IB 
Union Calendar No. 41
108TH CONGRESS 
1ST SESSION H. R. 1531
[Report No. 108–67] 
To amend the Internal Revenue Code of 1986 to enhance energy conservation 
and to provide for reliability and diversity in the energy supply for 
the American people, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 1, 2003
Mr. MCCRERY introduced the following bill; which was referred to the 
Committee on Ways and Means 
APRIL 9, 2003
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 April 1, 2003] 
A BILL 
To amend the Internal Revenue Code of 1986 to enhance 
energy conservation and to provide for reliability and 
diversity in the energy supply for the American people, 
and for other purposes.
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 2003’’. 
(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.—
Sec. 1. Short title. 
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 fuel cell power plants. 
Sec. 104. Credit for energy efficiency improvements to existing homes. 
Sec. 105. Business credit for construction of new energy efficient home. 
Sec. 106. Energy credit for combined heat and power system property. 
Sec. 107. New nonrefundable personal credits allowed against regular and min-
imum taxes. 
Sec. 108. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland wa-
terway transportation which remain in general fund. 
Sec. 109. Reduced motor fuel excise tax on certain mixtures of diesel fuel. 
Sec. 110. Repeal of phaseouts for qualified electric vehicle credit and deduction 
for clean fuel-vehicles. 
Sec. 111. Alternative motor vehicle credit. 
TITLE II—RELIABILITY 
Sec. 201. Natural gas gathering lines treated as 7-year property. 
Sec. 202. Natural gas distribution lines treated as 15-year property. 
Sec. 203. Electric transmission property treated as 15-year property. 
Sec. 204. Expensing of capital costs incurred in complying with Environmental 
Protection Agency sulfur regulations. 
Sec. 205. Credit for production of low sulfur diesel fuel. 
Sec. 206. Determination of small refiner exception to oil depletion deduction. 
Sec. 207. Sales or dispositions to implement Federal Energy Regulatory Commis-
sion or State electric restructuring policy. 
Sec. 208. Modifications to special rules for nuclear decommissioning costs. 
Sec. 209. Treatment of certain income of cooperatives. 
Sec. 210. Arbitrage rules not to apply to prepayments for natural gas. 
Sec. 211. Prepayment of premium liability for coal industry health benefits.
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. Amortization of delay rental payments. 
Sec. 304. Amortization of geological and geophysical expenditures. 
Sec. 305. Extension and modification of credit for producing fuel from a non-
conventional source. 
Sec. 306. Business related energy credits allowed against regular and minimum 
tax. 
Sec. 307. Temporary repeal of alternative minimum tax preference for intangible 
drilling costs. 
Sec. 308. Allowance of enhanced recovery credit against the alternative minimum 
tax. 
TITLE IV—CORPORATE EXPATRIATION 
Sec. 401. Tax treatment of corporate expatriation. 
Sec. 402. Expressing the sense of the Congress that tax reform is needed to address 
the issue of corporate expatriation.
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. 
‘‘(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 
which 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 
made during such calendar year by any of such 
individuals with respect to such dwelling unit 
shall be determined by treating all of such indi-
viduals as 1 taxpayer whose taxable year is such 
calendar year. 
‘‘(B) There shall be allowable with respect to 
such expenditures to each of such individuals, a 
credit under subsection (a) for the taxable year 
in which such calendar year ends in an amount 
which bears the same ratio to the amount deter-
mined under subparagraph (A) as the amount of 
such expenditures made by such individual dur-
ing such calendar year bears to the aggregate of
such expenditures made by all of such individ-
uals during such calendar year. 
‘‘(C) Subparagraphs (A) and (B) shall be 
applied separately with respect to qualified solar 
water heating property expenditures and quali-
fied photovoltaic property expenditures. 
‘‘(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 
into 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, 2003. 
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 ‘‘2004’’ 
and inserting ‘‘2007’’. 
(b) EXPANSION OF CREDIT FOR OPEN-LOOP BIOMASS, 
LANDFILL GAS FACILITIES, AND TRASH COMBUSTION FA-
CILITIES.—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. 
‘‘(F) TRASH COMBUSTION FACILITIES.—In 
the case of a facility which burns municipal 
solid waste to produce electricity, the term 
‘qualified facility’ means any facility owned by 
the taxpayer which is originally placed in serv-
ice after the date of the enactment of this sub-
paragraph and 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, 
‘‘(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 paragraph—
‘‘(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) CREDIT ELIGIBILITY FOR OPEN-LOOP BIO-
MASS FACILITIES.—In the case of any facility de-
scribed in paragraph (3)(D) which is placed in serv-
ice before the date of enactment of this paragraph, if 
the owner of such facility is not the producer of the 
electricity, the person eligible for the credit allowable 
under subsection (a) is the lessee or the operator of 
such facility. 
‘‘(8) 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 1⁄2. 
