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taxpayer for qualified energy efficiency improvements in-
stalled during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—The credit allowed by
this section with respect to a dwelling shall not exceed
$300.
‘‘(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 taxable years,
the amount of the credit otherwise allowable for the
taxable year with respect to that dwelling shall not
exceed the amount of $300 reduced by the sum of the
credits allowed under subsection (a) to the taxpayer
with respect to the dwelling for all prior taxable
years.
‘‘(c) CARRYFORWARD
OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the limitation
imposed by section 26(a) for such taxable year reduced by
the sum of the credits allowable under this subpart (other
than this section) for any 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.
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‘‘(d) QUALIFIED
ENERGY
EFFICIENCY
IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified
energy efficiency improvements’ means any energy efficient
building envelope component which is certified to meet or
exceed the prescriptive criteria for such component in the
2000 International Energy Conservation Code, any energy
efficient building envelope component which is described in
subsection (f)(4)(B) and is certified by the Energy Star pro-
gram managed jointly by the Environmental Protection
Agency and the Department of Energy, or any combination
of energy efficiency measures which are certified as achiev-
ing at least a 30 percent reduction in heating and cooling
energy usage for the dwelling (as measured in terms of en-
ergy cost to the taxpayer), if—
‘‘(1) such component or combination of measures
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 mean-
ing of section 121),
‘‘(2) the original use of such component or com-
bination of measures commences with the taxpayer,
and
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‘‘(3) such component or combination of measures
reasonably can be expected to remain in use for at
least 5 years.
‘‘(e) CERTIFICATION.—
‘‘(1) METHODS OF CERTIFICATION.—
‘‘(A) 
COMPONENT-BASED
METHOD.—The
certification described in subsection (d) for any
component described in such subsection shall be
determined on the basis of applicable energy effi-
ciency ratings (including product labeling re-
quirements) for affected building envelope compo-
nents.
‘‘(B) PERFORMANCE-BASED METHOD.—
‘‘(i) IN
GENERAL.—The certification
described in subsection (d) for any combina-
tion of measures described in such sub-
section shall be—
‘‘(I) determined by comparing the
projected heating and cooling energy
usage for the dwelling to such usage for
such dwelling in its original condition,
and
‘‘(II) accompanied by a written
analysis documenting the proper ap-
plication of a permissible energy per-
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formance calculation method to the
specific circumstances of such dwelling.
‘‘(ii) 
COMPUTER
SOFTWARE.—Com-
puter software shall be used in support of a
performance-based 
method 
certification
under clause (i). Such software shall meet
procedures and methods for calculating en-
ergy and cost savings in regulations pro-
mulgated by the Secretary of Energy. Such
regulations on the specifications for software
and verification protocols shall be based on
the 2001 California Residential Alternative
Calculation Method Approval Manual.
‘‘(2) PROVIDER.—A certification described in
subsection (d) shall be provided by—
‘‘(A) in the case of the method described in
paragraph (1)(A), by a third party, such as a
local building regulatory authority, a utility, a
manufactured home production inspection pri-
mary inspection agency (IPIA), or a home en-
ergy rating organization, or
‘‘(B) in the case of the method described in
paragraph (1)(B), an individual recognized by
an organization designated by the Secretary for
such purposes.
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‘‘(3) FORM.—A certification described in sub-
section (d) shall be made in writing on forms which
specify in readily inspectable fashion the energy effi-
cient components and other measures and their re-
spective efficiency ratings, and which include a per-
manent label affixed to the electrical distribution
panel of the dwelling.
‘‘(4) REGULATIONS.—
‘‘(A) IN GENERAL.—In prescribing regula-
tions under this subsection for certification meth-
ods described in paragraph (1)(B), the Secretary,
after examining the requirements for energy con-
sultants and home energy ratings providers spec-
ified by the Mortgage Industry National Accredi-
tation Procedures for Home Energy Rating Sys-
tems, shall prescribe procedures for calculating
annual energy usage and cost reductions for
heating and cooling and for the reporting of the
results. Such regulations shall—
‘‘(i) provide that any calculation pro-
cedures be fuel neutral such that the same
energy efficiency measures allow a dwelling
to be eligible for the credit under this sec-
tion regardless of whether such dwelling uses
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individuals with respect to such dwelling unit
shall be determined by treating all of such indi-
viduals as 1 taxpayer whose taxable year is such
calendar year.
‘‘(B) There shall be allowable, with respect
to such expenditures to each of such individuals,
a credit under subsection (a) for the taxable year
in which such calendar year ends in an amount
which bears the same ratio to the amount deter-
mined under subparagraph (A) as the amount of
such expenditures made by such individual dur-
ing such calendar year bears to the aggregate of
such expenditures made by all of such individ-
uals 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 de-
fined in such section), such individual shall be treated
as having paid his tenant-stockholder’s proportionate
share (as defined in section 216(b)(3)) of the cost of
qualified energy efficiency improvements made by
such corporation.
‘‘(3) CONDOMINIUMS.—
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‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which the individual owns, such indi-
vidual shall be treated as having paid the indi-
vidual’s proportionate share of the cost of quali-
fied energy efficiency improvements made by
such association.
‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIA-
TION.—For purposes of this paragraph, the term
‘condominium management association’ means
an organization which meets the requirements of
paragraph (1) of section 528(c) (other than sub-
paragraph (E) thereof) with respect to a condo-
minium project substantially all of the units of
which are used as residences.
‘‘(4) BUILDING
ENVELOPE
COMPONENT.—The
term ‘building envelope component’ means—
‘‘(A) insulation material or system which is
specifically and primarily designed to reduce the
heat loss or gain or a dwelling when installed in
or on such dwelling,
‘‘(B) exterior windows (including skylights),
and
‘‘(C) exterior doors.
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‘‘(5) 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 subsection)
result from such expenditure shall be reduced by the amount
of the credit so allowed.
‘‘(h) APPLICATION OF SECTION.—Subsection (a) shall
apply to qualified energy efficiency improvements installed
during the period beginning on the date of the enactment
of this section and ending on December 31, 2006.’’.
(b) CREDIT ALLOWED AGAINST REGULAR TAX AND
ALTERNATIVE MINIMUM TAX.—
(1) IN GENERAL.—Section 25D(b), as added by
subsection (a), 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 tax-
able year shall not exceed the excess of—
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‘‘(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
‘‘(B) the sum of the credits allowable under
this subpart (other than this section) and section
27 for the taxable year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 25D(c), as added by subsection
(a), is amended by striking ‘‘section 26(a) for
such taxable year reduced by the sum of the cred-
its allowable under this subpart (other than this
section)’’ and inserting ‘‘subsection (b)(3)’’.
(B) Section 23(b)(4)(B), as amended by this
Act, is amended by striking ‘‘section 25C’’ and
inserting ‘‘sections 25C and 25D’’.
(C) Section 24(b)(3)(B), as amended by this
Act, is amended by striking ‘‘and 25C’’ and in-
serting ‘‘25C, and 25D’’.
(D) Section 25(e)(1)(C), as amended by this
Act, is amended by inserting ‘‘25D,’’ after
‘‘25C,’’.
(E) Section 25B(g)(2), as amended by this
Act, is amended by striking ‘‘23 and 25C’’ and
inserting ‘‘23, 25C, and 25D’’.
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(F) Section 26(a)(1), as amended by this
Act, is amended by striking ‘‘and 25C’’ and in-
serting ‘‘25C, and 25D’’.
(G) Section 904(h), as amended by this Act,
is amended by striking ‘‘and 25C’’ and inserting
‘‘25C, and 25D’’.
(H) Section 1400C(d), as amended by this
Act, is amended by striking ‘‘and 25C’’ and in-
serting ‘‘25C, and 25D’’.
(c) ADDITIONAL CONFORMING AMENDMENTS.—
(1) Section 23(c), as in effect for taxable years
beginning before January 1, 2004, and as amended
by this Act, is amended by inserting ‘‘, 25D,’’ after
‘‘sections 25C’’.
(2) Section 25(e)(1)(C), as in effect for taxable
years beginning before January 1, 2004, and as
amended by this Act, is amended by inserting ‘‘25D,’’
after ‘‘25C,’’.
(3) Subsection (a) of section 1016, as amended
by this Act, is amended by striking ‘‘and’’ at the end
of paragraph (32), by striking the period at the end
of paragraph (33) and inserting ‘‘; and’’, and by add-
ing at the end the following new paragraph:
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‘‘(34) to the extent provided in section 25D(f), in
the case of amounts with respect to which a credit has
been allowed under section 25D.’’.
(4) Section 1400C(d), as in effect for taxable
years beginning before January 1, 2004, and as
amended by this Act, is amended by striking ‘‘section
25C’’ and inserting ‘‘sections 25C and 25D’’.
(5) The table of sections for subpart A of part IV
of subchapter A of chapter 1, as amended by this Act,
is amended by inserting after the item relating to sec-
tion 25C the following new item:
‘‘Sec. 25D. Energy efficiency improvements to existing homes.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section shall
apply to expenditures after December 31, 2002, in
taxable years ending after such date.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply to taxable years beginning
after December 31, 2003.
