IB
Union Calendar No. 93
107TH CONGRESS
1ST SESSION
H. R. 2511
[Report No. 107–157]
To amend the Internal Revenue Code of 1986 to provide tax incentives
to encourage energy conservation, energy reliability, and energy production.
IN THE HOUSE OF REPRESENTATIVES
JULY 17, 2001
Mr. MCCRERY introduced the following bill; which was referred to the
Committee on Ways and Means
JULY 24, 2001
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on July 17, 2001]
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax incentives to encourage energy conservation, energy
reliability, and energy production.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
(a) SHORT TITLE.—This Act may be cited as the ‘‘En-
ergy Tax Policy Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents of this
Act is as follows:
TITLE I—CONSERVATION
Sec. 101. Credit for residential solar energy property.
Sec. 102. Extension and expansion of credit for electricity produced from renew-
able resources.
Sec. 103. Credit for qualified stationary fuel cell powerplants.
Sec. 104. Alternative motor vehicle credit.
Sec. 105. Extension of deduction for certain refueling property.
Sec. 106. Modification of credit for qualified electric vehicles.
Sec. 107. Tax credit for energy efficient appliances.
Sec. 108. Credit for energy efficiency improvements to existing homes.
Sec. 109. Business credit for construction of new energy efficient home.
Sec. 110. Allowance of deduction for energy efficient commercial building prop-
erty.
Sec. 111. Allowance of deduction for qualified energy management devices and
retrofitted qualified meters.
Sec. 112. 3-year applicable recovery period for depreciation of qualified energy
management devices.
Sec. 113. Energy credit for combined heat and power system property.
Sec. 114. New nonrefundable personal credits allowed against regular and min-
imum taxes.
Sec. 115. Phaseout of 4.3-cent motor fuel excise taxes on railroads and inland wa-
terway transportation which remain in general fund.
Sec. 116. Reduced motor fuel excise tax on certain mixtures of diesel fuel.
Sec. 117. Credit for investment in qualifying advanced clean coal technology.
Sec. 118. Credit for production from qualifying advanced clean coal technology.
TITLE II—RELIABILITY
Sec. 201. Natural gas gathering lines treated as 7-year property.
Sec. 202. Natural gas distribution lines treated as 10-year property.
Sec. 203. Petroleum refining property treated as 7-year property.
Sec. 204. Expensing of capital costs incurred in complying with environmental
protection agency sulfur regulations.
Sec. 205. Environmental tax credit.
Sec. 206. Determination of small refiner exception to oil depletion deduction.
Sec. 207. Tax-exempt bond financing of certain electric facilities.
Sec. 208. Sales or dispositions to implement Federal Energy Regulatory Commis-
sion or State electric restructuring policy.
Sec. 209. Distributions of stock to implement Federal Energy Regulatory Com-
mission or State electric restructuring policy.
Sec. 210. Modifications to special rules for nuclear decommissioning costs.
Sec. 211. Treatment of certain income of cooperatives.
Sec. 212. Repeal of requirement of certain approved terminals to offer dyed diesel
fuel and kerosene for nontaxable purposes.
Sec. 213. Arbitrage rules not to apply to prepayments for natural gas.
TITLE III—PRODUCTION
Sec. 301. Oil and gas from marginal wells.
Sec. 302. Temporary suspension of limitation based on 65 percent of taxable in-
come and extension of suspension of taxable income limit with
respect to marginal production.
Sec. 303. Deduction for delay rental payments.
Sec. 304. Election to expense geological and geophysical expenditures.
Sec. 305. 5-year net operating loss carryback for losses attributable to operating
mineral interests of oil and gas producers.
Sec. 306. Extension and modification of credit for producing fuel from a non-
conventional source.
Sec. 307. Business related energy credits allowed against regular and minimum
tax.
Sec. 308. Temporary repeal of alternative minimum tax preference for intangible
drilling costs.
Sec. 309. Allowance of enhanced recovery credit against the alternative minimum
tax.
Sec. 310. Extension of certain benefits for energy-related businesses on Indian res-
ervations.
TITLE I—CONSERVATION
SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROP-
ERTY.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits)
is amended by inserting after section 25B the following new
section:
‘‘SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi-
vidual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount
equal to the sum of—
‘‘(1) 15 percent of the qualified photovoltaic
property expenditures made by the taxpayer during
such year, and
‘‘(2) 15 percent of the qualified solar water heat-
ing property expenditures made by the taxpayer dur-
ing the taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM
CREDIT.—The credit allowed
under subsection (a) shall not exceed—
‘‘(A) $2,000 for each system of property de-
scribed in subsection (c)(1), and
‘‘(B) $2,000 for each system of property de-
scribed in subsection (c)(2).
‘‘(2) SAFETY CERTIFICATIONS.—No credit shall
be allowed under this section for an item of property
unless—
‘‘(A) in the case of solar water heating
equipment, such equipment is certified for per-
formance and safety by the non-profit Solar Rat-
ing Certification Corporation or a comparable
entity endorsed by the government of the State
in which such property is installed, and
‘‘(B) in the case of a photovoltaic system,
such system meets appropriate fire and electric
code requirements.
‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—
The credit allowed under subsection (a) for the tax-
able year shall not exceed the excess of—
‘‘(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 sections
23, 25D, and 25E) and section 27 for the taxable
year.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED SOLAR WATER HEATING PROP-
ERTY EXPENDITURE.—The term ‘qualified solar water
heating property expenditure’ means an expenditure
for property to heat water for use in a dwelling unit
located in the United States and used as a residence
if at least half of the energy used by such property
for such purpose is derived from the sun.
‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property
that uses solar energy to generate electricity for use
in a dwelling unit.
‘‘(3) SOLAR PANELS.—No expenditure relating to
a solar panel or other property installed as a roof (or
portion thereof) shall fail to be treated as property de-
scribed in paragraph (1) or (2) solely because it con-
stitutes a structural component of the structure on
which it is installed.
‘‘(4) LABOR
COSTS.—Expenditures for labor
costs properly allocable to the onsite preparation, as-
sembly, or original installation of the property de-
scribed in paragraph (1) or (2) and for piping or
wiring to interconnect such property to the dwelling
unit shall be taken into account for purposes of this
section.
‘‘(5) SWIMMING POOLS, ETC., USED AS STORAGE
MEDIUM.—Expenditures which are properly allocable
to a swimming pool, hot tub, or any other energy
storage medium which has a function other than the
function of such storage shall not be taken into ac-
count for purposes of this section.
‘‘(d) SPECIAL RULES.—
‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCU-
PANCY.—In the case of any dwelling unit which is
jointly occupied and used during any calendar year
as a residence by 2 or more individuals the following
shall apply:
‘‘(A) The amount of the credit allowable
under subsection (a) by reason of expenditures
(as the case may be) made during such calendar
year by any of such individuals with respect to
such dwelling unit shall be determined by treat-
ing all of such individuals as 1 taxpayer whose
taxable year is such calendar year.
‘‘(B) There shall be allowable with respect to
such expenditures to each of such 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 made his tenant-stockholder’s proportionate
share (as defined in section 216(b)(3)) of any expend-
itures of such corporation.
‘‘(3) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be
treated as having made his proportionate share
of any expenditures of such association.
‘‘(B) CONDOMINIUM MANAGEMENT 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) ALLOCATION
IN
CERTAIN
CASES.—If less
than 80 percent of the use of an item is for nonbusi-
ness purposes, only that portion of the expenditures
for such item which is properly allocable to use for
nonbusiness purposes shall be taken into account.
‘‘(5) WHEN
EXPENDITURE
MADE; AMOUNT
OF
EXPENDITURE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), an expenditure with respect
to an item shall be treated as made when the
original installation of the item is completed.
‘‘(B) EXPENDITURES
PART
OF
BUILDING
CONSTRUCTION.—In the case of an expenditure
in connection with the construction or recon-
struction of a structure, such expenditure shall be
treated as made when the original use of the con-
structed or reconstructed structure by the tax-
payer begins.
‘‘(C) AMOUNT.—The amount of any expend-
iture shall be the cost thereof.
‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—For purposes of determining the
amount of expenditures made by any individual with
respect to any dwelling unit, there shall not be taken
in to account expenditures which are made from sub-
sidized energy financing (as defined in section
48(a)(4)(A)).
‘‘(e) BASIS ADJUSTMENTS.—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.
‘‘(f) TERMINATION.—The credit allowed under this sec-
tion shall not apply to taxable years beginning after Decem-
ber 31, 2006 (December 31, 2008, with respect to qualified
photovoltaic property expenditures).’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 is amended by
striking ‘‘and’’ at the end of paragraph (27), by strik-
ing the period at the end of paragraph (28) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(29) to the extent provided in section 25C(e), in
the case of amounts with respect to which a credit has
been allowed under section 25C.’’.
(2) The table of sections for subpart A of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 25B the following
new item:
‘‘Sec. 25C. Residential solar energy property.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 2001.
SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR
ELECTRICITY PRODUCED FROM RENEWABLE
RESOURCES.
(a) EXTENSION OF CREDIT FOR WIND AND CLOSED-
LOOP BIOMASS FACILITIES.—Subparagraphs (A) and (B)
of section 45(c)(3) are each amended by striking ‘‘2002’’
and inserting ‘‘2007’’.
(b) EXPANSION OF CREDIT FOR OPEN-LOOP BIOMASS
AND LANDFILL GAS FACILITIES.—Paragraph (3) of section
45(c) is amended by adding at the end the following new
subparagraphs:
‘‘(D) OPEN-LOOP BIOMASS FACILITIES.—In
the case of a facility using open-loop biomass to
produce electricity, the term ‘qualified facility’
means any facility owned by the taxpayer which
is originally placed in service before January 1,
2007.
‘‘(E) LANDFILL
GAS
FACILITIES.—In the
case of a facility producing electricity from gas
derived from the biodegradation of municipal
solid waste, the term ‘qualified facility’ means
any facility owned by the taxpayer which is
originally placed in service before January 1,
2007.’’.
(c) DEFINITION AND SPECIAL RULES.—Subsection (c)
of section 45 is amended by adding at the end the following
new paragraphs:
‘‘(5) OPEN-LOOP BIOMASS.—The term ‘open-loop
biomass’ means any solid, nonhazardous, cellulosic
waste material which is segregated from other waste
materials and which is derived from—
‘‘(A) any of the following forest-related re-
sources: mill residues, precommercial thinnings,
slash, and brush, but not including old-growth
timber,
‘‘(B) solid wood waste materials, including
waste pallets, crates, dunnage, manufacturing
and construction wood wastes (other than pres-
sure-treated, chemically-treated, or painted wood
wastes), and landscape or right-of-way tree trim-
mings, but not including municipal solid waste
(garbage), gas derived from the biodegradation of
solid waste, or paper that is commonly recycled,
or
‘‘(C) agriculture sources, including orchard
tree crops, vineyard, grain, legumes, sugar, and
other crop by-products or residues.
Such term shall not include closed-loop biomass.
‘‘(6) 
REDUCED
CREDIT
FOR
CERTAIN
PREEFFECTIVE DATE FACILITIES.—In the case of any
facility described in subparagraph (D) or (E) of
paragraph (3) which is placed in service before the
date of the enactment of this subparagraph—
‘‘(A) subsection (a)(1) shall be applied by
substituting ‘1.0 cents’ for ‘1.5 cents’, and
‘‘(B) the 5-year period beginning on the
date of the enactment of this paragraph shall be
substituted in lieu of the 10-year period in sub-
section (a)(2)(A)(ii).
‘‘(7) LIMIT ON REDUCTIONS FOR GRANTS, ETC.,
FOR OPEN-LOOP BIOMASS FACILITIES.—If the amount
of the credit determined under subsection (a) with re-
spect to any open-loop biomass facility is required to
be reduced under paragraph (3) of subsection (b), the
fraction under such paragraph shall in no event be
greater than 4⁄5.
‘‘(8) COORDINATION
WITH
SECTION
29.—The
term ‘qualified facility’ shall not include any facility
the production from which is allowed as a credit
under section 29 for the taxable year or any prior
taxable year.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to electricity sold after the date of the
enactment of this Act.
SEC. 103. CREDIT FOR QUALIFIED STATIONARY FUEL CELL
POWERPLANTS.
(a) BUSINESS PROPERTY.—
(1) IN GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by
striking ‘‘or’’ at the end of clause (i), by adding ‘‘or’’
at the end of clause (ii), and by inserting after clause
(ii) the following new clause:
‘‘(iii) equipment which is part of a
qualified stationary fuel cell powerplant,’’.
(2) QUALIFIED STATIONARY FUEL CELL POWER-
PLANT.—Subsection (a) of section 48 is amended by
redesignating paragraphs (4) and (5) as paragraphs
(5) and (6), respectively, and by inserting after para-
graph (3) the following new paragraph:
‘‘(4) QUALIFIED STATIONARY FUEL CELL POWER-
PLANT.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified sta-
tionary fuel cell powerplant’ means a stationary
fuel cell power plant that has an electricity-only
generation efficiency greater than 30 percent.
‘‘(B) LIMITATION.—In the case of qualified
stationary fuel cell powerplant placed in service
during the taxable year, the credit under sub-
section (a) for such year may not exceed $1,000
for each kilowatt of capacity.
‘‘(C) 
STATIONARY
FUEL
CELL
POWER
PLANT.—The term ‘stationary fuel cell power
plant’ means an integrated system comprised of
a fuel cell stack assembly and associated balance
of plant components that converts a fuel into
electricity using electrochemical means.
‘‘(D) TERMINATION.—Such term shall not
include any property placed in service after De-
cember 31, 2006.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service after December 31, 2001, under rules similar
to the rules of section 48(m) of the Internal Revenue
Code of 1986 (as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act of
1990).
(b) NONBUSINESS PROPERTY.—
(1) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable per-
sonal credits) is amended by inserting after section
25C the following new section:
‘‘SEC. 25D. NONBUSINESS QUALIFIED STATIONARY FUEL
CELL POWERPLANT.
‘‘(a) IN GENERAL.—In the case of an individual, there
shall be allowed as a credit against the tax imposed by this
chapter for the taxable year an amount equal to 10 percent
of the qualified stationary fuel cell powerplant expenditures
which are paid or incurred during such year.
‘‘(b) LIMITATIONS.—
‘‘(1) IN
GENERAL.—The credit allowed under
subsection (a) for the taxable year and all prior tax-
able years shall not exceed $1,000 for each kilowatt of
capacity.
‘‘(2) LIMITATION BASED ON AMOUNT OF TAX.—
The credit allowed under subsection (a) for the tax-
able year shall not exceed the excess of—
‘‘(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 sections
23 and 25E) and section 27 for the taxable year.
‘‘(c) QUALIFIED STATIONARY FUEL CELL POWER-
PLANT EXPENDITURES.—For purposes of this section, the
term ‘qualified stationary fuel cell powerplant expenditures’
means expenditures by the taxpayer for any qualified sta-
tionary fuel cell powerplant (as defined in section
48(a)(4))—
‘‘(1) which meets the requirements of subpara-
graphs (B) and (D) of section 48(a)(3), and
‘‘(2) which is installed on or in connection with
a dwelling unit—
‘‘(A) which is located in the United States,
and
‘‘(B) which is used by the taxpayer as a res-
idence.
Such term includes expenditures for labor costs properly al-
locable to the onsite preparation, assembly, or original in-
stallation of the property.
‘‘(d) SPECIAL RULES.—For purposes of this section,
rules similar to the rules of section 25C(d) shall apply.
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 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.
‘‘(f) TERMINATION.—This section shall not apply to
any expenditure made after December 31, 2006.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (a) of section 1016 is
amended by striking ‘‘and’’ at the end of para-
graph (28), by striking the period at the end of
paragraph (29) and inserting ‘‘, and’’, and by
adding at the end the following new paragraph:
‘‘(30) to the extent provided in section 25D(e), in
the case of amounts with respect to which a credit has
been allowed under section 25D.’’.
(B) The table of sections for subpart A of
part IV of subchapter A of chapter 1 is amended
by inserting after the item relating to section
25C the following new item:
‘‘Sec. 25D. Nonbusiness qualified stationary fuel cell powerplant.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to expenditures paid or
incurred after December 31, 2001.
SEC. 104. ALTERNATIVE MOTOR VEHICLE CREDIT.
(a) IN GENERAL.—Subpart B of part IV of subchapter
A of chapter 1 (relating to foreign tax credit, etc.) is amend-
ed by adding at the end the following:
‘‘SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed
as a credit against the tax imposed by this chapter for the
taxable year an amount equal to the sum of—
‘‘(1) the new qualified fuel cell motor vehicle
credit determined under subsection (b),
‘‘(2) the new qualified hybrid motor vehicle cred-
it determined under subsection (c),
‘‘(3) the new qualified alternative fuel motor ve-
hicle credit determined under subsection (d), and
‘‘(4) the advanced lean burn technology motor
vehicle credit determined under subsection (e).
‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE
CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the new qualified fuel cell motor vehicle credit de-
termined under this subsection with respect to a new
qualified fuel cell motor vehicle placed in service by
the taxpayer during the taxable year is—
‘‘(A) $4,000, if such vehicle has a gross ve-
hicle weight rating of not more than 8,500
pounds,
‘‘(B) $10,000, if such vehicle has a gross ve-
hicle weight rating of more than 8,500 pounds
but not more than 14,000 pounds,
‘‘(C) $20,000, if such vehicle has a gross ve-
hicle weight rating of more than 14,000 pounds
but not more than 26,000 pounds, and
‘‘(D) $40,000, if such vehicle has a gross ve-
hicle weight rating of more than 26,000 pounds.
‘‘(2) INCREASE FOR FUEL EFFICIENCY.—
‘‘(A) IN GENERAL.—The amount determined
under paragraph (1)(A) with respect to a new
qualified fuel cell motor vehicle which is a pas-
senger automobile or light truck shall be in-
creased by—
‘‘(i) $1,000, if such vehicle achieves at
least 150 percent but less than 175 percent
of the 2000 model year city fuel economy,
‘‘(ii) $1,500, if such vehicle achieves at
least 175 percent but less than 200 percent
of the 2000 model year city fuel economy,
‘‘(iii) $2,000, if such vehicle achieves
at least 200 percent but less than 225 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iv) $2,500, if such vehicle achieves at
least 225 percent but less than 250 percent
of the 2000 model year city fuel economy,
‘‘(v) $3,000, if such vehicle achieves at
least 250 percent but less than 275 percent
of the 2000 model year city fuel economy,
‘‘(vi) $3,500, if such vehicle achieves at
least 275 percent but less than 300 percent
of the 2000 model year city fuel economy,
and
‘‘(vii) $4,000, if such vehicle achieves
at least 300 percent of the 2000 model year
city fuel economy.
‘‘(B) 2000 MODEL YEAR CITY FUEL ECON-
OMY.—For purposes of subparagraph (A), the
2000 model year city fuel economy with respect
to a vehicle shall be determined in accordance
with the following tables:
‘‘(i) In the case of a passenger auto-
mobile:
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
1,500 or 1,750 lbs ..........................................................................
43.7 mpg
2,000 lbs ..........................................................................................
38.3 mpg
2,250 lbs ..........................................................................................
34.1 mpg
2,500 lbs ..........................................................................................
30.7 mpg
2,750 lbs ..........................................................................................
27.9 mpg
3,000 lbs ..........................................................................................
25.6 mpg
3,500 lbs ..........................................................................................
22.0 mpg
4,000 lbs ..........................................................................................
19.3 mpg
4,500 lbs ..........................................................................................
17.2 mpg
5,000 lbs ..........................................................................................
15.5 mpg
5,500 lbs ..........................................................................................
14.1 mpg
6,000 lbs ..........................................................................................
