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‘‘(ii) treated as placed in service on
January 1, 2013, if the taxpayer who places
such system in service before January 1,
2013, elects such treatment.
Such term includes the pipe, trunk lines, related
equipment, and appurtenances used to carry natural
gas, but does not include any gas processing plant.’’.
(c) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) (relating to special rule for certain
property assigned to classes), as amended by this Act, is
amended by inserting after the item relating to subpara-
graph (C)(iii) the following new item:
‘‘(C)(iv) ..............................................................................................................
22’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after De-
cember 31, 2004.
SEC. 853. EXTENSION OF ENHANCED OIL RECOVERY CRED-
IT TO CERTAIN ALASKA FACILITIES.
(a) IN GENERAL.—Section 43(c)(1) (defining qualified
enhanced oil recovery costs) is amended by adding at the
end the following new subparagraph:
‘‘(D) Any amount which is paid or in-
curred during the taxable year to construct a gas
treatment plant which—
‘‘(i) is located in the area of the United
States (within the meaning of section
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638(1)) lying north of 64 degrees North lati-
tude,
‘‘(ii) prepares Alaska natural gas (as
defined in section 45Q(c)(1)) for transpor-
tation through a pipeline with a capacity of
at least 2,000,000,000,000 Btu of natural
gas per day, and
‘‘(iii) produces carbon dioxide which is
injected into hydrocarbon-bearing geological
formations.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2004.
SEC. 854. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS.
(a) IN GENERAL.—Section 148(b) (relating to higher
yielding investments) is amended by adding at the end the
following new paragraph:
‘‘(4) SAFE
HARBOR
FOR
PREPAID
NATURAL
GAS.—
‘‘(A) IN GENERAL.—The term ‘investment-
type property’ does not include a prepayment
under a qualified natural gas supply contract.
‘‘(B) QUALIFIED
NATURAL
GAS
SUPPLY
CONTRACT.—For purposes of this paragraph, the
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term ‘qualified natural gas supply contract’
means any contract to acquire natural gas for
resale by or for a utility owned by a govern-
mental unit if the amount of gas permitted to be
acquired under the contract for the utility dur-
ing any year does not exceed the sum of—
‘‘(i) the annual average amount during
the testing period of natural gas purchased
(other than for resale) by customers of such
utility who are located within the service
area of such utility, and
‘‘(ii) the amount of natural gas to be
used to transport the prepaid natural gas to
the utility during such year.
‘‘(C) NATURAL
GAS
USED
TO
GENERATE
ELECTRICITY.—Natural gas used to generate
electricity shall be taken into account in deter-
mining 
the 
average 
under 
subparagraph
(B)(i)—
‘‘(i) only if the electricity is generated
by a utility owned by a governmental unit,
and
‘‘(ii) only to the extent that the elec-
tricity is sold (other than for resale) to cus-
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tomers of such utility who are located with-
in the service area of such utility.
‘‘(D) ADJUSTMENTS FOR CHANGES IN CUS-
TOMER BASE.—
‘‘(i) NEW BUSINESS CUSTOMERS.—If—
‘‘(I) after the close of the testing
period and before the date of issuance
of the issue, the utility owned by a gov-
ernmental unit enters into a contract
to supply natural gas (other than for
resale) for use by a business at a prop-
erty within the service area of such
utility, and
‘‘(II) the utility did not supply
natural gas to such property during
the testing period or the ratable
amount of natural gas to be supplied
under the contract is significantly
greater than the ratable amount of gas
supplied to such property during the
testing period,
then a contract shall not fail to be treated
as a qualified natural gas supply contract
by reason of supplying the additional nat-
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ural gas under the contract referred to in
subclause (I).
‘‘(ii) OVERALL LIMITATION.—The aver-
age under subparagraph (B)(i) shall not ex-
ceed the annual amount of natural gas rea-
sonably expected to be purchased (other
than for resale) by persons who are located
within the service area of such utility and
who, as of the date of issuance of the issue,
are customers of such utility.
‘‘(E) RULING
REQUESTS.—The Secretary
may increase the average under subparagraph
(B)(i) for any period if the utility owned by the
governmental unit establishes to the satisfaction
of the Secretary that, based on objective evidence
of growth in natural gas consumption or popu-
lation, such average would otherwise be insuffi-
cient for such period.
‘‘(F) ADJUSTMENT FOR NATURAL GAS OTH-
ERWISE ON HAND.—
‘‘(i) IN GENERAL.—The amount other-
wise permitted to be acquired under the
contract for any period shall be reduced
by—
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‘‘(I) the applicable share of nat-
ural gas held by the utility on the date
of issuance of the issue, and
‘‘(II) the natural gas (not taken
into account under subclause (I))
which the utility has a right to acquire
during such period (determined as of
the date of issuance of the issue).
