919 
quired by such company pursuant to such sec-
tion constitutes property which is used, or to be 
used, for— 
‘‘(i) generating, transmitting, distrib-
uting, or selling electric energy, or 
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.’’. 
(b) TREATMENT
OF INCOME FROM LOAD LOSS 
TRANSACTIONS, ETC.—Paragraph (12) of section 501(c), 
as amended by subsection (a)(2), is amended by adding 
after subparagraph (G) the following new subparagraph: 
‘‘(H)(i) In the case of a mutual or coopera-
tive electric company described in this para-
graph or an organization described in section 
1381(a)(2)(C), income received or accrued from 
a load loss transaction shall be treated as an 
amount collected from members for the sole 
purpose of meeting losses and expenses. 
‘‘(ii) For purposes of clause (i), the term 
‘load loss transaction’ means any wholesale or 
retail sale of electric energy (other than to 
members) to the extent that the aggregate sales 
during the recovery period do not exceed the 
load loss mitigation sales limit for such period.
920 
‘‘(iii) For purposes of clause (ii), the load 
loss mitigation sales limit for the recovery pe-
riod is the sum of the annual load losses for 
each year of such period. 
‘‘(iv) For purposes of clause (iii), a mutual 
or cooperative electric company’s annual load 
loss for each year of the recovery period is the 
amount (if any) by which— 
‘‘(I) the megawatt hours of electric 
energy sold during such year to members 
of such electric company are less than 
‘‘(II) the megawatt hours of electric 
energy sold during the base year to such 
members. 
‘‘(v) For purposes of clause (iv)(II), the 
term ‘base year’ means— 
‘‘(I) the calendar year preceding the 
start-up year, or 
‘‘(II) at the election of the mutual or 
cooperative electric company, the second or 
third calendar years preceding the start-up 
year. 
‘‘(vi) For purposes of this subparagraph, 
the recovery period is the 7-year period begin-
ning with the start-up year.
921 
‘‘(vii) For purposes of this subparagraph, 
the start-up year is the first year that the mu-
tual or cooperative electric company offers non-
discriminatory open access or the calendar year 
which includes the date of the enactment of this 
subparagraph, if later, at the election of such 
company. 
‘‘(viii) A company shall not fail to be treat-
ed as a mutual or cooperative electric company 
for purposes of this paragraph or as a corpora-
tion operating on a cooperative basis for pur-
poses of section 1381(a)(2)(C) by reason of the 
treatment under clause (i). 
‘‘(ix) For purposes of subparagraph (A), in 
the case of a mutual or cooperative electric 
company, income received, or accrued, indirectly 
from a member shall be treated as an amount 
collected from members for the sole purpose of 
meeting losses and expenses.’’. 
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(18) TREATMENT OF MUTUAL OR COOPERA-
TIVE ELECTRIC COMPANIES.—In the case of a mu-
922 
tual or cooperative electric company described in sec-
tion 501(c)(12), there shall be excluded income 
which is treated as member income under subpara-
graph (H) thereof.’’. 
(d) CROSS REFERENCE.—Section 1381 is amended 
by adding at the end the following new subsection: 
‘‘(c) CROSS REFERENCE.—For treatment of income 
from load loss transactions of organizations described in 
subsection (a)(2)(C), see section 501(c)(12)(H).’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 1330. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS. 
(a) IN GENERAL.—Subsection (b) of section 148 (re-
lating to higher yielding investments) is amended by add-
ing at the end the following new paragraph: 
‘‘(4) SAFE
HARBOR
FOR
PREPAID
NATURAL 
GAS.— 
‘‘(A) IN GENERAL.—The term ‘investment- 
type property’ does not include a prepayment 
under a qualified natural gas supply contract. 
‘‘(B) QUALIFIED
NATURAL
GAS
SUPPLY 
CONTRACT.—For purposes of this paragraph, 
the term ‘qualified natural gas supply contract’
923 
means any contract to acquire natural gas for 
resale by a utility owned by a governmental 
unit if the amount of gas permitted to be ac-
quired under the contract by the utility during 
any year does not exceed the sum of— 
‘‘(i) the annual average amount dur-
ing the testing period of natural gas pur-
chased (other than for resale) by cus-
tomers of such utility who are located 
within the service area of such utility, and 
‘‘(ii) the amount of natural gas to be 
used to transport the prepaid natural gas 
to the utility during such year. 