‘‘(9) 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) QUALIFIED ENERGY RESOURCES.—Paragraph (1) 
of section 45(c) (relating to qualified energy resources) is 
amended to read as follows:
‘‘(1) QUALIFIED ENERGY RESOURCES.—The term 
‘qualified energy resources’ means any resource de-
scribed in paragraph (3) which is used to generate 
electricity at a qualified facility.’’. 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to electricity sold after the date of the 
enactment of this Act, in taxable years ending after such 
date. 
SEC. 103. CREDIT FOR QUALIFIED FUEL CELL POWER 
PLANTS. 
(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 fuel cell power plant,’’. 
(2) QUALIFIED FUEL CELL POWER PLANT.—Sub-
section (a) of section 48 is amended by redesignating 
paragraphs (4) and (5) as paragraphs (5) and (6), 
respectively, and by inserting after paragraph (3) the 
following new paragraph: 
‘‘(4) QUALIFIED FUEL CELL POWER PLANT.—For 
purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified fuel 
cell power plant’ means a fuel cell power plant 
that has an electricity-only generation efficiency 
greater than 30 percent. 
‘‘(B) LIMITATION.—The energy credit with 
respect to any qualified fuel cell power plant for 
any taxable year shall not exceed—
‘‘(i) $500 for each 1⁄2 kilowatt of ca-
pacity of the power plant, reduced by 
‘‘(ii) the aggregate energy credits al-
lowed with respect to such power plant for 
all prior taxable years. 
‘‘(C) FUEL CELL POWER PLANT.—The term 
‘fuel cell power plant’ means an integrated sys-
tem comprised of a fuel cell stack assembly and 
associated balance of plant components that con-
verts 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, 2003, 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 FUEL CELL POWER 
PLANT. 
‘‘(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 fuel cell power plant expenditures which are 
paid or incurred during such year. 
‘‘(b) LIMITATIONS.—The credit allowed under sub-
section (a) with respect to any qualified fuel cell power 
plant for any taxable year shall not exceed—
‘‘(1) $500 for each 1⁄2 kilowatt of capacity of the 
power plant, reduced by 
‘‘(2) the aggregate energy credits allowed with re-
spect to such power plant for all prior taxable years. 
‘‘(c) QUALIFIED FUEL CELL POWER PLANT EXPENDI-
TURES.—For purposes of this section, the term ‘qualified 
fuel cell power plant expenditures’ means expenditures by
the taxpayer for any qualified fuel cell power plant (as de-
fined 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 fuel cell power plant.’’.
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to expenditures paid or 
incurred after December 31, 2003, in taxable years 
ending after such date. 
SEC. 104. 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. 
‘‘(c) CARRYFORWARD
OF UNUSED CREDIT.—If the 
credit allowable under subsection (a) exceeds the limitation 
imposed by section 26(a) for such taxable year reduced by 
the sum of the credits allowable under this subpart (other
than this section) for such taxable year, such excess shall 
be carried to the succeeding taxable year and added to the 
credit allowable under subsection (a) for such succeeding 
taxable year. 
‘‘(d) QUALIFIED
ENERGY
EFFICIENCY
IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified 
energy efficiency improvements’ means any energy efficient 
building envelope component which meets the prescriptive 
criteria for such component established by the 2000 Inter-
national Energy Conservation Code (or, in the case of metal 
roofs with appropriate pigmented coatings, meets the En-
ergy Star program requirements), 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 Res-
idential Energy Services Network (RESNET), 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 (section 3280 of title 24, Code of Federal Regula-
tions, as in effect on April 3, 2003). 
‘‘(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, 2003, and before January 1, 2007.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 23 is amended by 
striking ‘‘section 1400C’’ and inserting ‘‘sections 25E 
and 1400C’’. 
(2) Subsection (a) of section 1016 is amended by 
striking ‘‘and’’ at the end of paragraph (29), by strik-
ing the period at the end of paragraph (30) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(31) 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.’’. 
(3) Subsection (d) of section 1400C is amended 
by inserting ‘‘and section 25E’’ after ‘‘this section’’. 
(4) 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, 2003. 
SEC. 105. 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 45F the following new 
section: 
‘‘SEC. 45G. 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 (section 
3280 of title 24, Code of Federal Regulations, as in 
effect on April 3, 2003), the manufactured home pro-
ducer of such home. 
‘‘(2) ENERGY EFFICIENT PROPERTY.—The term 
‘energy efficient property’ means any energy efficient 
building envelope component, and any 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, 2003, 
‘‘(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 2000 International En-
ergy Conservation Code and to have building en-
velope component improvements account for 1⁄3 
of such 30 percent. 
‘‘(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 (section 3280 of title 24, Code 
of Federal Regulations, as in effect on April 3, 2003). 
‘‘(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 2001 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 determined under this section for any 
expenditure with respect to any property, the increase in 
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so determined.
