘recapture event’
means—
‘‘(A) FAILURE
TO
COMPLY.—The failure
by the small business refiner to meet the appli-
cable EPA regulations within the applicable pe-
riod with respect to the facility.
‘‘(B) CESSATION
OF
OPERATION.—The
cessation of the operation of the facility as a fa-
105
cility which produces 15 parts per million or
less sulfur diesel after the applicable period.
‘‘(C) CHANGE IN OWNERSHIP.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the disposition of a
small business refiner’s interest in the fa-
cility with respect to which the credit de-
scribed in subsection (a) was allowable.
‘‘(ii) AGREEMENT TO ASSUME RECAP-
TURE
LIABILITY.—Clause (i) shall not
apply if the person acquiring such interest
in the facility agrees in writing to assume
the recapture liability of the person dis-
posing of such interest in effect imme-
diately before such disposition. In the
event of such an assumption, the person
acquiring the interest in the facility shall
be treated as the taxpayer for purposes of
assessing any recapture liability (computed
as if there had been no change in owner-
ship).
‘‘(4) SPECIAL RULES.—
‘‘(A) TAX
BENEFIT
RULE.—The tax for
the taxable year shall be increased under para-
graph (1) only with respect to credits allowed
106
by reason of this section which were used to re-
duce tax liability. In the case of credits not so
used to reduce tax liability, the carryforwards
and carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be
treated as a tax imposed by this chapter for
purposes of determining the amount of any
credit under subpart A, B, or D of this part.
‘‘(C) NO RECAPTURE BY REASON OF CAS-
UALTY LOSS.—The increase in tax under this
subsection shall not apply to a cessation of op-
eration of the facility by reason of a casualty
loss to the extent such loss is restored by recon-
struction or replacement within a reasonable pe-
riod established by the Secretary.
‘‘(g) 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 a single employer.’’.
(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 (16), by striking the period at the end of
107
paragraph (17) and inserting ‘‘, plus’’, and by adding at
the end the following new paragraph:
‘‘(18) in the case of a small business refiner,
the environmental tax credit determined under sec-
tion 45I(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) ENVIRONMENTAL TAX 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 tax-
able year under section 45I(a).’’.
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating
to adjustments to basis) is amended by striking ‘‘and’’ at
the end of paragraph (33), by striking the period at the
end of paragraph (34) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
‘‘(35) in the case of a facility with respect to
which a credit was allowed under section 45I, to the
extent provided in section 45I(d).’’.
(e) 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. 45I. Environmental tax credit.’’.
108
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to expenses paid or incurred after
the date of the enactment of this Act.
SEC. 205. DETERMINATION OF SMALL REFINER EXCEPTION
TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to certain refiners excluded) is amended to read
as follows:
‘‘(4) CERTAIN
REFINERS
EXCLUDED.—If the
taxpayer or a related person engages in the refining
of crude oil, subsection (c) shall not apply to the
taxpayer for a taxable year if the average daily refin-
ery runs of the taxpayer and the related person for
the taxable year exceed 75,000 barrels. For purposes
of this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the
aggregate refinery runs for the taxable year by the
number of days in the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 206. TAX-EXEMPT BOND FINANCING OF CERTAIN
ELECTRIC FACILITIES.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter B of chapter 1 (relating to tax exemption require-
109
ments for State and local bonds) is amended by inserting
after section 141 the following new section:
‘‘SEC. 141A. TREATMENT OF GOVERNMENT-OWNED ELEC-
TRIC OUTPUT FACILITIES.
‘‘(a) EXCEPTIONS FROM PRIVATE BUSINESS USE
LIMITATIONS
WHERE
OPEN
ACCESS
REQUIREMENTS
MET.—
‘‘(1) GENERAL
RULE.—For purposes of this
part, the term ‘private business use’ shall not
include—
‘‘(A) any permitted open access activity by
a governmental unit with respect to an electric
output facility owned by such unit, or
‘‘(B) any permitted sale of electricity by a
governmental unit which is generated at an ex-
isting generation facility owned by such unit.
‘‘(2) PERMITTED OPEN ACCESS ACTIVITY.—For
purposes of this section—
‘‘(A) IN GENERAL.—The term ‘permitted
open access activity’ means any activity meeting
the open access requirements of any of the fol-
lowing clauses with respect to such electric out-
put facility:
‘‘(i) TRANSMISSION
AND
ANCILLARY
FACILITY.—In the case of a transmission
110
facility or a facility providing ancillary
services, the provision of transmission serv-
ice and ancillary services meets the open
access requirements of this clause only if
such services are provided on a non-
discriminatory open access basis—
‘‘(I) pursuant to an open access
transmission tariff filed with and ap-
proved by FERC, including an accept-
able reciprocity tariff, or
‘‘(II) under a regional trans-
mission organization agreement ap-
proved by FERC.
‘‘(ii) DISTRIBUTION
FACILITIES.—In
the case of a distribution facility, the deliv-
ery of electric energy meets the open ac-
cess requirements of this clause only if
such delivery is made on a nondiscrim-
inatory open access basis.
‘‘(iii) GENERATION
FACILITIES.—In
the case of a generation facility, the deliv-
ery of electric energy generated by such fa-
cility meets the open access requirements
of this clause only if—
111
‘‘(I) such facility is directly con-
nected to distribution facilities owned
by the governmental unit which owns
the generation facility, and
‘‘(II) such distribution facilities
meet the open access requirements of
clause (ii).
‘‘(B) SPECIAL RULES.—
‘‘(i) VOLUNTARILY FILED TARIFFS.—
Subparagraph (A)(i)(I) shall apply in the
case of a voluntarily filed tariff only if the
governmental unit files a report with
FERC within 90 days after the date of the
enactment of this section relating to
whether or not such governmental unit will
join a regional transmission organization.
‘‘(ii) CONTROL OF TRANSMISSION FA-
CILITIES BY REGIONAL TRANSMISSION OR-
GANIZATION.—A governmental unit shall
be treated as meeting the open access re-
quirements of subparagraph (A)(i) if a re-
gional transmission organization controls
the transmission facilities.