‘‘(C) NATURAL GAS USED TO GENERATE 
ELECTRICITY.—Natural gas used to generate 
electricity shall be taken into account in deter-
mining 
the 
average 
under 
subparagraph 
(B)(i)— 
‘‘(i) only if the electricity is generated 
by a utility owned by a governmental unit, 
and 
‘‘(ii) only to the extent that the elec-
tricity is sold (other than for resale) to 
customers of such utility who are located 
within the service area of such utility.
924 
‘‘(D) ADJUSTMENTS
FOR
CHANGES
IN 
CUSTOMER BASE.— 
‘‘(i) NEW
BUSINESS
CUSTOMERS.— 
If— 
‘‘(I) after the close of the testing 
period and before the date of issuance 
of the issue, the utility owned by a 
governmental unit enters into a con-
tract to supply natural gas (other 
than for resale) for a business use at 
a property within the service area of 
such utility, and 
‘‘(II) the utility did not supply 
natural gas to such property during 
the testing period or the ratable 
amount of natural gas to be supplied 
under the contract is significantly 
greater than the ratable amount of 
gas supplied to such property during 
the testing period, 
then a contract shall not fail to be treated 
as a qualified natural gas supply contract 
by reason of supplying the additional nat-
ural gas under the contract referred to in 
subclause (I).
925 
‘‘(ii) LOST CUSTOMERS.—The average 
under subparagraph (B)(i) shall not exceed 
the annual amount of natural gas reason-
ably expected to be purchased (other than 
for resale) by persons who are located 
within the service area of such utility and 
who, as of the date of issuance of the 
issue, are customers of such utility. 
‘‘(E) RULING REQUESTS.—The Secretary 
may increase the average under subparagraph 
(B)(i) for any period if the utility owned by the 
governmental unit establishes to the satisfaction 
of the Secretary that, based on objective evi-
dence of growth in natural gas consumption or 
population, such average would otherwise be in-
sufficient for such period. 
‘‘(F) ADJUSTMENT
FOR
NATURAL
GAS 
OTHERWISE ON HAND.— 
‘‘(i) IN GENERAL.—The amount oth-
erwise permitted to be acquired under the 
contract for any period shall be reduced 
by— 
‘‘(I) the applicable share of nat-
ural gas held by the utility on the 
date of issuance of the issue, and
926 
‘‘(II) the natural gas (not taken 
into account under subclause (I)) 
which the utility has a right to ac-
quire during such period (determined 
as of the date of issuance of the 
issue). 
‘‘(ii) APPLICABLE SHARE.—For pur-
poses of the clause (i), the term ‘applicable 
share’ means, with respect to any period, 
the natural gas allocable to such period if 
the gas were allocated ratably over the pe-
riod to which the prepayment relates. 
‘‘(G) INTENTIONAL ACTS.—Subparagraph 
(A) shall cease to apply to any issue if the util-
ity owned by the governmental unit engages in 
any intentional act to render the volume of nat-
ural gas acquired by such prepayment to be in 
excess of the sum of— 
‘‘(i) the amount of natural gas needed 
(other than for resale) by customers of 
such utility who are located within the 
service area of such utility, and 
‘‘(ii) the amount of natural gas used 
to transport such natural gas to the utility.
927 
‘‘(H) TESTING PERIOD.—For purposes of 
this paragraph, the term ‘testing period’ means, 
with respect to an issue, the most recent 5 cal-
endar years ending before the date of issuance 
of the issue. 
‘‘(I) SERVICE AREA.—For purposes of this 
paragraph, the service area of a utility owned 
by a governmental unit shall be comprised of— 
‘‘(i) any area throughout which such 
utility provided at all times during the 
testing period— 
‘‘(I) in the case of a natural gas 
utility, natural gas transmission or 
distribution services, and 
‘‘(II) in the case of an electric 
utility, electricity distribution services, 
‘‘(ii) any area within a county contig-
uous to the area described in clause (i) in 
which retail customers of such utility are 
located if such area is not also served by 
another utility providing natural gas or 
electricity services, as the case may be, and 
‘‘(iii) any area recognized as the serv-
ice area of such utility under State or Fed-
eral law.’’.
928 
(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) is a qualified natural gas supply con-
tract (as defined in section 148(b)(4)).’’. 