12.9 mpg
6,500 lbs ..........................................................................................
11.9 mpg
7,000 or 8,500 lbs ..........................................................................
11.1 mpg.
‘‘(ii) In the case of a light truck:
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
1,500 or 1,750 lbs ..........................................................................
37.6 mpg
2,000 lbs ..........................................................................................
33.7 mpg
2,250 lbs ..........................................................................................
30.6 mpg
2,500 lbs ..........................................................................................
28.0 mpg
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
2,750 lbs ..........................................................................................
25.9 mpg
3,000 lbs ..........................................................................................
24.1 mpg
3,500 lbs ..........................................................................................
21.3 mpg
4,000 lbs ..........................................................................................
19.0 mpg
4,500 lbs ..........................................................................................
17.3 mpg
5,000 lbs ..........................................................................................
15.8 mpg
5,500 lbs ..........................................................................................
14.6 mpg
6,000 lbs ..........................................................................................
13.6 mpg
6,500 lbs ..........................................................................................
12.8 mpg
7,000 or 8,500 lbs ..........................................................................
12.0 mpg.
‘‘(C) VEHICLE INERTIA WEIGHT CLASS.—
For purposes of subparagraph (B), the term ‘ve-
hicle inertia weight class’ has the same meaning
as when defined in regulations prescribed by the
Administrator of the Environmental Protection
Agency for purposes of the administration of title
II of the Clean Air Act (42 U.S.C. 7521 et seq.).
‘‘(3) NEW QUALIFIED FUEL CELL MOTOR VEHI-
CLE.—For purposes of this subsection, the term ‘new
qualified fuel cell motor vehicle’ means a motor
vehicle—
‘‘(A) which is propelled by power derived
from one or more cells which convert chemical
energy directly into electricity by combining ox-
ygen with hydrogen fuel which is stored on board
the vehicle in any form and may or may not re-
quire reformation prior to use,
‘‘(B) which, in the case of a passenger auto-
mobile or light truck—
‘‘(i) for 2002 and later model vehicles,
has received a certificate of conformity
under the Clean Air Act and meets or ex-
ceeds the equivalent qualifying California
low emission vehicle standard under section
243(e)(2) of the Clean Air Act for that make
and model year, and
‘‘(ii) for 2004 and later model vehicles,
has received a certificate that such vehicle
meets or exceeds the Tier II emission level
established in regulations prescribed by the
Administrator of the Environmental Protec-
tion Agency under section 202(i) of the
Clean Air Act for that make and model year
vehicle,
‘‘(C) the original use of which commences
with the taxpayer,
‘‘(D) which is acquired for use or lease by
the taxpayer and not for resale, and
‘‘(E) which is made by a manufacturer.
‘‘(c) NEW QUALIFIED HYBRID MOTOR VEHICLE CRED-
IT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the new qualified hybrid motor vehicle credit de-
termined under this subsection with respect to a new
qualified hybrid motor vehicle placed in service by the
taxpayer during the taxable year is the credit amount
determined under paragraph (2).
‘‘(2) CREDIT AMOUNT.—
‘‘(A) IN GENERAL.—The credit amount de-
termined under this paragraph shall be deter-
mined in accordance with the following tables:
‘‘(i) In the case of a new qualified hy-
brid motor vehicle which is a passenger
automobile or light truck and which pro-
vides the following percentage of the max-
imum available power:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 2.5 percent but less than 10 percent ..............................
$250
At least 10 percent but less than 20 percent ...............................
$500
At least 20 percent but less than 30 percent ...............................
$750
At least 30 percent .........................................................................
$1,000.
‘‘(ii) In the case of a new qualified hy-
brid motor vehicle which is a heavy duty
hybrid motor vehicle and which provides the
following percentage of the maximum avail-
able power:
‘‘(I) If such vehicle has a gross ve-
hicle weight rating of not more than
14,000 pounds:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 20 percent but less than 30 percent ...............................
$1,500
At least 30 percent but less than 40 percent ...............................
$1,750
At least 40 percent but less than 50 percent ...............................
$2,000
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 50 percent but less than 60 percent ...............................
$2,250
At least 60 percent .........................................................................
$2,500.
‘‘(II) If such vehicle has a gross
vehicle weight rating of more than
14,000 but not more than 26,000
pounds:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 20 percent but less than 30 percent ...............................
$4,000
At least 30 percent but less than 40 percent ...............................
$4,500
At least 40 percent but less than 50 percent ...............................
$5,000
At least 50 percent but less than 60 percent ...............................
$5,500
At least 60 percent .........................................................................
$6,000.
‘‘(III) If such vehicle has a gross
vehicle weight rating of more than
26,000 pounds:
‘‘If percentage of the max-
imum available power is:
The credit amount is:
At least 20 percent but less than 30 percent ...............................
$6,000
At least 30 percent but less than 40 percent ...............................
$7,000
At least 40 percent but less than 50 percent ...............................
$8,000
At least 50 percent but less than 60 percent ...............................
$9,000
At least 60 percent .........................................................................
$10,000.
‘‘(B) INCREASE FOR FUEL EFFICIENCY.—
‘‘(i) AMOUNT.—The amount deter-
mined under subparagraph (A)(i) with re-
spect to a passenger automobile or light
truck shall be increased by—
‘‘(I) 
$1,000, 
if 
such 
vehicle
achieves at least 125 percent but less
than 150 percent of the 2000 model
year city fuel economy,
‘‘(II) 
$1,500, 
if 
such 
vehicle
achieves at least 150 percent but less
than 175 percent of the 2000 model
year city fuel economy,
‘‘(III) $2,000, if such vehicle
achieves at least 175 percent but less
than 200 percent of the 2000 model
year city fuel economy,
‘‘(IV) $2,500, if such vehicle
achieves at least 200 percent but less
than 225 percent of the 2000 model
year city fuel economy,
‘‘(V) 
$3,000, 
if 
such 
vehicle
achieves at least 225 percent but less
than 250 percent of the 2000 model
year city fuel economy, and
‘‘(VI) $3,500, if such vehicle
achieves at least 250 percent of the
2000 model year city fuel economy.
‘‘(ii) 2000 MODEL
YEAR
CITY
FUEL
ECONOMY.—For purposes of clause (i), the
2000 model year city fuel economy with re-
spect to a vehicle shall be determined using
the tables provided in subsection (b)(2)(B)
with respect to such vehicle.
‘‘(iii) OPTION
TO
USE
LIKE
VEHI-
CLE.—For purposes of clause (i), at the op-
tion of the vehicle manufacturer, the in-
crease for fuel efficiency may be calculated
by comparing the new qualified hybrid
motor vehicle to a ‘like vehicle’.
‘‘(C) INCREASE
FOR
ACCELERATED
EMIS-
SIONS PERFORMANCE.—The amount determined
under subparagraph (A)(ii) with respect to an
applicable heavy duty hybrid motor vehicle shall
be increased by the increase credit amount deter-
mined in accordance with the following tables:
‘‘(i) In the case of a vehicle which has
a gross vehicle weight rating of not more
than 14,000 pounds:
‘‘If the model year is:
The increase credit amount is:
2002 ................................................................................................
$3,500
2003 ................................................................................................
$3,000
2004 ................................................................................................
$2,500
2005 ................................................................................................
$2,000
2006 ................................................................................................
$1,500.
‘‘(ii) In the case of a vehicle which has
a gross vehicle weight rating of more than
14,000 pounds but not more than 26,000
pounds:
‘‘If the model year is:
The increase credit amount is:
2002 ................................................................................................
$9,000
2003 ................................................................................................
$7,750
2004 ................................................................................................
$6,500
2005 ................................................................................................
$5,250
2006 ................................................................................................
$4,000.
‘‘(iii) In the case of a vehicle which has
a gross vehicle weight rating of more than
26,000 pounds:
‘‘If the model year is:
The increase credit amount is:
2002 ................................................................................................
$14,000
2003 ................................................................................................
$12,000
2004 ................................................................................................
$10,000
2005 ................................................................................................
$8,000
2006 ................................................................................................
$6,000.
‘‘(D) CONSERVATION CREDIT.—
‘‘(i) AMOUNT.—The amount deter-
mined under subparagraph (A)(i) with re-
spect to a passenger automobile or light
truck shall be increased by—
‘‘(I) $250, if such vehicle achieves
a lifetime fuel savings of at least 1,500
gallons of gasoline, and
‘‘(II) $500, if such vehicle achieves
a lifetime fuel savings of at least 2,500
gallons of gasoline.
‘‘(ii) LIFETIME
FUEL
SAVINGS
FOR
LIKE VEHICLE.—For purposes of clause (i),
at the option of the vehicle manufacturer,
the lifetime fuel savings fuel may be cal-
culated by comparing the new qualified hy-
brid motor vehicle to a ‘like vehicle’.
‘‘(E) DEFINITIONS.—
‘‘(i) APPLICABLE HEAVY DUTY HYBRID
MOTOR VEHICLE.—For purposes of subpara-
graph (C), the term ‘applicable heavy duty
hybrid motor vehicle’ means a heavy duty
hybrid motor vehicle which is powered by
an internal combustion or heat engine
which is certified as meeting the emission
standards set in the regulations prescribed
by the Administrator of the Environmental
Protection Agency for 2007 and later model
year diesel heavy duty engines or 2008 and
later model year ottocycle heavy duty en-
gines, as applicable.
‘‘(ii) HEAVY DUTY HYBRID MOTOR VE-
HICLE.—For purposes of this paragraph,
the term ‘heavy duty hybrid motor vehicle’
means a new qualified hybrid motor vehicle
which has a gross vehicle weight rating of
more than 10,000 pounds and draws pro-
pulsion energy from both of the following
onboard sources of stored energy:
‘‘(I) An internal combustion or
heat engine using consumable fuel
which, for 2002 and later model vehi-
cles, has received a certificate of con-
formity under the Clean Air Act and
meets or exceeds a level of not greater
than 3.0 grams per brake horsepower-
hour of oxides of nitrogen and 0.01 per
brake horsepower-hour of particulate
matter.
‘‘(II) A rechargeable energy stor-
age system.
‘‘(iii) MAXIMUM AVAILABLE POWER.—
‘‘(I) PASSENGER AUTOMOBILE OR
LIGHT TRUCK.—For purposes of sub-
paragraph (A)(i), the term ‘maximum
available power’ means the maximum
power available from the battery or
other electrical storage device, during a
standard 10 second pulse power test,
divided by the sum of the battery or
other electrical storage device and the
SAE net power of the heat engine.
‘‘(II) HEAVY DUTY HYBRID MOTOR
VEHICLE.—For purposes of subpara-
graph (A)(ii), the term ‘maximum
available power’ means the maximum
power available from the battery or
other electrical storage device, during a
standard 10 second pulse power test,
divided by the vehicle’s total traction
power. The term ‘total traction power’
means the sum of the electric motor
peak power and the heat engine peak
power of the vehicle, except that if the
electric motor is the sole means by
which the vehicle can be driven, the
total traction power is the peak electric
motor power.
‘‘(iv) LIKE VEHICLE.—For purposes of
subparagraph (B)(iii), the term ‘like vehi-
cle’ for a new qualified hybrid motor vehicle
derived from a conventional production ve-
hicle produced in the same model year
means a model that is equivalent in the fol-
lowing areas:
‘‘(I) Body style (2-door or 4-door).
‘‘(II) Transmission (automatic or
manual).
‘‘(III) Acceleration performance
(± 0.05 seconds).
‘‘(IV) Drivetrain (2-wheel drive or
4-wheel drive).
‘‘(V) Certification by the Admin-
istrator of the Environmental Protec-
tion Agency.
‘‘(v) LIFETIME
FUEL
SAVINGS.—For
purposes of subsection (c)(2)(D), the term
‘lifetime fuel savings’ shall be calculated by
dividing 120,000 by the difference between
the 2000 model year city fuel economy for
the vehicle inertia weight class and the city
fuel economy for the new qualified hybrid
motor vehicle.
‘‘(3) NEW
QUALIFIED
HYBRID
MOTOR
VEHI-
CLE.—For purposes of this subsection, the term ‘new
qualified hybrid motor vehicle’ means a motor
vehicle—
‘‘(A) which draws propulsion energy from
onboard sources of stored energy which are
both—
‘‘(i) an internal combustion or heat en-
gine using combustible fuel, and
‘‘(ii) a rechargeable energy storage sys-
tem,
‘‘(B) which, in the case of a passenger auto-
mobile or light truck, for 2002 and later model
vehicles, has received a certificate of conformity
under the Clean Air Act and meets or exceeds
the equivalent qualifying California low emis-
sion vehicle standard under section 243(e)(2) of
the Clean Air Act for that make and model year,
‘‘(C) the original use of which commences
with the taxpayer,
‘‘(D) which is acquired for use or lease by
the taxpayer and not for resale, and
‘‘(E) which is made by a manufacturer.
‘‘(d) NEW QUALIFIED ALTERNATIVE FUEL MOTOR VE-
HICLE CREDIT.—
‘‘(1) ALLOWANCE OF CREDIT.—Except as pro-
vided in paragraph (5), the credit determined under
this subsection is an amount equal to the applicable
percentage of the incremental cost of any new quali-
fied alternative fuel motor vehicle placed in service by
the taxpayer during the taxable year.
‘‘(2) APPLICABLE
PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage with re-
spect to any new qualified alternative fuel motor vehi-
cle is—
‘‘(A) 50 percent, plus
‘‘(B) 30 percent, if such vehicle—
‘‘(i) has received a certificate of con-
formity under the Clean Air Act and meets
or exceeds the most stringent standard
available for certification under the Clean
Air Act for that make and model year vehi-
cle (other than a zero emission standard), or
‘‘(ii) has received an order from an ap-
plicable State certifying the vehicle for sale
or lease in California and meets or exceeds
the most stringent standard available for
certification under the State laws of Cali-
fornia (enacted in accordance with a waiver
granted under section 209(b) of the Clean
Air Act) for that make and model year vehi-
cle (other than a zero emission standard).
‘‘(3) INCREMENTAL COST.—For purposes of this
subsection, the incremental cost of any new qualified
alternative fuel motor vehicle is equal to the amount
of the excess of the manufacturer’s suggested retail
price for such vehicle over such price for a gasoline
or diesel fuel motor vehicle of the same model, to the
extent such amount does not exceed—
‘‘(A) $5,000, if such vehicle has a gross ve-
hicle weight rating of not more than 8,500
pounds,
‘‘(B) $10,000, if such vehicle has a gross ve-
hicle weight rating of more than 8,500 pounds
but not more than 14,000 pounds,
‘‘(C) $25,000, if such vehicle has a gross ve-
hicle weight rating of more than 14,000 pounds
but not more than 26,000 pounds, and
‘‘(D) $40,000, if such vehicle has a gross ve-
hicle weight rating of more than 26,000 pounds.
‘‘(4) QUALIFIED ALTERNATIVE FUEL MOTOR VE-
HICLE DEFINED.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified al-
ternative fuel motor vehicle’ means any motor
vehicle—
‘‘(i) which is only capable of operating
on an alternative fuel,
‘‘(ii) the original use of which com-
mences with the taxpayer,
‘‘(iii) which is acquired by the tax-
payer for use or lease, but not for resale,
and
‘‘(iv) which is made by a manufac-
turer.
‘‘(B) ALTERNATIVE FUEL.—The term ‘alter-
native fuel’ means compressed natural gas, lique-
fied natural gas, liquefied petroleum gas, hydro-
gen, and any liquid at least 85 percent of the
volume of which consists of methanol.
‘‘(5) CREDIT FOR MIXED-FUEL VEHICLES.—
‘‘(A) IN GENERAL.—In the case of a mixed-
fuel vehicle placed in service by the taxpayer
during the taxable year, the credit determined
under this subsection is an amount equal to—
‘‘(i) in the case of a 75/25 mixed-fuel
vehicle, 70 percent of the credit which would
have been allowed under this subsection if
such vehicle was a qualified alternative fuel
motor vehicle, and
‘‘(ii) in the case of a 95/5 mixed-fuel
vehicle, 95 percent of the credit which would
have been allowed under this subsection if
such vehicle was a qualified alternative fuel
motor vehicle.
‘‘(B) MIXED-FUEL VEHICLE.—For purposes
of this subsection, the term ‘mixed-fuel vehicle’
means any motor vehicle described in subpara-
graph (C) or (D) of paragraph (3), which—
‘‘(i) is certified by the manufacturer as
being able to perform efficiently in normal
operation on a combination of an alter-
native fuel and a petroleum-based fuel,
‘‘(ii) either—
‘‘(I) has received a certificate of
conformity under the Clean Air Act, or
‘‘(II) has received an order from
an applicable State certifying the vehi-
cle for sale or lease in California and
meets or exceeds the low emission vehi-
cle standard under section 88.105–94
of title 40, Code of Federal Regula-
tions, for that make and model year
vehicle,
‘‘(iii) the original use of which com-
mences with the taxpayer,
‘‘(iv) which is acquired by the tax-
payer for use or lease, but not for resale,
and
‘‘(v) which is made by a manufacturer.
‘‘(C) 75/25 
MIXED-FUEL
VEHICLE.—For
purposes of this subsection, the term ‘75/25
mixed-fuel vehicle’ means a mixed-fuel vehicle
which operates using at least 75 percent alter-
native fuel and not more than 25 percent petro-
leum-based fuel.
‘‘(D) 95/5 MIXED-FUEL VEHICLE.—For pur-
poses of this subsection, the term ‘95/5 mixed-fuel
vehicle’ means a mixed-fuel vehicle which oper-
ates using at least 95 percent alternative fuel
and not more than 5 percent petroleum-based
fuel.
‘‘(e) ADVANCED LEAN BURN TECHNOLOGY MOTOR VE-
HICLE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the advanced lean burn technology motor vehicle
credit determined under this subsection with respect
to a new qualified advanced lean burn technology
motor vehicle placed in service by the taxpayer dur-
ing the taxable year is the credit amount determined
under paragraph (2).
‘‘(2) CREDIT AMOUNT.—
‘‘(A) INCREASE
FOR
FUEL
EFFICIENCY.—
The credit amount determined under this para-
graph shall be—
‘‘(i) $1,000, if such vehicle achieves at
least 125 percent but less than 150 percent
of the 2000 model year city fuel economy,
‘‘(ii) $1,500, if such vehicle achieves at
least 150 percent but less than 175 percent
of the 2000 model year city fuel economy,
‘‘(iii) $2,000, if such vehicle achieves
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iv) $2,500, if such vehicle achieves at
least 200 percent but less than 225 percent
of the 2000 model year city fuel economy,
‘‘(v) $3,000, if such vehicle achieves at
least 225 percent but less than 250 percent
of the 2000 model year city fuel economy,
and
‘‘(vi) $3,500, if such vehicle achieves at
least 250 percent of the 2000 model year
city fuel economy.
For purposes of clause (i), the 2000 model year
city fuel economy with respect to a vehicle shall
be determined using the tables provided in sub-
section (b)(2)(B) with respect to such vehicle.
‘‘(B) CONSERVATION CREDIT.—The amount
determined under subparagraph (A) with respect
to an advanced lean burn technology motor vehi-
cle shall be increased by—
‘‘(i) $250, if such vehicle achieves a
lifetime fuel savings of at least 1,500 gallons
of gasoline, and
‘‘(ii) $500, if such vehicle achieves a
lifetime fuel savings of at least 2,500 gallons
of gasoline.