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 
apply to dwellings purchased during the period beginning 
on January 1, 2004, 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 (14), by striking the period at the end 
of paragraph (15) and inserting ‘‘, plus’’, and by adding 
at the end thereof the following new paragraph: 
‘‘(16) the new energy efficient home credit deter-
mined under section 45G.’’. 
(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 
45G.’’. 
(d) LIMITATION ON CARRYBACK.—Subsection (d) of 
section 39 is amended by adding at the end the following 
new paragraph:
‘‘(11) 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 45G may be carried back to any taxable 
year ending before January 1, 2004.’’. 
(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 45G.’’. 
(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 45F the 
following new item:
‘‘Sec. 45G. New energy efficient home credit.’’.
(g) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years ending after December 
31, 2003. 
SEC. 106. 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, 2003, 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: 
‘‘(12) 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, 2004.’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to property placed in service after De-
cember 31, 2003, in taxable years ending after such date. 
SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM 
TAXES. 
(a) IN GENERAL.—
(1) SECTION 25C.—Section 25C(b), as added by 
section 101, is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—
The credit allowed under subsection (a) for the tax-
able year shall not exceed the excess of—
‘‘(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 
25D and 25E) and section 27 for the taxable 
year.’’. 
(2) SECTION 25D.—Section 25D(b), as added by 
section 103, is amended to read as follows: 
‘‘(b) LIMITATIONS.—
‘‘(1) IN
GENERAL.—The credit allowed under 
subsection (a) with respect to any qualified fuel cell 
power plant for any taxable year shall not exceed—
‘‘(A) $500 for each 1⁄2 kilowatt of capacity 
of the power plant, reduced by 
‘‘(B) the aggregate energy credits allowed 
with respect to such power plant for all prior 
taxable years. 
‘‘(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 section 
25E) and section 27 for the taxable year.’’. 
(3) SECTION 25E.—Section 25E(b), as added by 
section 104, is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—
The credit allowed under subsection (a) for the tax-
able year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability (as 
defined in section 26(b)) plus the tax imposed by 
section 55, over 
‘‘(B) the sum of the credits allowable under 
this subpart (other than this section) and section 
27 for the taxable year.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 23(b)(4)(B) is amended by inserting 
‘‘and sections 25C, 25D, and 25E’’ after ‘‘this sec-
tion’’. 
(2) Section 24(b)(3)(B) is amended by striking 
‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and 
25E’’. 
(3) Section 25(e)(1)(C) is amended by inserting 
‘‘25C, 25D, and 25E’’ after ‘‘25B,’’. 
(4) Section 25B(g)(2) is amended by striking 
‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D, 
and 25E’’. 
(5) Section 25E(c), as added by section 104, is 
amended by striking ‘‘section 26(a) for such taxable 
year reduced by the sum of the credits allowable 
under this subpart (other than this section)’’ and in-
serting ‘‘subsection (b)(3)’’. 
(6) Section 26(a)(1) is amended by striking 
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’.
(7) Section 904(h) is amended by striking ‘‘and 
25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 
(8) 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, 2003. 
SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES 
ON 
RAILROADS 
AND 
INLAND 
WATERWAY 
TRANSPORTATION WHICH REMAIN IN GEN-
ERAL FUND. 
(a) TAXES ON TRAINS.—
(1) IN GENERAL.—Subparagraph (A) of section 
4041(a)(1) is amended by striking ‘‘or a diesel-pow-
ered train’’ each place it appears and by striking ‘‘or 
train’’. 
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (C) of section 4041(a)(1) 
is amended by striking clause (ii) and by redes-
ignating clause (iii) as clause (ii). 
(B) Subparagraph (C) of section 4041(b)(1) 
is amended by striking all that follows ‘‘section 
6421(e)(2)’’ and inserting a period. 
(C) 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.—There is 
hereby imposed a tax of 0.1 cent per gallon on any 
liquid other than gasoline (as defined in section 
4083)—
‘‘(A) sold by any person to an owner, 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.’’. 
(D) Subsection (f) of section 4082 is amend-
ed by striking ‘‘section 4041(a)(1)’’ and inserting 
‘‘subsections (d)(3) and (a)(1) of section 4041, 
respectively’’. 
(E) Paragraph (3) of section 4083(a) is 
amended by striking ‘‘or a diesel-powered train’’. 
(F) Paragraph (3) of section 6421(f) is 
amended to read as follows: 
‘‘(3) GASOLINE USED IN TRAINS.—In the case of 
gasoline used as a fuel in a train, this section shall
not apply with respect to the Leaking Underground 
Storage Tank Trust Fund financing rate under sec-
tion 4081.’’. 
(G) Paragraph (3) of section 6427(l) is 
amended to read as follows: 
‘‘(3) REFUND OF CERTAIN TAXES ON FUEL USED 
IN DIESEL-POWERED TRAINS.—For purposes of this 
subsection, the term ‘nontaxable use’ includes fuel 
used in a diesel-powered train. The preceding sentence 
shall not apply to the tax imposed by section 4041(d) 
and the Leaking Underground Storage Tank Trust 
Fund financing rate under section 4081 except with 
respect to fuel sold for exclusive use by a State or any 
political subdivision thereof.’’. 