SEC. 2110. ALLOWANCE OF DEDUCTION FOR QUALIFIED
NEW OR RETROFITTED WATER SUBMETERING
DEVICES.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals and cor-
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porations), as amended by this Act, is amended by inserting
after section 179D the following new section:
‘‘SEC. 179E. DEDUCTION FOR QUALIFIED NEW OR RETRO-
FITTED WATER SUBMETERING DEVICES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a
taxpayer who is an eligible resupplier, there shall be allowed
as a deduction an amount equal to the cost of each qualified
water submetering device placed in service during the tax-
able year.
‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed
by this section with respect to each qualified water sub-
metering device shall not exceed $30.
‘‘(c) ELIGIBLE RESUPPLIER.—For purposes of this
section, the term ‘eligible resupplier’ means any taxpayer
who purchases and installs qualified water submetering de-
vices in every unit in any multi-unit property.
‘‘(d) QUALIFIED WATER SUBMETERING DEVICE.—The
term ‘qualified water submetering device’ means any tan-
gible property to which section 168 applies if such property
is a submetering device (including ancillary equipment)—
‘‘(1) which is purchased and installed by the tax-
payer to enable consumers to manage their purchase
or use of water in response to water price and usage
signals, and
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‘‘(2) which permits reading of water price and
usage signals on at least a daily basis.
‘‘(e) PROPERTY USED OUTSIDE THE UNITED STATES
NOT QUALIFIED.—No deduction shall be allowed under sub-
section (a) with respect to property which is used predomi-
nantly outside the United States or with respect to the por-
tion of the cost of any property taken into account under
section 179.
‘‘(f) 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 property which
is allowed by subsection (a).
‘‘(2) ORDINARY INCOME RECAPTURE.—For pur-
poses of section 1245, the amount of the deduction al-
lowable under subsection (a) with respect to any
property that is of a character subject to the allow-
ance for depreciation shall be treated as a deduction
allowed for depreciation under section 167.
‘‘(g) TERMINATION.—This section shall not apply to
any property placed in service after December 31, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1), as amended by this Act, is
amended by striking ‘‘or’’ at the end of subparagraph
(J), by striking the period at the end of subparagraph
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(K) and inserting ‘‘, or’’, and by inserting after sub-
paragraph (K) the following new subparagraph:
‘‘(L) expenditures for which a deduction is
allowed under section 179E.’’.
(2) Section 312(k)(3)(B), as amended by this
Act, is amended by striking ‘‘or 179D’’ each place it
appears in the heading and text and inserting ‘‘,
179D, or 179E’’.
(3) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(34), by striking the period at the end of paragraph
(35) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(36) 
to 
the 
extent 
provided 
in 
section
179E(f)(1).’’.
(4) Section 1245(a), as amended by this Act, is
amended by inserting ‘‘179E,’’ after ‘‘179D,’’ 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, as amended by this
Act, is amended by inserting after the item relating
to section 179D the following new item:
‘‘Sec. 179E. Deduction for qualified new or retrofitted water sub-
metering devices.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to qualified water submetering devices
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placed in service after the date of the enactment of this Act,
in taxable years ending after such date.
SEC. 2111. THREE-YEAR APPLICABLE RECOVERY PERIOD
FOR DEPRECIATION OF QUALIFIED WATER
SUBMETERING DEVICES.
(a) IN
GENERAL.—Subparagraph (A) of section
168(e)(3) (relating to classification of property) is amended
by striking ‘‘and’’ at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ‘‘, and’’, and
by adding at the end the following new clause:
‘‘(v) any qualified water submetering
device.’’.
(b) DEFINITION OF QUALIFIED WATER SUBMETERING
DEVICE.—Section 168(i) (relating to definitions and spe-
cial rules), as amended by this Act, is amended by inserting
at the end the following new paragraph:
‘‘(16) QUALIFIED
WATER
SUBMETERING
DE-
VICE.—The term ‘qualified water submetering device’
means any qualified water submetering device (as de-
fined in section 179E(d)) which is placed in service
before January 1, 2008, by a taxpayer who is an eli-
gible resupplier (as defined in section 179E(c)).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
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date of the enactment of this Act, in taxable years ending
after such date.
TITLE XXII—CLEAN COAL
INCENTIVES
Subtitle A—Credit for Emission Re-
ductions and Efficiency Improve-
ments in Existing Coal-Based
Electricity Generation Facilities
SEC. 2201. CREDIT FOR PRODUCTION FROM A QUALIFYING
CLEAN COAL TECHNOLOGY UNIT.
(a) CREDIT FOR PRODUCTION FROM A QUALIFYING
CLEAN COAL TECHNOLOGY UNIT.—Subpart D of part IV
of subchapter A of chapter 1 (relating to business related
credits), as amended by this Act, is amended by adding at
the end the following new section:
‘‘SEC. 45I. CREDIT FOR PRODUCTION FROM A QUALIFYING
CLEAN COAL TECHNOLOGY UNIT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
qualifying clean coal technology production credit of any
taxpayer for any taxable year is equal to the product of—
‘‘(1) the applicable amount of clean coal tech-
nology production credit, multiplied by
‘‘(2) the applicable percentage of the kilowatt
hours of electricity produced by the taxpayer during
such taxable year at a qualifying clean coal tech-
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nology unit, but only if such production occurs dur-
ing the 10-year period beginning on the date the unit
was returned to service after becoming a qualifying
clean coal technology unit.
‘‘(b) APPLICABLE AMOUNT.—
‘‘(1) IN GENERAL.—For purposes of this section,
the applicable amount of clean coal technology pro-
duction credit is equal to $0.0034.
‘‘(2) INFLATION
ADJUSTMENT.—For calendar
years after 2003, the applicable amount of clean coal
technology production credit shall be adjusted by mul-
tiplying such amount by the inflation adjustment fac-
tor for the calendar year in which the amount is ap-
plied. If any amount as increased under the pre-
ceding sentence is not a multiple of 0.01 cent, such
amount shall be rounded to the nearest multiple of
0.01 cent.
‘‘(c) APPLICABLE PERCENTAGE.—For purposes of this
section, with respect to any qualifying clean coal technology
unit, the applicable percentage is the percentage equal to
the ratio which the portion of the national megawatt capac-
ity limitation allocated to the taxpayer with respect to such
unit under subsection (e) bears to the total megawatt capac-
ity of such unit.
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‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) QUALIFYING
CLEAN
COAL
TECHNOLOGY
UNIT.—The term ‘qualifying clean coal technology
unit’ means a clean coal technology unit of the tax-
payer which—
‘‘(A) on the date of the enactment of this
section was a coal-based electricity generating
steam generator-turbine unit which was not a
clean coal technology unit,
‘‘(B) has a nameplate capacity rating of
not more than 300,000 kilowatts,
‘‘(C) becomes a clean coal technology unit
as the result of the retrofitting, repowering, or
replacement of the unit with clean coal tech-
nology during the 10-year period beginning on
the date of the enactment of this section,
‘‘(D) is not receiving nor is scheduled to re-
ceive funding under the Clean Coal Technology
Program, the Power Plant Improvement Initia-
tive, or the Clean Coal Power Initiative admin-
istered by the Secretary of Energy, and
‘‘(E) receives an allocation of a portion of
the national megawatt capacity limitation under
subsection (e).
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‘‘(2) CLEAN COAL TECHNOLOGY UNIT.—The term
‘clean coal technology unit’ means a unit which—
‘‘(A) uses clean coal technology, including
advanced pulverized coal or atmospheric fluid-
ized bed combustion, pressurized fluidized bed
combustion, integrated gasification combined
cycle, or any other technology for the production
of electricity,
‘‘(B) uses coal to produce 75 percent or
more of its thermal output as electricity,
‘‘(C) has a design net heat rate of at least
500 less than that of such unit as described in
paragraph (1)(A),
‘‘(D) has a maximum design net heat rate
of not more than 9,500, and
‘‘(E) meets the pollution control require-
ments of paragraph (3).
‘‘(3) POLLUTION CONTROL REQUIREMENTS.—
‘‘(A) IN GENERAL.—A unit meets the re-
quirements of this paragraph if—
‘‘(i) its emissions of sulfur dioxide, ni-
trogen oxide, or particulates meet the lower
of the emission levels for each such emission
specified in—
‘‘(I) subparagraph (B), or
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‘‘(II) the new source performance
standards of the Clean Air Act (42
U.S.C. 7411) which are in effect for the
category of source at the time of the
retrofitting, repowering, or replacement
of the unit, and
‘‘(ii) its emissions do not exceed any
relevant emission level specified by regula-
tion pursuant to the hazardous air pollut-
ant requirements of the Clean Air Act (42
U.S.C. 7412) in effect at the time of the ret-
rofitting, repowering, or replacement.
‘‘(B) SPECIFIC LEVELS.—The levels speci-
fied in this subparagraph are—
‘‘(i) in the case of sulfur dioxide emis-
sions, 50 percent of the sulfur dioxide emis-
sion levels specified in the new source per-
formance standards of the Clean Air Act
(42 U.S.C. 7411) in effect on the date of the
enactment of this section for the category of
source,
‘‘(ii) in the case of nitrogen oxide
emissions—
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‘‘(I) 0.1 pound per million Btu of
heat input if the unit is not a cyclone-
fired boiler, and
‘‘(II) if the unit is a cyclone-fired
boiler, 15 percent of the uncontrolled
nitrogen oxide emissions from such
boilers, and
‘‘(iii) in the case of particulate emis-
sions, 0.02 pound per million Btu of heat
input.