‘‘(iii) ERCOT UTILITY.—References
to FERC in subparagraph (A) shall be
112
treated as references to 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))).
‘‘(3) PERMITTED SALE.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘permitted
sale’ means—
‘‘(i) any sale of electricity to an on-
system purchaser if the seller meets the
open access requirements of paragraph (2)
with respect to all distribution and trans-
mission facilities (if any) owned by such
seller, and
‘‘(ii) subject to subparagraphs (B)
and (C), any sale of electricity to a whole-
sale native load purchaser, and any load
loss sale, if—
‘‘(I) the seller meets the open ac-
cess requirements of paragraph (2)
with respect to all transmission facili-
ties (if any) owned by such seller, or
‘‘(II) in any case in which the
seller does not own any transmission
113
facilities, all persons providing trans-
mission services to the seller’s whole-
sale native load purchasers meet the
open access requirements of para-
graph (2) with respect to all trans-
mission facilities owned by such per-
sons.
‘‘(B) LIMITATION ON SALES TO WHOLE-
SALE NATIVE LOAD PURCHASERS.—A sale to a
wholesale native load purchaser shall be treated
as a permitted sale only to the extent that—
‘‘(i) such purchaser resells the elec-
tricity directly at retail to persons within
the purchaser’s distribution area, or
‘‘(ii) such electricity is resold by such
purchaser through one or more wholesale
purchasers (each of whom as of June 30,
2000, was a party to a requirements con-
tract or a firm power contract described in
paragraph (5)(B)(ii)) to retail purchasers
in the ultimate wholesale purchaser’s dis-
tribution area.
‘‘(C) LOAD LOSS SALES.—
114
‘‘(i) IN
GENERAL.—The term ‘load
loss sale’ means any sale at wholesale to
the extent that—
‘‘(I) the aggregate sales at whole-
sale during the recovery period does
not exceed the load loss mitigation
sales limit for such period, and
‘‘(II) the aggregate sales at
wholesale during the first calendar
year after the recovery period does not
exceed the excess carried under clause
(iv) to such year.
‘‘(ii) LOAD LOSS MITIGATION SALES
LIMIT.—For purposes of clause (i), the
load loss mitigation sales limit for the re-
covery period is the sum of the annual load
losses for each year of such period.
‘‘(iii) ANNUAL LOAD LOSS.—A govern-
mental unit’s annual load loss for each
year of the recovery period is the amount
(if any) by which—
‘‘(I) the megawatts per hour of
electric energy sold during such year
to wholesale native load purchasers
115
which do not constitute private busi-
ness use are less than
‘‘(III) the megawatts per hour of
electric energy sold during the base
year to wholesale native load pur-
chasers which do not constitute pri-
vate business use.
The annual load loss for any year shall not
exceed the portion of the amount deter-
mined under the preceding sentence which
is attributable to open access requirements.
‘‘(iv) CARRYOVERS.—If the limitation
under clause (i) for the recovery period ex-
ceeds the aggregate sales during such pe-
riod which are taken into account under
clause (i), such excess (but not more than
10 percent of such limitation) may be car-
ried over to the first calendar year fol-
lowing the recovery period.
‘‘(v) RECOVERY PERIOD.—The recov-
ery period is the 7-year period beginning
with the start-up year.
‘‘(vi) START-UP YEAR.—The start-up
year is the calendar year which includes
the date of the enactment of this section
116
or, if later, at the election of the govern-
mental unit—
‘‘(I) the first year that the gov-
ernmental unit offers nondiscrim-
inatory open transmission access, or
‘‘(II) the first year in which at
least 10 percent of the governmental
unit’s wholesale customers’ aggregate
retail native load is open to retail
competition.
‘‘(4) ON-SYSTEM PURCHASER.—For purposes of
this section, the term ‘on-system purchaser’ means
any person whose electric equipment is directly con-
nected with any transmission or distribution facility
owned by the governmental unit owning the existing
generation facility if—
‘‘(A) such person—
‘‘(i) purchases electric energy from
such governmental unit at retail, and
‘‘(ii)(I) was within such unit’s dis-
tribution area at the close of the base year
or
‘‘(II) is a person as to whom the gov-
ernmental unit has a statutory service obli-
gation, or
117
‘‘(B) is a wholesale native load purchaser
from such governmental unit.
‘‘(5) WHOLESALE NATIVE LOAD PURCHASER.—
For purposes of this section—
‘‘(A) IN GENERAL.—The term ‘wholesale
native load purchaser’ means a wholesale pur-
chaser as to whom the governmental unit had—
‘‘(i) a statutory service obligation at
wholesale at the close of the base year, or
‘‘(ii) an obligation at the close of the
base year under a requirements or firm
sales contract if, as of June 30, 2000, such
contract had been in effect for (or had an
initial term of) at least 10 years.
‘‘(B) PERMITTED SALES UNDER EXISTING
CONTRACTS.—A private business use sale dur-
ing any year to a wholesale native load pur-
chaser (other than a person to whom the gov-
ernmental unit had a statutory service obliga-
tion) under a contract shall be treated as a per-
mitted sale by reason of being a load loss sale
only to the extent that the private business use
sales under the contract during such year ex-
ceed the lesser of—
118
‘‘(i) the private business use sales
under the contract during the base year, or
‘‘(ii) the maximum private business
use sales which would (but for this section)
be permitted without causing the bonds to
be private activity bonds.
This subparagraph shall only apply to the ex-
tent that the sale is allocable to bonds issued
before the date of the enactment of this section
(or bonds issued to refund such bonds).
‘‘(6) SPECIAL RULES.—
‘‘(A) TIME OF SALE RULE.—For purposes
of paragraphs (3)(C)(iii) and (5)(B), the deter-
mination of whether a sale after the date of the
enactment of this section is a private business
use shall be made with regard to this section.
‘‘(B) JOINT
ACTION
AGENCIES.—To the
extent provided in regulations, a joint action
agency, or a member of (or a wholesale native
load purchaser from) a joint action agency,
which is entitled to make a sale described in
subparagraph (A) or (B) in a year, may trans-
fer the entitlement to make that sale to the
member (or purchaser), or the joint action
agency, respectively.