(c) EXCEPTION FOR QUALIFIED ELECTRIC AND NAT-
URAL
GAS
SUPPLY
CONTRACTS.—Section 141(d) is 
amended by adding at the end the following new para-
graph: 
‘‘(7) EXCEPTION
FOR
QUALIFIED
ELECTRIC 
AND NATURAL GAS SUPPLY CONTRACTS.—The term 
‘nongovernmental output property’ shall not include 
any contract for the prepayment of electricity or nat-
ural gas which is not investment property under sec-
tion 148(b)(2).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to obligations issued after the date 
of the enactment of this Act.
929 
Subtitle C—Production 
PART I—OIL AND GAS PROVISIONS 
SEC. 1341. 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), as 
amended by this Act, 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 sec-
tion— 
‘‘(1) IN GENERAL.—The credit amount is— 
‘‘(A) $3 per barrel of qualified crude oil 
production, and 
‘‘(B) 50 cents per 1,000 cubic feet of 
qualified natural gas production. 
‘‘(2) REDUCTION AS OIL AND GAS PRICES IN-
CREASE.—
930 
‘‘(A) IN GENERAL.—The $3 and 50 cents 
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which 
bears the same ratio to such amount (deter-
mined without regard to this paragraph) as— 
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for 
qualified natural gas production), bears to 
‘‘(ii) $3 ($0.33 for qualified natural 
gas production). 
The applicable reference price for a taxable 
year is the reference price of the calendar year 
preceding the calendar year in which the tax-
able year begins. 
‘‘(B) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning in a calendar 
year after 2003, each of the dollar amounts 
contained in subparagraph (A) shall be in-
creased to an amount equal to such dollar 
amount multiplied by the inflation adjustment 
factor for such calendar year (determined under 
section 43(b)(3)(B) by substituting ‘2002’ for 
‘1990’).
931 
‘‘(C) REFERENCE PRICE.—For purposes of 
this paragraph, the term ‘reference price’ 
means, with respect to any calendar year— 
‘‘(i) in the case of qualified crude oil 
production, the reference price determined 
under section 45K(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 as 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 bar-
932 
rel-of-oil equivalents (as defined in section 
45K(d)(5)). 
‘‘(B) PROPORTIONATE REDUCTIONS.— 
‘‘(i) SHORT TAXABLE YEARS.—In the 
case of a short taxable year, the limitations 
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the 
number of days in such taxable year bears 
to 365. 
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is 
not capable of production during each day 
of a taxable year, the limitations under 
this paragraph applicable to the well shall 
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
933 
‘‘(ii) which, during the taxable year— 
‘‘(I) has average daily production 
of not more than 25 barrel-of-oil 
equivalents (as so defined), 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). 
‘‘(d) OTHER RULES.— 
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX-
PAYER.—In the case of a qualified marginal well in 
which there is more than one owner of operating in-
terests in the well and the crude oil or natural gas 
production exceeds the limitation under subsection 
(c)(2), qualifying crude oil production or qualifying 
natural gas production attributable to the taxpayer 
shall be determined on the basis of the ratio which 
taxpayer’s revenue interest in the production bears 
to the aggregate of the revenue interests of all oper-
ating interest owners in the production. 
‘‘(2) OPERATING
INTEREST
REQUIRED.—Any 
credit under this section may be claimed only on
934 
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 45K for the taxable 
year, no credit shall be allowable under this section 
unless the taxpayer elects not to claim the credit 
under section 45K with respect to the well.’’. 
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b), as amended by this Act, is amended by striking 
‘‘plus’’ at the end of paragraph (18), by striking the period 
at the end of paragraph (19) and inserting ‘‘, plus’’, and 
by adding at the end the following: 
‘‘(20) 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) 5-YEAR
CARRYBACK
FOR
MARGINAL
OIL 
AND
GAS
WELL
PRODUCTION
CREDIT.—Notwith-
standing subsection (d), in the case of the marginal 
oil and gas well production credit—
935 
‘‘(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 ‘5 taxable years’ for ‘1 taxable 
years’ in subparagraph (A) thereof, and 
‘‘(C) paragraph (2) shall be applied— 
‘‘(i) by substituting ‘25 taxable years’ 
for ‘21 taxable years’ in subparagraph (A) 
thereof, and 
‘‘(ii) by substituting ‘24 taxable years’ 
for ‘20 taxable years’ in subparagraph (B) 
thereof.’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1, 
as amended by this Act, is amended by adding at the end 
the following: 
‘‘Sec. 45J. Credit for producing oil and gas from marginal wells.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to production in taxable years be-
ginning after December 31, 2003.