‘‘(4) DESIGN NET HEAT RATE.—The design net
heat rate with respect to any unit, measured in Btu
per kilowatt hour (HHV)—
‘‘(A) shall be based on the design annual
heat input to and the design annual net elec-
trical output from such unit (determined without
regard to such unit’s co-generation of steam),
‘‘(B) shall be adjusted for the heat content
of the design coal to be used by the unit if it is
less than 12,000 Btu per pound according to the
following formula:
Design net heat rate = Unit net heat rate X [l-
{((12,000-design coal heat content, Btu per pound)/
1,000) X 0.013}], and
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‘‘(C) shall be corrected for the site reference
conditions of—
‘‘(i) elevation above sea level of 500 feet,
‘‘(ii) air pressure of 14.4 pounds per square inch
absolute (psia),
‘‘(iii) temperature, dry bulb of 63°F,
‘‘(iv) temperature, wet bulb of 54°F, and
‘‘(v) relative humidity of 55 percent.
‘‘(5) HHV.—The term ‘HHV’ means higher
heating value.
‘‘(6) APPLICATION
OF
CERTAIN
RULES.—The
rules of paragraphs (3), (4), and (5) of section 45(d)
shall apply.
‘‘(7) INFLATION ADJUSTMENT FACTOR.—
‘‘(A) IN GENERAL.—The term ‘inflation ad-
justment factor’ means, with respect to a cal-
endar year, a fraction the numerator of which is
the GDP implicit price deflator for the preceding
calendar year and the denominator of which is
the GDP implicit price deflator for the calendar
year 2002.
‘‘(B) GDP IMPLICIT
PRICE
DEFLATOR.—
The term ‘GDP implicit price deflator’ means
the most recent revision of the implicit price
deflator for the gross domestic product as com-
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puted by the Department of Commerce before
March 15 of the calendar year.
‘‘(8) NONCOMPLIANCE WITH POLLUTION LAWS.—
For purposes of this section, a unit which is not in
compliance with the applicable State and Federal pol-
lution prevention, control, and permit requirements
for any period of time shall not be considered to be
a qualifying clean coal technology unit during such
period.
‘‘(e) NATIONAL LIMITATION ON THE AGGREGATE CA-
PACITY
OF
QUALIFYING
CLEAN
COAL
TECHNOLOGY
UNITS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(d)(1)(E), the national megawatt capacity limitation
for qualifying clean coal technology units is 4,000
megawatts.
‘‘(2) ALLOCATION
OF
LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity
limitation for qualifying clean coal technology units
in such manner as the Secretary may prescribe under
the regulations under paragraph (3).
‘‘(3) REGULATIONS.—Not later than 6 months
after the date of the enactment of this section, the Sec-
retary shall prescribe such regulations as may be nec-
essary or appropriate—
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‘‘(A) to carry out the purposes of this sub-
section,
‘‘(B) to limit the capacity of any qualifying
clean coal technology unit to which this section
applies so that the combined megawatt capacity
allocated to all such units under this subsection
when all such units are placed in service during
the 10-year period described in subsection
(d)(1)(C), does not exceed 4,000 megawatts,
‘‘(C) to provide a certification process under
which the Secretary, in consultation with the
Secretary of Energy, shall approve and allocate
the national megawatt capacity limitation—
‘‘(i) to encourage that units with the
highest thermal efficiencies, when adjusted
for the heat content of the design coal and
site reference conditions described in sub-
section (d)(4)(C), and environmental per-
formance be placed in service as soon as
possible,
‘‘(ii) to allocate capacity to taxpayers
that have a definite and credible plan for
placing into commercial operation a quali-
fying 
clean 
coal 
technology 
unit,
including—
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‘‘(I) a site,
‘‘(II) contractual commitments for
procurement and construction or, in
the case of regulated utilities, the
agreement of the State utility commis-
sion,
‘‘(III) filings for all necessary
preconstruction approvals,
‘‘(IV) a demonstrated record of
having successfully completed com-
parable projects on a timely basis, and
‘‘(V) such other factors that the
Secretary determines are appropriate,
‘‘(D) to allocate the national megawatt ca-
pacity limitation to a portion of the capacity of
a qualifying clean coal technology unit if the
Secretary determines that such an allocation
would maximize the amount of efficient produc-
tion encouraged with the available tax credits,
‘‘(E) to set progress requirements and con-
ditional approvals so that capacity allocations
for clean coal technology units that become un-
likely to meet the necessary conditions for quali-
fying can be reallocated by the Secretary to other
clean coal technology units, and
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‘‘(F) to provide taxpayers with opportuni-
ties to correct administrative errors and omis-
sions with respect to allocations and record keep-
ing within a reasonable period after discovery,
taking into account the availability of regula-
tions and other administrative guidance from
the Secretary.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
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 new paragraph:
‘‘(20) the qualifying clean coal technology pro-
duction credit determined under section 45I(a).’’.
(c) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(16) NO CARRYBACK OF SECTION 45I CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the qualifying clean coal technology produc-
tion credit determined under section 45I may be car-
ried back to a taxable year ending on or before the
date of the enactment of section 45I.’’.
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(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 new item:
‘‘Sec. 45I. Credit for production from a qualifying clean coal technology unit.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to production after the date of the enact-
ment of this Act, in taxable years ending after such date.
Subtitle 
B—Incentives 
for 
Early
Commercial Applications of Ad-
vanced Clean Coal Technologies
SEC. 2211. CREDIT FOR INVESTMENT IN QUALIFYING AD-
VANCED CLEAN COAL TECHNOLOGY.
(a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN
COAL TECHNOLOGY UNIT CREDIT.—Section 46 (relating to
amount of credit) is amended by striking ‘‘and’’ at the end
of paragraph (2), by striking the period at the end of para-
graph (3) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(4) the qualifying advanced clean coal tech-
nology unit credit.’’.
(b) AMOUNT OF QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT CREDIT.—Subpart E of part IV of sub-
chapter A of chapter 1 (relating to rules for computing in-
vestment credit) is amended by inserting after section 48
the following new section:
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‘‘SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY UNIT CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 46, the
qualifying advanced clean coal technology unit credit for
any taxable year is an amount equal to 10 percent of the
applicable percentage of the qualified investment in a quali-
fying advanced clean coal technology unit for such taxable
year.
‘‘(b) QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY UNIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the term ‘qualifying advanced clean coal tech-
nology unit’ means an advanced clean coal technology
unit of the taxpayer—
‘‘(A)(i)(I) in the case of a unit first placed
in service after the date of the enactment of this
section, the original use of which commences
with the taxpayer, or
‘‘(II) in the case of the retrofitting or
repowering of a unit first placed in service before
such date of enactment, the retrofitting or
repowering of which is completed by the tax-
payer after such date, or
‘‘(ii) which is acquired through purchase
(as defined by section 179(d)(2)),
‘‘(B) which is depreciable under section 167,
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‘‘(C) which has a useful life of not less than
4 years,
‘‘(D) which is located in the United States,
‘‘(E) which is not receiving nor is scheduled
to receive funding under the Clean Coal Tech-
nology Program, the Power Plant Improvement
Initiative, or the Clean Coal Power Initiative
administered by the Secretary of Energy,
‘‘(F) which is not a qualifying clean coal
technology unit, and
‘‘(G) which receives an allocation of a por-
tion of the national megawatt capacity limita-
tion under subsection (f).
‘‘(2) SPECIAL RULE FOR SALE-LEASEBACKS.—
For purposes of subparagraph (A) of paragraph (1),
in the case of a unit which—
‘‘(A) is originally placed in service by a
person, and
‘‘(B) is sold and leased back by such person,
or is leased to such person, within 3 months after
the date such unit was originally placed in serv-
ice, for a period of not less than 12 years,
such unit shall be treated as originally placed in serv-
ice not earlier than the date on which such unit is
used under the leaseback (or lease) referred to in sub-
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paragraph (B). The preceding sentence shall not
apply to any property if the lessee and lessor of such
property make an election under this sentence. Such
an election, once made, may be revoked only with the
consent of the Secretary.
‘‘(3) NONCOMPLIANCE WITH POLLUTION LAWS.—
For purposes of this subsection, a unit which is not
in compliance with the applicable State and Federal
pollution prevention, control, and permit require-
ments for any period of time shall not be considered
to be a qualifying advanced clean coal technology
unit during such period.
‘‘(c) APPLICABLE PERCENTAGE.—For purposes of this
section, with respect to any qualifying advanced clean coal
technology unit, the applicable percentage is the percentage
equal to the ratio which the portion of the national mega-
watt capacity limitation allocated to the taxpayer with re-
spect to such unit under subsection (f) bears to the total
megawatt capacity of such unit.
‘‘(d) ADVANCED CLEAN COAL TECHNOLOGY UNIT.—
For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘advanced clean
coal technology unit’ means a new, retrofit, or
repowering unit of the taxpayer which—
‘‘(A) is—
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‘‘(i) an eligible advanced pulverized
coal or atmospheric fluidized bed combus-
tion technology unit,
‘‘(ii) an eligible pressurized fluidized
bed combustion technology unit,
‘‘(iii) an eligible integrated gasifi-
cation combined cycle technology unit, or
‘‘(iv) an eligible other technology unit,
and
‘‘(B) meets the carbon emission rate require-
ments of paragraph (6).