‘‘(C) OPTION TO USE LIKE VEHICLE.—At
the option of the vehicle manufacturer, the in-
crease for fuel efficiency and conservation credit
may be calculated by comparing the new ad-
vanced lean-burn technology motor vehicle to a
like vehicle.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section.—
‘‘(A) ADVANCED LEAN BURN TECHNOLOGY
MOTOR VEHICLE.—The term ‘advanced lean burn
technology motor vehicle’ means a motor vehicle
with an internal combustion engine that—
‘‘(i) is designed to operate primarily
using more air than is necessary for com-
plete combustion of the fuel,
‘‘(ii) incorporates direct injection,
‘‘(iii) achieves at least 125 percent of
the 2000 model year city fuel economy, and
‘‘(iv) for 2004 and later model vehicles,
has received a certificate that such vehicle
meets or exceeds the Bin 5, Tier 2 emission
levels (for passenger vehicles) or Bin 8, Tier
2 emission levels (for light trucks) estab-
lished in regulations prescribed by the Ad-
ministrator of the Environmental Protec-
tion Agency under section 202(i) of the
Clean Air Act for that make and model year
vehicle.
‘‘(B) LIKE VEHICLE.—The term ‘like vehi-
cle’ for an advanced lean burn technology motor
vehicle derived from a conventional production
vehicle produced in the same model year means
a model that is equivalent in the following areas:
‘‘(i) Body style (2-door or 4-door),
‘‘(ii) Transmission (automatic or man-
ual),
‘‘(iii) Acceleration performance (± 0.05
seconds).
‘‘(iv) Drivetrain (2-wheel drive or 4-
wheel drive).
‘‘(v) Certification by the Administrator
of the Environmental Protection Agency.
‘‘(C) LIFETIME FUEL SAVINGS.—The term
‘lifetime fuel savings’ shall be calculated by di-
viding 120,000 by the difference between the
2000 model year city fuel economy for the vehicle
inertia weight class and the city fuel economy
for the new qualified hybrid motor vehicle.
‘‘(f) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed under subsection (a) for the taxable year shall
not exceed the excess of—
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by section
55, over
‘‘(2) the sum of the credits allowable under sub-
part A and sections 27, 29, and 30A for the taxable
year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘(1) CONSUMABLE FUEL.—The term ‘consumable
fuel’ means any solid, liquid, or gaseous matter which
releases energy when consumed by an auxiliary power
unit.
‘‘(2) MOTOR VEHICLE.—The term ‘motor vehicle’
has the meaning given such term by section 30(c)(2).
‘‘(3) 2000 MODEL YEAR CITY FUEL ECONOMY.—
The 2000 model year city fuel economy with respect
to any vehicle shall be measured under rules similar
to the rules under section 4064(c).
‘‘(4) OTHER
TERMS.—The terms ‘automobile’,
‘passenger automobile’, ‘light truck’, and ‘manufac-
turer’ have the meanings given such terms in regula-
tions prescribed by the Administrator of the Environ-
mental Protection Agency for purposes of the admin-
istration of title II of the Clean Air Act (42 U.S.C.
7521 et seq.).
‘‘(5) REDUCTION IN BASIS.—For purposes of this
subtitle, the basis of any property for which a credit
is allowable under subsection (a) shall be reduced by
the amount of such credit so allowed.
‘‘(6) NO DOUBLE BENEFIT.—The amount of any
deduction or credit allowable under this chapter
(other than the credit allowable under this section)—
‘‘(A) for any incremental cost taken into ac-
count in computing the amount of the credit de-
termined under subsection (d) shall be reduced
by the amount of such credit attributable to such
cost, and
‘‘(B) with respect to a vehicle described
under subsection (b) or (c), shall be reduced by
the amount of credit allowed under subsection
(a) for such vehicle for the taxable year.
‘‘(7) PROPERTY
USED
BY
TAX-EXEMPT
ENTI-
TIES.—In the case of a credit amount which is allow-
able with respect to a motor vehicle which is acquired
by an entity exempt from tax under this chapter, the
person which sells or leases such vehicle to the entity
shall be treated as the taxpayer with respect to the ve-
hicle for purposes of this section and the credit shall
be allowed to such person, but only if the person
clearly discloses to the entity in any sale or lease doc-
ument the specific amount of any credit otherwise al-
lowable to the entity under this section and reduces
the sale or lease price of such vehicle by an equivalent
amount of such credit.
‘‘(8) RECAPTURE.—The Secretary shall, by regu-
lations, provide for recapturing the benefit of any
credit allowable under subsection (a) with respect to
any property which ceases to be property eligible for
such credit (including recapture in the case of a lease
period of less than the economic life of a vehicle).
‘‘(9) PROPERTY USED OUTSIDE UNITED STATES,
ETC., NOT
QUALIFIED.—No credit shall be allowed
under subsection (a) with respect to any property re-
ferred to in section 50(b) or with respect to the por-
tion of the cost of any property taken into account
under section 179.
‘‘(10) ELECTION
TO
NOT
TAKE
CREDIT.—No
credit shall be allowed under subsection (a) for any
vehicle if the taxpayer elects to not have this section
apply to such vehicle.
‘‘(11) CARRYFORWARD ALLOWED.—
‘‘(A) IN GENERAL.—If the credit amount al-
lowable under subsection (a) for a taxable year
exceeds the amount of the limitation under sub-
section (f) for such taxable year (referred to as
the ‘unused credit year’ in this paragraph), such
excess shall be allowed as a credit carryforward
for each of the 20 taxable years following the un-
used credit year.
‘‘(B) RULES.—Rules similar to the rules of
section 39 shall apply with respect to the credit
carryforward under subparagraph (A).
‘‘(12) INTERACTION
WITH
AIR
QUALITY
AND
MOTOR VEHICLE SAFETY STANDARDS.—Unless other-
wise provided in this section, a motor vehicle shall
not be considered eligible for a credit under this sec-
tion unless such vehicle is in compliance with—
‘‘(A) the applicable provisions of the Clean
Air Act for the applicable make and model year
of the vehicle (or applicable air quality provi-
sions of State law in the case of a State which
has adopted such provision under a waiver
under section 209(b) of the Clean Air Act), and
‘‘(B) the motor vehicle safety provisions of
sections 30101 through 30169 of title 49, United
States Code.
‘‘(h) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall promul-
gate such regulations as necessary to carry out the
provisions of this section.
‘‘(2) ADMINISTRATOR OF ENVIRONMENTAL PRO-
TECTION AGENCY.—The Administrator of the Envi-
ronmental Protection Agency, in coordination with
the Secretary of Transportation and the Secretary of
the Treasury, shall prescribe such regulations as nec-
essary to determine whether a motor vehicle meets the
requirements to be eligible for a credit under this sec-
tion.
‘‘(i) TERMINATION.—This section shall not apply to
any property placed in service after—
‘‘(1) in the case of a new qualified fuel cell motor
vehicle (as described in subsection (b)), December 31,
2011, and
‘‘(2) in the case of any other property, December
31, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (29), by striking the
period at the end of paragraph (30) and inserting ‘‘,
and’’, and by adding at the end the following:
‘‘(31) 
to 
the 
extent 
provided 
in 
section
30B(g)(5).’’.
(2) Section 6501(m) is amended by inserting
‘‘30B(g)(10),’’ after ‘‘30(d)(4),’’.
(3) The table of sections for subpart B of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 30A the following:
‘‘Sec. 30B. Alternative motor vehicle credit.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after De-
cember 31, 2001, in taxable years ending after such date.
SEC. 105. EXTENSION OF DEDUCTION FOR CERTAIN RE-
FUELING PROPERTY.
(a) IN GENERAL.—Section 179A(f) (relating to termi-
nation) is amended by striking ‘‘2004’’ and inserting
‘‘2007’’.
(b) MODIFICATION OF PHASEOUT.—Subparagraph (B)
of section 179A(b)(1) is amended—
(1) in clause (i), by striking ‘‘2002’’ and insert-
ing ‘‘2005’’,
(2) in clause (ii), by striking ‘‘2003’’ and insert-
ing ‘‘2006’’, and
(3) in clause (iii), by striking ‘‘2004’’ and in-
serting ‘‘2007’’.
SEC. 106. MODIFICATION OF CREDIT FOR QUALIFIED ELEC-
TRIC VEHICLES.
(a) AMOUNT OF CREDIT.—
(1) IN GENERAL.—Section 30(a) (relating to al-
lowance of credit) is amended by striking ‘‘10 percent
of’’.
(2) LIMITATION OF CREDIT ACCORDING TO TYPE
OF VEHICLE.—Section 30(b) (relating to limitations)
is amended—
(A) by striking paragraphs (1) and (2) and
inserting the following:
‘‘(1) LIMITATION ACCORDING TO TYPE OF VEHI-
CLE.—The amount of the credit allowed under sub-
section (a) for any vehicle shall not exceed the greatest
of the following amounts applicable to such vehicle:
‘‘(A) In the case of a vehicle which conforms
to the Motor Vehicle Safety Standard 500 pre-
scribed by the Secretary of Transportation, the
lesser of—
‘‘(i) 10 percent of the manufacturer’s
suggested retail price of the vehicle, or
‘‘(ii) $4,000.
‘‘(B) In the case of a vehicle not described
in subparagraph (A) with a gross vehicle weight
rating not exceeding 8,500 pounds—
‘‘(i) $4,000, or
‘‘(ii) $5,000, if such vehicle is—
‘‘(I) capable of a driving range of
at least 70 miles on a single charge of
the vehicle’s rechargeable batteries and
measured pursuant to the urban dyna-
mometer schedules under appendix I to
part 86 of title 40, Code of Federal
Regulations, or
‘‘(II) capable of a payload capac-
ity of at least 1,000 pounds.
‘‘(C) In the case of a vehicle with a gross
vehicle weight rating exceeding 8,500 pounds but
not exceeding 14,000 pounds, $10,000.
‘‘(D) In the case of a vehicle with a gross
vehicle weight rating exceeding 14,000 pounds
but not exceeding 26,000 pounds, $20,000.
‘‘(E) In the case of a vehicle with a gross
vehicle weight rating exceeding 26,000 pounds,
$40,000.’’, and
(B) by redesignating paragraph (3) as
paragraph (2).
(3) CONFORMING AMENDMENTS.—
(A) Section 53(d)(1)(B)(iii) is amended by
striking ‘‘section 30(b)(3)(B)’’ and inserting
‘‘section 30(b)(2)(B)’’.
(B) Section 55(c)(2) is amended by striking
‘‘30(b)(3)’’ and inserting ‘‘30(b)(2)’’.
(b) QUALIFIED BATTERY ELECTRIC VEHICLE.—
(1) IN GENERAL.—Section 30(c)(1)(A) (defining
qualified electric vehicle) is amended to read as fol-
lows:
‘‘(A) which is—
‘‘(i) operated solely by use of a battery
or battery pack, or
‘‘(ii) powered primarily through the
use of an electric battery or battery pack
using a flywheel or capacitor which stores
energy produced by an electric motor
through regenerative braking to assist in ve-
hicle operation,’’.
(2) LEASED VEHICLES.—Section 30(c)(1)(C) is
amended by inserting ‘‘or lease’’ after ‘‘use’’.
(3) CONFORMING AMENDMENTS.—
(A) Subsections (a) and (c) of section 30 are
each amended by inserting ‘‘battery’’ after
‘‘qualified’’ each place it appears.
(B) The heading of subsection (c) of section
30 is amended by inserting ‘‘BATTERY’’ after
‘‘QUALIFIED’’.
(C) The heading of section 30 is amended
by inserting ‘‘BATTERY’’ after ‘‘QUALIFIED’’.
(D) The item relating to section 30 in the
table of sections for subpart B of part IV of sub-
chapter A of chapter 1 is amended by inserting
‘‘battery’’ after ‘‘qualified’’.
(E) Section 179A(c)(3) is amended by in-
serting ‘‘battery’’ before ‘‘electric’’.
(F) The heading of paragraph (3) of section
179A(c) is amended by inserting ‘‘BATTERY’’ be-
fore ‘‘ELECTRIC’’.
(c) ADDITIONAL SPECIAL RULES.—Section 30(d) (re-
lating to special rules) is amended by adding at the end
the following:
‘‘(5) NO DOUBLE BENEFIT.—The amount of any
deduction or credit allowable under this chapter for
any cost taken into account in computing the amount
of the credit determined under subsection (a) shall be
reduced by the amount of such credit attributable to
such cost.
‘‘(6) PROPERTY
USED
BY
TAX-EXEMPT
ENTI-
TIES.—In the case of a credit amount which is allow-
able with respect to a vehicle which is acquired by an
entity exempt from tax under this chapter, the person
which sells or leases such vehicle to the entity shall be
treated as the taxpayer with respect to the vehicle for
purposes of this section and the credit shall be allowed
to such person, but only if the person clearly discloses
to the entity in any sale or lease contract the specific
amount of any credit otherwise allowable to the entity
under this section and reduces the sale or lease price
of such vehicle by an equivalent amount of such cred-
it.
‘‘(7) CARRYFORWARD ALLOWED.—
‘‘(A) IN GENERAL.—If the credit amount al-
lowable under subsection (a) for a taxable year
exceeds the amount of the limitation under sub-
section (b)(3) for such taxable year, such excess
shall be allowed as a credit carryforward for
each of the 20 taxable years following such tax-
able year.
‘‘(B) RULES.—Rules similar to the rules of
section 39 shall apply with respect to the credit
carryforward under subparagraph (A).’’
(d) EXTENSION.—Section 30(e) (relating to termi-
nation) is amended by striking ‘‘2004’’ and inserting
‘‘2007’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after De-
cember 31, 2001, in taxable years ending after such date.
SEC. 107. TAX CREDIT FOR ENERGY EFFICIENT APPLI-
ANCES.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related credits) is
amended by adding at the end the following new section:
‘‘SEC. 45G. ENERGY EFFICIENT APPLIANCE CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
energy efficient appliance credit determined under this sec-
tion for the taxable year is an amount equal to the applica-
ble amount determined under subsection (b) with respect
to the eligible production of qualified energy efficient appli-
ances produced by the taxpayer during the calendar year
ending with or within the taxable year.
‘‘(b) APPLICABLE AMOUNT; ELIGIBLE PRODUCTION.—
For purposes of subsection (a)—
‘‘(1) 
APPLICABLE
AMOUNT.—The 
applicable
amount is—
‘‘(A) $50 in the case of an energy efficient
clothes washer described in subsection (d)(2)(A)
or an energy efficient refrigerator described in
subsection (d)(3)(B)(i), and
‘‘(B) $100 in the case of any other energy
efficient clothes washer or energy efficient refrig-
erator.
‘‘(2) ELIGIBLE PRODUCTION.—
‘‘(A) IN GENERAL.—The eligible production
of each category of qualified energy efficient ap-
pliances is the excess of—
‘‘(i) the number of appliances in such
category which are produced by the tax-
payer during such calendar year, over
‘‘(ii) the average number of appliances
in such category which were produced by
the taxpayer during calendar years 1998,
1999, and 2000.
‘‘(B) CATEGORIES.—For purposes of sub-
paragraph (A), the categories are—
‘‘(i) energy efficient clothes washers de-
scribed in subsection (d)(2)(A),
‘‘(ii) energy efficient clothes washers
described in subsection (d)(2)(B),
‘‘(iii) energy efficient refrigerators de-
scribed in subsection (d)(3)(B)(i), and
‘‘(iv) energy efficient refrigerators de-
scribed in subsection (d)(3)(B)(ii).
‘‘(C) SPECIAL
RULE
FOR
2001
PRODUC-
TION.—For purposes of determining eligible pro-
duction for calendar year 2001—
‘‘(i) only production after the date of
the enactment of this section shall be taken
into account under subparagraph (A)(i),
and
‘‘(ii) the amount taken into account
under subparagraph (A)(ii) shall be an
amount which bears the same ratio to the
amount which would (but for this subpara-
graph) be taken into account under sub-
paragraph (A)(ii) as—
‘‘(I) the number of days in cal-
endar year 2001 after the date of the
enactment of this section, bears to
‘‘(II) 365.
‘‘(c) LIMITATION ON MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The maximum amount of
credit allowed under subsection (a) with respect to a
taxpayer for all taxable years shall be—
‘‘(A) $30,000,000 with respect to the credit
determined under subsection (b)(1)(A), and
‘‘(B) $30,000,000 with respect to the credit
determined under subsection (b)(1)(B).
‘‘(2) LIMITATION BASED ON GROSS RECEIPTS.—
The credit allowed under subsection (a) with respect
to a taxpayer for the taxable year shall not exceed an
amount equal to 2 percent of the average annual gross
receipts of the taxpayer for the 3 taxable years pre-
ceding the taxable year in which the credit is deter-
mined.
‘‘(3) GROSS
RECEIPTS.—For purposes of this
subsection, the rules of paragraphs (2) and (3) of sec-
tion 448(c) shall apply.
‘‘(d) QUALIFIED ENERGY EFFICIENT APPLIANCE.—
For purposes of this section:
‘‘(1) IN GENERAL.—The term ‘qualified energy
efficient appliance’ means—
‘‘(A) an energy efficient clothes washer, or
‘‘(B) an energy efficient refrigerator.
‘‘(2) ENERGY
EFFICIENT
CLOTHES
WASHER.—
The term ‘energy efficient clothes washer’ means a
residential clothes washer, including a residential
style coin operated washer, which is manufactured
with—
‘‘(A) a 1.26 MEF or greater, or
‘‘(B) a 1.42 MEF (1.5 MEF for washers
produced after 2004) or greater.
‘‘(3) ENERGY
EFFICIENT
REFRIGERATOR.—The
term ‘energy efficient refrigerator’ means an auto-
matic defrost refrigerator-freezer which—
‘‘(A) has an internal volume of at least 16.5
cubic feet, and
‘‘(B) consumes—
‘‘(1) with respect to energy efficient refrigerators
described in subsection (d)(3)(B)(i) produced after
2004, and
‘‘(2) with respect to all other qualified energy ef-
ficient appliances produced after 2006.’’.
(b) LIMITATION ON CARRYBACK.—Section 39(d) (relat-
ing to transition rules) is amended by adding at the end
the following new paragraph:
‘‘(11) NO CARRYBACK OF ENERGY EFFICIENT AP-
PLIANCE CREDIT BEFORE EFFECTIVE DATE.—No por-
tion of the unused business credit for any taxable year
which is attributable to the energy efficient appliance
credit determined under section 45G may be carried
to a taxable year ending before the date of the enact-
ment of section 45G.’’.
(c) CONFORMING AMENDMENT.—Section 38(b) (relat-
ing to general business credit) is amended by striking
‘‘plus’’ at the end of paragraph (14), by striking the period
at the end of paragraph (15) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(16) the energy efficient appliance credit deter-
mined under section 45G(a).’’.
(d) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section 45F the
following new item:
‘‘Sec. 45G. Energy efficient appliance credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after the date
of the enactment of this Act.
SEC. 108. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits)
is amended by inserting after section 25D the following new
section:
‘‘SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi-
vidual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount
equal to 20 percent of the amount paid or incurred by the
taxpayer for qualified energy efficiency improvements 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
$2,000.
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER ON
SAME DWELLING TAKEN INTO ACCOUNT.—If a credit
was allowed to the taxpayer under subsection (a) with
respect to a dwelling in 1 or more prior taxable years,
the amount of the credit otherwise allowable for the
taxable year with respect to that dwelling shall not
exceed the amount of $2,000 reduced by the sum of the
credits allowed under subsection (a) to the taxpayer
with respect to the dwelling for all prior taxable
years.
‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—
The credit allowed under subsection (a) for the tax-
able year shall not exceed the excess of—
‘‘(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
23) and section 27 for the taxable year.
‘‘(c) CARRYFORWARD
OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the limitation
imposed by subsection (b)(3) for such taxable year, such ex-
cess shall be carried to the succeeding taxable year and
added to the credit allowable under subsection (a) for such
succeeding taxable year.