119
‘‘(b) CERTAIN BONDS FOR TRANSMISSION AND DIS-
TRIBUTION FACILITIES NOT TAX EXEMPT.—
‘‘(1) IN GENERAL.—Section 103 shall not apply
to any bond issued on or after the date of the enact-
ment of this section if any portion of the proceeds
of the issue of which such bond is a part is used (di-
rectly or indirectly) to finance—
‘‘(A) any electric transmission facility, or
‘‘(B) any start-up electric utility distribu-
tion facility.
‘‘(2) EXCEPTIONS RELATING TO TRANSMISSION
FACILITIES.—Paragraph (1)(A) shall not apply to
any bond issued to finance—
‘‘(A) any repair of a transmission facility
in service on the date of the enactment of this
section, so long as the repair does not—
‘‘(i) increase the voltage level of such
facility over its level at the close of the
base year, or
‘‘(ii) increase the thermal load limit of
such facility by more than 3 percent over
such limit at the close of the base year,
‘‘(B) any qualifying upgrade of an electric
transmission facility in service on the date of
the enactment of this section, or
120
‘‘(C) any transmission facility necessary to
comply with an obligation under a shared or re-
ciprocal transmission agreement in effect on
such date.
‘‘(3) EXCEPTION FOR LOCAL ELECTRIC TRANS-
MISSION
FACILITY.—For 
purposes 
of 
this
subsection—
‘‘(A) IN GENERAL.—In the case of a gov-
ernmental unit which owns distribution facili-
ties, paragraph (1)(A) shall not apply to any
bond issued to finance an electric transmission
facility owned by such governmental unit and
located within such governmental unit’s dis-
tribution area, but only to the extent such facil-
ity is, or will be, necessary to supply electricity
to serve the retail native load, or wholesale na-
tive load, of such governmental unit or of 1 or
more other governmental units owning distribu-
tion facilities which are directly connected to
such electric transmission facility.
‘‘(B) RETAIL
LOAD.—The term ‘retail
load’ means, with respect to a governmental
unit, the electric load of end-users in the dis-
tribution area of the governmental unit.
121
‘‘(C) WHOLESALE
NATIVE
LOAD.—The
term ‘wholesale native load’ means—
‘‘(i) the retail load of such unit’s
wholesale native load purchasers (or of an
ultimate wholesale purchaser described in
subsection (a)(3)(B)(ii)), and
‘‘(ii) the electric load of purchasers
(not described in clause (i)) under whole-
sale requirements contracts which—
‘‘(I) do not constitute private
business use (determined without re-
gard to this section), and
‘‘(II) were in effect in the base
year.
‘‘(D) NECESSARY TO SERVE LOAD.—For
purposes of determining whether a transmission
facility is, or will be, necessary to supply elec-
tricity to retail native load or wholesale native
load—
‘‘(i) the governmental unit’s available
transmission rights shall be taken into ac-
count,
‘‘(ii) electric reliability standards or
requirements of national or regional reli-
ability organizations, regional transmission
122
organizations and the Electric Reliability
Council of Texas shall be taken into ac-
count, and
‘‘(iii) transmission, siting and con-
struction decisions of regional transmission
organizations and State and Federal regu-
latory and siting agencies, after a pro-
ceeding that provides for public input,
shall be presumptive evidence regarding
whether transmission facilities are nec-
essary to serve native load.
‘‘(E) QUALIFYING
UPGRADE.—The term
‘qualifying upgrade’ means an improvement or
addition to transmission facilities of the govern-
mental unit in service on the date of the enact-
ment of this section which—
‘‘(i) is ordered or approved by a re-
gional transmission organization or by a
State regulatory or siting agency, after a
proceeding that provides for public input,
and
‘‘(ii) is, or will be, necessary to supply
electricity to serve the retail native load, or
wholesale native load, of such govern-
mental unit or of one or more govern-
123
mental units owning distribution facilities
which are directly connected to such trans-
mission facility.
‘‘(4) START-UP
ELECTRIC
UTILITY
DISTRIBU-
TION FACILITY DEFINED.—For purposes of this sub-
section, the term ‘start-up electric utility distribution
facility’ means any distribution facility to provide
electric service for sale to the public if such facility
is placed in service—
‘‘(A) by a governmental unit that did not
operate an electric utility on the date of the en-
actment of this section, and
‘‘(B) during the first 10 years after the
date such governmental unit begins operating
an electric utility.
A governmental unit is treated as having operated
an electric utility on the date of the enactment of
this section if it operates electric output facilities
which were (on such date) operated by another gov-
ernmental unit to provide electric service for sale to
the public.
‘‘(5) EXCEPTION FOR REFUNDING BONDS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any eligible refunding bond.
124
‘‘(B) ELIGIBLE
REFUNDING
BOND.—For
purposes of subparagraph (A), the term ‘eligible
refunding bond’ means any bond (or series of
bonds) issued to refund any bond issued before
the date of the enactment of this section if the
average maturity date of the issue of which the
refunding bond is a part is not later than the
average maturity date of the bonds to be re-
funded by such issue.
‘‘(c) DEFINITIONS; SPECIAL RULES.—For purposes
of this section—
‘‘(1) BASE
YEAR.—The term ‘base year’
means—
‘‘(A) the calendar year preceding the start-
up year, or
‘‘(B) at the election of the governmental
unit, the second or third calendar years pre-
ceding the start-up year.
‘‘(2) DISTRIBUTION AREA.—The term ‘distribu-
tion area’ means the area in which a governmental
unit owns distribution facilities.
‘‘(3) ELECTRIC OUTPUT FACILITY.—The term
‘electric output facility’ means an output facility
that is an electric generation, transmission, or dis-
tribution facility.
125
‘‘(4) DISTRIBUTION FACILITY.—The term ‘dis-
tribution facility’ means an electric output facility
that is not a generation or transmission facility.