‘‘(2) ELIGIBLE ADVANCED PULVERIZED COAL OR
ATMOSPHERIC
FLUIDIZED
BED
COMBUSTION
TECH-
NOLOGY UNIT.—The term ‘eligible advanced pulver-
ized coal or atmospheric fluidized bed combustion
technology unit’ means a clean coal technology unit
using advanced pulverized coal or atmospheric fluid-
ized bed combustion technology which—
‘‘(A) is placed in service after the date of
the enactment of this section and before January
1, 2013, and
‘‘(B) has a design net heat rate of not more
than 8,350 (8,750 in the case of units placed in
service before 2009).
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‘‘(3) ELIGIBLE
PRESSURIZED
FLUIDIZED
BED
COMBUSTION TECHNOLOGY UNIT.—The term ‘eligible
pressurized fluidized bed combustion technology unit’
means a clean coal technology unit using pressurized
fluidized bed combustion technology which—
‘‘(A) is placed in service after the date of
the enactment of this section and before January
1, 2017, and
‘‘(B) has a design net heat rate of not more
than 7,720 (8,750 in the case of units placed in
service before 2009, and 8,350 in the case of
units placed in service after 2008 and before
2013).
‘‘(4) ELIGIBLE INTEGRATED GASIFICATION COM-
BINED CYCLE TECHNOLOGY UNIT.—The term ‘eligible
integrated gasification combined cycle technology
unit’ means a clean coal technology unit using inte-
grated gasification combined cycle technology, with or
without fuel or chemical co-production, which—
‘‘(A) is placed in service after the date of
the enactment of this section and before January
1, 2017,
‘‘(B) has a design net heat rate of not more
than 7,720 (8,750 in the case of units placed in
service before 2009, and 8,350 in the case of
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units placed in service after 2008 and before
2013), and
‘‘(C) has a net thermal efficiency (HHV)
using coal with fuel or chemical co-production of
not less than 43.9 percent (39 percent in the case
of units placed in service before 2009, and 40.9
percent in the case of units placed in service
after 2008 and before 2013).
‘‘(5) ELIGIBLE OTHER TECHNOLOGY UNIT.—The
term ‘eligible other technology unit’ means a clean
coal technology unit using any other technology for
the production of electricity which is placed in service
after the date of the enactment of this section and be-
fore January 1, 2017.
‘‘(6) CARBON EMISSION RATE REQUIREMENTS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a unit meets the requirements
of this paragraph if—
‘‘(i) in the case of a unit using design
coal with a heat content of not more than
9,000 Btu per pound, the carbon emission
rate is less than 0.60 pound of carbon per
kilowatt hour, and
‘‘(ii) in the case of a unit using design
coal with a heat content of more than 9,000
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Btu per pound, the carbon emission rate is
less than 0.54 pound of carbon per kilowatt
hour.
‘‘(B) 
ELIGIBLE
OTHER
TECHNOLOGY
UNIT.—In the case of an eligible other technology
unit, subparagraph (A) shall be applied by sub-
stituting ‘0.51’ and ‘0.459’ for ‘0.60’ and ‘0.54’,
respectively.
‘‘(e) GENERAL DEFINITIONS.—Any term used in this
section which is also used in section 45I shall have the
meaning given such term in section 45I.
‘‘(f) NATIONAL LIMITATION ON THE AGGREGATE CA-
PACITY OF ADVANCED CLEAN COAL TECHNOLOGY UNITS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(b)(1)(G), the national megawatt capacity limitation
is—
‘‘(A) for qualifying advanced clean coal
technology units using advanced pulverized coal
or atmospheric fluidized bed combustion tech-
nology, not more than 1,000 megawatts (not
more than 500 megawatts in the case of units
placed in service before 2009),
‘‘(B) for such units using pressurized fluid-
ized bed combustion technology, not more than
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500 megawatts (not more than 250 megawatts in
the case of units placed in service before 2009),
‘‘(C) for such units using integrated gasifi-
cation combined cycle technology, with or with-
out fuel or chemical co-production, not more
than 2,000 megawatts (not more than 1,000
megawatts in the case of units placed in service
before 2009 and not more than 1,500 megawatts
in the case of units placed in service after 2008
and before 2013), and
‘‘(D) for such units using other technology
for the production of electricity, not more than
500 megawatts (not more than 250 megawatts in
the case of units placed in service before 2009).
‘‘(2) ALLOCATION
OF
LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity
limitation for qualifying advanced clean coal tech-
nology units in such manner as the Secretary may
prescribe under the regulations under paragraph (3).
‘‘(3) REGULATIONS.—Not later than 6 months
after the date of the enactment of this section, the Sec-
retary shall prescribe such regulations as may be nec-
essary or appropriate—
‘‘(A) to carry out the purposes of this sub-
section and section 45J,
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‘‘(B) shall include primary criteria of min-
imum design net heat rate, maximum design
thermal efficiency, environmental performance,
and lowest cost to the Government, and
‘‘(C) shall include supplemental criteria as
determined appropriate by the Secretary of En-
ergy.
‘‘(g) QUALIFIED INVESTMENT.—For purposes of sub-
section (a), the term ‘qualified investment’ means, with re-
spect to any taxable year, the basis of a qualifying advanced
clean coal technology unit placed in service by the taxpayer
during such taxable year (in the case of a unit described
in subsection (b)(1)(A)(i)(II), only that portion of the basis
of such unit which is properly attributable to the retro-
fitting or repowering of such unit).
‘‘(h) QUALIFIED PROGRESS EXPENDITURES.—
‘‘(1) INCREASE IN QUALIFIED INVESTMENT.—In
the case of a taxpayer who has made an election
under paragraph (5), the amount of the qualified in-
vestment of such taxpayer for the taxable year (deter-
mined under subsection (g) without regard to this
subsection) shall be increased by an amount equal to
the aggregate of each qualified progress expenditure
for the taxable year with respect to progress expendi-
ture property.
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‘‘(2) PROGRESS
EXPENDITURE
PROPERTY
DE-
FINED.—For purposes of this subsection, the term
‘progress expenditure property’ means any property
being constructed by or for the taxpayer and which it
is reasonable to believe will qualify as a qualifying
advanced clean coal technology unit which is being
constructed by or for the taxpayer when it is placed
in service.
‘‘(3) QUALIFIED PROGRESS EXPENDITURES DE-
FINED.—For purposes of this subsection—
‘‘(A) SELF-CONSTRUCTED
PROPERTY.—In
the case of any self-constructed property, the
term ‘qualified progress expenditures’ means the
amount which, for purposes of this subpart, is
properly chargeable (during such taxable year)
to capital account with respect to such property.
‘‘(B) NONSELF-CONSTRUCTED PROPERTY.—
In the case of nonself-constructed property, the
term ‘qualified progress expenditures’ means the
amount paid during the taxable year to another
person for the construction of such property.
‘‘(4) OTHER DEFINITIONS.—For purposes of this
subsection—
‘‘(A) SELF-CONSTRUCTED PROPERTY.—The
term ‘self-constructed property’ means property
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for which it is reasonable to believe that more
than half of the construction expenditures will be
made directly by the taxpayer.
‘‘(B) NONSELF-CONSTRUCTED PROPERTY.—
The term ‘nonself-constructed property’ means
property which is not self-constructed property.
‘‘(C) CONSTRUCTION, ETC.—The term ‘con-
struction’ includes reconstruction and erection,
and the term ‘constructed’ includes reconstructed
and erected.
‘‘(D) ONLY CONSTRUCTION OF QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY UNIT TO
BE TAKEN INTO ACCOUNT.—Construction shall be
taken into account only if, for purposes of this
subpart, expenditures therefor are properly
chargeable to capital account with respect to the
property.
‘‘(5) ELECTION.—An election under this sub-
section may be made at such time and in such man-
ner as the Secretary may by regulations prescribe.
Such an election shall apply to the taxable year for
which made and to all subsequent taxable years. Such
an election, once made, may not be revoked except
with the consent of the Secretary.
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‘‘(i) COORDINATION WITH OTHER CREDITS.—This
section shall not apply to any property with respect to
which the rehabilitation credit under section 47 or the en-
ergy credit under section 48 is allowed unless the taxpayer
elects to waive the application of such credit to such prop-
erty.’’.
(c) RECAPTURE.—Section 50(a) (relating to other spe-
cial rules) is amended by adding at the end the following
new paragraph:
‘‘(6) SPECIAL RULES RELATING TO QUALIFYING
ADVANCED
CLEAN
COAL
TECHNOLOGY
UNIT.—For
purposes of applying this subsection in the case of
any credit allowable by reason of section 48A, the fol-
lowing shall apply:
‘‘(A) GENERAL
RULE.—In lieu of the
amount of the increase in tax under paragraph
(1), the increase in tax shall be an amount equal
to the investment tax credit allowed under sec-
tion 38 for all prior taxable years with respect
to a qualifying advanced clean coal technology
unit (as defined by section 48A(b)(1)) multiplied
by a fraction whose numerator is the number of
years remaining to fully depreciate under this
title the qualifying advanced clean coal tech-
nology unit disposed of, and whose denominator
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is the total number of years over which such unit
would otherwise have been subject to deprecia-
tion. For purposes of the preceding sentence, the
year of disposition of the qualifying advanced
clean coal technology unit shall be treated as a
year of remaining depreciation.