(b) FUEL USED ON INLAND WATERWAYS.—
(1) IN
GENERAL.—Paragraph (1) of section 
4042(b) is amended by adding ‘‘and’’ at the end of 
subparagraph (A), by striking ‘‘, and’’ at the end of 
subparagraph (B) and inserting a period, and by 
striking subparagraph (C). 
(2) CONFORMING AMENDMENT.—Paragraph (2) 
of section 4042(b) is amended by striking subpara-
graph (C). 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on January 1, 2004.
SEC. 109. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN 
MIXTURES OF DIESEL FUEL. 
(a) IN GENERAL.—Paragraph (2) of section 4081(a) 
is amended by adding at the end the following: 
‘‘(C) DIESEL-WATER FUEL EMULSION.—In 
the case of diesel-water fuel emulsion at least 14 
percent of which is water and with respect to 
which the emulsion additive is registered by a 
United States manufacturer with the Environ-
mental Protection Agency pursuant to section 
211 of the Clean Air Act (as in effect on March 
31, 2003), subparagraph (A)(iii) shall be applied 
by substituting ‘19.7 cents’ for ‘24.3 cents’.’’. 
(b) SPECIAL RULES FOR DIESEL-WATER FUEL EMUL-
SIONS.—
(1) REFUNDS FOR TAX-PAID PURCHASES.—Sec-
tion 6427 is amended by redesignating subsections 
(m) through (p) as subsections (n) through (q), respec-
tively, and by inserting after subsection (l) the fol-
lowing 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)(C) 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 section 4081(a)(2)(C). 
‘‘(B) INCENTIVE TAX RATE.—The term ‘in-
centive tax rate’ means the aggregate rate of tax 
imposed by section 4081 determined with regard 
to section 4081(a)(2)(C).’’. 
(2) LATER SEPARATION OF FUEL.—
(A) IN GENERAL.—Section 4081 (relating to 
imposition of tax) is amended by redesignating 
subsections (d) and (e) as subsections (e) and (f), 
respectively, and by inserting after subsection (c) 
the following new subsection: 
‘‘(d) LATER SEPARATION OF FUEL FROM DIESEL-
WATER FUEL EMULSION.—If any person separates the tax-
able fuel from a diesel-water fuel emulsion on which tax 
was imposed under subsection (a) at a rate determined 
under subsection (a)(2)(C) (or with respect to which a credit
or payment was allowed or made by reason of section 6427), 
such person shall be treated as the refiner of such taxable 
fuel. The amount of tax imposed on any removal of such 
fuel by such person shall be reduced by the amount of tax 
imposed (and not credited or refunded) on any prior re-
moval or entry of such fuel.’’. 
(B) CONFORMING AMENDMENT.—Subsection 
(d) of section 6416 is amended by striking ‘‘sec-
tion 4081(e)’’ and inserting ‘‘section 4081(f)’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on October 1, 2003. 
SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELEC-
TRIC VEHICLE CREDIT AND DEDUCTION FOR 
CLEAN FUEL-VEHICLES. 
(a) CREDIT FOR QUALIFIED ELECTRIC VEHICLES.—
Subsection (b) of section 30 (relating to limitations) is 
amended by striking paragraph (2) and redesignating 
paragraph (3) as paragraph (2). 
(b) DEDUCTION
FOR CLEAN-FUEL VEHICLES
AND 
CERTAIN REFUELING PROPERTY.—Paragraph (1) of sec-
tion 179A(b) (relating to qualified clean-fuel vehicle prop-
erty) is amended to read as follows: 
‘‘(1) QUALIFIED
CLEAN-FUEL
VEHICLE
PROP-
ERTY.— The cost which may be taken into account
under subsection (a)(1)(A) with respect to any motor 
vehicle shall not exceed— 
‘‘(A) in the case of a motor vehicle not de-
scribed in subparagraph (B) or (C), $2,000, 
‘‘(B) in the case of any truck or van with 
a gross vehicle weight rating greater than 10,000 
pounds but not greater than 26,000 pounds, 
$5,000, or 
‘‘(C) $50,000 in the case of— 
‘‘(i) a truck or van with a gross vehicle 
weight rating greater than 26,000 pounds, 
or 
‘‘(ii) any bus which has a seating ca-
pacity of at least 20 adults (not including 
the driver).’’. 
SEC. 111. 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), and
‘‘(2) the advanced lean burn technology motor 
vehicle credit determined under subsection (c). 
‘‘(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.