‘‘(5) 
TRANSMISSION
FACILITY.—The 
term
‘transmission facility’ means an electric output facil-
ity (other than a generation facility) that operates at
an electric voltage of 69 kV or greater. To the ex-
tent provided in regulations, such term includes any
output facility that FERC determines is a trans-
mission facility under standards applied by FERC
under the Federal Power Act (as in effect on the
date of the enactment of this section).
‘‘(6) EXISTING GENERATION FACILITY.—
‘‘(A) IN
GENERAL.—The term ‘existing
generation facility’ means any electric genera-
tion facility if—
‘‘(i) such facility is originally placed in
service on or before the date of enactment
of this Act and is owned by any govern-
mental unit on such date, or
‘‘(ii) such facility is originally placed
in service after such date if the construc-
tion of the facility commenced before June
1, 2000, and such facility is owned by any
126
governmental unit when it is placed in
service.
‘‘(B) DENIAL OF TREATMENT TO EXPAN-
SIONS.—Such term shall not include any facility
to the extent the generating capacity of such fa-
cility as of any date is 3 percent above the
greater of its nameplate or rated capacity as of
the date of the enactment of this section (or, in
the case of a facility described in subparagraph
(A)(ii), the date that the facility is placed in
service).
‘‘(6) 
REGIONAL
TRANSMISSION
ORGANIZA-
TION.—The term ‘regional transmission organiza-
tion’ includes an independent system operator.
‘‘(7) FERC.—The term ‘FERC’ means the
Federal Energy Regulatory Commission.
‘‘(8) GOVERNMENT-OWNED FACILITY.—An elec-
tric transmission facility shall be treated as owned
by a governmental unit as of any date to the extent
that—
‘‘(A) such unit acquired (before the base
year) long-term firm transmission capacity (as
determined under regulations) of such facility
for the purposes of serving customers to which
such unit had at the close of the base year—
127
‘‘(i) a statutory service obligation, or
‘‘(ii) an obligation under a require-
ments contract, and
‘‘(B) such unit holds such capacity as of
such date.
‘‘(9) STATUTORY
SERVICE
OBLIGATION.—The
term ‘statutory service obligation’ means an obliga-
tion under State or Federal law (exclusive of an obli-
gation arising solely under a contract entered into
with a person) to provide electric distribution serv-
ices or electric sales services, as provided in such
law.
‘‘(10) CONTRACT MODIFICATIONS.—A material
modification of a contract shall be treated as a new
contract.
‘‘(d) ELECTION TO TERMINATE TAX-EXEMPT BOND
FINANCING
FOR CERTAIN ELECTRIC OUTPUT FACILI-
TIES.—
‘‘(1) IN GENERAL.—At the election of a govern-
mental unit, section 103(a) shall not apply to any
bond issued by or on behalf of such unit after the
date of such election if any portion of the proceeds
of the issue of which such bond is a part are used
to provide any electric output facilities. Such an
election, once made, shall be irrevocable.
128
‘‘(2) OTHER EFFECTS OF ELECTION.—During
the period that the election under paragraph (1) is
in effect with respect to a governmental unit, the
term ‘private activity bond’ shall not include—
‘‘(A) any bond issued by such unit before
the date of the enactment of this section to pro-
vide an electric output facility if, as of the date
of the election, such bond was not a private ac-
tivity bond, and
‘‘(B) any bond to which paragraph (1)
does not apply by reason of paragraph (3).
‘‘(3) EXCEPTIONS FOR CERTAIN PROPERTY.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any bond issued to provide prop-
erty owned by a governmental unit if such prop-
erty is—
‘‘(i) any qualifying transmission facil-
ity,
‘‘(ii) any qualifying distribution facil-
ity,
‘‘(iii) any facility necessary to meet
Federal or State environmental require-
ments applicable to an existing generation
facility owned by the governmental unit as
of the date of the election,
129
‘‘(iv) any property to repair any exist-
ing generation facility owned by the gov-
ernmental unit as of the date of the elec-
tion,
‘‘(v) any qualified facility (as defined
in section 45(c)(3)) producing electricity
from any qualified energy resource (as de-
fined in section 45(c)(1)), and
‘‘(vi) any energy property (as defined
in section 48(a)(3)) placed in service dur-
ing a period that the energy percentage
under section 48(a) is greater than zero.
‘‘(B) LIMITATION ON USE BY NONGOVERN-
MENTAL
PERSONS.—Subparagraph (A) shall
not apply to any property constructed, acquired
or financed for a principal purpose of providing
the facility (or the output thereof) to non-
governmental persons.
‘‘(4) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) QUALIFYING
DISTRIBUTION
FACIL-
ITY.—The term ‘qualifying distribution facility’
means a distribution facility meeting the open
access requirements of subsection (a)(2)(A)(ii).
130
‘‘(B) QUALIFYING
TRANSMISSION
FACIL-
ITY.—The term ‘qualifying transmission facil-
ity’ means a local transmission facility (as de-
fined in subsection (b)(3)) meeting the open ac-
cess requirements of subsection (a)(2)(A)(i).
‘‘(5) EFFECT OF ELECTION.—
‘‘(A) IN
GENERAL.—An election under
paragraph (1) shall be binding on any successor
in interest to, or any related party with respect
to, the electing governmental unit. For purposes
of this paragraph, a governmental unit shall be
treated as related to another governmental unit
if it is a member of the same controlled group
(as determined under regulations).
‘‘(B) TREATMENT OF ELECTING GOVERN-
MENTAL
UNIT.—A governmental unit which
makes an election under paragraph (1) shall be
treated for purposes of section 141 as a
person—
‘‘(i) which is not a governmental unit,
and
‘‘(ii) which is engaged in a trade or
business,
with respect to its purchase of electricity gen-
erated by an electric output facility placed in
131
service after the date of such election if such
purchase is under a contract executed after
such date.’’
(b) WAIVER
OF CERTAIN LIMITATIONS NOT TO
APPLY TO DISTRIBUTION FACILITIES.—Section 141(d)(5)
is amended by inserting ‘‘(except in the case of an electric
output facility that is a distribution facility),’’ after ‘‘this
subsection’’.
(c) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter B of chapter 1
is amended by inserting after the item relating to section
141 the following new item:
‘‘Sec. 141A. Treatment of government-owned electric output fa-
cilities.’’