‘‘(d) QUALIFIED
ENERGY
EFFICIENCY
IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified
energy efficiency improvements’ means any energy efficient
building envelope component which meets the prescriptive
criteria for such component established by the 1998 Inter-
national Energy Conservation Code, if—
‘‘(1) such component is installed in or on a
dwelling—
‘‘(A) located in the United States, and
‘‘(B) owned and used by the taxpayer as the
taxpayer’s principal residence (within the mean-
ing of section 121),
‘‘(2) the original use of such component com-
mences with the taxpayer, and
‘‘(3) such component reasonably can be expected
to remain in use for at least 5 years.
If the aggregate cost of such components with respect to any
dwelling exceeds $1,000, such components shall be treated
as qualified energy efficiency improvements only if such
components are also certified in accordance with subsection
(e) as meeting such criteria.
‘‘(e) CERTIFICATION.—The certification described in
subsection (d) shall be—
‘‘(1) determined on the basis of the technical
specifications or applicable ratings (including prod-
uct labeling requirements) for the measurement of en-
ergy efficiency, based upon energy use or building en-
velope component performance, for the energy efficient
building envelope component,
‘‘(2) provided by a local building regulatory au-
thority, a utility, a manufactured home production
inspection primary inspection agency (IPIA), or an
accredited home energy rating system provider who is
accredited by or otherwise authorized to use approved
energy performance measurement methods by the
Home Energy Ratings Systems Council or the Na-
tional Association of State Energy Officials, and
‘‘(3) made in writing in a manner that specifies
in readily verifiable fashion the energy efficient build-
ing envelope components installed and their respective
energy efficiency levels.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) TENANT-STOCKHOLDER
IN
COOPERATIVE
HOUSING
CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as 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.
‘‘(2) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be
treated as having paid his proportionate share of
the cost of qualified energy efficiency improve-
ments 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.
‘‘(3) BUILDING
ENVELOPE
COMPONENT.—The
term ‘building envelope component’ means insulation
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and
metal roofs with appropriate pigmented coatings
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in or
on such dwelling.
‘‘(4) MANUFACTURED
HOMES
INCLUDED.—For
purposes of this section, the term ‘dwelling’ includes
a manufactured home which conforms to Federal
Manufactured Home Construction and Safety Stand-
ards (24 C.F.R. 3280).
‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this subsection)
result from such expenditure shall be reduced by the amount
of the credit so allowed.
‘‘(h) APPLICATION OF SECTION.—This section shall
apply to qualified energy efficiency improvements installed
after December 31, 2001 and before January 1, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 is amended by
striking ‘‘and’’ at the end of paragraph (30), by strik-
ing the period at the end of paragraph (31) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(32) to the extent provided in section 25E(g), in
the case of amounts with respect to which a credit has
been allowed under section 25E.’’.
(2) The table of sections for subpart A of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 25D the following
new item:
‘‘Sec. 25E. Energy efficiency improvements to existing homes.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 2001.
SEC. 109. BUSINESS CREDIT FOR CONSTRUCTION OF NEW
ENERGY EFFICIENT HOME.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business related credits) is
amended by inserting after section 45G the following new
section:
‘‘SEC. 45H. NEW ENERGY EFFICIENT HOME CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, in the
case of an eligible contractor, the credit determined under
this section for the taxable year is an amount equal to the
aggregate adjusted bases of all energy efficient property in-
stalled in a qualified new energy efficient home during con-
struction of such home.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The credit allowed by
this section with respect to a dwelling shall not
exceed $2,000.
‘‘(B) PRIOR
CREDIT
AMOUNTS
ON
SAME
DWELLING TAKEN INTO ACCOUNT.—If a credit
was allowed under subsection (a) with respect to
a dwelling in 1 or more prior taxable years, the
amount of the credit otherwise allowable for the
taxable year with respect to that dwelling shall
not exceed the amount of $2,000 reduced by the
sum of the credits allowed under subsection (a)
with respect to the dwelling for all prior taxable
years.
‘‘(2) COORDINATION WITH REHABILITATION AND
ENERGY CREDITS.—For purposes of this section—
‘‘(A) the basis of any property referred to in
subsection (a) shall be reduced by that portion of
the basis of any property which is attributable to
qualified rehabilitation expenditures (as defined
in section 47(c)(2)) or to the energy percentage
of energy property (as determined under section
48(a)), and
‘‘(B) expenditures taken into account under
either section 47 or 48(a) shall not be taken into
account under this section.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligible
contractor’ means the person who constructed the new
energy efficient home, or in the case of a manufac-
tured home which conforms to Federal Manufactured
Home Construction and Safety Standards (24 C.F.R.
3280), the manufactured home producer of such home.
‘‘(2) ENERGY EFFICIENT PROPERTY.—The term
‘energy efficient property’ means any energy efficient
building envelope component, and any energy effi-
cient heating or cooling appliance.
‘‘(3) 
QUALIFIED
NEW
ENERGY
EFFICIENT
HOME.—The term ‘qualified new energy efficient
home’ means a dwelling—
‘‘(A) located in the United States,
‘‘(B) the construction of which is substan-
tially completed after December 31, 2001,
‘‘(C) the original use of which is as a prin-
cipal residence (within the meaning of section
121) which commences with the person who ac-
quires such dwelling from the eligible contractor,
and
‘‘(D) which is certified to have a level of an-
nual heating and cooling energy consumption
that is at least 30 percent below the annual level
of heating and cooling energy consumption of a
comparable dwelling constructed in accordance
with the standards of the 1998 International En-
ergy Conservation Code.
‘‘(4) CONSTRUCTION.—The term ‘construction’
includes reconstruction and rehabilitation.
‘‘(5) ACQUIRE.—The term ‘acquire’ includes pur-
chase and, in the case of reconstruction and rehabili-
tation, such term includes a binding written contract
for such reconstruction or rehabilitation.
‘‘(6) BUILDING
ENVELOPE
COMPONENT.—The
term ‘building envelope component’ means insulation
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and
metal roofs with appropriate pigmented coatings
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in or
on such dwelling.
‘‘(7) MANUFACTURED
HOME
INCLUDED.—The
term ‘dwelling’ includes a manufactured home con-
forming to Federal Manufactured Home Construction
and Safety Standards (24 C.F.R. 3280).
‘‘(d) CERTIFICATION.—
‘‘(1) METHOD.—A certification described in sub-
section (c)(3)(D) shall be determined on the basis of
one of the following methods:
‘‘(A) The technical specifications or appli-
cable ratings (including product labeling require-
ments) for the measurement of energy efficiency
for the energy efficient building envelope compo-
nent or energy efficient heating or cooling appli-
ance, based upon energy use or building envelope
component performance.
‘‘(B) An energy performance measurement
method that utilizes computer software approved
by organizations designated by the Secretary.
‘‘(2) PROVIDER.—Such certification shall be pro-
vided by—
‘‘(A) in the case of a method described in
paragraph (1)(A), a local building regulatory
authority, a utility, a manufactured home pro-
duction inspection primary inspection agency
(IPIA), or an accredited home energy rating sys-
tems provider who is accredited by, or otherwise
authorized to use, approved energy performance
measurement methods by the Home Energy Rat-
ings Systems Council or the National Associa-
tion of State Energy Officials, or
‘‘(B) in the case of a method described in
paragraph (1)(B), an individual recognized by
an organization designated by the Secretary for
such purposes.
‘‘(3) FORM.—Such certification shall be made in
writing in a manner that specifies in readily
verifiable fashion the energy efficient building enve-
lope components and energy efficient heating or cool-
ing appliances installed and their respective energy
efficiency levels, and in the case of a method described
in subparagraph (B) of paragraph (1), accompanied
by written analysis documenting the proper applica-
tion of a permissible energy performance measure-
ment method to the specific circumstances of such
dwelling.
‘‘(4) REGULATIONS.—
‘‘(A) IN GENERAL.—In prescribing regula-
tions under this subsection for energy perform-
ance measurement methods, the Secretary shall
prescribe procedures for calculating annual en-
ergy costs for heating and cooling and cost sav-
ings and for the reporting of the results. Such
regulations shall—
‘‘(i) be based on the National Home
Energy Rating Technical Guidelines of the
National Association of State Energy Offi-
cials, the Home Energy Rating Guidelines
of the Home Energy Rating Systems Coun-
cil, or the modified 1998 California Resi-
dential ACM manual,
‘‘(ii) provide that any calculation pro-
cedures be developed such that the same en-
ergy efficiency measures allow a home to
qualify for the credit under this section re-
gardless of whether the house uses a gas or
oil furnace or boiler or an electric heat
pump, and
‘‘(iii) require that any computer soft-
ware allow for the printing of the Federal
tax forms necessary for the credit under this
section and explanations for the homebuyer
of the energy efficient features that were
used to comply with the requirements of this
section.
‘‘(B) PROVIDERS.—For purposes of para-
graph (2)(B), the Secretary shall establish re-
quirements for the designation of individuals
based on the requirements for energy consultants
and home energy raters specified by the National
Association of State Energy Officials.
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this subsection)
result from such expenditure shall be reduced by the amount
of the credit so allowed.
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall
apply to dwellings purchased during the period beginning
on January 1, 2002, and ending on December 31, 2006.’’.
(b) CREDIT MADE PART
OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to current
year business credit) is amended by striking ‘‘plus’’ at the
end of paragraph (15), by striking the period at the end
of paragraph (16) and inserting ‘‘, plus’’, and by adding
at the end thereof the following new paragraph:
‘‘(17) the new energy efficient home credit deter-
mined under section 45H.’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re-
lating to certain expenses for which credits are allowable)
is amended by adding at the end thereof the following new
subsection:
‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—No
deduction shall be allowed for that portion of expenses for
a new energy efficient home otherwise allowable as a deduc-
tion for the taxable year which is equal to the amount of
the credit determined for such taxable year under section
45H.’’.
(d) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 is amended by adding at the end the following
new paragraph:
‘‘(12) NO
CARRYBACK
OF
NEW
ENERGY
EFFI-
CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—No
portion of the unused business credit for any taxable
year which is attributable to the credit determined
under section 45H may be carried back to any tax-
able year ending before January 1, 2002.’’.
(e) DEDUCTION
FOR CERTAIN UNUSED BUSINESS
CREDITS.—Subsection (c) of section 196 is amended by
striking ‘‘and’’ at the end of paragraph (9), by striking the
period at the end of paragraph (10) and inserting ‘‘, and’’,
and by adding after paragraph (10) the following new
paragraph:
‘‘(11) the new energy efficient home credit deter-
mined under section 45H.’’.
(f) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section 45G the
following new item:
‘‘Sec. 45H. New energy efficient home credit.’’.
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 2001.
SEC. 110. ALLOWANCE OF DEDUCTION FOR ENERGY EFFI-
CIENT COMMERCIAL BUILDING PROPERTY.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals and cor-
porations) is amended by inserting after section 179A the
following new section:
‘‘SEC. 179B. DEDUCTION FOR ENERGY EFFICIENT COMMER-
CIAL BUILDING PROPERTY.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction an amount equal to energy efficient com-
mercial building property expenditures made by a
taxpayer for the taxable year.
‘‘(2) MAXIMUM
AMOUNT
OF
DEDUCTION.—The
amount of energy efficient commercial building prop-
erty expenditures taken into account under paragraph
(1) shall not exceed an amount equal to the product
of—
‘‘(A) $2.25, and
‘‘(B) the square footage of the building with
respect to which the expenditures are made.
‘‘(3) YEAR DEDUCTION ALLOWED.—The deduc-
tion under paragraph (1) shall be allowed for the tax-
able year in which the building is placed in service.
‘‘(b) ENERGY
EFFICIENT
COMMERCIAL
BUILDING
PROPERTY EXPENDITURES.—For purposes of this section,
the term ‘energy efficient commercial building property ex-
penditures’ means an amount paid or incurred for energy
efficient commercial building property installed on or in
connection with new construction or reconstruction of
property—
‘‘(1) for which depreciation is allowable under
section 167,
‘‘(2) which is located in the United States, and
‘‘(3) the construction or erection of which is com-
pleted by the taxpayer.
Such property includes all residential rental property, in-
cluding low-rise multifamily structures and single family
housing property which is not within the scope of Standard
90.1–1999 (described in subsection (c)). Such term includes
expenditures for labor costs properly allocable to the onsite
preparation, assembly, or original installation of the prop-
erty.
‘‘(c) ENERGY
EFFICIENT
COMMERCIAL
BUILDING
PROPERTY.—For purposes of subsection (b)—
‘‘(1) IN GENERAL.—The term ‘energy efficient
commercial building property’ means any property
which reduces total annual energy and power costs
with respect to the lighting, heating, cooling, ventila-
tion, and hot water supply systems of the building by
50 percent or more in comparison to a reference
building which meets the requirements of Standard
90.1–1999 of the American Society of Heating, Re-
frigerating, and Air Conditioning Engineers and the
Illuminating Engineering Society of North America
using methods of calculation under paragraph (2)
and certified by qualified professionals as provided
under subsection (f).
‘‘(2) METHODS
OF
CALCULATION.—The Sec-
retary, in consultation with the Secretary of Energy,
shall promulgate regulations which describe in detail
methods for calculating and verifying energy and
power consumption and cost, taking into consider-
ation the provisions of the 1998 California Nonresi-
dential ACM Manual. These procedures shall meet the
following requirements:
‘‘(A) In calculating tradeoffs and energy
performance, the regulations shall prescribe the
costs per unit of energy and power, such as kilo-
watt hour, kilowatt, gallon of fuel oil, and cubic
foot or Btu of natural gas, which may be de-
pendent on time of usage.
‘‘(B) The calculational methodology shall
require that compliance be demonstrated for a
whole building. If some systems of the building,
such as lighting, are designed later than other
systems of the building, the method shall provide
that either—
‘‘(i) the expenses taken into account
under subsection (a) shall not occur until
the date designs for all energy-using systems
of the building are completed,
‘‘(ii) the energy performance of all sys-
tems and components not yet designed shall
be assumed to comply minimally with the
requirements of such Standard 90.1–1999,
or
‘‘(iii) the expenses taken into account
under subsection (a) shall be a fraction of
such expenses based on the performance of
less than all energy-using systems in ac-
cordance with subparagraph (C).
‘‘(C) The expenditures in connection with
the design of subsystems in the building, such as
the envelope, the heating, ventilation, air condi-
tioning and water heating system, and the light-
ing system shall be allocated to the appropriate
building subsystem based on system-specific en-
ergy cost savings targets in regulations promul-
gated by the Secretary of Energy which are
equivalent, using the calculation methodology, to
the whole building requirement of 50 percent
savings.
‘‘(D) The calculational methods under this
subparagraph need not comply fully with section
11 of such Standard 90.1–1999.
‘‘(E) The calculational methods shall be fuel
neutral, such that the same energy efficiency fea-
tures shall qualify a building for the deduction
under this subsection regardless of whether the
heating source is a gas or oil furnace or an elec-
tric heat pump.
‘‘(F) The calculational methods shall pro-
vide appropriate calculated energy savings for
design methods and technologies not otherwise
credited in either such Standard 90.1–1999 or in
the 1998 California Nonresidential ACM Man-
ual, including the following:
‘‘(i) Natural ventilation.
‘‘(ii) Evaporative cooling.
‘‘(iii) Automatic lighting controls such
as occupancy sensors, photocells, and time-
clocks.
‘‘(iv) Daylighting.
‘‘(v) Designs utilizing semi-conditioned
spaces that maintain adequate comfort con-
ditions without air conditioning or without
heating.
‘‘(vi) Improved fan system efficiency,
including reductions in static pressure.
‘‘(vii) Advanced unloading mechanisms
for mechanical cooling, such as multiple or
variable speed compressors.
‘‘(viii) The calculational methods may
take into account the extent of commis-
sioning in the building, and allow the tax-
payer to take into account measured per-
formance that exceeds typical performance.
‘‘(3) COMPUTER SOFTWARE.—
‘‘(A) IN GENERAL.—Any calculation under
this subsection shall be prepared by qualified
computer software.
‘‘(B) QUALIFIED COMPUTER SOFTWARE.—
For purposes of this paragraph, the term ‘quali-
fied computer software’ means software—
‘‘(i) for which the software designer has
certified that the software meets all proce-
dures and detailed methods for calculating
energy and power consumption and costs as
required by the Secretary,
‘‘(ii) which provides such forms as re-
quired to be filed by the Secretary in con-
nection with energy efficiency of property
and the deduction allowed under this sec-
tion, and
‘‘(iii) which provides a notice form
which summarizes the energy efficiency fea-
tures of the building and its projected an-
nual energy costs.
‘‘(d) ALLOCATION OF DEDUCTION FOR PUBLIC PROP-
ERTY.—In the case of energy efficient commercial building
property installed on or in public property, the Secretary
shall promulgate a regulation to allow the allocation of the
deduction to the person primarily responsible for designing
the property in lieu of the public entity which is the owner
of such property. Such person shall be treated as the tax-
payer for purposes of this section.
‘‘(e) NOTICE TO OWNER.—The qualified individual
shall provide an explanation to the owner of the building
regarding the energy efficiency features of the building and
its projected annual energy costs as provided in the notice
under subsection (c)(3)(B)(iii).
‘‘(f) CERTIFICATION.—The Secretary, in consultation
with the Secretary of Energy, shall establish requirements
for certification and compliance procedures similar to the
procedures under section 45H(d).
‘‘(g) BASIS REDUCTION.—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 al-
lowed by subsection (a).
‘‘(h) TERMINATION.—This section shall not apply to
property placed in service after December 31, 2006.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (31), by striking the
period at the end of paragraph (32) and inserting ‘‘,
and’’, and by inserting the following new paragraph:
‘‘(33) to the extent provided in section 179B(g).’’.
(2) Section 1245(a) is amended by inserting
‘‘179B,’’ after ‘‘179A,’’ both places it appears in
paragraphs (2)(C) and (3)(C).
(3) Section 1250(b)(3) is amended by inserting
before the period at the end of the first sentence ‘‘or
by section 179B’’.
(4) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting
‘‘, or’’, and by inserting after subparagraph (H) the
following new subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 179B.’’.
(5) Section 312(k)(3)(B) is amended by striking
‘‘or 179A’’ each place it appears in the heading and
text and inserting ‘‘, 179A, or 179B’’.
(c) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1 is amended by adding
after section 179A the following new item:
‘‘Sec. 179B. Deduction for energy efficient commercial building
property.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 111. ALLOWANCE OF DEDUCTION FOR QUALIFIED EN-
ERGY MANAGEMENT DEVICES AND RETRO-
FITTED QUALIFIED METERS.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals and cor-
porations) is amended by inserting after section 179B the
following new section:
‘‘SEC. 179C. DEDUCTION FOR QUALIFIED ENERGY MANAGE-
MENT DEVICES AND RETROFITTED METERS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a
taxpayer who is a supplier of electric energy or natural
gas or a provider of electric energy or natural gas services,
there shall be allowed as a deduction an amount equal to
the cost of each qualified energy management device placed
in service during the taxable year.
‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed
by this section with respect to each qualified energy man-
agement device shall not exceed $30.
‘‘(c) QUALIFIED ENERGY MANAGEMENT DEVICE.—The
term ‘qualified energy management device’ means any tan-
gible property to which section 168 applies if such property
is a meter or metering device—
‘‘(1) which is acquired and used by the taxpayer
to enable consumers to manage their purchase or use
of electricity or natural gas in response to energy
price and usage signals, and
‘‘(2) which permits reading of energy price and
usage signals on at least a daily basis.
‘‘(d) PROPERTY USED OUTSIDE THE UNITED STATES
NOT QUALIFIED.—No deduction shall be allowed under 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.