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 vehi-
cle—
‘‘(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 2004 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 Bin 5 Tier II emission 
level established in regulations prescribed by 
the Administrator of the Environmental 
Protection Agency under section 202(i) of 
the Clean Air Act for that make and model 
year vehicle, 
‘‘(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) 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) $500, if such vehicle achieves at 
least 125 percent but less than 150 percent 
of the 2000 model year city fuel economy, 
‘‘(ii) $1,000, if such vehicle achieves at 
least 150 percent but less than 175 percent 
of the 2000 model year city fuel economy, 
‘‘(iii) $1,500, if such vehicle achieves 
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy, 
‘‘(iv) $2,000, if such vehicle achieves at 
least 200 percent but less than 225 percent 
of the 2000 model year city fuel economy, 
‘‘(v) $2,500, if such vehicle achieves at 
least 225 percent but less than 250 percent 
of the 2000 model year city fuel economy, 
and 
‘‘(vi) $3,000, 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 8 Tier II emission 
level established in regulations prescribed by 
the Administrator of the Environmental 
Protection Agency under section 202(i) of 
the Clean Air Act for that make and model 
year vehicle. 
‘‘(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. 
‘‘(d) 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. 
‘‘(e) 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, if a credit is allowed under this section for 
any expenditure with respect to any property, the in-
crease in the basis of such property which would (but 
for this paragraph) result from such expenditure shall 
be reduced by the amount of the 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), 
with respect to a vehicle described under subsection 
(b), 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. 
‘‘(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 (d) 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. 
‘‘(f) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall promul-
gate such regulations as necessary to carry out the 
provisions of this section. 
‘‘(2) DETERMINATION OF MOTOR VEHICLE ELIGI-
BILITY.—The Secretary, in coordination with the Sec-
retary of Transportation and the Administrator of the 
Environmental Protection Agency, shall prescribe 
such regulations as necessary to determine whether a 
motor vehicle meets the requirements to be eligible for 
a credit under this section. 
‘‘(g) 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, 
2012, and 
‘‘(2) in the case of any other property, December 
31, 2006.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking 
‘‘and’’ at the end of paragraph (30), by striking the 
period at the end of paragraph (31) and inserting ‘‘, 
and’’, and by adding at the end the following: 
‘‘(32) 
to 
the 
extent 
provided 
in 
section 
30B(e)(5).’’. 
(2) Section 6501(m) is amended by inserting 
‘‘30B(e)(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, 2003, in taxable years ending after such date. 
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 
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 section 
168(e)(3)(C)(ii)’’. 
(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, in taxable years ending 
after such date. 
SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 
15-YEAR PROPERTY. 
(a) IN
GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ‘‘and’’ at the end of clause (ii), by 
striking the period at the end of clause (iii) and by insert-
ing ‘‘, and’’, and by adding at the end the following new 
clause: 
‘‘(iv) any natural gas distribution 
line.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the item 
relating to subparagraph (E)(iii) the following:
‘‘(E)(iv) ..............................................................................................................
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 section 
168(e)(3)(E)(iv)’’.
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to property placed in service after the 
date of the enactment of this Act, in taxable years ending 
after such date. 
SEC. 203. ELECTRIC TRANSMISSION PROPERTY TREATED 
AS 15-YEAR PROPERTY. 
(a) IN
GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property) is 
amended by striking ‘‘and’’ at the end of clause (iii), by 
striking the period at the end of clause (iv) and by inserting 
‘‘, and’’, and by adding at the end the following new clause: 
‘‘(v) any section 1245 property (as de-
fined in section 1245(a)(3)) used in the 
transmission at 69 or more kilovolts of elec-
tricity for sale.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the item 
relating to subparagraph (E)(iv) the following:
‘‘(E)(v) ...............................................................................................................
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 section 
168(e)(3)(E)(v)’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending 
after such date. 
SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
(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 CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
‘‘(a) TREATMENT AS EXPENSES.—A small business re-
finer (as defined in section 45H(c)(1)) may elect to treat 
75 percent of qualified capital costs (as defined in section 
45H(c)(2)) which are paid or incurred by the taxpayer dur-
ing the taxable year as expenses which are not chargeable 
to capital account. Any cost so treated shall be allowed as 
a deduction for the taxable year in which paid or incurred. 
‘‘(b) REDUCED PERCENTAGE.—In the case of a small 
business refiner with average daily domestic refinery runs 
for the 1-year period ending on March 31, 2003, in excess 
of 155,000 barrels, the number of percentage points de-
scribed in subsection (a) shall be reduced (not below zero) 
by the product of such number (before the application of
this subsection) and the ratio of such excess to 50,000 bar-
rels. 
‘‘(c) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title, the 
basis of any property shall be reduced by the portion 
of the cost of such property taken into account under 
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 which 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 (G), by striking the 
period at the end of subparagraph (H) and inserting 
‘‘; or’’, and by adding at the end the following new 
subparagraph: 
‘‘(I) expenditures for which a deduction is 
allowed under section 179B.’’. 