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall take effect on the date of the en-
actment of this Act, except that a governmental unit
may elect to have section 141A(a)(1) of the Internal
Revenue Code of 1986, as added by subsection (a),
take effect on April 14, 1996.
(2) BINDING
CONTRACTS.—The amendment
made by subsection (b) (relating to waiver of certain
limitations not to apply to distribution facilities)
shall not apply to facilities acquired pursuant to a
contract which was entered into before the date of
132
the enactment of this Act and which was binding
on such date and at all times thereafter before such
acquisition.
(3) COMPARABLE
TREATMENT
TO
BONDS
UNDER
1954
CODE
RULES.—References in the
amendments made by this Act to sections of the In-
ternal Revenue Code of 1986 shall be deemed to in-
clude references to comparable sections of the Inter-
nal Revenue Code of 1954.
SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE ELECTRIC RESTRUCTURING POL-
ICY.
(a) IN GENERAL.—Section 1033 (relating to involun-
tary conversions) is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE
ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—For purposes of this sub-
title, if a taxpayer elects the application of this sub-
section 
to 
a 
qualifying 
electric 
transmission
transaction—
133
‘‘(A) such transaction shall be treated as
an involuntary conversion to which this section
applies, and
‘‘(B) exempt utility property shall be treat-
ed as property which is similar or related in
service or use to the property disposed of in
such transaction.
‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—
In the case of any involuntary conversion described
in paragraph (1), subsection (a)(2)(B) shall be ap-
plied by substituting ‘4 years’ for ‘2 years’ in clause
(i) thereof.
‘‘(3) QUALIFYING
ELECTRIC
TRANSMISSION
TRANSACTION.—For purposes of this subsection, the
term ‘qualifying electric transmission transaction’
means any sale or other disposition before January
1, 2009, of—
‘‘(A) property used in the trade or business
of providing electric transmission services to an
independent transmission company, or
‘‘(B) any stock or partnership interest in a
corporation or partnership, as the case may be,
whose principal trade or business consists of
providing electric transmission services to an
independent transmission company.
134
‘‘(4) 
INDEPENDENT
TRANSMISSION
COM-
PANY.—For purposes of this subsection, the term
‘independent transmission company’ means—
‘‘(A) a regional transmission organization
approved by the Federal Energy Regulatory
Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regu-
latory Commission determines in its au-
thorization of the transaction under section
203 of the Federal Power Act (16 U.S.C.
823b) is not a market participant within
the meaning of such Commission’s rules
applicable to regional transmission organi-
zations, and
‘‘(ii) whose transmission facilities to
which the election under this subsection
applies are placed under the operational
control of a Federal Energy Regulatory
Commission-approved 
regional 
trans-
mission organization within the period
specified in such order, but not later than
the close of the period applicable under
subsection (a)(2)(B), or
135
‘‘(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Com-
mission of Texas, a person which is approved by
that Commission as consistent with Texas State
law regarding an independent transmission or-
ganization.
‘‘(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 section with respect to a quali-
fying electric transmission transaction only if
the principal trade or business of such corpora-
tion is a trade or business referred to in sub-
paragraph (A).
‘‘(6) 
SPECIAL
RULE
FOR
CONSOLIDATED
GROUPS.—In the case of a corporation which is a
136
member of an affiliated group filing a consolidated
return, such corporation shall be treated as satis-
fying the purchase requirement of subsection (a)(2)
with respect to any qualifying electric transmission
transaction engaged in by such corporation to the
extent such requirement is satisfied by another
member of such group.
‘‘(7) ELECTION.—An election under paragraph
(1), once made, shall be irrevocable.’’
(b) EXCEPTION FROM GAIN RECOGNITION UNDER
SECTION 1245.—Subsection (b) of section 1245 is amend-
ed by adding at the end the following new paragraph:
‘‘(9) DISPOSITIONS
TO
IMPLEMENT
FEDERAL
ENERGY REGULATORY COMMISSION OR STATE ELEC-
TRIC RESTRUCTURING POLICY.—At the election of
the taxpayer, the amount of gain which would (but
for this paragraph) be recognized under this section
on any qualified electric transmission transaction (as
defined in section 1033(k)) for which an election
under section 1033 is made shall be reduced by the
aggregate reduction in the basis of section 1245
property held by the taxpayer or, if insufficient, by
a member of an affiliated group which includes the
taxpayer at any time during the taxable year in
which such transaction occurred. The manner and
137
amount of such reduction shall be determined under
regulations prescribed by the Secretary.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to transactions occurring after the
date of the enactment of this Act.
SEC. 208. DISTRIBUTIONS OF STOCK TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE ELECTRIC RESTRUCTURING POL-
ICY.
(a) IN GENERAL.—Subparagraph (A) of section
355(e)(3) (relating to special rules relating to acquisi-
tions) is amended by inserting after clause (iv) the fol-
lowing new clause:
‘‘(v) The acquisition of stock in any
controlled corporation in a qualifying elec-
tric transmission transaction (as defined in
section 1033(k)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to distributions after the date
of the enactment of this Act.
SEC. 209. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS.
(a) REPEAL
OF LIMITATION
ON DEPOSITS INTO
FUND BASED ON COST OF SERVICE; CONTRIBUTIONS
138
AFTER FUNDING PERIOD.—Subsection (b) of section
468A is amended to read as follows:
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the Fund for any taxable year
shall not exceed the ruling amount applicable to
such taxable year.
‘‘(2) CONTRIBUTIONS
AFTER
FUNDING
PE-
RIOD.—Notwithstanding any other provision of this
section, a taxpayer may pay into the Fund in any
taxable year after the last taxable year to which the
ruling amount applies. Payments may not be made
under the preceding sentence to the extent such pay-
ments would cause the assets of the Fund to exceed
the nuclear decommissioning costs allocable to the
taxpayer’s current or former interest in the nuclear
powerplant 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.’’.