‘‘(e) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title, the
basis of any property shall be reduced by the amount
of the deduction with respect to such 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.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (H), by striking the
period at the end of subparagraph (I) and inserting
‘‘, or’’, and by inserting after subparagraph (I) the
following new subparagraph:
‘‘(J) expenditures for which a deduction is
allowed under section 179C.’’.
(2) Section 312(k)(3)(B) is amended by striking
‘‘or 179B’’ each place it appears in the heading and
text and inserting ‘‘, 179B, or 179C’’.
(3) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (32), by striking the
period at the end of paragraph (33) and inserting ‘‘,
and’’, and by inserting after paragraph (33) the fol-
lowing new paragraph:
‘‘(34) 
to 
the 
extent 
provided 
in 
section
179C(e)(1).’’.
(4) Section 1245(a) is amended by inserting
‘‘179C,’’ after ‘‘179B,’’ both places it appears in para-
graphs (2)(C) and (3)(C).
(5) The table of contents for subpart B of part
IV of subchapter A of chapter 1 is amended by insert-
ing after the item relating to section 179B the fol-
lowing new item:
‘‘Sec. 179C. Deduction for qualified energy management devices
and retrofitted meters.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to qualified energy management devices
placed in service after the date of the enactment of this Act.
SEC. 112. 3-YEAR APPLICABLE RECOVERY PERIOD FOR DE-
PRECIATION OF QUALIFIED ENERGY MAN-
AGEMENT DEVICES.
(a) IN
GENERAL.—Subparagraph (A) of section
168(e)(3) (relating to classification of property) is 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) any qualified energy manage-
ment device.’’.
(b) DEFINITION OF QUALIFIED ENERGY MANAGEMENT
DEVICE.—Section 168(i) (relating to definitions and spe-
cial rules) is amended by inserting at the end the following
new paragraph:
‘‘(15) QUALIFIED
ENERGY
MANAGEMENT
DE-
VICE.—The term ‘qualified energy management de-
vice’ means any qualified energy management device
as defined in section 179C(c) which is placed in serv-
ice by a taxpayer who is a supplier of electric energy
or natural gas or a provider of electric energy or nat-
ural gas services.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
SEC. 113. ENERGY CREDIT FOR COMBINED HEAT AND
POWER SYSTEM PROPERTY.
(a) IN
GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by striking
‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at the end
of clause (iii), and by inserting after clause (iii) the fol-
lowing new clause:
‘‘(iv) combined heat and power system
property,’’.
(b) COMBINED HEAT
AND POWER SYSTEM PROP-
ERTY.—Subsection (a) of section 48 is amended by redesig-
nating paragraphs (5) and (6) as paragraphs (6) and (7),
respectively, and by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—For purposes of this subsection—
‘‘(A) COMBINED HEAT AND POWER SYSTEM
PROPERTY.—The term ‘combined heat and power
system property’ means property comprising a
system—
‘‘(i) which uses the same energy source
for the simultaneous or sequential genera-
tion of electrical power, mechanical shaft
power, or both, in combination with the
generation of steam or other forms of useful
thermal energy (including heating and cool-
ing applications),
‘‘(ii) which has an electrical capacity
of more than 50 kilowatts or a mechanical
energy capacity of more than 67 horsepower
or an equivalent combination of electrical
and mechanical energy capacities,
‘‘(iii) which produces—
‘‘(I) at least 20 percent of its total
useful energy in the form of thermal
energy, and
‘‘(II) at least 20 percent of its
total useful energy in the form of elec-
trical or mechanical power (or com-
bination thereof),
‘‘(iv) the energy efficiency percentage
of which exceeds 60 percent (70 percent in
the case of a system with an electrical ca-
pacity in excess of 50 megawatts or a me-
chanical energy capacity in excess of 67,000
horsepower, or an equivalent combination of
electrical and mechanical energy capac-
ities), and
‘‘(v) which is placed in service after
December 31, 2001, and before January 1,
2007.
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph
(A)(iv), the energy efficiency percentage of a
system is the fraction—
‘‘(I) the numerator of which is the
total useful electrical, thermal, and me-
chanical power produced by the system
at normal operating rates, and
‘‘(II) the denominator of which is
the lower heating value of the primary
fuel source for the system.
‘‘(ii) DETERMINATIONS MADE ON BTU
BASIS.—The energy efficiency percentage
and the percentages under subparagraph
(A)(iii) shall be determined on a Btu basis.
‘‘(iii) INPUT AND OUTPUT PROPERTY
NOT INCLUDED.—The term ‘combined heat
and power system property’ does not in-
clude property used to transport the energy
source to the facility or to distribute energy
produced by the facility.
‘‘(iv) PUBLIC UTILITY PROPERTY.—
‘‘(I) ACCOUNTING RULE FOR PUB-
LIC UTILITY PROPERTY.—If the com-
bined heat and power system property
is public utility property (as defined
in section 168(i)(1)), the taxpayer may
only claim the credit under the sub-
section if, with respect to such prop-
erty, the taxpayer uses a normalization
method of accounting.
‘‘(II) CERTAIN EXCEPTION NOT TO
APPLY.—The matter in paragraph (3)
which follows subparagraph (D) shall
not apply to combined heat and power
system property.
‘‘(C) EXTENSION OF DEPRECIATION RECOV-
ERY PERIOD.—If a taxpayer is allowed credit
under this section for combined heat and power
system property and such property would (but
for this subparagraph) have a class life of 15
years or less under section 168, such property
shall be treated as having a 22-year class life for
purposes of section 168.’’.
(c) NO CARRYBACK OF ENERGY CREDIT BEFORE EF-
FECTIVE DATE.—Subsection (d) of section 39 is amended
by adding at the end the following new paragraph:
‘‘(13) NO CARRYBACK OF ENERGY CREDIT BE-
FORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the energy credit with respect to property
described in section 48(a)(5) may be carried back to
a taxable year ending before January 1, 2002.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after De-
cember 31, 2001.
SEC. 114. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM
TAXES.
(a) IN GENERAL.—Paragraph (1) of section 26(a) is
amended by striking ‘‘and 25B’’ and inserting ‘‘25B, 25C,
25D, and 25E’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 24(b)(3)(B) is amended by striking
‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and
25E’’.
(2) Section 25(e)(1)(C) is amended by inserting
‘‘25C, 25D, and 25E’’ after ‘‘25B,’’.
(3) Section 25B(g)(2) is amended by striking
‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D,
and 25E’’.
(4) Section 904(h) is amended by striking ‘‘and
25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’.
(5) Section 1400C(d) is amended by striking
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 115. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE
TAXES ON RAILROADS AND INLAND WATER-
WAY TRANSPORTATION WHICH REMAIN IN
GENERAL FUND.
(a) TAXES ON TRAINS.—
(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section
4041(a)(1)(C) is amended by striking subclauses (I),
(II), and (III) and inserting the following new sub-
clauses:
‘‘(I) 3.3 cents per gallon after
September 30, 2001, and before Janu-
ary 1, 2005,
‘‘(II) 2.3 cents per gallon after
December 31, 2004, and before Janu-
ary 1, 2007,
‘‘(III) 1.3 cents per gallon after
December 31, 2006, and before Janu-
ary 1, 2009,
‘‘(IV) 0.3 cent per gallon after De-
cember 31, 2008, and before January
1, 2010, and
‘‘(V) 0 after December 31, 2009.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 4041 is
amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) DIESEL FUEL USED IN TRAINS.—In the case
of any sale for use (or use) after September 30, 2010,
there is hereby imposed a tax of 0.1 cent per gallon
on any liquid other than gasoline (as defined in sec-
tion 4083)—
‘‘(A) sold by any person to an owner, lessee,
or other operator of a diesel-powered train for
use as a fuel in such train, or
‘‘(B) used by any person as a fuel in a die-
sel-powered train unless there was a taxable sale
of such fuel under subparagraph (A).
No tax shall be imposed by this paragraph on the sale
or use of any liquid if tax was imposed on such liq-
uid under section 4081.’’
(B) Subsection (f) of section 4082 is amend-
ed by striking ‘‘section 4041(a)(1)’’ and inserting
‘‘subsections (a)(1) and (d)(3) of section 4041’’.
(C) Subparagraph (B) of section 6421(f)(3)
is amended to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate appli-
cable under section 4041(a)(1)(C)(ii).’’.
(D) Subparagraph (B) of section 6427(l)(3)
is amended to read as follows:
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate appli-
cable under section 4041(a)(1)(C)(ii).’’.
(b) FUEL USED ON INLAND WATERWAYS.—Subpara-
graph (C) of section 4042(b)(2) is amended to read as fol-
lows:
‘‘(C) The deficit reduction rate is—
‘‘(i) 3.3 cents per gallon after Sep-
tember 30, 2001, and before January 1,
2005,
‘‘(ii) 2.3 cents per gallon after Decem-
ber 31, 2004, and before January 1, 2007,
‘‘(iii) 1.3 cents per gallon after Decem-
ber 31, 2006, and before January 1, 2009,
‘‘(iv) 0.3 cent per gallon after Decem-
ber 31, 2008, and before January 1, 2010,
and
‘‘(v) 0 after December 31, 2009.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on October 1, 2001.
SEC. 116. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN
MIXTURES OF DIESEL FUEL.
(a) 
IN
GENERAL.—Clause 
(iii) 
of 
section
4081(a)(2)(A) is amended by inserting before the period
‘‘(19.7 cents per gallon in the case of a diesel-water fuel
emulsion at least 14 percent of which is water)’’.
(b) REFUNDS FOR TAX-PAID PURCHASES.—
(1) IN GENERAL.—Section 6427 is amended by
redesignating subsections (m) through (p) as sub-
sections (n) through (q), respectively, and by inserting
after subsection (l) the following new subsection:
‘‘(m) DIESEL FUEL USED TO PRODUCE EMULSION.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (k), if any diesel fuel on which tax was im-
posed by section 4081 at the regular tax rate is used
by any person in producing an emulsion described in
section 4081(a)(2)(A) which is sold or used in such
person’s trade or business, the Secretary shall pay
(without interest) to such person an amount equal to
the excess of the regular tax rate over the incentive
tax rate with respect to such fuel.
‘‘(2) DEFINITIONS.—For purposes of paragraph
(1)—
‘‘(A) REGULAR TAX RATE.—The term ‘reg-
ular tax rate’ means the aggregate rate of tax
imposed by section 4081 determined without re-
gard 
to 
the 
parenthetical 
in 
section
4081(a)(2)(A).
‘‘(B) INCENTIVE TAX RATE.—The term ‘in-
centive tax rate’ means the aggregate rate of tax
imposed by section 4081 determined with regard
to the parenthetical in section 4081(a)(2)(A).’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on October 1, 2001.
SEC. 117. CREDIT FOR INVESTMENT IN QUALIFYING AD-
VANCED CLEAN COAL TECHNOLOGY.
(a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN
COAL TECHNOLOGY FACILITY CREDIT.—Section 46 (relat-
ing to amount of credit) is amended by striking ‘‘and’’ at
the end of paragraph (2), by striking the period at the end
of paragraph (3) and inserting ‘‘, and’’, and by adding at
the end the following:
‘‘(4) the qualifying advanced clean coal tech-
nology facility credit.’’.
(b) AMOUNT OF QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY FACILITY CREDIT.—Subpart E of part IV of
subchapter A of chapter 1 (relating to rules for computing
investment credit) is amended by inserting after section 48
the following:
‘‘SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY FACILITY CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 46, the
qualifying advanced clean coal technology facility credit for
any taxable year is an amount equal to 10 percent of the
qualified investment in a qualifying advanced clean coal
technology facility for such taxable year.
‘‘(b) QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY FACILITY.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the term ‘qualifying advanced clean coal tech-
nology facility’ means a facility of the taxpayer
which—
‘‘(A)(i)(I) original use of which commences
with the taxpayer, or
‘‘(II) is a retrofitted or repowered conven-
tional technology facility, the retrofitting or
repowering of which is completed by the tax-
payer (but only with respect to that portion of
the basis which is properly attributable to such
retrofitting or repowering), or
‘‘(ii) is acquired through purchase (as de-
fined by section 179(d)(2)),
‘‘(B) is depreciable under section 167,
‘‘(C) has a useful life of not less than 4
years,
‘‘(D) is located in the United States, and
‘‘(E) uses qualifying advanced clean coal
technology.
‘‘(2) SPECIAL RULE FOR SALE-LEASEBACKS.—
For purposes of subparagraph (A) of paragraph (1),
in the case of a facility which—
‘‘(A) is originally placed in service by a
person, and
‘‘(B) is sold and leased back by such person,
or is leased to such person, within 3 months after
the date such facility was originally placed in
service, for a period of not less than 12 years,
such facility shall be treated as originally placed in
service not earlier than the date on which such prop-
erty is used under the leaseback (or lease) referred to
in subparagraph (B). The preceding sentence shall
not apply to any property if the lessee and 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.
‘‘(c) QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY.—For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘qualifying ad-
vanced clean coal technology’ means, with respect to
clean coal technology—
‘‘(A) which has—
‘‘(i) multiple applications, with a com-
bined capacity of not more than 5,000
megawatts (4,000 megawatts before 2009),
of advanced pulverized coal or atmospheric
fluidized bed combustion technology—
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2012, and
‘‘(III) having a design net heat
rate of not more than 9,500 Btu per
kilowatt hour when the design coal has
a heat content of more than 9,000 Btu
per pound, or a design net heat rate of
not more than 9,900 Btu per kilowatt
hour when the design coal has a heat
content of 9,000 Btu per pound or less,
‘‘(ii) multiple applications, with a
combined capacity of not more than 1,000
megawatts (500 megawatts before 2009 and
750 megawatts before 2013), of pressurized
fluidized bed combustion technology—
‘‘(I) installed as a new, retrofit,
or repowering application,
100
‘‘(II) operated between 2000 and
2016, and
‘‘(III) having a design net heat
rate of not more than 8,400 Btu per
kilowatt hour when the design coal has
a heat content of more than 9,000 Btu
per pound, or a design net heat rate of
not more than 9,900 Btu’s per kilowatt
hour when the design coal has a heat
content of 9,000 Btu per pound or less,
and
‘‘(iii) multiple applications, with a
combined capacity of not more than 2,000
megawatts (1,000 megawatts before 2009
and 1,500 megawatts before 2013), of inte-
grated gasification combined cycle tech-
nology, with or without fuel or chemical co-
production—
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2016,
‘‘(III) having a design net heat
rate of not more than 8,550 Btu per
kilowatt hour when the design coal has
101
a heat content of more than 9,000 Btu
per pound, or a design net heat rate
of not more than 9,900 Btu per kilo-
watt hour when the design coal has a
heat content of 9,000 Btu per pound
or less, and
‘‘(IV) having a net thermal effi-
ciency on any fuel or chemical co-pro-
duction of not less than 39 percent
(higher heating value), or
‘‘(iv) multiple applications, with a
combined capacity of not more than 2,000
megawatts (1,000 megawatts before 2009
and 1,500 megawatts before 2013) of tech-
nology for the production of electricity—
‘‘(I) installed as a new, retrofit,
or repowering application,
‘‘(II) operated between 2000 and
2016, and
‘‘(III) having a carbon emission
rate which is not more than 85 percent
of conventional technology, and
‘‘(B) which reduces the discharge into the
atmosphere of 1 or more of the following pollut-
ants to not more than—
102
‘‘(i) 5 percent of the potential combus-
tion concentration sulfur dioxide emissions
for a coal with a potential combustion con-
centration sulfur emission of 1.2 lb/million
btu of heat input or greater,
‘‘(ii) 15 percent of the potential com-
bustion concentration sulfur dioxide emis-
sions for a coal with a potential combustion
concentration sulfur emission of less than
1.2 lb/million btu of heat input,
‘‘(iii) nitrogen oxide emissions of 0.1 lb
per million btu of heat input from other
than cyclone-fired boilers,
‘‘(iv) 15 percent of the uncontrolled ni-
trogen oxide emissions from cyclone-fired
boilers,
‘‘(v) particulate emissions of 0.02 lb
per million btu of heat input, and
‘‘(vi) the emission levels specified in
the new source performance standards of the
Clean Air Act (42 U.S.C. 7411) in effect at
the time of retrofitting, repowering, or re-
placement of the qualifying clean coal tech-
nology unit for the category of source if
103
such level is lower than the levels specified
in clause (i), (ii), (iii), (iv), or (v).
‘‘(2) EXCEPTIONS.—Such term shall not include
any projects receiving or scheduled to receive funding
under the Clean Coal Technology Program, or the
Power Plant Improvement administered by the Sec-
retary of the Department of Energy.
‘‘(d) CLEAN COAL TECHNOLOGY.—For purposes of this
section, the term ‘clean coal technology’ means advanced
technology which uses coal to produce 75 percent or more
of its thermal output as electricity including advanced pul-
verized coal or atmospheric fluidized bed combustion, pres-
surized fluidized bed combustion, integrated gasification
combined cycle with or without fuel or chemical co-produc-
tion, and any other technology for the production of elec-
tricity which exceeds the performance of conventional tech-
nology.
‘‘(e) CONVENTIONAL TECHNOLOGY.—The term ‘conven-
tional technology’ means—
‘‘(1) coal-fired combustion technology with a de-
sign net heat rate of not less than 9,500 Btu per kilo-
watt hour (HHV) and a carbon equivalents emission
rate of not more than 0.54 pounds of carbon per kilo-
watt hour when the design coal has a heat content of
more than 9,000 Btu per pound,
104
‘‘(2) coal-fired combustion technology with a de-
sign net heat rate of not less than 10,500 Btu per kil-
owatt hour (HHV) and a carbon equivalents emission
rate of not more than 0.60 pounds of carbon per kilo-
watt hour when the design coal has a heat content of
9,000 Btu per pound or less, or
‘‘(3) natural gas-fired combustion technology
with a design net heat rate of not less than 7,500 Btu
per kilowatt hour (HHV) and a carbon equivalents
emission rate of not more than 0.24 pounds of carbon
per kilowatt hour.
‘‘(f) DESIGN NET HEAT RATE.—The design net heat
rate shall be based on the design annual heat input to and
the design annual net electrical output from the qualifying
advanced clean coal technology (determined without regard
to such technology’s co-generation of steam).
‘‘(g) SELECTION CRITERIA.—Selection criteria for
qualifying advanced clean coal technology facilities—
‘‘(1) shall be established by the Secretary of En-
ergy as part of a competitive solicitation,
‘‘(2) shall include primary criteria of minimum
design net heat rate, maximum design thermal effi-
ciency, environmental performance, and lowest cost to
the government, and
105
‘‘(3) shall include supplemental criteria as deter-
mined appropriate by the Secretary of Energy.
‘‘(h) 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 facility placed in service by the tax-
payer during such taxable year.
‘‘(i) 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 (c) without regard to this sec-
tion) shall be increased by an amount equal to the ag-
gregate of each qualified progress expenditure for the
taxable year with respect to progress expenditure
property.
‘‘(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 facility which is being
constructed by or for the taxpayer when it is placed
in service.
106
‘‘(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
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,
107
and the term ‘constructed’ includes reconstructed
and erected.
‘‘(D) ONLY CONSTRUCTION OF QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY FACILITY
TO
BE
TAKEN
INTO
ACCOUNT.—Construction
shall be taken into account only if, for purposes
of this subpart, expenditures therefor are prop-
erly 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.
‘‘(j) COORDINATION WITH OTHER CREDITS.—This sec-
tion shall not apply to any property with respect to which
the rehabilitation credit under section 47 or the energy cred-
it under section 48 is allowed unless the taxpayer elects to
waive the application of such credit to such property.