(2) Section 312(k)(3)(B) is amended—
(A) by striking ‘‘section 179 or 179A’’ each 
place it appears and inserting ‘‘section 179, 
179A, or 179B’’, and
(B) in the heading, by striking ‘‘179 OR 
179A’’ and inserting ‘‘179, 179A, OR 179B’’. 
(3) 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 adding at the end the following new 
paragraph: 
‘‘(33) to the extent provided in section 179B(c).’’. 
(4) Paragraphs (2)(C) and (3)(C) of section 
1245(a) are each amended by inserting ‘‘179B,’’ after 
‘‘179A,’’. 
(5) The table of sections for part VI of sub-
chapter B of chapter 1 is amended by inserting after 
the item relating to section 179A the following new 
item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying 
with Environmental Protection Agency sulfur regu-
lations.’’.
(c) EFFECTIVE DATE.—The amendment made by this 
section shall apply to expenses paid or incurred after March 
31, 2003, in taxable years ending after such date. 
SEC. 205. CREDIT FOR PRODUCTION OF LOW SULFUR DIE-
SEL FUEL. 
(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. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIE-
SEL FUEL. 
‘‘(a) IN GENERAL.—For purposes of section 38, the 
amount of the low sulfur diesel fuel production credit deter-
mined under this section with respect to any facility of a 
small business refiner is an amount equal to 5 cents for 
each gallon of low sulfur diesel fuel produced during the 
taxable year by such small business refiner at such facility. 
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The aggregate credit deter-
mined under subsection (a) for any taxable year with 
respect to any facility shall not exceed—
‘‘(A) 25 percent of the qualified capital costs 
incurred by the small business refiner with re-
spect to such facility, reduced by 
‘‘(B) the aggregate credits determined under 
this section for all prior taxable years with re-
spect to such facility. 
‘‘(2) REDUCED PERCENTAGE.—In the case of a 
small business refiner with average daily domestic re-
finery runs for the 1-year period ending on March 31, 
2003, in excess of 155,000 barrels, the number of per-
centage points described in paragraph (1) shall be re-
duced (not below zero) by the product of such number 
(before the application of this paragraph) and the 
ratio of such excess to 50,000 barrels.
‘‘(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 of crude oil with respect to 
which not more than 1,500 persons are engaged in the 
refinery operations of the business on any day during 
such taxable year and whose average daily domestic 
refinery run for the 1-year period ending on March 
31, 2003, did not exceed 205,000 barrels. 
‘‘(2) QUALIFIED
CAPITAL
COSTS.—The term 
‘qualified capital costs’ means, with respect to any fa-
cility, those costs paid or incurred during the appli-
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 
low sulfur diesel fuel, associated adjacent or offsite 
equipment (including tankage, catalyst, and power 
supply), engineering, construction 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 April 1, 2003, and ending with the date 
which is 1 year after the date on which the taxpayer 
must comply with the applicable EPA regulations 
with respect to such facility. 
‘‘(5) LOW SULFUR DIESEL FUEL.—The term ‘low 
sulfur diesel fuel’ means diesel fuel with a sulfur con-
tent of 15 parts per million or less. 
‘‘(d) REDUCTION IN BASIS.—For purposes of this sub-
title, if a credit is determined under this section for any 
expenditure with respect to any property, the increase in 
basis of such property which would (but for this subsection) 
result from such expenditure shall be reduced by the amount 
of the credit so determined. 
‘‘(e) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date which 
is 30 months after the first day of the first taxable 
year in which the low sulfur diesel fuel production 
credit is allowed with respect to a facility, the small 
business refiner must obtain certification from the 
Secretary, in consultation with the Administrator of 
the Environmental Protection Agency, that the tax-
payer’s qualified capital costs with respect to such fa-
cility will result in compliance with the applicable 
EPA regulations. 
‘‘(2) CONTENTS OF APPLICATION.—An applica-
tion for certification shall include relevant informa-
tion regarding unit capacities and operating charac-
teristics sufficient for the Secretary, in consultation 
with the Administrator of the Environmental Protec-
tion Agency, to determine that such qualified capital 
costs are necessary for compliance with the applicable 
EPA regulations. 
‘‘(3) REVIEW PERIOD.—Any application shall be 
reviewed and notice of certification, if applicable, 
shall be made within 60 days of receipt of such appli-
cation. 
‘‘(4) STATUTE OF LIMITATIONS.—With respect to 
the credit allowed under this section—
‘‘(A) the statutory period for the assessment 
of any deficiency attributable to such credit shall 
not expire before the end of the 3-year period 
ending on the date that the review period de-
scribed in paragraph (3) ends, and 
‘‘(B) such deficiency may be assessed before 
the expiration of such 3-year period notwith-
standing the provisions of any other law or rule
of law which would otherwise prevent such as-
sessment. 
‘‘(f) 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 1 taxpayer.’’. 