139
(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 powerplant, the taxpayer transfers
the Fund with respect to such powerplant to the
transferee of such interest and the transferee elects
to continue the application of this section to such
Fund—
‘‘(A) the transfer of such Fund shall not
cause such Fund to be disqualified from the ap-
plication of this section, and
‘‘(B) no amount shall be treated as distrib-
uted from such Fund, or be includible in gross
income, by reason of such transfer.’’.
(c) TREATMENT
OF CERTAIN DECOMMISSIONING
COSTS.—
(1) IN GENERAL.—Section 468A is amended by
redesignating subsections (f) and (g) as subsections
(g) and (h), respectively, and by inserting after sub-
section (e) the following new subsection:
‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(b), any taxpayer maintaining a Fund to which this
141
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 transferee
and not to the transferor. The preceding sen-
tence shall not apply if the transferor is an or-
ganization exempt from tax imposed by this
chapter.
‘‘(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
142
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 basis of
any Fund to which this section applies 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 powerplant
over the estimated useful life of such power-
plant, and’’.
(d) DEDUCTION FOR NUCLEAR DECOMMISSIONING
COSTS WHEN PAID.—Paragraph (2) of section 468A(c)
is amended to read as follows:
‘‘(2) DEDUCTION
OF
NUCLEAR
DECOMMIS-
SIONING COSTS.—In addition to any deduction under
subsection (a), nuclear decommissioning costs paid
or incurred by the taxpayer during any taxable year
143
shall constitute ordinary and necessary expenses in
carrying on a trade or business under section 162.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 210. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section
501(c)(12) is amended by striking ‘‘or’’ at the end
of clause (i), by striking the period at the end of
clause (ii) and inserting a comma, and by adding at
the end the following new clauses:
‘‘(iii) from any open access trans-
action (other than income received or ac-
crued directly or indirectly from a mem-
ber), or
‘‘(iv) from any nuclear decommis-
sioning transaction.’’
(2) DEFINITIONS.—Paragraph (12) of section
501(c) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(E) For purposes of subparagraph (C)—
144
‘‘(i) The term ‘open access trans-
action’ means any activity which would be
a permitted open access activity (as de-
fined in section 141A(a)(2)) if the coopera-
tive were a governmental unit.
‘‘(ii) The term ‘any nuclear decommis-
sioning 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 cooperative’s interest
in a nuclear powerplant or nuclear
powerplant unit,
‘‘(II) any distribution from such
a trust, fund, or instrument, or
‘‘(III) any earnings from such a
trust, fund, or instrument.’’
(b) INCOME
FROM
LOAD
LOSS
TRANSACTIONS
TREATED AS MEMBER INCOME.—Paragraph (12) of sec-
tion 501(c) is amended by adding after subparagraph (E)
the following new subparagraph:
‘‘(F)(i) In the case of a mutual or coopera-
tive electric company, income received or ac-
crued from a load loss transaction shall be
145
treated as an amount collected from members
for the sole purpose of meeting losses and ex-
penses.
‘‘(ii) For purposes of clause (i), the term
‘load loss transaction’ means any sale (whether
at wholesale or at retail) which would be a load
loss sale under rules similar to the rules of sec-
tion 141A(3)(C).
‘‘(iii) A company shall not fail to be treat-
ed as a mutual cooperative company for pur-
poses of this paragraph by reason of the treat-
ment under clause (i).
‘‘(iv) A rule similar to the rule of this sub-
paragraph shall apply to an organization to
which section 1381 does not apply by reason of
section 1381(a)(2)(C).’’
(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 LOAD LOSS SALES OF
MUTUAL OR COOPERATIVE ELECTRIC COMPANIES.—
In the case of a mutual or cooperative electric com-
pany described in section 501(c)(12), there shall be
146
excluded income which is treated as member income
under subparagraph (F) thereof.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 211. REPEAL OF REQUIREMENT OF CERTAIN AP-
PROVED TERMINALS TO OFFER DYED DIESEL
FUEL AND KEROSENE FOR NONTAXABLE
PURPOSES.
Section 4101 (relating to certain approved terminals
of registered persons required to offer dyed diesel fuel and
kerosene for nontaxable purposes) is amended by striking
subsection (e).
SEC. 212. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS.
(a) IN GENERAL.—Subsection (b) of section 148 (de-
fining higher yielding investments) is amended by adding
at the end the following new paragraph:
‘‘(4) EXCEPTION FOR CERTAIN PREPAYMENTS
TO ENSURE NATURAL GAS SUPPLY.—The term ‘in-
vestment property’ shall not include any prepayment
for the purpose of obtaining a supply of a natural
gas—
147
‘‘(A) at least 85 percent of which is to be
used in the State in which the issuer is located,
and
‘‘(B) which is to be used in a business of
one or more utilities each of which is owned and
operated by a State or local government, any
political subdivision or instrumentality thereof,
or any governmental unit acting for or on be-
half of such a utility.’’.
(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
subparagraph (B) and inserting ‘‘, or’’, and by adding at
the end the following new subparagraph:
‘‘(C) arises from a transaction described in
section 148(b)(4).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take apply to obligations issued after Oc-
tober 22, 1986; except that section 148(b)(4)(A) of the
Internal Revenue Code of 1986, as added by this section,
shall apply only to obligations issued after the date of the
enactment of this Act.
148
TITLE III—PRODUCTION
SEC. 301. 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. 45J. 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
‘‘(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
section—
‘‘(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-
149
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
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 2001, 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 ‘2000’ for
‘1990’).
‘‘(C) REFERENCE PRICE.—For purposes of
this paragraph, the term ‘reference price’
means, with respect to any calendar year—
150
‘‘(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—
‘‘(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.—
151
‘‘(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
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—
152
‘‘(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-
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
153
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.
‘‘(4) 
NONCOMPLIANCE
WITH
POLLUTION
LAWS.—For purposes of subsection (c)(3)(A), a
marginal well which is not in compliance with the
applicable State and Federal pollution prevention,
control, and permit requirements for any period of
time shall not be considered to be a qualified mar-
ginal well during such period.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b) is amended by striking ‘plus’ at the end of para-
graph (17), by striking the period at the end of paragraph
(18) and inserting ‘‘, plus’’, and by adding at the end the
following:
154
‘‘(19) the marginal oil and gas well production
credit determined under section 45J(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
‘‘(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’’.