‘‘(ii) APPLICABLE
SHARE.—For pur-
poses of clause (i), the term ‘applicable
share’ means, with respect to any period,
the natural gas allocable to such period if
the gas were allocated ratably over the pe-
riod to which the prepayment relates.
‘‘(G) INTENTIONAL
ACTS.—Subparagraph
(A) shall cease to apply to any issue if the util-
ity owned by the governmental unit engages in
any intentional act to render the volume of nat-
ural gas acquired by such prepayment to be in
excess of the sum of—
‘‘(i) the amount of natural gas needed
(other than for resale) by customers of such
utility who are located within the service
area of such utility, and
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‘‘(ii) the amount of natural gas used to
transport such natural gas to the utility.
‘‘(H) TESTING
PERIOD.—For purposes of
this paragraph, the term ‘testing period’ means,
with respect to an issue, the most recent 5 cal-
endar years ending before the date of issuance of
the issue.
‘‘(I) SERVICE AREA.—For purposes of this
paragraph, the service area of a utility owned by
a governmental unit shall be comprised of—
‘‘(i) any area throughout which such
utility provided at all times during the test-
ing period—
‘‘(I) in the case of a natural gas
utility, natural gas transmission or
distribution services, and
‘‘(II) in the case of an electric
utility, electricity distribution services,
‘‘(ii) any area within a county contig-
uous to the area described in clause (i) in
which retail customers of such utility are lo-
cated if such area is not also served by an-
other utility providing natural gas or elec-
tricity services, as the case may be, and
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‘‘(iii) any area recognized as the serv-
ice area of such utility under State or Fed-
eral law.’’.
(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY
TO PREPAYMENTS FOR NATURAL GAS.—Section 141(c)(2)
(providing exceptions to the private loan financing test) is
amended by striking ‘‘or’’ at the end of subparagraph (A),
by striking the period at the end of subparagraph (B) and
inserting ‘‘, or’’, and by adding at the end the following
new subparagraph:
‘‘(C) is a qualified natural gas supply con-
tract (as defined in section 148(b)(4)).’’.
(c) CONFORMING AMENDMENT.—Section 141(d) is
amended by adding at the end the following new paragraph:
‘‘(7) EXCEPTION FOR QUALIFIED ELECTRIC AND
NATURAL GAS SUPPLY CONTRACTS.—The term ‘non-
governmental output property’ shall not include any
contract for the prepayment of electricity or natural
gas which is not investment property under section
148(b)(2).’’.
(d) EFFECTIVE DATE.—The amendment made by this
section shall apply to obligations issued after December 31,
2004.
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Subtitle F—Electric Utility
Restructuring Provisions
SEC. 855. 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 (relat-
ing to special rules for nuclear decommissioning costs) 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.’’.
(b) CLARIFICATION OF TREATMENT OF FUND TRANS-
FERS.—Section 468A(e) (relating to Nuclear Decommis-
sioning Reserve Fund) is amended by adding at the end
the following new paragraph:
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in
connection with the transfer of the taxpayer’s 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—
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‘‘(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 includable in gross
income, by reason of such transfer.’’.
(c) TREATMENT
OF
CERTAIN
DECOMMISSIONING
COSTS.—
(1) IN GENERAL.—Section 468A is amended by
redesignating subsections (f) and (g) as subsections
(g) and (h), respectively, and by inserting after sub-
section (e) the following new subsection:
‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(b), any taxpayer maintaining a Fund to which this
section applies with respect to a nuclear power plant
may transfer into such Fund not more than an
amount equal to the present value of the excess of the
total nuclear decommissioning costs with respect to
such nuclear power plant over the portion of such
costs taken into account in determining the ruling
amount in effect immediately before the transfer.
‘‘(2) 
DEDUCTION
FOR
AMOUNTS
TRANS-
FERRED.—
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‘‘(A) IN GENERAL.—Except as provided in
subparagraph (C), the deduction allowed by sub-
section (a) for any transfer permitted by this
subsection shall be allowed ratably over the re-
maining estimated useful life (within the mean-
ing of subsection (d)(2)(A)) of the nuclear power
plant beginning with the taxable year during
which the transfer is made.
‘‘(B) DENIAL
OF
DEDUCTION
FOR
PRE-
VIOUSLY
DEDUCTED
AMOUNTS.—No deduction
shall be allowed for any transfer under this sub-
section of an amount for which a deduction was
previously allowed or a corresponding amount
was not included in gross income. For purposes
of the preceding sentence, a ratable portion of
each transfer shall be treated as being from pre-
viously deducted or excluded amounts to the ex-
tent thereof.
‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—
If—
‘‘(i) any transfer permitted by this
subsection is made to any Fund to which
this section applies, and
‘‘(ii) such Fund is transferred there-
after,
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any deduction under this subsection for taxable
years ending after the date that such Fund is
transferred shall be allowed to the transferee and
not the transferor. The preceding sentence shall
not apply if the transferor is an entity exempt
from tax under this chapter.
‘‘(D) SPECIAL RULES.—
‘‘(i) GAIN
OR
LOSS
NOT
RECOG-
NIZED.—No gain or loss shall be recognized
on any transfer permitted by this sub-
section.
‘‘(ii) TRANSFERS
OF
APPRECIATED
PROPERTY.—If 
appreciated 
property 
is
transferred in a transfer permitted by this
subsection, the amount of the deduction
shall not exceed the adjusted basis of such
property.
‘‘(3) NEW RULING AMOUNT REQUIRED.—Para-
graph (1) shall not apply to any transfer unless the
taxpayer requests from the Secretary a new schedule
of ruling amounts in connection with such transfer.
‘‘(4) NO BASIS IN QUALIFIED FUNDS.—Notwith-
standing any other provision of law, the taxpayer’s
basis in any Fund to which this section applies shall
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not be increased by reason of any transfer permitted
by this subsection.’’.
(2) NEW RULING AMOUNT TO TAKE INTO AC-
COUNT TOTAL COSTS.—Subparagraph (A) of section
468A(d)(2) (defining ruling amount) is amended to
read as follows:
‘‘(A) fund the total nuclear decommis-
sioning costs with respect to such power plant
over the estimated useful life of such power plant,
and’’.
(d) TECHNICAL AMENDMENT.—Section 468A(e)(2) (re-
lating to taxation of Fund) is amended—
(1) by striking ‘‘rate set forth in subparagraph
(B)’’ in subparagraph (A) and inserting ‘‘rate of 20
percent’’,
(2) by striking subparagraph (B), and
(3) by redesignating subparagraphs (C) and (D)
as subparagraphs (B) and (C), respectively.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2004.
SEC. 856. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
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(1) IN GENERAL.—Section 501(c)(12)(C) (relat-
ing to list of exempt organizations) 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.—Section
501(c)(12) is amended by adding at the end the fol-
lowing new subparagraphs:
‘‘(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
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subclauses with respect to a mutual or coop-
erative electric company:
‘‘(I) The provision or sale of elec-
tric transmission service or ancillary
services meets the open access require-
ments of this subclause only if such
services are provided on a nondiscrim-
inatory open access basis pursuant to
an open access transmission tariff filed
with and approved by FERC, includ-
ing an acceptable reciprocity tariff, or
under a regional transmission organi-
zation 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-
ties owned by the mutual or coopera-
tive electric company (or its members).
‘‘(III) The delivery or sale of elec-
tric energy generated by a generation
facility meets the open access require-
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ments of this subclause only if such fa-
cility is directly connected to distribu-
tion facilities owned by the mutual or
cooperative electric company (or its
members) which owns the generation
facility, and such distribution facilities
meet the open access requirements of
subclause (II).
‘‘(ii) Clause (i)(I) shall apply in the
case of a voluntarily filed tariff only if the
mutual or cooperative electric company files
a report with FERC within 90 days after
the date of the enactment of this subpara-
graph relating to whether or not such com-
pany will join a regional transmission or-
ganization.
‘‘(iii) A mutual or cooperative electric
company shall be treated as meeting the
open access requirements of clause (i)(I) if
a regional transmission organization con-
trols the transmission facilities.
‘‘(iv) References to FERC in this sub-
paragraph shall be treated as including ref-
erences to the Public Utility Commission of
Texas with respect to any ERCOT utility
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(as defined in section 212(k)(2)(B) of the
Federal 
Power 
Act 
(16 
U.S.C.
824k(k)(2)(B))) or references to the Rural
Utilities Service with respect to any other
facility not subject to FERC jurisdiction.
‘‘(v) 
For 
purposes 
of 
this
subparagraph—
‘‘(I) The term ‘transmission facil-
ity’ means an electric output facility
(other than a generation facility)
which operates at an electric voltage of
69 kilovolts or greater. To the extent
provided in regulations, such term in-
cludes 
any 
output 
facility 
which
FERC determines is a transmission fa-
cility under standards applied by
FERC under the Federal Power Act
(as in effect on the date of the enact-
ment of the Energy Tax Incentives
Act).
‘‘(II) The term ‘regional trans-
mission 
organization’ 
includes 
an
independent system operator.