(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 (15), by striking the period at the end of para-
graph (16) and inserting ‘‘, plus’’, and by adding at the 
end the following new paragraph: 
‘‘(17) in the case of a small business refiner, the 
low sulfur diesel fuel production credit determined 
under section 45H(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: 
‘‘(e) LOW SULFUR DIESEL FUEL PRODUCTION CRED-
IT.—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 45H(a).’’.
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating to 
adjustments to basis) 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 adding 
at the end the following new paragraph: 
‘‘(34) in the case of a facility with respect to 
which a credit was allowed under section 45H, to the 
extent provided in section 45H(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. 45H. Credit for production of low sulfur diesel fuel.’’.
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to expenses paid or incurred after March 
31, 2003, in taxable years ending after such date. 
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: 
‘‘(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, 2003.
SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION OR 
STATE ELECTRIC RESTRUCTURING POLICY. 
(a) IN GENERAL.—Section 451 (relating to general 
rule for taxable year of inclusion) is amended by adding 
at the end the following new subsection: 
‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO 
IMPLEMENT FEDERAL ENERGY REGULATORY COMMISSION 
OR STATE ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—In the case of any qualifying 
electric transmission transaction to which the tax-
payer elects the application of this section, qualified 
gain from such transaction shall be recognized—
‘‘(A) in the taxable year which includes the 
date of such transaction to the extent the amount 
realized from such transaction exceeds—
‘‘(i) the cost of exempt utility property 
which is purchased by the taxpayer during
the 4-year period beginning on such date, 
reduced (but not below zero) by 
‘‘(ii) any portion of such cost pre-
viously taken into account under this sub-
section, and 
‘‘(B) ratably over the 8-taxable year period 
beginning with the taxable year which includes 
the date of such transaction, in the case of any 
such gain not recognized under subparagraph 
(A). 
‘‘(2) QUALIFIED GAIN.—For purposes of this sub-
section, the term ‘qualified gain’ means, with respect 
to any qualifying electric transmission transaction in 
any taxable year— 
‘‘(A) any ordinary income derived from 
such transaction which would be required to be 
recognized under section 1245 or 1250 for such 
taxable year (determined without regard to this 
subsection), and 
‘‘(B) any income derived from such trans-
action in excess of the amount described in sub-
paragraph (A) which is required to be included 
in gross income for such taxable year (deter-
mined without regard to this subsection).
‘‘(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, 
2007, of—
‘‘(A) property used in the trade or business 
of providing electric transmission services, or 
‘‘(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) an independent transmission provider 
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. 
824b) or by declaratory order is not a mar-
ket participant within the meaning of such 
Commission’s rules applicable to inde-
pendent transmission providers, 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-
proved independent transmission provider 
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 
jurisdiction of the Public Utility Commission of 
Texas—
‘‘(i) a person which is approved by 
that Commission as consistent with Texas 
State law regarding an independent trans-
mission provider, or 
‘‘(ii) a political subdivision or affiliate 
thereof whose transmission facilities are 
under the operational control of a person 
described in clause (i).
‘‘(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 subsection with respect to a qualifying 
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, any exempt utility property purchased by an-
other member of such group shall be treated as pur-
chased by such corporation for purposes of applying 
paragraph (1)(A).
‘‘(7) 
TIME
FOR
ASSESSMENT
OF
DEFI-
CIENCIES.—If the taxpayer has made the election 
under paragraph (1) and any gain is recognized by 
such taxpayer as provided in paragraph (1)(B), 
then—
‘‘(A) the statutory period for the assessment 
of any deficiency, for any taxable year in which 
any part of the gain on the transaction is real-
ized, attributable to such gain shall not expire 
prior to the expiration of 3 years from the date 
the Secretary is notified by the taxpayer (in such 
manner as the Secretary may by regulations pre-
scribe) of the purchase of exempt utility property 
or of an intention not to purchase such property, 
and 
‘‘(B) such deficiency may be assessed before 
the expiration of such 3-year period notwith-
standing any law or rule of law which would 
otherwise prevent such assessment. 
‘‘(8) PURCHASE.—For purposes of this sub-
section, the taxpayer shall be considered to have pur-
chased any property if the unadjusted basis of such 
property is its cost within the meaning of section 
1012.
‘‘(9) ELECTION.—An election under paragraph 
(1) shall be made at such time and in such manner 
as the Secretary may require and, once made, shall 
be irrevocable.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to transactions occurring after the date 
of the enactment of this Act, in taxable years ending after 
such date. 
SEC. 208. 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 
power plant 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.’’. 
(b) CLARIFICATION OF TREATMENT OF FUND TRANS-
FERS.—Subsection (e) of section 468A is amended by add-
ing at the end the following new paragraph: 
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in 
connection with the transfer of the taxpayer’s interest 
in a nuclear power plant, the taxpayer transfers the 
Fund with respect to such power plant to the trans-
feree of such interest and the transferee elects to con-
tinue the application of this section to such Fund—
‘‘(A) the transfer of such Fund shall not 
cause such Fund to be disqualified from the ap-
plication of this section, and 
‘‘(B) no amount shall be treated as distrib-
uted from such Fund, or be includible in gross 
income, by reason of such transfer.’’.