155
(e) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter I
is amended by adding at the end the following:
‘‘Sec. 45J. 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, 2001.
SEC. 302. TEMPORARY SUSPENSION OF LIMITATION BASED
ON 65 PERCENT OF TAXABLE INCOME AND
EXTENSION OF SUSPENSION OF TAXABLE IN-
COME LIMIT WITH RESPECT TO MARGINAL
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, 2001, and
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
156
to temporary suspension of taxable income limit with re-
spect to marginal production) is amended by striking
‘‘2002’’ and inserting ‘‘2007’’.
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2001.
SEC. 303. DEDUCTION FOR DELAY RENTAL PAYMENTS.
(a) IN GENERAL.—Section 263 (relating to capital
expenditures) is amended by adding after subsection (i)
the following:
‘‘(j) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL
AND GAS WELLS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a), a taxpayer may elect to treat delay rental pay-
ments incurred in connection with the development
of oil or gas within the United States (as defined in
section 638) as payments which are not chargeable
to capital account. Any payments so treated shall be
allowed as a deduction in the taxable year in which
paid or incurred.
‘‘(2) DELAY RENTAL PAYMENTS.—For purposes
of paragraph (1), 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.’’.
157
(b) CONFORMING AMENDMENT.—Section 263A(c)(3)
is amended by inserting ‘‘263(j),’’ after ‘263(i),’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2001.
SEC. 304. ELECTION TO EXPENSE GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.
(a) IN GENERAL.—Section 263 (relating to capital
expenditures) is amended by adding after subsection (j)
the following:
‘‘(k) GEOLOGICAL
AND
GEOPHYSICAL
EXPENDI-
TURES FOR DOMESTIC OIL AND GAS WELLS.—Notwith-
standing subsection (a), a taxpayer may elect to treat geo-
logical and geophysical expenses incurred in connection
with the exploration for, or development of, oil or gas with-
in the United States (as defined in section 638) as ex-
penses which are not chargeable to capital account. Any
expenses so treated shall be allowed as a deduction in the
taxable year in which paid or incurred.’’.
(b) 
CONFORMING
AMENDMENT.—Section
263A(c)(3), as amended by section 603(b), is amended by
inserting ‘‘263(k),’’ after ‘‘263(j),’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2001.
159
mineral interests (as defined in section 614(d))
in oil and gas wells are taken into account, or
‘‘(B) the amount of the net operating loss
for such taxable year.
‘‘(2) 
COORDINATION
WITH
SUBSECTION
(b)(2).—For purposes of applying subsection (b)(2),
an eligible oil and gas loss for any taxable year shall
be treated in a manner similar to the manner in
which a specified liability loss is treated.
‘‘(3) ELECTION.—Any taxpayer entitled to a 5-
year carryback under subsection (b)(1)(H) from any
loss year may elect to have the carryback period
with respect to such loss year determined without re-
gard to subsection (b)(1)(H).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to net operating losses for taxable
years beginning after December 31, 2001.
SEC. 306. 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:
‘‘(h) EXTENSION FOR OTHER FACILITIES.—In the
case of a well for producing qualified fuels described in
subparagraph (A) or (B)(i) of subsection (c)(1)—
160
‘‘(1) APPLICATION
OF
CREDIT
FOR
NEW
WELLS.—
‘‘(A) WELLS COVERED.—Notwithstanding
subsection (f), this section shall apply with re-
spect 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 before January 1,
2010.
‘‘(B) 
AMOUNT
OF
CREDIT
REDUCED
AFTER 4 YEARS.—In the case of fuel sold in a
year which is more than 4 years after the date
that a well described in subparagraph (A)(i) is
placed in service, only such year’s applicable
percentage of the fuel sold during such year
shall be take into account. For purposes of this
subparagraph, the applicable percentage is 75
percent for the 5th year after the well is placed
in service, 50 percent for the 6th such year,
and 25 percent for the 7th such year.
‘‘(2) 
EXTENSION
OF
CREDIT
FOR
OLD
WELLS.—
161
‘‘(A) WELLS COVERED.—Subsection (f)(2)
shall be applied by substituting ‘2010’ for
‘2003’ with respect to wells described in sub-
section (f)(1)(A) with respect to such fuels.
‘‘(B) 
AMOUNT
OF
CREDIT
REDUCED
STARTING IN 2007.—In the case of fuel from a
well described in subsection (f)(1)(A) which is
sold after December 31, 2006, only the applica-
ble percentage (for the calendar year in which
such fuel is sold) shall be taken into account.
For purposes of this subparagraph, the applica-
ble percentage is 75 percent for 2007, 50 per-
cent for 2008, and 25 percent for 2009.
‘‘(3) RESTART OF INFLATION ADJUSTMENT FOR
EXTENSION PERIOD.—In determining the amount of
credit allowable under this section solely by reason
of this subsection, subparagraph (B) of subsection
(d)(2) shall be applied by substituting ‘2001’ for
‘1979’.’’.
(b) LANDFILL GAS.—Section 29 is amended by add-
ing after subsection (h), as added by subsection (a), the
following new subsection:
‘‘(i) MODIFICATION
OF CREDIT
FOR FACILITIES
PRODUCING QUALIFIED FUEL FROM LANDFILL GAS.—
162
‘‘(1) IN GENERAL.—Notwithstanding subsection
(g), in the case of a facility for producing qualified
fuel from landfill gas which was placed in service be-
fore January 1, 2007, this section shall apply to fuel
produced at such facility during the 5-year period
beginning on the later of—
‘‘(A) the date such facility was placed in
service, or
‘‘(B) the date of the enactment of this sub-
section.
‘‘(2) SPECIAL RULES.—
‘‘(A) REDUCED CREDIT.—In the case of a
facility covered by paragraph (1), subsection
(a)(1) 
shall 
be 
applied 
by 
substituting
‘$øll¿’ for ‘$3’.