936 
SEC. 
1342. 
TEMPORARY 
SUSPENSION 
OF 
LIMITATION 
BASED ON 65 PERCENT OF TAXABLE INCOME 
AND EXTENSION OF SUSPENSION OF TAX-
ABLE INCOME LIMIT WITH RESPECT TO MAR-
GINAL PRODUCTION. 
(a) LIMITATION BASED ON 65 PERCENT OF TAX-
ABLE INCOME.—Subsection (d) of section 613A (relating 
to limitation on percentage depletion in case of oil and 
gas wells) is amended by adding at the end the following 
new paragraph: 
‘‘(6) TEMPORARY SUSPENSION OF TAXABLE IN-
COME LIMIT.—Paragraph (1) shall not apply to tax-
able years beginning after December 31, 2003, and 
before January 1, 2005, including with respect to 
amounts carried under the second sentence of para-
graph (1) to such taxable years.’’. 
(b) EXTENSION OF SUSPENSION OF TAXABLE IN-
COME LIMIT WITH RESPECT
TO MARGINAL PRODUC-
TION.—Subparagraph (H) of section 613A(c)(6) (relating 
to temporary suspension of taxable income limit with re-
spect to marginal production) is amended by striking 
‘‘2004’’ and inserting ‘‘2005’’. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003.
937 
SEC. 1343. AMORTIZATION OF DELAY RENTAL PAYMENTS. 
(a) IN GENERAL.—Section 167 (relating to deprecia-
tion) is amended by redesignating subsection (h) as sub-
section (i) and by inserting after subsection (g) the fol-
lowing new subsection: 
‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS 
FOR DOMESTIC OIL AND GAS WELLS.— 
‘‘(1) IN GENERAL.—Any delay rental payment 
paid or incurred in connection with the development 
of oil or gas wells within the United States (as de-
fined in section 638) shall be allowed as a deduction 
ratably over the 24-month period beginning on the 
date that such payment was paid or incurred. 
‘‘(2) HALF-YEAR CONVENTION.—For purposes 
of paragraph (1), any payment paid or incurred dur-
ing the taxable year shall be treated as paid or in-
curred on the mid-point of such taxable year. 
‘‘(3) EXCLUSIVE METHOD.—Except as provided 
in this subsection, no depreciation or amortization 
deduction shall be allowed with respect to such pay-
ments. 
‘‘(4) TREATMENT
UPON
ABANDONMENT.—If 
any property to which a delay rental payment relates 
is retired or abandoned during the 24-month period 
described in paragraph (1), no deduction shall be al-
lowed on account of such retirement or abandon-
938 
ment and the amortization deduction under this sub-
section shall continue with respect to such payment. 
‘‘(5) DELAY RENTAL PAYMENTS.—For purposes 
of this subsection, the term ‘delay rental payment’ 
means an amount paid for the privilege of deferring 
development of an oil or gas well under an oil or gas 
lease.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred in tax-
able years beginning after the date of the enactment of 
this Act. 
SEC. 1344. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES. 
(a) IN GENERAL.—Section 167 (relating to deprecia-
tion), as amended by this Act, is amended by redesig-
nating subsection (i) as subsection (j) and by inserting 
after subsection (h) the following new subsection: 
‘‘(i) AMORTIZATION
OF GEOLOGICAL
AND GEO-
PHYSICAL EXPENDITURES.— 
‘‘(1) IN
GENERAL.—Any geological and geo-
physical expenses paid or incurred in connection 
with the exploration for, or development of, oil or 
gas within the United States (as defined in section 
638) shall be allowed as a deduction ratably over the
951 
(2) DETERMINATIONS
UNDER
NATURAL
GAS 
POLICY ACT OF 1978.—The amendments made by 
subsection (c) shall apply as if included in the provi-
sions repealing section 503 of the Natural Gas Pol-
icy Act of 1978. 
PART II—ALTERNATIVE MINIMUM TAX 
PROVISIONS 
SEC. 1346. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM 
TAXES. 
(a) IN GENERAL.— 
(1) SECTION 25C.—Section 25C(b), as added by 
section 1301 of this Act, is amended by adding at 
the end the following new paragraph: 
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF 
TAX.—The credit allowed under subsection (a) for 
the taxable year shall not exceed the excess of— 
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under this subpart (other than this section and 
section 25D) and section 27 for the taxable 
year.’’.