‘‘(B) PROPERTY CEASES TO QUALIFY FOR
PROGRESS EXPENDITURES.—Rules similar to the
rules of paragraph (2) shall apply in the case of
qualified progress expenditures for a qualifying
advanced clean coal technology unit under sec-
tion 48A, except that the amount of the increase
in tax under subparagraph (A) of this para-
graph shall be substituted for the amount de-
scribed in such paragraph (2).
‘‘(C) APPLICATION
OF
PARAGRAPH.—This
paragraph shall be applied separately with re-
spect to the credit allowed under section 38 re-
garding a qualifying advanced clean coal tech-
nology unit.’’.
(d) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(17) NO CARRYBACK OF SECTION 48A CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
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business credit for any taxable year which is attrib-
utable to the qualifying advanced clean coal tech-
nology unit credit determined under section 48A may
be carried back to a taxable year ending on or before
the date of the enactment of section 48A.’’.
(e) TECHNICAL AMENDMENTS.—
(1) Section 49(a)(1)(C) is amended by striking
‘‘and’’ at the end of clause (ii), by striking the period
at the end of clause (iii) and inserting ‘‘, and’’, and
by adding at the end the following new clause:
‘‘(iv) the portion of the basis of any
qualifying advanced clean coal technology
unit attributable to any qualified invest-
ment (as defined by section 48A(g)).’’.
(2) Section 50(a)(4) is amended by striking
‘‘and (2)’’ and inserting ‘‘(2), and (6)’’.
(3) Section 50(c) is amended by adding at the
end the following new paragraph:
‘‘(6) NONAPPLICATION.—Paragraphs (1) and (2)
shall not apply to any qualifying advanced clean coal
technology unit credit under section 48A.’’.
(4) The table of sections for subpart E of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 48 the following new
item:
‘‘Sec. 48A. Qualifying advanced clean coal technology unit credit.’’.
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(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to periods after the date of the enactment
of this Act, under rules similar to the rules of section 48(m)
of the Internal Revenue Code of 1986 (as in effect on the
day before the date of the enactment of the Revenue Rec-
onciliation Act of 1990).
SEC. 2212. CREDIT FOR PRODUCTION FROM A QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY UNIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business related credits), as
amended by this Act, is amended by adding at the end the
following new section:
‘‘SEC. 45J. CREDIT FOR PRODUCTION FROM A QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY UNIT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
qualifying advanced clean coal technology production credit
of any taxpayer for any taxable year is equal to—
‘‘(1) the applicable amount of advanced clean
coal technology production credit, multiplied by
‘‘(2) the applicable percentage (as determined
under section 48A(c)) of the sum of—
‘‘(A) the kilowatt hours of electricity, plus
‘‘(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at
a qualifying advanced clean coal technology unit dur-
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ing the 10-year period beginning on the date the unit
was originally placed in service (or returned to serv-
ice after becoming a qualifying advanced clean coal
technology unit).
‘‘(b) APPLICABLE AMOUNT.—For purposes of this sec-
tion, the applicable amount of advanced clean coal tech-
nology production credit with respect to production from
a qualifying advanced clean coal technology unit shall be
determined as follows:
‘‘(1) Where the qualifying advanced clean coal
technology unit is producing electricity only:
‘‘(A) In the case of a unit originally placed
in service before 2009, if—
‘‘The design net heat rate is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 8,400 .......................................................
$.0060
$.0038
More than 8,400 but not more than 8,550 ....................
$.0025
$.0010
More than 8,550 but less than 8,750 .............................
$.0010
$.0010.
‘‘(B) In the case of a unit originally placed
in service after 2008 and before 2013, if—
‘‘The design net heat rate is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 7,770 .......................................................
$.0105
$.0090
More than 7,770 but not more than 8,125 ....................
$.0085
$.0068
More than 8,125 but less than 8,350 .............................
$.0075
$.0055.
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‘‘(C) In the case of a unit originally placed
in service after 2012 and before 2017, if—
‘‘The design net heat rate is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 7,380 .......................................................
$.0140
$.0115
More than 7,380 but not more than 7,720 ....................
$.0120
$.0090.
‘‘(2) Where the qualifying advanced clean coal
technology unit is producing fuel or chemicals:
‘‘(A) In the case of a unit originally placed
in service before 2009, if—
‘‘The unit design net thermal efficiency (HHV) is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 40.6 percent ..............................................
$.0060
$.0038
Less than 40.6 but not less than 40 percent .................
$.0025
$.0010
Less than 40 but not less than 39 percent ....................
$.0010
$.0010.
‘‘(B) In the case of a unit originally placed
in service after 2008 and before 2013, if—
‘‘The unit design net thermal efficiency (HHV) is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 43.6 percent ..............................................
$.0105
$.0090
Less than 43.6 but not less than 42 percent .................
$.0085
$.0068
Less than 42 but not less than 40.9 percent .................
$.0075
$.0055.
‘‘(C) In the case of a unit originally placed
in service after 2012 and before 2017, if—
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‘‘The unit design net thermal efficiency (HHV) is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 44.2 percent ..............................................
$.0140
$.0115
Less than 44.2 but not less than 43.9 percent ..............
$.0120
$.0090.
‘‘(c) INFLATION ADJUSTMENT.—For calendar years
after 2003, each amount in paragraphs (1) and (2) of sub-
section (b) shall be adjusted by multiplying such amount
by the inflation adjustment factor for the calendar year in
which the amount is applied. If any amount as increased
under the preceding sentence is not a multiple of 0.01 cent,
such amount shall be rounded to the nearest multiple of 0.01
cent.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Any term used in this sec-
tion which is also used in section 45I or 48A shall
have the meaning given such term in such section.
‘‘(2) APPLICABLE
RULES.—The rules of para-
graphs (3), (4), and (5) of section 45(d) shall apply.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (19), by striking the period
at the end of paragraph (20) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
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‘‘(21) the qualifying advanced clean coal tech-
nology production credit determined under section
45J(a).’’.
(c) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(18) NO CARRYBACK OF SECTION 45J CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the qualifying advanced clean coal tech-
nology production credit determined under section
45J may be carried back to a taxable year ending on
or before the date of the enactment of section 45J.’’.
(d) DENIAL OF DOUBLE BENEFIT.—Section 29(d) (re-
lating to other definitions and special rules) is amended
by adding at the end the following new paragraph:
‘‘(9) DENIAL OF DOUBLE BENEFIT.—This section
shall not apply with respect to any qualified fuel the
production of which may be taken into account for
purposes of determining the credit under section
45J.’’.
(e) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
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‘‘Sec. 45J. Credit for production from a qualifying advanced clean coal technology
unit.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to production after the date of the enact-
ment of this Act, in taxable years ending after such date.
Subtitle C—Treatment of Persons
Not Able To Use Entire Credit
SEC. 2221. TREATMENT OF PERSONS NOT ABLE TO USE EN-
TIRE CREDIT.
(a) IN GENERAL.—Section 45I, as added by this Act,
is amended by adding at the end the following new sub-
section:
‘‘(f) TREATMENT OF PERSON NOT ABLE TO USE EN-
TIRE CREDIT.—
‘‘(1) ALLOWANCE OF CREDITS.—
‘‘(A) IN
GENERAL.—Any credit allowable
under this section, section 45J, or section 48A
with respect to a facility owned by a person de-
scribed in subparagraph (B) may be transferred
or used as provided in this subsection, and the
determination as to whether the credit is allow-
able shall be made without regard to the tax-ex-
empt status of the person.
‘‘(B) PERSONS
DESCRIBED.—A person is
described in this subparagraph if the person is—
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‘‘(i) an organization described in sec-
tion 501(c)(12)(C) and exempt from tax
under section 501(a),
‘‘(ii) an organization described in sec-
tion 1381(a)(2)(C),
‘‘(iii) a public utility (as defined in
section 136(c)(2)(B)),
‘‘(iv) any State or political subdivision
thereof, the District of Columbia, or any
agency or instrumentality of any of the
foregoing,
‘‘(v) any Indian tribal government
(within the meaning of section 7871) or any
agency or instrumentality thereof, or
‘‘(vi) the Tennessee Valley Authority.
‘‘(2) TRANSFER OF CREDIT.—
‘‘(A) IN GENERAL.—A person described in
clause (i), (ii), (iii), (iv), or (v) of paragraph
(1)(B) may transfer any credit to which para-
graph (1)(A) applies through an assignment to
any other person not described in paragraph
(1)(B). Such transfer may be revoked only with
the consent of the Secretary.
‘‘(B) REGULATIONS.—The Secretary shall
prescribe such regulations as necessary to insure
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that any credit described in subparagraph (A) is
claimed once and not reassigned by such other
person.
‘‘(C) TRANSFER
PROCEEDS
TREATED
AS
ARISING FROM ESSENTIAL GOVERNMENT FUNC-
TION.—Any proceeds derived by a person de-
scribed in clause (iii), (iv), or (v) of paragraph
(1)(B) from the transfer of any credit under sub-
paragraph (A) shall be treated as arising from
the exercise of an essential government function.