‘‘(B) ADDITIONAL REDUCTION OF CREDIT
FOR CERTAIN LANDFILL GAS FACILITIES.—In
the case of a facility covered by paragraph (1)
which is subject to the 1996 New Source Per-
formance Standards/Emissions Guidelines of
the Environmental Protection Agency, sub-
section (a)(1) shall be applied by substituting
‘$2’ for ‘$3’. In the case of a facility to which
both this subparagraph and subparagraph (A)
apply, the substitution under this subparagraph
163
shall apply in lieu of the substitution under
subparagraph (A).’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to fuel sold after the date of the
enactment of this Act.
SEC. 307. CREDIT FOR INVESTMENT IN QUALIFYING AD-
VANCED CLEAN COAL TECHNOLOGY.
(a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN
COAL TECHNOLOGY FACILITY CREDIT.—Section 46 (re-
lating to amount of credit) is amended by striking ‘‘and’’
at the end of paragraph (3), by striking the period at the
end of paragraph (4) and inserting ‘‘, and’’, and by adding
at the end the following:
‘‘(5) the qualifying advanced clean coal tech-
nology facility credit.’’.
(b) AMOUNT
OF QUALIFYING ADVANCED CLEAN
COAL TECHNOLOGY FACILITY CREDIT.—Subpart E of
part IV of subchapter A of chapter 1 (relating to rules
for computing investment credit) is amended by inserting
after section 48 the following:
‘‘SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY FACILITY CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 46, the
qualifying advanced clean coal technology facility credit
for any taxable year is an amount equal to 10 percent
164
of the qualified investment in a qualifying advanced clean
coal technology facility for such taxable year.
‘‘(b) QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY FACILITY.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the term ‘qualifying advanced clean coal tech-
nology facility’ means a facility of the taxpayer
which—
‘‘(A)(i)(I) original use of which commences
with the taxpayer, or
‘‘(II) is a retrofitted or repowered conven-
tional technology facility, the retrofitting or
repowering of which is completed by the tax-
payer (but only with respect to that portion of
the basis which is properly attributable to such
retrofitting or repowering), or
‘‘(ii) is acquired through purchase (as de-
fined by section 179(d)(2)),
‘‘(B) is depreciable under section 167,
‘‘(C) has a useful life of not less than 4
years,
‘‘(D) is located in the United States, and
‘‘(E) uses qualifying advanced clean coal
technology.
165
‘‘(2) SPECIAL RULE FOR SALE-LEASEBACKS.—
For purposes of subparagraph (A) of paragraph (1),
in the case of a facility which—
‘‘(A) is originally placed in service by a
person, and
‘‘(B) is sold and leased back by such per-
son, or is leased to such person, within 3
months after the date such facility was origi-
nally placed in service, for a period of not less
than 12 years,
such facility shall be treated as originally placed in
service not earlier than the date on which such prop-
erty is used under the leaseback (or lease) referred
to in subparagraph (B). The preceding sentence
shall not apply to any property if the lessee and les-
sor of such property make an election under this
sentence. Such an election, once made, may be re-
voked only with the consent of the Secretary.
‘‘(c) QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualifying ad-
vanced clean coal technology’ means, with respect to
clean coal technology—
‘‘(A) which has—
166
‘‘(i) multiple applications, with a com-
bined capacity of not more than 5,000
megawatts (4,000 megawatts before 2009),
of advanced pulverized coal or atmospheric
fluidized bed combustion technology—
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2012, and
‘‘(III) having a design net heat
rate of not more than 9,500 Btu per
kilowatt hour when the design coal
has a heat content of more than 9,000
Btu per pound, or a design net heat
rate of not more than 9,900 Btu per
kilowatt hour when the design coal
has a heat content of 9,000 Btu per
pound or less,
‘‘(ii) multiple applications, with a
combined capacity of not more than 1,000
megawatts (500 megawatts before 2009
and 750 megawatts before 2013), of pres-
surized 
fluidized 
bed 
combustion
technology—
167
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2016, and
‘‘(III) having a design net heat
rate of not more than 8,400 Btu per
kilowatt hour when the design coal
has a heat content of more than 9,000
Btu per pound, or a design net heat
rate of not more than 9,900 Btu’s per
kilowatt hour when the design coal
has a heat content of 9,000 Btu per
pound or less, and
‘‘(iii) multiple applications, with a
combined capacity of not more than 2,000
megawatts (1,000 megawatts before 2009
and 1,500 megawatts before 2013), of in-
tegrated gasification combined cycle tech-
nology, with or without fuel or chemical co-
production—
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2016,
168
‘‘(III) having a design net heat
rate of not more than 8,550 Btu per
kilowatt hour when the design coal
has a heat content of more than 9,000
Btu per pound, or a design net heat
rate of not more than 9,900 Btu per
kilowatt hour when the design coal
has a heat content of 9,000 Btu per
pound or less, and
‘‘(IV) having a net thermal effi-
ciency on any fuel or chemical co-pro-
duction of not less than 39 percent
(higher heating value), or
‘‘(iv) multiple applications, with a
combined capacity of not more than 2,000
megawatts (1,000 megawatts before 2009
and 1,500 megawatts before 2013) of tech-
nology for the production of electricity—
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2016, and
‘‘(III) having a carbon emission
rate which is not more than 85 per-
cent of conventional technology, and
176
‘‘(A) to limit which facility qualifies as
‘qualified advanced clean coal technology’ in
subsection (c) to particular facilities, a portion
of particular facilities, or a portion of the pro-
duction from particular facilities, so that when
all such facilities (or portions thereof) are
placed in service over the ten year period in sec-
tion (k), the combination of facilities approved
for tax credits (and/or portions of facilities ap-
proved for tax credits) will not exceed a com-
bined capacity of 10,000 megawatts;
‘‘(B) to provide a certification process in
consultation with the Secretary of Energy
under subsection (g) that will approve and allo-
cate the 10,000 megawatts of available tax
credits authority—
‘‘(i) to encourage that facilities with
the highest thermal efficiencies and envi-
ronmental performance be placed in service
as soon as possible;
‘‘(ii) to allocate credits to taxpayers
that have a definite and credible plan for
placing into commercial operation a quali-
fying advanced clean coal technology facil-
ity, including—