‘‘(k) TERMINATION.—This section shall not apply with
respect to any qualified investment made after December
31, 2011.
‘‘(l) NATIONAL LIMITATION.—
108
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this section, the term ‘qualifying ad-
vanced clean coal technology facility’ shall include
such a facility only to the extent that such facility is
allocated a portion of the national megawatt limita-
tion under this subsection.
‘‘(2) NATIONAL
MEGAWATT
LIMITATION.—The
national megawatt limitation under this subsection is
7,500 megawatts.
‘‘(3) ALLOCATION OF LIMITATION.—The national
megawatt limitation shall be allocated by the Sec-
retary under rules prescribed by the Secretary. Not
later than 6 months after the date of enactment of this
subsection, the Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out
the purposes of this section, including regulations—
‘‘(A) to limit which facility qualifies as
‘qualified advanced clean coal technology’ in sub-
section (c) to particular facilities, a portion of
particular facilities, or a portion of the produc-
tion from particular facilities, so that when all
such facilities (or portions thereof) are placed in
service over the ten year period in section (k),
the combination of facilities approved for tax
credits (and/or portions of facilities approved for
109
tax credits) will not exceed a combined capacity
of 7,500 megawatts;
‘‘(B) to provide a certification process in
consultation with the Secretary of Energy under
subsection (g) that will approve and allocate the
7,500 
megawatts 
of 
available 
tax 
credits
authority—
‘‘(i) to encourage that facilities with
the highest thermal efficiencies and environ-
mental performance be placed in service as
soon as possible;
‘‘(ii) to allocate credits to taxpayers
that have a definite and credible plan for
placing into commercial operation a quali-
fying advanced clean coal technology facil-
ity, including—
‘‘(I) a site,
‘‘(II) contractual commitments for
procurement and construction,
‘‘(III) filings for all necessary
preconstruction approvals,
‘‘(IV) a demonstrated record of
having successfully completed com-
parable projects on a timely basis, and
110
‘‘(V) such other factors that the
Secretary shall determine are appro-
priate;
‘‘(iii) to allocate credits to a portion of
a facility (or a portion of the production
from a facility) if the Secretary determines
that such an allocation should maximize the
amount of efficient production encouraged
with the available tax credits;
‘‘(C) to set progress requirements and condi-
tional approvals so that credits for approved
projects that become unlikely to meet the nec-
essary conditions that can be reallocated by the
Secretary to other projects;
‘‘(D) to reallocate credits that are not allo-
cated to 1 technology described in clauses (i)
through (iv) of subsection (c)(1)(A) because an
insufficient number of qualifying facilities re-
quested credits for one technology, to another
technology described in another subparagraph of
subsection (c) in order to maximize the amount
of energy efficient production encouraged with
the available tax credits; and
‘‘(E) to provide taxpayers with opportuni-
ties to correct administrative errors and omis-
111
sions with respect to allocations and record-
keeping within a reasonable period after their
discovery, taking into account the availability of
regulations and other administrative guidance
from the Secretary.’’.
(c) RECAPTURE.—Section 50(a) (relating to other spe-
cial rules) is amended by adding at the end the following:
‘‘(6) SPECIAL RULES RELATING TO QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY FACILITY.—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
facility (as defined by section 48A(b)(1)) multi-
plied by a fraction whose numerator is the num-
ber of years remaining to fully depreciate under
this title the qualifying advanced clean coal tech-
nology facility disposed of, and whose denomi-
nator is the total number of years over which
such facility would otherwise have been subject to
112
depreciation. For purposes of the preceding sen-
tence, the year of disposition of the qualifying
advanced clean coal technology facility property
shall be treated as a year of remaining deprecia-
tion.
‘‘(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 facility under
section 48A, except that the amount of the in-
crease in tax under subparagraph (A) of this
paragraph shall be substituted in lieu of the
amount described 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 facility.’’.
(d) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules) is amended by adding at the end the fol-
lowing:
‘‘(14) NO CARRYBACK OF SECTION 48A CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
113
utable to the qualifying advanced clean coal tech-
nology facility credit determined under section 48A
may be carried back to a taxable year ending before
January 1, 2002.’’.
(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:
‘‘(iv) the portion of the basis of any
qualifying advanced clean coal technology
facility attributable to any qualified invest-
ment (as defined by section 48A(c)).’’
(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) SPECIAL RULE FOR QUALIFYING ADVANCED
CLEAN COAL TECHNOLOGY FACILITIES.—Paragraphs
(1) and (2) shall not apply to any property with re-
spect to the credit determined 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:
‘‘Sec. 48A. Qualifying advanced clean coal technology facility cred-
it.’’.
114
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to periods after December 31, 2001,
under rules similar to the rules of section 48(m) of the In-
ternal Revenue Code of 1986 (as in effect on the day before
the date of enactment of the Revenue Reconciliation Act of
1990).
SEC. 118. CREDIT FOR PRODUCTION FROM QUALIFYING AD-
VANCED CLEAN COAL TECHNOLOGY.
(a) CREDIT FOR PRODUCTION FROM QUALIFYING AD-
VANCED CLEAN COAL TECHNOLOGY.—Subpart D of part IV
of subchapter A of chapter 1 (relating to business related
credits) is amended by adding after section 45J the fol-
lowing:
‘‘SEC. 45K. CREDIT FOR PRODUCTION FROM QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY.
‘‘(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 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 facility
115
during the 10-year period beginning on the date the
facility was originally placed in service.
‘‘(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 facility shall
be determined as follows:
‘‘(1) Where the design coal has a heat content of
more than 9,000 Btu per pound:
‘‘(A) In the case of a facility originally
placed in service before 2009, if—
‘‘The facility design net heat rate, Btu/kWh (HHV) is equal
to:
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 not more than 8,750 ...............................
$.0010
$.0010.
‘‘(B) In the case of a facility originally
placed in service after 2008 and before 2013,
if—
‘‘The facility design net heat rate, Btu/kWh (HHV) is equal
to:
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 not more than 8,350 ...............................
$.0075
$.0055.
‘‘(C) In the case of a facility originally
placed in service after 2012 and before 2017,
if—
116
‘‘The facility design net heat rate, Btu/kWh (HHV) is equal
to:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 7,380 ..................................................................
$.0140
$.01
More than 7,380 but not more than 7,720 ...............................
$.0120
$.0090.
‘‘(2) Where the design coal has a heat content of
not more than 9,000 Btu per pound:
‘‘(A) In the case of a facility originally
placed in service before 2009, if—
‘‘The facility design net heat rate, Btu/kWh (HHV) is equal
to:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 8,500 ..................................................................
$.0060
$.0038
More than 8,500 but not more than 8,650 ...............................
$.0025
$.0010
More than 8,650 but not more than 8,750 ...............................
$.0010
$.0010.
‘‘(B) In the case of a facility originally
placed in service after 2008 and before 2013,
if—
‘‘The facility design net heat rate, Btu/kWh (HHV) is equal
to:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 8,000 ..................................................................
$.0105
$.009
More than 8,000 but not more than 8,250 ...............................
$.0085
$.0068
More than 8,250 but not more than 8,400 ...............................
$.0075
$.0055.
‘‘(C) In the case of a facility originally
placed in service after 2012 and before 2017,
if—
‘‘The facility design net heat rate, Btu/kWh (HHV) is equal
to:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 7,800 ..................................................................
$.0140
$.0115
More than 7,800 but not more than 7,950 ...............................
$.0120
$.0090.
‘‘(3) Where the clean coal technology facility is
producing fuel or chemicals:
117
‘‘(A) In the case of a facility originally
placed in service before 2009, if—
‘‘The facility design net thermal efficiency (HHV) is equal
to:
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 facility originally
placed in service after 2008 and before 2013,
if—
‘‘The facility design net thermal efficiency (HHV) is equal
to:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 43.9 percent ..........................................................
$.0105
$.009
Less than 43.9 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 facility originally
placed in service after 2012 and before 2017,
if—
‘‘The facility design net thermal efficiency (HHV) is equal
to:
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 43.6 percent ..........................
$.0120
$.0090.
‘‘(c) INFLATION ADJUSTMENT FACTOR.—For calendar
years after 2001, each amount in paragraphs (1), (2), and
(3) 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
118
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 48A shall have the
meaning given such term in section 48A.
‘‘(2) APPLICABLE
RULES.—The rules of para-
graphs (3), (4), and (5) of section 45 shall apply.
‘‘(3) INFLATION
ADJUSTMENT
FACTOR.—The
term ‘inflation adjustment factor’ means, with respect
to a calendar 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
2001.
‘‘(4) GDP 
IMPLICIT
PRICE
DEFLATOR.—The
term ‘GDP implicit price deflator’ means the most re-
cent revision of the implicit price deflator for the
gross domestic product as computed by the Depart-
ment of Commerce before March 15 of the calendar
year.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b) is amended by striking ‘‘plus’’ at the end of para-
graph (18), by striking the period at the end of paragraph
119
(19) and inserting ‘‘, plus’’, and by adding at the end the
following:
‘‘(20) the qualifying advanced clean coal tech-
nology production credit determined under section
45K(a).’’.
(c) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules) is amended by adding after paragraph
(14) the following:
‘‘(15) NO CARRYBACK OF SECTION 45K 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
45K may be carried back to a taxable year ending be-
fore the date of enactment of section 45K.’’.
(d) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1 is amend-
ed by adding at the end the following:
‘‘Sec. 45K. Credit for production from qualifying advanced clean
coal technology.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to production after the date of enactment
of this Act.
120
TITLE II—RELIABILITY
SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-
YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property) is
amended by 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 is amended by adding after paragraph (15)
the following new paragraph:
‘‘(16) NATURAL
GAS
GATHERING
LINE.—The
term ‘natural gas gathering line’ means—
‘‘(A) the pipe, equipment, and appur-
tenances determined to be a gathering line by the
Federal Energy Regulatory Commission, or
‘‘(B) the pipe, equipment, and appur-
tenances used to deliver natural gas from the
wellhead or a commonpoint to the point at which
such gas first reaches—
‘‘(i) a gas processing plant,
‘‘(ii) an interconnection with a trans-
mission pipeline certificated by the Federal
121
Energy Regulatory Commission as an
interstate transmission pipeline,
‘‘(iii) an interconnection with an
intrastate transmission pipeline, or
‘‘(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer.’’.
(c) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the item
relating to subparagraph (C)(i) the following:
‘‘(C)(ii) ..............................................................................................................
10’’.
(d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting
before the period the following: ‘‘or in clause (ii) of section
168(e)(3)(C)’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS
10-YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (D) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (i), by strik-
ing the period at the end of clause (ii) and by inserting
‘‘, and’’, and by adding at the end the following new clause:
122
‘‘(iii) any natural gas distribution
line.’’
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the item
relating to subparagraph (D)(ii) the following:
‘‘(D)(iii) .............................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting
before the period the following: ‘‘or in clause (iii) of section
168(e)(3)(D)’’.
(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.
SEC. 203. PETROLEUM REFINING PROPERTY TREATED AS 7-
YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property), as
amended by section 201, is amended by striking ‘‘and’’ at
the end of clause (ii), by redesignating clause (iii) as clause
(iv), and by inserting after clause (ii) the following new
clause:
‘‘(iii) any property used for the dis-
tillation, fractionation, and catalytic crack-
ing of crude petroleum into gasoline and its
other components, and’’.
123
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B), as amended by section 201, is amend-
ed by inserting after the item relating to subparagraph
(C)(ii) the following:
‘‘(C)(iii) .............................................................................................................
10’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1), as amended by section
201, is amended by inserting ‘‘or (iii)’’ after ‘‘clause (ii)’’.
(d) EFFECTIVE DATE.—The amendment made by this
section shall apply to property placed in service after the
date of the enactment of this Act.
SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS.
(a) IN GENERAL.—Section 179(b) (relating to election
to expense certain depreciable business assets) is amended
by adding at the end the following new paragraph:
‘‘(5) LIMITATION FOR SMALL BUSINESS REFIN-
ERS.—
‘‘(A) IN GENERAL.—In the case of a small
business refiner electing to expense qualified
costs, in lieu of the dollar limitations in para-
graph (1), the limitation on the aggregate costs
which may be taken into account under sub-
section (a) for any taxable year shall not exceed
75 percent of the qualified costs.
124
‘‘(B) QUALIFIED COSTS.—For purposes of
this paragraph, the term ‘qualified costs’ means
costs paid or incurred by a small business re-
finer for the purpose of complying with the
Highway Diesel Fuel Sulfur Control Require-
ments of the Environmental Protection Agency.
‘‘(C) SMALL BUSINESS REFINER.—For pur-
poses of this paragraph, the term ‘small business
refiner’ means, with respect to any taxable year,
a refiner which, within the refining operations of
the business, employs not more than 1,500 em-
ployees on business days during such taxable
year performing services in the refining oper-
ations of such businesses and has an average
total capacity of 155,000 barrels per day or
less.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to expenses paid or incurred after the
date of the enactment of this Act.
SEC. 205. ENVIRONMENTAL TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related credits) is
amended by adding at the end the following new section:
125
‘‘SEC. 45I. ENVIRONMENTAL TAX CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the environmental tax credit determined under
this section with respect to any small business refiner for
any taxable year is an amount equal to 5 cents for every
gallon of 15 parts per million or less sulfur diesel produced
at a facility by such small business refiner.
‘‘(b) MAXIMUM CREDIT.—For any small business re-
finer, the aggregate amount allowable as a credit under sub-
section (a) for any taxable year with respect to any facility
shall not exceed 25 percent of the qualified capital costs in-
curred by such small business refiner with respect to such
facility not taken into account in determining the credit
under subsection (a) for any preceding taxable year.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) SMALL
BUSINESS
REFINER.—The term
‘small business refiner’ means, with respect to any
taxable year, a refiner which, within the refining op-
erations of the business, employs not more than 1,500
employees on business days during such taxable year
performing services in the refining operations of such
businesses and has an average total capacity of
155,000 barrels per day or less.
‘‘(2) QUALIFIED
CAPITAL
COSTS.—The term
‘qualified capital costs’ means, with respect to any fa-
cility, those costs paid or incurred during the appli-
126
cable period for compliance with the applicable EPA
regulations with respect to such facility, including ex-
penditures for the construction of new process oper-
ation units or the dismantling and reconstruction of
existing process units to be used in the production of
15 parts per million or less sulfur diesel fuel, associ-
ated adjacent or offsite equipment (including tankage,
catalyst, and power supply), engineering, construc-
tion period interest, and sitework.
‘‘(3) APPLICABLE EPA REGULATIONS.—The term
‘applicable EPA regulations’ means the Highway
Diesel Fuel Sulfur Control Requirements of the Envi-
ronmental Protection Agency.
‘‘(4) APPLICABLE PERIOD.—The term ‘applicable
period’ means, with respect to any facility, the period
beginning on the day after the date of the enactment
of this section and ending with the date which is one
year after the date on which the taxpayer must com-
ply with the applicable EPA regulations with respect
to such facility.
‘‘(d) REDUCTION IN BASIS.—For purposes of this sub-
title, if a credit is determined under this section with re-
spect to any property by reason of qualified capital costs,
the basis of such property shall be reduced by the amount
of the credit so determined.
127
‘‘(e) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date which
is 30 months after the first day of the first taxable
year in which the environmental tax credit is allowed
with respect to a facility, the small business refiner
must obtain certification from the Secretary, in con-
sultation with the Administrator of the Environ-
mental Protection Agency, that the taxpayer’s quali-
fied capital costs with respect to such facility will re-
sult in compliance with the applicable EPA regula-
tions.
‘‘(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.
‘‘(4) RECAPTURE.—Notwithstanding subsection
(f), failure to obtain certification under paragraph
128
(1) constitutes a recapture event under subsection (f)
with an applicable percentage of 100 percent.
‘‘(f) RECAPTURE OF ENVIRONMENTAL TAX CREDIT.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (e), if, as of the close of any taxable year, there
is a recapture event with respect to any facility of the
small business refiner, then the tax of such refiner
under this chapter for such taxable year shall be in-
creased by an amount equal to the product of—
‘‘(A) the applicable recapture percentage,
and
‘‘(B) the aggregate decrease in the credits
allowed under section 38 for all prior taxable
years which would have resulted if the qualified
capital costs of the taxpayer described in sub-
section (c)(2) with respect to such facility had
been zero.
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN
GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
The applicable
recapture
‘‘If the recapture event occurs in:
percentage is:
Year 1 ..............................................................................
100
Year 2 ..............................................................................
Year 3 ..............................................................................
Year 4 ..............................................................................
Year 5 ..............................................................................
Years 6 and thereafter ...................................................
0.
129
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the first day of
the taxable year in which the qualified capital
costs with respect to a facility described in sub-
section (c)(2) are paid or incurred by the tax-
payer.
‘‘(3) RECAPTURE
EVENT
DEFINED.—For pur-
poses of this subsection, the term ‘recapture event’
means—
‘‘(A) FAILURE TO COMPLY.—The failure by
the small business refiner to meet the applicable
EPA regulations within the applicable period
with respect to the facility.
‘‘(B) CESSATION OF OPERATION.—The ces-
sation of the operation of the facility as a facil-
ity which produces 15 parts per million or less
sulfur diesel after the applicable period.
‘‘(C) CHANGE IN OWNERSHIP.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the disposition of a small
business refiner’s interest in the facility
with respect to which the credit described in
subsection (a) was allowable.
‘‘(ii) AGREEMENT TO ASSUME RECAP-
TURE
LIABILITY.—Clause (i) shall not
130
apply if the person acquiring such interest
in the facility agrees in writing to assume
the recapture liability of the person dis-
posing of such interest in effect immediately
before such disposition. In the event of such
an assumption, the person acquiring the in-
terest in the facility shall be treated as the
taxpayer for purposes of assessing any re-
capture liability (computed as if there had
been no change in ownership).
‘‘(4) SPECIAL RULES.—
‘‘(A) TAX BENEFIT RULE.—The tax for the
taxable year shall be increased under paragraph
(1) only with respect to credits allowed by reason
of this section which were used to reduce tax li-
ability. In the case of credits not so used to re-
duce tax liability, the carryforwards and
carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be
treated as a tax imposed by this chapter for pur-
poses of determining the amount of any credit
under this chapter or for purposes of section 55.
131
‘‘(C) NO RECAPTURE BY REASON OF CAS-
UALTY LOSS.—The increase in tax under this
subsection shall not apply to a cessation of oper-
ation of the facility by reason of a casualty loss
to the extent such loss is restored by reconstruc-
tion or replacement within a reasonable period
established by the Secretary.
‘‘(g) 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) CREDIT MADE PART
OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to general
business credit) is amended by striking ‘‘plus’’ at the end
of paragraph (16), by striking the period at the end of para-
graph (17) and inserting ‘‘, plus’’, and by adding at the
end the following new paragraph:
‘‘(18) in the case of a small business refiner, the
environmental tax credit determined under section
45I(a).’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re-
lating to certain expenses for which credits are allowable)
is amended by adding after subsection (d) the following new
subsection:
132
‘‘(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 45I(a).’’.
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating to
adjustments to basis) is amended by striking ‘‘and’’ at the
end of paragraph (33), by striking the period at the end
of paragraph (34) and inserting ‘‘, and’’, and by adding
at the end the following new paragraph:
‘‘(35) in the case of a facility with respect to
which a credit was allowed under section 45I, to the
extent provided in section 45I(d).’’.
(e) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1 is amend-
ed by adding at the end the following new item:
‘‘Sec. 45I. Environmental tax credit.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenses paid or incurred after the
date of the enactment of this Act.
SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION
TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to certain refiners excluded) is amended to read
as follows:
133
‘‘(4) CERTAIN REFINERS EXCLUDED.—If the tax-
payer or a related person engages in the refining of
crude oil, subsection (c) shall not apply to the tax-
payer for a taxable year if the average daily refinery
runs of the taxpayer and the related person for the
taxable year exceed 75,000 barrels. For purposes of
this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the
aggregate refinery runs for the taxable year by the
number of days in the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 207. TAX-EXEMPT BOND FINANCING OF CERTAIN ELEC-
TRIC FACILITIES.
(a) IN GENERAL.—Subpart A of part IV of subchapter
B of chapter 1 (relating to tax exemption requirements for
State and local bonds) is amended by inserting after section
141 the following new section:
‘‘SEC. 141A. TREATMENT OF GOVERNMENT-OWNED ELEC-
TRIC OUTPUT FACILITIES.
‘‘(a) EXCEPTIONS FROM PRIVATE BUSINESS USE LIM-
ITATIONS WHERE OPEN ACCESS REQUIREMENTS MET.—
‘‘(1) GENERAL RULE.—For purposes of this part,
the term ‘private business use’ shall not include—
134
‘‘(A) any permitted open access activity by
a governmental unit with respect to an electric
output facility owned by such unit, or
‘‘(B) any permitted sale of electricity by a
governmental unit which is generated at an ex-
isting generation facility owned by such unit.
‘‘(2) PERMITTED OPEN ACCESS ACTIVITY.—For
purposes of this section—
‘‘(A) IN
GENERAL.—The term ‘permitted
open access activity’ means any activity meeting
the open access requirements of any of the fol-
lowing clauses with respect to such electric out-
put facility:
‘‘(i) TRANSMISSION
AND
ANCILLARY
FACILITY.—In the case of a transmission fa-
cility or a facility providing ancillary serv-
ices, the provision of transmission service
and ancillary services meets the open access
requirements of this clause only if such serv-
ices are provided on a nondiscriminatory
open access basis—
‘‘(I) pursuant to an open access
transmission tariff filed with and ap-
proved by FERC, including an accept-
able reciprocity tariff, or
135
‘‘(II) under a regional trans-
mission organization agreement ap-
proved by FERC.
‘‘(ii) DISTRIBUTION
FACILITIES.—In
the case of a distribution facility, the deliv-
ery of electric energy meets the open access
requirements of this clause only if such de-
livery is made on a nondiscriminatory open
access basis.
‘‘(iii) GENERATION
FACILITIES.—In
the case of a generation facility, the delivery
of electric energy generated by such facility
meets the open access requirements of this
clause only if—
‘‘(I) such facility is directly con-
nected to distribution facilities owned
by the governmental unit which owns
the generation facility, and
‘‘(II) such distribution facilities
meet the open access requirements of
clause (ii).
‘‘(B) SPECIAL RULES.—
‘‘(i) VOLUNTARILY
FILED
TARIFFS.—
Subparagraph (A)(i)(I) shall apply in the
case of a voluntarily filed tariff only if the
136
governmental unit files a report with FERC
within 90 days after the date of the enact-
ment of this section relating to whether or
not such governmental unit will join a re-
gional transmission organization.
‘‘(ii) CONTROL OF TRANSMISSION FA-
CILITIES BY REGIONAL TRANSMISSION OR-
GANIZATION.—A governmental unit shall be
treated as meeting the open access require-
ments of subparagraph (A)(i) if a regional
transmission 
organization 
controls 
the
transmission facilities.
‘‘(iii) ERCOT UTILITY.—References to
FERC in subparagraph (A) shall be treated
as references to the Public Utility Commis-
sion of Texas with respect to any ERCOT
utility (as defined in section 212(k)(2)(B) of
the 
Federal 
Power 
Act 
(16 
U.S.C.
824k(k)(2)(B))).
‘‘(3) PERMITTED
SALE.—For purposes of this
subsection—
‘‘(A) IN
GENERAL.—The term ‘permitted
sale’ means—
‘‘(i) any sale of electricity to an on-
system purchaser if the seller meets the open
137
access requirements of paragraph (2) with
respect to all distribution and transmission
facilities (if any) owned by such seller, and
‘‘(ii) subject to subparagraphs (B) and
(C), any sale of electricity to a wholesale
native load purchaser, and any load loss
sale, if—
‘‘(I) the seller meets the open ac-
cess requirements of paragraph (2)
with respect to all transmission facili-
ties (if any) owned by such seller, or
‘‘(II) in any case in which the
seller does not own any transmission
facilities, all persons providing trans-
mission services to the seller’s wholesale
native load purchasers meet the open
access requirements of paragraph (2)
with respect to all transmission facili-
ties owned by such persons.
‘‘(B) LIMITATION ON SALES TO WHOLESALE
NATIVE LOAD PURCHASERS.—A sale to a whole-
sale native load purchaser shall be treated as a
permitted sale only to the extent that—
138
‘‘(i) such purchaser resells the elec-
tricity directly at retail to persons within
the purchaser’s distribution area, or
‘‘(ii) such electricity is resold by such
purchaser through one or more wholesale
purchasers (each of whom as of June 30,
2000, was a party to a requirements con-
tract or a firm power contract described in
paragraph (5)(B)(ii)) to retail purchasers
in the ultimate wholesale purchaser’s dis-
tribution area.
‘‘(C) LOAD LOSS SALES.—
‘‘(i) IN GENERAL.—The term ‘load loss
sale’ means any sale at wholesale to the ex-
tent that—
‘‘(I) the aggregate sales at whole-
sale during the recovery period does
not exceed the load loss mitigation
sales limit for such period, and
‘‘(II) the aggregate sales at whole-
sale during the first calendar year
after the recovery period does not ex-
ceed the excess carried under clause
(iv) to such year.
139
‘‘(ii) LOAD
LOSS
MITIGATION
SALES
LIMIT.—For purposes of clause (i), the load
loss mitigation sales limit for the recovery
period is the sum of the annual load losses
for each year of such period.
‘‘(iii) ANNUAL LOAD LOSS.—A govern-
mental unit’s annual load loss for each year
of the recovery period is the amount (if
any) by which—
‘‘(I) the megawatt hours of electric
energy sold during such year to whole-
sale native load purchasers which do
not constitute private business use are
less than
‘‘(II) the megawatt hours of elec-
tric energy sold during the base year to
wholesale native load purchasers which
do not constitute private business use.
The annual load loss for any year shall not
exceed the portion of the amount determined
under the preceding sentence which is at-
tributable to open access requirements.
‘‘(iv) CARRYOVERS.—If the limitation
under clause (i) for the recovery period ex-
ceeds the aggregate sales during such period
140
which are taken into account under clause
(i), such excess (but not more than 10 per-
cent of such limitation) may be carried over
to the first calendar year following the re-
covery period.
‘‘(v) RECOVERY PERIOD.—The recovery
period is the 7-year period beginning with
the start-up year.
‘‘(vi) START-UP
YEAR.—The start-up
year is the calendar year which includes the
date of the enactment of this section or, if
later, at the election of the governmental
unit—
‘‘(I) the first year that the govern-
mental unit offers nondiscriminatory
open transmission access, or
‘‘(II) the first year in which at
least 10 percent of the governmental
unit’s wholesale customers’ aggregate
retail native load is open to retail com-
petition.
‘‘(4) ON-SYSTEM PURCHASER.—For purposes of
this section, the term ‘on-system purchaser’ means
any person whose electric equipment is directly con-
nected with any transmission or distribution facility
141
owned by the governmental unit owning the existing
generation facility if—
‘‘(A) such person—
‘‘(i) purchases electric energy from
such governmental unit at retail, and
‘‘(ii)(I) was within such unit’s dis-
tribution area at the close of the base year
or
‘‘(II) is a person as to whom the gov-
ernmental unit has a statutory service obli-
gation, or
‘‘(B) is a wholesale native load purchaser
from such governmental unit.
‘‘(5) WHOLESALE NATIVE LOAD PURCHASER.—
For purposes of this section—
‘‘(A) IN GENERAL.—The term ‘wholesale na-
tive load purchaser’ means a wholesale purchaser
as to whom the governmental unit had—
‘‘(i) a statutory service obligation at
wholesale at the close of the base year, or
‘‘(ii) an obligation at the close of the
base year under a requirements or firm
sales contract if, as of June 30, 2000, such
contract had been in effect for (or had an
initial term of) at least 10 years.
142
‘‘(B) PERMITTED SALES UNDER EXISTING
CONTRACTS.—A private business use sale during
any year to a wholesale native load purchaser
(other than a person to whom the governmental
unit had a statutory service obligation) under a
contract shall be treated as a permitted sale by
reason of being a load loss sale only to the extent
that the private business use sales under the con-
tract during such year exceed the lesser of—
‘‘(i) the private business use sales
under the contract during the base year, or
‘‘(ii) the maximum private business
use sales which would (but for this section)
be permitted without causing the bonds to
be private activity bonds.
This subparagraph shall only apply to the extent
that the sale is allocable to bonds issued before
the date of the enactment of this section (or
bonds issued to refund such bonds).
‘‘(6) SPECIAL RULES.—
‘‘(A) TIME OF SALE RULE.—For purposes of
paragraphs (3)(C)(iii) and (5)(B), the deter-
mination of whether a sale after the date of the
enactment of this section is a private business
use shall be made with regard to this section.
143
‘‘(B) JOINT ACTION AGENCIES.—To the ex-
tent provided in regulations, a joint action agen-
cy, or a member of (or a wholesale native load
purchaser from) a joint action agency, which is
entitled to make a sale described in subpara-
graph (A) or (B) in a year, may transfer the en-
titlement to make that sale to the member (or
purchaser), or the joint action agency, respec-
tively.
‘‘(b) CERTAIN BONDS FOR TRANSMISSION AND DIS-
TRIBUTION FACILITIES NOT TAX EXEMPT.—
‘‘(1) IN GENERAL.—Section 103 shall not apply
to any bond issued on or after the date of the enact-
ment of this section if any portion of the proceeds of
the issue of which such bond is a part is used (di-
rectly or indirectly) to finance—
‘‘(A) any electric transmission facility, or
‘‘(B) any start-up electric utility distribu-
tion facility.
‘‘(2) EXCEPTIONS RELATING TO TRANSMISSION
FACILITIES.—Paragraph (1)(A) shall not apply to
any bond issued to finance—
‘‘(A) any repair of a transmission facility
in service on the date of the enactment of this
section, so long as the repair does not—
144
‘‘(i) increase the voltage level of such
facility over its level at the close of the base
year, or
‘‘(ii) increase the thermal load limit of
such facility by more than 3 percent over
such limit at the close of the base year,
‘‘(B) any qualifying upgrade of an electric
transmission facility in service on the date of the
enactment of this section, or
‘‘(C) any transmission facility necessary to
comply with an obligation under a shared or re-
ciprocal transmission agreement in effect on such
date.
‘‘(3) EXCEPTION FOR LOCAL ELECTRIC TRANS-
MISSION FACILITY.—For purposes of this subsection—
‘‘(A) IN GENERAL.—In the case of a govern-
mental unit which owns distribution facilities,
paragraph (1)(A) shall not apply to any bond
issued to finance an electric transmission facility
owned by such governmental unit and located
within such governmental unit’s distribution
area, but only to the extent such facility is, or
will be, necessary to supply electricity to serve
the retail native load, or wholesale native load,
of such governmental unit or of 1 or more other
145
governmental units owning distribution facilities
which are directly connected to such electric
transmission facility.
‘‘(B) RETAIL LOAD.—The term ‘retail load’
means, with respect to a governmental unit, the
electric load of end-users in the distribution area
of the governmental unit.
‘‘(C) WHOLESALE NATIVE LOAD.—The term
‘wholesale native load’ means—
‘‘(i) the retail load of such unit’s
wholesale native load purchasers (or of an
ultimate wholesale purchaser described in
subsection (a)(3)(B)(ii)), and
‘‘(ii) the electric load of purchasers
(not described in clause (i)) under wholesale
requirements contracts which—
‘‘(I) do not constitute private
business use (determined without re-
gard to this section), and
‘‘(II) were in effect in the base
year.
‘‘(D) NECESSARY
TO
SERVE
LOAD.—For
purposes of determining whether a transmission
facility is, or will be, necessary to supply elec-
146
tricity to retail native load or wholesale native
load—
‘‘(i) the governmental unit’s available
transmission rights shall be taken into ac-
count,
‘‘(ii) electric reliability standards or
requirements of national or regional reli-
ability organizations, regional transmission
organizations and the Electric Reliability
Council of Texas shall be taken into ac-
count, and
‘‘(iii) transmission, siting and con-
struction decisions of regional transmission
organizations and State and Federal regu-
latory and siting agencies, after a pro-
ceeding that provides for public input, shall
be presumptive evidence regarding whether
transmission facilities are necessary to serve
native load.
‘‘(E) QUALIFYING
UPGRADE.—The term
‘qualifying upgrade’ means an improvement or
addition to transmission facilities of the govern-
mental unit in service on the date of the enact-
ment of this section which—
147
‘‘(i) is ordered or approved by a re-
gional transmission organization or by a
State regulatory or siting agency, after a
proceeding that provides for public input,
and
‘‘(ii) is, or will be, necessary to supply
electricity to serve the retail native load, or
wholesale native load, of such governmental
unit or of one or more governmental units
owning distribution facilities which are di-
rectly connected to such transmission facil-
ity.
‘‘(4) START-UP ELECTRIC UTILITY DISTRIBUTION
FACILITY DEFINED.—For purposes of this subsection,
the term ‘start-up electric utility distribution facility’
means any distribution facility to provide electric
service for sale to the public if such facility is placed
in service—
‘‘(A) by a governmental unit that did not
operate an electric utility on the date of the en-
actment of this section, and
‘‘(B) during the first 10 years after the date
such governmental unit begins operating an elec-
tric utility.
148
A governmental unit is treated as having operated an
electric utility on the date of the enactment of this
section if it operates electric output facilities which
were (on such date) operated by another governmental
unit to provide electric service for sale to the public.
‘‘(5) EXCEPTION FOR REFUNDING BONDS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any eligible refunding bond.
‘‘(B) ELIGIBLE
REFUNDING
BOND.—For
purposes of subparagraph (A), the term ‘eligible
refunding bond’ means any bond (or series of
bonds) issued to refund any bond issued before
the date of the enactment of this section if the av-
erage maturity date of the issue of which the re-
funding bond is a part is not later than the av-
erage maturity date of the bonds to be refunded
by such issue.
‘‘(c) DEFINITIONS; SPECIAL RULES.—For purposes of
this section—
‘‘(1) BASE YEAR.—The term ‘base year’ means—
‘‘(A) the calendar year preceding the start-
up year, or
‘‘(B) at the election of the governmental
unit, the second or third calendar years pre-
ceding the start-up year.
149
‘‘(2) DISTRIBUTION AREA.—The term ‘distribu-
tion area’ means the area in which a governmental
unit owns distribution facilities.
‘‘(3) ELECTRIC
OUTPUT
FACILITY.—The term
‘electric output facility’ means an output facility that
is an electric generation, transmission, or distribution
facility.
‘‘(4) DISTRIBUTION
FACILITY.—The term ‘dis-
tribution facility’ means an electric output facility
that is not a generation or transmission facility.
‘‘(5) TRANSMISSION FACILITY.—The term ‘trans-
mission facility’ means an electric output facility
(other than a generation facility) that operates at an
electric voltage of 69 kV or greater. To the extent pro-
vided in regulations, such term includes any output
facility that 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 en-
actment of this section).
‘‘(6) EXISTING GENERATION FACILITY.—
‘‘(A) IN GENERAL.—The term ‘existing gen-
eration facility’ means any electric generation
facility if—
‘‘(i) such facility is originally placed
in service on or before the date of enactment
150
of this Act and is owned by any govern-
mental unit on such date, or
‘‘(ii) such facility is originally placed
in service after such date if the construction
of the facility commenced before June 1,
2000, and such facility is owned by any
governmental unit when it is placed in
service.
‘‘(B) DENIAL
OF
TREATMENT
TO
EXPAN-
SIONS.—Such term shall not include any facility
to the extent the generating capacity of such fa-
cility as of any date is 3 percent above the great-
er of its nameplate or rated capacity as of the
date of the enactment of this section (or, in the
case of a facility described in subparagraph
(A)(ii), the date that the facility is placed in
service).
‘‘(7) REGIONAL TRANSMISSION ORGANIZATION.—
The term ‘regional transmission organization’ in-
cludes an independent system operator.
‘‘(8) FERC.—The term ‘FERC’ means the Fed-
eral Energy Regulatory Commission.
‘‘(9) GOVERNMENT-OWNED
FACILITY.—An elec-
tric transmission facility shall be treated as owned by
151
a governmental unit as of any date to the extent
that—
‘‘(A) such unit acquired (before the base
year) long-term firm transmission capacity (as
determined under regulations) of such facility for
the purposes of serving customers to which such
unit had at the close of the base year—
‘‘(i) a statutory service obligation, or
‘‘(ii) an obligation under a require-
ments contract, and
‘‘(B) such unit holds such capacity as of
such date.
‘‘(10) STATUTORY
SERVICE
OBLIGATION.—The
term ‘statutory service obligation’ means an obliga-
tion under State or Federal law (exclusive of an obli-
gation arising solely under a contract entered into
with a person) to provide electric distribution services
or electric sales services, as provided in such law.
‘‘(11) CONTRACT
MODIFICATIONS.—A material
modification of a contract shall be treated as a new
contract.
‘‘(d) ELECTION TO TERMINATE TAX-EXEMPT BOND
FINANCING
FOR
CERTAIN
ELECTRIC
OUTPUT
FACILI-
TIES.—
152
‘‘(1) IN GENERAL.—At the election of a govern-
mental unit, section 103(a) shall not apply to any
bond issued by or on behalf of such unit after the date
of such election if any portion of the proceeds of the
issue of which such bond is a part are used to provide
any electric output facilities. Such an election, once
made, shall be irrevocable.
‘‘(2) OTHER
EFFECTS
OF
ELECTION.—During
the period that the election under paragraph (1) is in
effect with respect to a governmental unit, the term
‘private activity bond’ shall not include—
‘‘(A) any bond issued by such unit before
the date of the enactment of this section to pro-
vide an electric output facility if, as of the date
of the election, such bond was not a private ac-
tivity bond, and
‘‘(B) any bond to which paragraph (1) does
not apply by reason of paragraph (3).
‘‘(3) EXCEPTIONS FOR CERTAIN PROPERTY.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any bond issued to provide property
owned by a governmental unit if such property
is—
‘‘(i) any qualifying transmission facil-
ity,
153
‘‘(ii) any qualifying distribution facil-
ity,
‘‘(iii) any facility necessary to meet
Federal or State environmental require-
ments applicable to an existing generation
facility owned by the governmental unit as
of the date of the election,
‘‘(iv) any property to repair any exist-
ing generation facility owned by the govern-
mental unit as of the date of the election,
‘‘(v) any qualified facility (as defined
in section 45(c)(3)) producing electricity
from any qualified energy resource (as de-
fined in section 45(c)(1)), and
‘‘(vi) any energy property (as defined
in section 48(a)(3)) placed in service during
a period that the energy percentage under
section 48(a) is greater than zero.
‘‘(B) LIMITATION ON USE BY NONGOVERN-
MENTAL PERSONS.—Subparagraph (A) shall not
apply to any property constructed, acquired or
financed for a principal purpose of providing the
facility (or the output thereof) to nongovern-
mental persons.
154
‘‘(4) 
DEFINITIONS.—For 
purposes 
of 
this
subsection—
‘‘(A) QUALIFYING
DISTRIBUTION
FACIL-
ITY.—The term ‘qualifying distribution facility’
means a distribution facility meeting the open
access requirements of subsection (a)(2)(A)(ii).