‘‘(3) USE OF CREDIT AS AN OFFSET.—Notwith-
standing any other provision of law, in the case of a
person described in clause (i), (ii), or (v) of para-
graph (1)(B), any credit to which paragraph (1)(A)
applies may be applied by such person, to the extent
provided by the Secretary of Agriculture, as a pre-
payment of any loan, debt, or other obligation the en-
tity has incurred under subchapter I of chapter 31 of
title 7 of the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq.), as in effect on the date of the en-
actment of this section.
‘‘(4) USE BY TVA.—
‘‘(A) IN
GENERAL.—Notwithstanding any
other provision of law, in the case of a person de-
scribed in paragraph (1)(B)(vi), any credit to
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which paragraph (1)(A) applies may be applied
as a credit against the payments required to be
made in any fiscal year under section 15d(e) of
the Tennessee Valley Authority Act of 1933 (16
U.S.C. 831n–4(e)) as an annual return on the
appropriations investment and an annual re-
payment sum.
‘‘(B) TREATMENT OF CREDITS.—The aggre-
gate amount of credits described in paragraph
(1)(A) with respect to such person shall be treat-
ed in the same manner and to the same extent
as if such credits were a payment in cash and
shall be applied first against the annual return
on the appropriations investment.
‘‘(C) CREDIT CARRYOVER.—With respect to
any fiscal year, if the aggregate amount of cred-
its described paragraph (1)(A) with respect to
such person exceeds the aggregate amount of pay-
ment obligations described in subparagraph (A),
the excess amount shall remain available for ap-
plication as credits against the amounts of such
payment obligations in succeeding fiscal years in
the same manner as described in this paragraph.
‘‘(5) CREDIT NOT INCOME.—Any transfer under
paragraph (2) or use under paragraph (3) of any
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credit to which paragraph (1)(A) applies shall not be
treated as income for purposes of section 501(c)(12).
‘‘(6) TREATMENT
OF
UNRELATED
PERSONS.—
For purposes of this subsection, sales among and be-
tween persons described in clauses (i), (ii), (iii), (iv),
and (v) of paragraph (1)(A) shall be treated as sales
between unrelated parties.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to production after the date of the enact-
ment of this Act, in taxable years ending after such date.
TITLE XXIII—OIL AND GAS
PROVISIONS
SEC. 2301. OIL AND GAS FROM MARGINAL WELLS.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business credits), as amended
by this Act, is amended by adding at the end the following
new section:
‘‘SEC. 45K. 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
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‘‘(2) the qualified credit oil production and the
qualified natural gas production which is attributable
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 quali-
fied natural gas production.
‘‘(2) REDUCTION AS OIL AND GAS PRICES IN-
CREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which
bears the same ratio to such amount (determined
without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for quali-
fied 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 pre-
ceding the calendar year in which the taxable
year begins.
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‘‘(B) INFLATION ADJUSTMENT.—In the case
of any taxable year beginning in a calendar year
after 2002, each of the dollar amounts contained
in subparagraph (A) shall be increased to an
amount equal to such dollar amount multiplied
by the inflation adjustment factor for such cal-
endar 
year 
(determined 
under 
section
43(b)(3)(B) by substituting ‘2001’ for ‘1990’).
‘‘(C) REFERENCE PRICE.—For purposes of
this paragraph, the term ‘reference price’ means,
with respect to any calendar year—
‘‘(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
‘‘(ii) in the case of qualified natural
gas production, the Secretary’s estimate of
the annual average wellhead price per 1,000
cubic feet for all domestic natural gas.
‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRO-
DUCTION.—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.
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‘‘(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 barrel
equivalents.
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the
case of a short taxable year, the limitations
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the
number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is
not capable of production during each day
of a taxable year, the limitations under this
paragraph applicable to the well shall be
proportionately reduced to reflect the ratio
which the number of days of production
bears to the total number of days in the tax-
able year.
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‘‘(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 pro-
duction under section 613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production
of not more than 25 barrel equivalents,
and
‘‘(II) produces water at a rate not
less than 95 percent of total well efflu-
ent.
‘‘(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 ‘bar-
rel equivalent’ means, with respect to natural
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
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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 operating
interest owners in the production.
‘‘(2) OPERATING
INTEREST
REQUIRED.—Any
credit under this section may be claimed only on pro-
duction which is attributable to the holder of an oper-
ating 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 sec-
tion 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 con-
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sidered to be a qualified marginal well during such
period.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (20), by striking the period
at the end of paragraph (21) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(22) the marginal oil and gas well production
credit determined under section 45K(a).’’.
(c) NO CARRYBACK OF MARGINAL OIL AND GAS WELL
PRODUCTION CREDIT BEFORE EFFECTIVE DATE.—Sub-
section (d) of section 39, as amended by this Act, is amend-
ed by adding at the end the following new paragraph:
‘‘(19) NO CARRYBACK OF MARGINAL OIL AND GAS
WELL
PRODUCTION
CREDIT
BEFORE
EFFECTIVE
DATE.—No portion of the unused business credit for
any taxable year which is attributable to the mar-
ginal oil and gas well production credit determined
under section 45K may be carried back to a taxable
year ending on or before the date of the enactment of
section 45K.’’.
(d) COORDINATION WITH SECTION 29.—Section 29(a)
is amended by striking ‘‘There’’ and inserting ‘‘At the elec-
tion of the taxpayer, there’’.
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(e) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
‘‘Sec. 45K. 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 beginning
after the date of the enactment of this Act.
SEC. 2302. NATURAL GAS GATHERING LINES TREATED AS 7-
YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (i), by re-
designating clause (ii) as clause (iii), and by inserting after
clause (i) the following new clause:
‘‘(ii) any natural gas gathering line,
and’’.
(b) NATURAL GAS GATHERING LINE.—Subsection (i)
of section 168, as amended by this Act, is amended by add-
ing at the end 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
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‘‘(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 new item:
‘‘(C)(ii) ..............................................................................................................
10’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending
after such date.
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‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the applicable percentage is
75 percent.
‘‘(ii) REDUCED PERCENTAGE.—In the
case of a small business refiner with average
daily refinery runs for the period described
in subsection (b)(2) in excess of 155,000
barrels, the percentage described in clause
(i) shall be reduced (not below zero) by the
product of such percentage (before the appli-
cation of this clause) and the ratio of such
excess to 50,000 barrels.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
CAPITAL
COSTS.—The term
‘qualified capital costs’ means any costs which—
‘‘(A) are otherwise chargeable to capital ac-
count, and
‘‘(B) are paid or incurred for the purpose
of complying with the Highway Diesel Fuel Sul-
fur Control Requirement of the Environmental
Protection Agency, as in effect on the date of the
enactment of this section, with respect to a facil-
ity placed in service by the taxpayer before such
date.
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‘‘(2) SMALL
BUSINESS
REFINER.—The term
‘small business refiner’ means, with respect to any
taxable year, a refiner of crude oil, which, within the
refinery operations of the business, employs not more
than 1,500 employees on any day during such taxable
year and whose average daily refinery run for the 1-
year period ending on the date of the enactment of
this section did not exceed 205,000 barrels.
‘‘(c) COORDINATION WITH OTHER PROVISIONS.—Sec-
tion 280B shall not apply to amounts which are treated
as expenses under this section.
‘‘(d) BASIS REDUCTION.—For purposes of this title,
the basis of any property shall be reduced by the portion
of the cost of such property taken into account under sub-
section (a).
‘‘(e) CONTROLLED GROUPS.—For purposes of this sec-
tion, 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) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1), as amended by this Act, is
amended by striking ‘‘or’’ at the end of subparagraph
(I), by striking the period at the end of subparagraph
(J) and inserting ‘‘, or’’, and by inserting after sub-
paragraph (J) the following new subparagraph:
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‘‘(K) expenditures for which a deduction is
allowed under section 179D.’’.
(2) Section 263A(c)(3) is amended by inserting
‘‘179C,’’ after ‘‘section’’.
(3) Section 312(k)(3)(B), as amended by this
Act, is amended by striking ‘‘or 179C’’ each place it
appears in the heading and text and inserting ‘‘,
179C, or 179D’’.
(4) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(33), by striking the period at the end of paragraph
(34) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(35) 
to 
the 
extent 
provided 
in 
section
179D(d).’’.
(5) Section 1245(a), as amended by this Act, is
amended by inserting ‘‘179D,’’ after ‘‘179C,’’ both
places it appears in paragraphs (2)(C) and (3)(C).
(6) The table of sections for part VI of sub-
chapter B of chapter 1, as amended by this Act, is
amended by inserting after section 179C the following
new item:
‘‘Sec. 179D. Deduction for capital costs incurred in complying with Environ-
mental Protection Agency sulfur regulations.’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to expenses paid or incurred after the
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date of the enactment of this Act, in taxable years ending
after such date.
SEC. 2304. ENVIRONMENTAL TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related credits), as
amended by this Act, is amended by adding at the end the
following new section:
‘‘SEC. 45L. 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 during such tax-
able year.
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—For any small business re-
finer, the aggregate amount determined under sub-
section (a) for any taxable year with respect to any
facility shall not exceed the applicable percentage of
the qualified capital costs paid or incurred by such
small business refiner with respect to such facility
during the applicable period, reduced by the credit al-
lowed under subsection (a) for any preceding year.
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‘‘(2) APPLICABLE
PERCENTAGE.—For purposes
of paragraph (1)—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the applicable percentage is
25 percent.
‘‘(B) REDUCED PERCENTAGE.—The percent-
age described in subparagraph (A) shall be re-
duced in the same manner as under section
179D(a)(2)(B)(ii).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘small business re-
finer’ and ‘qualified capital costs’ have the same
meaning as given in section 179D.
‘‘(2) APPLICABLE PERIOD.—The term ‘applicable
period’ means, with respect to any facility, the period
beginning on the day after the date which is 1 year
after the date of the enactment of this section and
ending with the date which is 1 year after the date
on which the taxpayer must comply with the applica-
ble EPA regulations with respect to such facility.
‘‘(3) APPLICABLE EPA REGULATIONS.—The term
‘applicable EPA regulations’ means the Highway
Diesel Fuel Sulfur Control Requirements of the Envi-
ronmental Protection Agency, as in effect on the date
of the enactment of this section.
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‘‘(d) 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 qualified capital costs paid or in-
curred with respect to a facility, the small business
refiner shall obtain a 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-
tion Agency, to determine that such qualified capital
costs are necessary for compliance with the applicable
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 appli-
cation. In the event the Secretary does not notify the
taxpayer of the results of such certification within
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such period, the taxpayer may presume the certifi-
cation to be issued until so notified.
‘‘(4) STATUTE OF LIMITATIONS.—With respect to
the credit allowed under this section—
‘‘(A) the statutory period for the assessment
of any deficiency attributable to such credit shall
not expire before the end of the 3-year period
ending on the date that the review period de-
scribed in paragraph (3) ends, and
‘‘(B) such deficiency may be assessed before
the expiration of such 3-year period notwith-
standing the provisions of any other law or rule
of law which would otherwise prevent such as-
sessment.
‘‘(e) CONTROLLED GROUPS.—For purposes of this sec-
tion, 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.
‘‘(f) COOPERATIVE ORGANIZATIONS.—
‘‘(1) APPORTIONMENT OF CREDIT.—In the case
of a cooperative organization described in section
1381(a), any portion of the credit determined under
subsection (a) of this section, for the taxable year
may, at the election of the organization, be appor-
tioned among patrons eligible to share in patronage
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dividends on the basis of the quantity or value of
business done with or for such patrons for the taxable
year. Such an election shall be irrevocable for such
taxable year.
‘‘(2) TREATMENT OF ORGANIZATIONS AND PA-
TRONS.—
‘‘(A) ORGANIZATIONS.—The amount of the
credit not apportioned to patrons pursuant to
paragraph (1) shall be included in the amount
determined under subsection (a) for the taxable
year of the organization.
‘‘(B) PATRONS.—The amount of the credit
apportioned to patrons pursuant to paragraph
(1) shall be included in the amount determined
under subsection (a) for the first taxable year of
each patron ending on or after the last day of
the payment period (as defined in section
1382(d)) for the taxable year of the organization
or, if earlier, for the taxable year of each patron
ending on or after the date on which the patron
receives notice from the cooperative of the appor-
tionment.’’.
(b) CREDIT MADE PART
OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to general
business credit), as amended by this Act, is amended by
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striking ‘‘plus’’ at the end of paragraph (21), by striking
the period at the end of paragraph (22) and inserting ‘‘,
plus’’, and by adding at the end the following new para-
graph:
‘‘(23) in the case of a small business refiner, the
environmental tax credit determined under section
45L(a).’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re-
lating to certain expenses for which credits are allowable),
as amended by this Act, is amended by adding after sub-
section (d) the following 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 taxable year
under section 45L(a).’’.
(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 new item:
‘‘Sec. 45L. Environmental tax credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenses paid or incurred after the
date of the enactment of this Act, in taxable years ending
after such date.
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SEC. 2305. DETERMINATION OF SMALL REFINER EXCEP-
TION TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to certain refiners excluded) is amended to read
as follows:
‘‘(4) CERTAIN REFINERS EXCLUDED.—If the tax-
payer or 1 or more related persons engages in the re-
fining of crude oil, subsection (c) shall not apply to
the taxpayer for a taxable year if the average daily
refinery runs of the taxpayer and such persons for the
taxable year exceed 60,000 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 Decem-
ber 31, 2002.
SEC. 2306. MARGINAL PRODUCTION INCOME LIMIT EXTEN-
SION.
Section 613A(c)(6)(H) (relating to temporary suspen-
sion of taxable income limit with respect to marginal pro-
duction), as amended by section 607(a) of the Job Creation
and Worker Assistance Act of 2002, is amended by striking
‘‘2004’’ and inserting ‘‘2007’’.
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SEC. 2307. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1, as amended by this Act, is amended by adding at the
end the following new section:
‘‘SEC. 199. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES FOR DOMESTIC
OIL AND GAS WELLS.
‘‘A taxpayer shall be entitled to an amortization de-
duction with respect to any geological and geophysical ex-
penses incurred in connection with the exploration for, or
development of, oil or gas within the United States (as de-
fined in section 638) based on a period of 24 months begin-
ning with the month in which such expenses were in-
curred.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1, as amended by this
Act, is amended by adding at the end the following new
item:
‘‘Sec. 199. Amortization of geological and geophysical expenditures for domestic
oil and gas wells.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2002.
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SEC. 2308. AMORTIZATION OF DELAY RENTAL PAYMENTS.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1, as amended by this Act, is amended by adding at the
end the following new section:
‘‘SEC. 199A. AMORTIZATION OF DELAY RENTAL PAYMENTS
FOR DOMESTIC OIL AND GAS WELLS.
‘‘(a) IN GENERAL.—A taxpayer shall be entitled to an
amortization deduction with respect to any delay rental
payments incurred in connection with the development of
oil or gas within the United States (as defined in section
638) based on a period of 24 months beginning with the
month in which such payments were incurred.’’.
‘‘(b) DELAY RENTAL PAYMENTS.—For purposes of this
section, 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) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1, as amended by this
Act, is amended by adding at the end the following new
item:
‘‘Sec. 199A. Amortization of delay rental payments for domestic oil and gas
wells.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred in taxable
years beginning after December 31, 2002.
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SEC. 2309. STUDY OF COAL BED METHANE.
(a) IN GENERAL.—The Secretary of the Treasury shall
study the effect of section 29 of the Internal Revenue Code
of 1986 on the production of coal bed methane. Such study
shall be made in conjunction with the study to be under-
taken by the Secretary of the Interior on the effects of coal
bed methane production on surface and water resources, as
provided in section 607 of the Energy Policy Act of 2002.
(b) CONTENTS OF STUDY.—The study under subsection
(a) shall estimate the total amount of credits under section
29 of the Internal Revenue Code of 1986 claimed annually
and in the aggregate which are related to the production
of coal bed methane since the date of the enactment of such
section 29. Such study shall report the annual value of such
credits allowable for coal bed methane compared to the aver-
age annual wellhead price of natural gas (per thousand
cubic feet of natural gas). Such study shall also estimate
the incremental increase in production of coal bed methane
that has resulted from the enactment of such section 29, and
the cost to the Federal Government, in terms of the net tax
benefits claimed, per thousand cubic feet of incremental coal
bed methane produced annually and in the aggregate since
such enactment.
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SEC. 2310. 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.—
‘‘(1) OIL AND GAS.—In the case of a well or fa-
cility for producing qualified fuels described in sub-
paragraph (A) or (B) of subsection (c)(1) which was
drilled or placed in service after the date of the enact-
ment of this subsection and before January 1, 2005,
notwithstanding subsection (f), this section shall
apply with respect to such fuels produced at such well
or facility not later than the close of the 3-year period
beginning on the date that such well is drilled or such
facility is placed in service.
‘‘(2) FACILITIES PRODUCING REFINED COAL.—
‘‘(A) IN GENERAL.—In the case of a facility
described in subparagraph (C) for producing re-
fined coal which was placed in service after the
date of the enactment of this subsection and be-
fore January 1, 2007, this section shall apply
with respect to fuel produced at such facility not
later than the close of the 5-year period begin-
ning on the date such facility is placed in serv-
ice.
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‘‘(B) REFINED COAL.—For purposes of this
paragraph, the term ‘refined coal’ means a fuel
which is a liquid, gaseous, or solid synthetic fuel
produced from coal (including lignite) or high
carbon fly ash, including such fuel used as a
feedstock.
‘‘(C) COVERED FACILITIES.—
‘‘(i) IN
GENERAL.—A facility is de-
scribed in this subparagraph if such facility
produces refined coal using a technology
that results in—
‘‘(I) a qualified emission reduc-
tion, and
‘‘(II) a qualified enhanced value.
‘‘(ii) QUALIFIED
EMISSION
REDUC-
TION.—For purposes of this subparagraph,
the term ‘qualified emission reduction’
means a reduction of at least 20 percent of
the emissions of nitrogen oxide and either
sulfur dioxide or mercury released when
burning the refined coal (excluding any di-
lution caused by materials combined or
added during the production process), as
compared to the emissions released when
burning the feedstock coal or comparable
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coal predominantly available in the market-
place as of January 1, 2002.
‘‘(iii) QUALIFIED ENHANCED VALUE.—
For purposes of this subparagraph, the term
‘qualified enhanced value’ means an in-
crease of at least 50 percent in the market
value of the refined coal (excluding any in-
crease caused by materials combined or
added during the production process), as
compared to the value of the feedstock coal.