‘‘(B) QUALIFYING
TRANSMISSION
FACIL-
ITY.—The term ‘qualifying transmission facility’
means a local transmission facility (as defined
in subsection (b)(3)) meeting the open access re-
quirements of subsection (a)(2)(A)(i).
‘‘(5) EFFECT OF ELECTION.—
‘‘(A) IN
GENERAL.—An election under
paragraph (1) shall be binding on any successor
in interest to, or any related party with respect
to, the electing governmental unit. For purposes
of this paragraph, a governmental unit shall be
treated as related to another governmental unit
if it is a member of the same controlled group
(as determined under regulations).
‘‘(B) TREATMENT
OF
ELECTING
GOVERN-
MENTAL
UNIT.—A governmental unit which
makes an election under paragraph (1) shall be
treated for purposes of section 141 as a person—
155
‘‘(i) which is not a governmental unit,
and
‘‘(ii) which is engaged in a trade or
business,
with respect to its purchase of electricity gen-
erated by an electric output facility placed in
service after the date of such election if such pur-
chase is under a contract executed after such
date.’’
(b) WAIVER OF CERTAIN LIMITATIONS NOT TO APPLY
TO
DISTRIBUTION
FACILITIES.—Section 141(d)(5) is
amended by inserting ‘‘(except in the case of an electric out-
put facility that is a distribution facility)’’ after ‘‘this sub-
section’’.
(c) CLERICAL AMENDMENT.—The table of sections for
subpart A of part IV of subchapter B of chapter 1 is amend-
ed by inserting after the item relating to section 141 the
following new item:
‘‘Sec. 141A. Treatment of government-owned electric output facili-
ties.’’
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall take effect on the date of the enact-
ment of this Act, except that a governmental unit
may elect to have section 141A(a)(1) of the Internal
156
Revenue Code of 1986, as added by subsection (a),
take effect on April 14, 1996.
(2) 
BINDING
CONTRACTS.—The 
amendment
made by subsection (b) (relating to waiver of certain
limitations not to apply to distribution facilities)
shall not apply to facilities acquired pursuant to a
contract which was entered into before the date of the
enactment of this Act and which was binding on such
date and at all times thereafter before such acquisi-
tion.
(3) COMPARABLE TREATMENT TO BONDS UNDER
1954
CODE
RULES.—References in the amendments
made by this Act to sections of the Internal Revenue
Code of 1986 shall be deemed to include references to
comparable sections of the Internal Revenue Code of
1954.
SEC. 208. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION OR
STATE ELECTRIC RESTRUCTURING POLICY.
(a) IN GENERAL.—Section 1033 (relating to involun-
tary conversions) is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
157
‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION OR STATE ELEC-
TRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—For purposes of this subtitle,
if a taxpayer elects the application of this subsection
to a qualifying electric transmission transaction—
‘‘(A) such transaction shall be treated as an
involuntary conversion to which this section ap-
plies, and
‘‘(B) exempt utility property shall be treat-
ed as property which is similar or related in
service or use to the property disposed of in such
transaction.
‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—In
the case of any involuntary conversion described in
paragraph (1), subsection (a)(2)(B) shall be applied
by substituting ‘4 years’ for ‘2 years’ in clause (i)
thereof.
‘‘(3) 
QUALIFYING
ELECTRIC
TRANSMISSION
TRANSACTION.—For purposes of this subsection, the
term ‘qualifying electric transmission transaction’
means any sale or other disposition before January 1,
2009, of—
‘‘(A) property used in the trade or business
of providing electric transmission services, or
158
‘‘(B) any stock or partnership interest in a
corporation or partnership, as the case may be,
whose principal trade or business consists of pro-
viding electric transmission services,
but only if such sale or disposition is to an inde-
pendent transmission company.
‘‘(4) INDEPENDENT TRANSMISSION COMPANY.—
For purposes of this subsection, the term ‘independent
transmission company’ means—
‘‘(A) a regional transmission organization
approved by the Federal Energy Regulatory
Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regu-
latory Commission determines in its au-
thorization of the transaction under section
203 of the Federal Power Act (16 U.S.C.
823b) is not a market participant within
the meaning of such Commission’s rules ap-
plicable to regional transmission organiza-
tions, and
‘‘(ii) whose transmission facilities to
which the election under this subsection ap-
plies are under the operational control of a
Federal Energy Regulatory Commission-ap-
159
proved regional transmission organization
before the close of the period specified in
such authorization, but not later than the
close of the period applicable under sub-
section (a)(2)(B) as extended under para-
graph (2), or
‘‘(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Com-
mission of Texas, a person which is approved by
that Commission as consistent with Texas State
law regarding an independent transmission or-
ganization.
‘‘(5) EXEMPT UTILITY PROPERTY.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘exempt util-
ity property’ means property used in the trade
or business of—
‘‘(i) generating, transmitting, distrib-
uting, or selling electricity, or
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.
‘‘(B) NONRECOGNITION OF GAIN BY REASON
OF ACQUISITION OF STOCK.—Acquisition of con-
trol of a corporation shall be taken into account
under this section with respect to a qualifying
160
electric transmission transaction only if the
principal trade or business of such corporation is
a trade or business referred to in subparagraph
(A).
‘‘(6) 
SPECIAL
RULE
FOR
CONSOLIDATED
GROUPS.—In the case of a corporation which is a
member of an affiliated group filing a consolidated
return, such corporation shall be treated as satisfying
the purchase requirement of subsection (a)(2) with re-
spect to any qualifying electric transmission trans-
action engaged in by such corporation to the extent
such requirement is satisfied by another member of
such group.
‘‘(7) ELECTION.—An election under paragraph
(1), once made, shall be irrevocable.’’
(b) EXCEPTION FROM GAIN RECOGNITION UNDER SEC-
TION 1245.—Subsection (b) of section 1245 is amended by
adding at the end the following new paragraph:
‘‘(9) DISPOSITIONS TO IMPLEMENT FEDERAL EN-
ERGY REGULATORY COMMISSION OR STATE ELECTRIC
RESTRUCTURING POLICY.—At the election of the tax-
payer, the amount of gain which would (but for this
paragraph) be recognized under this section on any
qualified electric transmission transaction (as defined
in section 1033(k)) for which an election under sec-
161
tion 1033 is made shall be reduced by the aggregate
reduction in the basis of section 1245 property held
by the taxpayer or, if insufficient, by a member of an
affiliated group which includes the taxpayer at any
time during the taxable year in which such trans-
action occurred. The manner and amount of such re-
duction shall be determined under regulations pre-
scribed by the Secretary.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transactions occurring after the date
of the enactment of this Act.
SEC. 209. DISTRIBUTIONS OF STOCK TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION OR
STATE ELECTRIC RESTRUCTURING POLICY.
(a) IN
GENERAL.—Subparagraph (A) of section
355(e)(3) (relating to special rules relating to acquisitions)
is amended by inserting after clause (iv) the following new
clause:
‘‘(v) The acquisition of stock in any
controlled corporation in a qualifying elec-
tric transmission transaction (as defined in
section 1033(k)).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to distributions after the date of the
enactment of this Act.
162
SEC. 210. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS.
(a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND
BASED
ON COST
OF SERVICE; CONTRIBUTIONS AFTER
FUNDING PERIOD.—Subsection (b) of section 468A is
amended to read as follows:
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the Fund for any taxable year
shall not exceed the ruling amount applicable to such
taxable year.
‘‘(2) CONTRIBUTIONS AFTER FUNDING PERIOD.—
Notwithstanding any other provision of this section,
a taxpayer may pay into the Fund in any taxable
year after the last taxable year to which the ruling
amount applies. Payments may not be made under
the preceding sentence to the extent such payments
would cause the assets of the Fund to exceed the nu-
clear decommissioning costs allocable to the tax-
payer’s current or former interest in the nuclear pow-
erplant to which the Fund relates. The limitation
under the preceding sentence shall be determined by
taking into account a reasonable rate of inflation for
the nuclear decommissioning costs and a reasonable
after-tax rate of return on the assets of the Fund until
such assets are anticipated to be expended.’’.
163
(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 powerplant, the taxpayer transfers the
Fund with respect to such powerplant 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) 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 powerplant
164
may transfer into such Fund up to an amount equal
to the excess of the total nuclear decommissioning
costs with respect to such nuclear powerplant over the
portion of such costs taken into account in deter-
mining the ruling amount in effect immediately be-
fore the transfer.
‘‘(2) 
DEDUCTION
FOR
AMOUNTS
TRANS-
FERRED.—
‘‘(A) IN GENERAL.—The deduction allowed
by subsection (a) for any transfer permitted by
this subsection shall be allowed ratably over the
remaining estimated useful life (within the
meaning of subsection (d)(2)(A)) of the nuclear
powerplant beginning with the taxable year dur-
ing 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.
165
‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—
If—
‘‘(i) any transfer permitted by this
subsection is made to any Fund to which
this section applies, and
‘‘(ii) such Fund is transferred there-
after,
any deduction under this subsection for taxable
years ending after the date that such Fund is
transferred shall be allowed to the transferee and
not to the transferor. The preceding sentence
shall not apply if the transferor is an organiza-
tion exempt from tax imposed by 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 be the adjusted basis of such property.
‘‘(3) NEW RULING AMOUNT REQUIRED.—Para-
graph (1) shall not apply to any transfer unless the
166
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
not be increased by reason of any transfer permitted
by this subsection.’’.
(2) NEW RULING AMOUNT TO TAKE INTO AC-
COUNT TOTAL COSTS.—Subparagraph (A) of section
468A(d)(2) is amended to read as follows:
‘‘(A) fund the total nuclear decommis-
sioning costs with respect to such powerplant
over the estimated useful life of such powerplant,
and’’.
(d) DEDUCTION
FOR NUCLEAR DECOMMISSIONING
COSTS WHEN PAID.—Paragraph (2) of section 468A(c) is
amended to read as follows:
‘‘(2) DEDUCTION OF NUCLEAR 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.’’.
167
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 211. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section
501(c)(12) is amended by striking ‘‘or’’ at the end of
clause (i), by striking the period at the end of clause
(ii) and inserting a comma, and by adding at the end
the following new clauses:
‘‘(iii) from any open access transaction
(other than income received or accrued di-
rectly or indirectly from a member), or
‘‘(iv) from any nuclear decommis-
sioning transaction.’’
(2) DEFINITIONS.—Paragraph (12) of section
501(c) is amended by adding at the end the following
new subparagraph:
‘‘(E) For purposes of subparagraph (C)—
‘‘(i) The term ‘open access transaction’
means any activity which would be a per-
mitted open access activity (as defined in
168
section 141A(a)(2)) if the cooperative were a
governmental unit.
‘‘(ii) The term ‘nuclear decommis-
sioning transaction’ means—
‘‘(I) any transfer into a trust,
fund, or instrument established to pay
any nuclear decommissioning costs if
the transfer is in connection with the
transfer of the cooperative’s interest in
a nuclear powerplant or nuclear pow-
erplant unit,
‘‘(II) any distribution from such
a trust, fund, or instrument, or
‘‘(III) any earnings from such a
trust, fund, or instrument.’’
(b) INCOME FROM LOAD LOSS TRANSACTIONS TREAT-
ED AS MEMBER INCOME.—Paragraph (12) of section 501(c)
is amended by adding after subparagraph (E) the following
new subparagraph:
‘‘(F)(i) In the case of a mutual or coopera-
tive electric company, income received or accrued
from a load loss transaction shall be treated as
an amount collected from members for the sole
purpose of meeting losses and expenses.
169
‘‘(ii) For purposes of clause (i), the term
‘load loss transaction’ means any sale (whether
at wholesale or at retail) which would be a load
loss sale under rules similar to the rules of sec-
tion 141A(3)(C).
‘‘(iii) A company shall not fail to be treated
as a mutual cooperative company for purposes of
this paragraph by reason of the treatment under
clause (i).
‘‘(iv) A rule similar to the rule of this sub-
paragraph shall apply to an organization to
which section 1381 does not apply by reason of
section 1381(a)(2)(C).’’
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to
modifications) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(18) TREATMENT OF LOAD LOSS SALES OF MU-
TUAL
OR
COOPERATIVE
ELECTRIC
COMPANIES.—In
the case of a mutual or cooperative electric company
described in section 501(c)(12), there shall be excluded
income which is treated as member income under sub-
paragraph (F) thereof.’’
170
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 212. REPEAL OF REQUIREMENT OF CERTAIN AP-
PROVED TERMINALS TO OFFER DYED DIESEL
FUEL AND KEROSENE FOR NONTAXABLE PUR-
POSES.
Section 4101 (relating to certain approved terminals
of registered persons required to offer dyed diesel fuel and
kerosene for nontaxable purposes) is amended by striking
subsection (e).
SEC. 213. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS.
(a) IN GENERAL.—Subsection (b) of section 148 (de-
fining higher yielding investments) is amended by adding
at the end the following new paragraph:
‘‘(4) EXCEPTION FOR CERTAIN PREPAYMENTS TO
ENSURE
NATURAL
GAS
SUPPLY.—The term ‘invest-
ment property’ shall not include any prepayment for
the purpose of obtaining a supply of a natural gas—
‘‘(A) at least 85 percent of which is to be
used in the State in which the issuer is located,
and
‘‘(B) which is to be used in a business of
one or more utilities each of which is owned and
171
operated by a State or local government, any po-
litical subdivision or instrumentality thereof, or
any governmental unit acting for or on behalf of
such a utility.’’.
(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY
TO PREPAYMENTS FOR NATURAL GAS.—Paragraph (2) of
section 141(c) (providing exceptions to the private loan fi-
nancing test) is amended by striking ‘‘or’’ at the end of
subparagraph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, or’’, and by adding at the
end the following new subparagraph:
‘‘(C) arises from a transaction described in
section 148(b)(4).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to obligations issued after October 22,
1986; except that section 148(b)(4)(A) of the Internal Rev-
enue Code of 1986, as added by this section, shall apply
only to obligations issued after the date of the enactment
of this Act.
TITLE III—PRODUCTION
SEC. 301. OIL AND GAS FROM MARGINAL WELLS.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business credits) is amended by
adding at the end the following:
172
‘‘SEC. 45J. CREDIT FOR PRODUCING OIL AND GAS FROM
MARGINAL WELLS.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
marginal well production credit for any taxable year is an
amount equal to the product of—
‘‘(1) the credit amount, and
‘‘(2) the qualified credit oil production and the
qualified natural gas production which is 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
173
‘‘(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.
‘‘(B) INFLATION ADJUSTMENT.—In the case
of any taxable year beginning in a calendar year
after 2001, each of the dollar amounts contained
in subparagraph (A) shall be 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 ‘2000’ 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.
174
‘‘(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.
‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION
WHICH MAY QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural
gas produced during any taxable year from any
well shall not be treated or qualified crude oil
production or qualified natural gas production
to the extent production from the well during the
taxable year exceeds 1,095 barrels or barrel
equivalents.
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the
case of a short taxable year, the limitations
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the
number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is
not capable of production during each day
175
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.
‘‘(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).
176
‘‘(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
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
177
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-
sidered to be a qualified marginal well during such
period.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b) is amended by striking ‘‘plus’’ at the end of para-
graph (17), by striking the period at the end of paragraph
(18) and inserting ‘‘, plus’’, and by adding at the end the
following:
‘‘(19) the marginal oil and gas well production
credit determined under section 45J(a).’’.
(c) CARRYBACK.—Subsection (a) of section 39 (relat-
ing to carryback and carryforward of unused credits gen-
erally) is amended by adding at the end the following:
‘‘(3) 10-YEAR
CARRYBACK
FOR
MARGINAL
OIL
AND GAS WELL PRODUCTION CREDIT.—In the case of
the marginal oil and gas well production credit—
‘‘(A) this section shall be applied separately
from the business credit (other than the marginal
oil and gas well production credit),
178
‘‘(B) paragraph (1) shall be applied by sub-
stituting ‘10 taxable years’ for ‘1 taxable years’
in subparagraph (A) thereof, and
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘31 taxable years’
for ‘21 taxable years’ in subparagraph (A)
thereof, and
‘‘(ii) by substituting ‘30 taxable years’
for ‘20 taxable years’ in subparagraph (A)
thereof.’’.
(d) COORDINATION WITH SECTION 29.—Section 29(a)
is amended by striking ‘‘There’’ and inserting ‘‘At the elec-
tion of the taxpayer, there’’.
(e) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter I is amend-
ed by adding at the end the following:
‘‘Sec. 45J. Credit for producing oil and gas from marginal wells.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to production in taxable years beginning
after December 31, 2001.
179
SEC. 302. TEMPORARY SUSPENSION OF LIMITATION BASED
ON 65 PERCENT OF TAXABLE INCOME AND EX-
TENSION OF SUSPENSION OF TAXABLE IN-
COME LIMIT WITH RESPECT TO MARGINAL
PRODUCTION.
(a) LIMITATION BASED ON 65 PERCENT OF TAXABLE
INCOME.—Subsection (d) of section 613A (relating to limi-
tation on percentage depletion in case of oil and gas wells)
is amended by adding at the end the following new para-
graph:
‘‘(6) TEMPORARY SUSPENSION OF TAXABLE IN-
COME LIMIT.—Paragraph (1) shall not apply to tax-
able years beginning after December 31, 2001, and be-
fore January 1, 2007, including with respect to
amounts carried under the second sentence of para-
graph (1) to such taxable years.’’.
(b) EXTENSION OF SUSPENSION OF TAXABLE INCOME
LIMIT WITH RESPECT TO MARGINAL PRODUCTION.—Sub-
paragraph (H) of section 613A(c)(6) (relating to temporary
suspension of taxable income limit with respect to marginal
production) is amended by striking ‘‘2002’’ and inserting
‘‘2007’’.
(c) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2001.
180
SEC. 303. DEDUCTION FOR DELAY RENTAL PAYMENTS.
(a) IN GENERAL.—Section 263 (relating to capital ex-
penditures) is amended by adding after subsection (i) the
following:
‘‘(j) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL
AND GAS WELLS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a), a taxpayer may elect to treat delay rental pay-
ments incurred in connection with the development of
oil or gas within the United States (as defined in sec-
tion 638) as payments which are not chargeable to
capital account. Any payments so treated shall be al-
lowed as a deduction in the taxable year in which
paid or incurred.
‘‘(2) DELAY RENTAL PAYMENTS.—For purposes
of paragraph (1), the term ‘delay rental payment’
means an amount paid for the privilege of deferring
development of an oil or gas well under an oil or gas
lease.’’.
(b) CONFORMING AMENDMENT.—Section 263A(c)(3) is
amended by inserting ‘‘263(j),’’ after ‘263(i),’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred in taxable
years beginning after December 31, 2001.
181
SEC. 304. ELECTION TO EXPENSE GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.
(a) IN GENERAL.—Section 263 (relating to capital ex-
penditures) is amended by adding after subsection (j) the
following:
‘‘(k) GEOLOGICAL AND GEOPHYSICAL EXPENDITURES
FOR DOMESTIC OIL AND GAS WELLS.—Notwithstanding
subsection (a), a taxpayer may elect to treat geological and
geophysical expenses incurred in connection with the explo-
ration for, or development of, oil or gas within the United
States (as defined in section 638) as expenses which are
not chargeable to capital account. Any expenses so treated
shall be allowed as a deduction in the taxable year in which
paid or incurred.’’.
(b) CONFORMING AMENDMENT.—Section 263A(c)(3),
as amended by section 303(b), is amended by inserting
‘‘263(k),’’ after ‘‘263(j),’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2001.