‘‘(iii) QUALIFYING
ADVANCED
CLEAN
COAL
TECHNOLOGY
FACILITIES
EX-
CLUDED.—A facility described in this sub-
paragraph shall not include a qualifying
advanced clean coal technology facility (as
defined in section 48A(b)).
‘‘(3) WELLS PRODUCING VISCOUS OIL.—
‘‘(A) IN GENERAL.—In the case of a well for
producing viscous oil which was placed in serv-
ice after the date of the enactment of this sub-
section and before January 1, 2005, this section
shall apply with respect to fuel produced at such
well not later than the close of the 3-year period
beginning on the date such well is placed in serv-
ice.
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‘‘(B) VISCOUS OIL.—The term ‘‘viscous oil’
means 
heavy 
oil, 
as 
defined 
in 
section
613A(c)(6), except that—
‘‘(i) ‘22 degrees’ shall be substituted for
‘20 degrees’ in applying subparagraph (F)
thereof, and
‘‘(ii) in all cases, the oil gravity shall
be measured from the initial well-head sam-
ples, drill cuttings, or down hole samples.
‘‘(C) WAIVER OF UNRELATED PERSON RE-
QUIREMENT.—In the case of viscous oil, the re-
quirement under subsection (a)(1)(B)(i) of a sale
to an unrelated person shall not apply to any
sale to the extent that the viscous oil is not con-
sumed in the immediate vicinity of the wellhead.
‘‘(4) COALMINE METHANE GAS.—
‘‘(A) IN GENERAL.—This section shall apply
to coalmine methane gas—
‘‘(i) captured or extracted by the tax-
payer after the date of the enactment of this
subsection and before January 1, 2005, and
‘‘(ii) utilized as a fuel source or sold by
or on behalf of the taxpayer to an unrelated
person after the date of the enactment of
this subsection and before January 1, 2005.
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‘‘(B) COALMINE METHANE GAS.—For pur-
poses of this paragraph, the term ‘coalmine
methane gas’ means any methane gas which is—
‘‘(i) liberated during qualified coal
mining operations, or
‘‘(ii) extracted up to 5 years in ad-
vance of qualified coal mining operations as
part of a specific plan to mine a coal de-
posit.
‘‘(C) SPECIAL
RULE
FOR
ADVANCED
EX-
TRACTION.—In the case of coalmine methane gas
which is captured in advance of qualified coal
mining operations, the credit under subsection
(a) shall be allowed only after the date the coal
extraction occurs in the immediate area where
the coalmine methane gas was removed.
‘‘(D) NONCOMPLIANCE
WITH
POLLUTION
LAWS.—For purposes of subparagraphs (B) and
(C), coal mining operations which are not in
compliance with the applicable State and Fed-
eral pollution prevention, control, and permit re-
quirements for any period of time shall not be
considered to be qualified coal mining operations
during such period.
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‘‘(5) FACILITIES PRODUCING FUELS FROM AGRI-
CULTURAL AND ANIMAL WASTE.—
‘‘(A) IN GENERAL.—In the case of facility
for producing liquid, gaseous, or solid fuels from
qualified agricultural and animal wastes, in-
cluding such fuels when used as feedstocks, which
was placed in service after the date of the enact-
ment of this subsection and before January 1,
2005, this section shall apply with respect to fuel
produced at such facility not later than the close
of the 3-year period beginning on the date such
facility is placed in service.
‘‘(B) QUALIFIED AGRICULTURAL AND ANI-
MAL WASTE.—For purposes of this paragraph,
the term ‘qualified agricultural and animal
waste’ means agriculture and animal waste, in-
cluding by-products, packaging, and any mate-
rials associated with the processing, feeding, sell-
ing, transporting, or disposal of agricultural or
animal products or wastes, including wood
shavings, straw, rice hulls, and other bedding for
the disposition of manure.
‘‘(6) CREDIT
AMOUNT.—In determining the
amount of credit allowable under this section solely
by reason of this subsection, the dollar amount appli-
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cable under subsection (a)(1) shall be $3 (without re-
gard to subsection (b)(2)).’’.
(b) EXTENSION FOR CERTAIN FUEL PRODUCED
AT EXISTING FACILITIES.—Paragraph (2) of section
29(f) (relating to application of section) is amended
by inserting ‘‘(January 1, 2005, in the case of any
coke, coke gas, or natural gas and byproducts pro-
duced by coal gasification from lignite in a facility
described in paragraph (1)(B))’’ after ‘‘January 1,
2003’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to fuel sold after the date of the enact-
ment of this Act.
SEC. 2311. NATURAL GAS DISTRIBUTION LINES TREATED AS
15-YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (ii), by
striking the period at the end of clause (iii) and by insert-
ing ‘‘, and’’, and by adding at the end the following new
clause:
‘‘(iv) any natural gas distribution
line.’’.
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B), as amended by this Act, is amended
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by adding after the item relating to subparagraph (E)(iii)
the following new item:
‘‘(E)(iv) ..............................................................................................................
20’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending
after such date.
TITLE XXIV—ELECTRIC UTILITY
RESTRUCTURING PROVISIONS
SEC. 2401. ONGOING STUDY AND REPORTS REGARDING TAX
ISSUES RESULTING FROM FUTURE RESTRUC-
TURING DECISIONS.
(a) ONGOING STUDY.—The Secretary of the Treasury,
after consultation with the Federal Energy Regulatory
Commission, shall undertake an ongoing study of Federal
tax issues resulting from nontax decisions on the restruc-
turing of the electric industry. In particular, the study shall
focus on the effect on tax-exempt bonding authority of pub-
lic power entities and on corporate restructuring which re-
sults from the restructuring of the electric industry.
(b) REGULATORY RELIEF.—In connection with the
study described in subsection (a), the Secretary of the Treas-
ury should exercise the Secretary’s authority, as appro-
priate, to modify or suspend regulations that may impede
an electric utility company’s ability to reorganize its cap-
ital stock structure to respond to a competitive marketplace.
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(c) REPORTS.—The Secretary of the Treasury shall re-
port to the Committee on Finance of the Senate and the
Committee on Ways and Means of the House of Representa-
tives not later than December 31, 2002, regarding Federal
tax issues identified under the study described in subsection
(a), and at least annually thereafter, regarding such issues
identified since the preceding report. Such reports shall also
include such legislative recommendations regarding changes
to the private business use rules under subpart A of part
IV of subchapter B of chapter 1 of the Internal Revenue
Code of 1986 as the Secretary of the Treasury deems nec-
essary. The reports shall continue until such time as the
Federal Energy Regulatory Commission has completed the
restructuring of the electric industry.
SEC. 2402. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS.
(a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND
BASED
ON COST
OF SERVICE; CONTRIBUTIONS AFTER
FUNDING PERIOD.—Subsection (b) of section 468A is
amended to read as follows:
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—The
amount which a taxpayer may pay into the Fund for any
taxable year shall not exceed the ruling amount applicable
to such taxable year.’’.
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(b) CLARIFICATION OF TREATMENT OF FUND TRANS-
FERS.—Subsection (e) of section 468A is amended by add-
ing at the end the following new paragraph:
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in
connection with the transfer of the taxpayer’s interest
in a nuclear power plant, the taxpayer transfers the
Fund with respect to such power plant to the trans-
feree of such interest and the transferee elects to con-
tinue 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) DEDUCTION
FOR NUCLEAR DECOMMISSIONING
COSTS WHEN PAID.—Paragraph (2) of section 468A(c) is
amended to read as follows:
‘‘(2) DEDUCTION OF NUCLEAR DECOMMISSIONING
COSTS.—In addition to any deduction under sub-
section (a), nuclear decommissioning costs paid or in-
curred by the taxpayer during any taxable year shall
constitute ordinary and necessary expenses in car-
rying on a trade or business under section 162.’’.
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(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 2403. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section
501(c)(12) is amended by striking ‘‘or’’ at the end of
clause (i), by striking clause (ii), and by adding at
the end the following new clauses:
‘‘(ii) from any open access transaction
(other than income received or accrued di-
rectly or indirectly from a member),
‘‘(iii) from any nuclear decommis-
sioning transaction,
‘‘(iv) from any asset exchange or con-
version transaction, or
‘‘(v) from the prepayment of any loan,
debt, or obligation made, insured, or guar-
anteed under the Rural Electrification Act
of 1936.’’.
(2) DEFINITIONS AND SPECIAL RULES.—Para-
graph (12) of section 501(c) is amended by adding at
the end the following new subparagraphs:
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‘‘(E) 
For 
purposes 
of 
subparagraph
(C)(ii)—
‘‘(i) The term ‘open access transaction’
means any transaction meeting the open ac-
cess requirements of any of the following
subclauses with respect to a mutual or coop-
erative electric company:
‘‘(I) The provision or sale of
transmission service or ancillary serv-
ices meets the open access requirements
of this subclause only if such services
are provided on a nondiscriminatory
open access basis pursuant to an open
access transmission tariff filed with
and approved by FERC, including an
acceptable reciprocity tariff, or under a
regional 
transmission 
organization
agreement approved by FERC.
‘‘(II) The provision or sale of elec-
tric energy distribution services or an-
cillary services meets the open access
requirements of this subclause only if
such services are provided on a non-
discriminatory open access basis to
end-users served by distribution facili-