(c) TREATMENT
OF
CERTAIN
DECOMMISSIONING 
COSTS.—
(1) IN GENERAL.—Section 468A is amended by 
redesignating subsections (f) and (g) as subsections 
(g) and (h), respectively, and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection 
(b), any taxpayer maintaining a Fund to which this 
section applies with respect to a nuclear power plant 
may transfer into such Fund up to an amount equal 
to the excess of the total nuclear decommissioning 
costs with respect to such nuclear power plant over 
the portion of such costs taken into account in deter-
mining the ruling amount in effect immediately be-
fore the transfer. 
‘‘(2) 
DEDUCTION
FOR
AMOUNTS
TRANS-
FERRED.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (C), the deduction allowed by sub-
section (a) for any transfer permitted by this 
subsection shall be allowed ratably over the re-
maining estimated useful life (within the mean-
ing of subsection (d)(2)(A)) of the nuclear power
plant beginning with the taxable year during 
which the transfer is made. 
‘‘(B) DENIAL
OF
DEDUCTION
FOR
PRE-
VIOUSLY
DEDUCTED
AMOUNTS.—No deduction 
shall be allowed for any transfer under this sub-
section of an amount for which a deduction was 
previously allowed or a corresponding amount 
was not included in gross income. For purposes 
of the preceding sentence, a ratable portion of 
each transfer shall be treated as being from pre-
viously deducted or excluded amounts to the ex-
tent thereof. 
‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—
If—
‘‘(i) any transfer permitted by this 
subsection is made to any Fund to which 
this section applies, and 
‘‘(ii) such Fund is transferred there-
after, 
any deduction under this subsection for taxable 
years ending after the date that such Fund is 
transferred shall be allowed to the transferor for 
the taxable year which includes such date. 
‘‘(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 
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 power plant 
over the estimated useful life of such power plant, 
and’’.
(d) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2003. 
SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES. 
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section 
501(c)(12) is amended by striking ‘‘or’’ at the end of 
clause (i), by striking clause (ii), and by adding at 
the end the following new clauses: 
‘‘(ii) from any provision or sale of 
transmission service or ancillary services if 
such services are provided on a nondiscrim-
inatory open access basis under an inde-
pendent transmission provider agreement 
approved by FERC (other than income re-
ceived or accrued directly or indirectly from 
a member), 
‘‘(iii) from any nuclear decommis-
sioning transaction, or 
‘‘(iv) from any asset exchange or con-
version transaction.’’.
(2) DEFINITIONS AND SPECIAL RULES.—Para-
graph (12) of section 501(c) is amended by adding at 
the end the following new subparagraphs: 
‘‘(E) For purposes of subparagraph (C)(ii), 
the term ‘FERC’ means the Federal Energy Reg-
ulatory Commission and references to such term 
shall be treated as including the Public Utility 
Commission of Texas with respect to any 
ERCOT 
utility 
(as 
defined 
in 
section 
212(k)(2)(B) of the Federal Power Act (16 
U.S.C. 824k(k)(2)(B))). 
‘‘(F) For purposes of subparagraph (C)(iii), 
the term ‘nuclear decommissioning 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 mutual 
or cooperative electric company’s interest in 
a nuclear power plant or nuclear power 
plant unit, 
‘‘(ii) any distribution from any trust, 
fund, or instrument established to pay any 
nuclear decommissioning costs, or
‘‘(iii) any earnings from any trust, 
fund, or instrument established to pay any 
nuclear decommissioning costs. 
‘‘(G) For purposes of subparagraph (C)(iv), 
the term ‘asset exchange or conversion trans-
action’ means any voluntary exchange or invol-
untary conversion of any property related to 
generating, transmitting, distributing, or selling 
electric energy by a mutual or cooperative elec-
tric company, the gain from which qualifies for 
deferred recognition under section 1031 or 1033, 
but only if the replacement property acquired by 
such company pursuant to such section con-
stitutes property which is used, or to be used, 
for—
‘‘(i) generating, transmitting, distrib-
uting, or selling electric energy, or 
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.’’. 
(b) TREATMENT OF INCOME FROM LOAD LOSS TRANS-
ACTIONS, ETC.—Paragraph (12) of section 501(c), as 
amended by subsection (a)(2), is amended by adding after 
subparagraph (G) the following new subparagraph: 
‘‘(H)(i) In the case of a mutual or coopera-
tive electric company described in this para-
graph or an organization described in section 
1381(a)(2)(C), income received or accrued from a 
load loss transaction shall be treated as an 
amount collected from members for the sole pur-
pose of meeting losses and expenses. 
‘‘(ii) For purposes of clause (i), the term 
‘load loss transaction’ means any wholesale or 
retail sale of electric energy (other than to mem-
bers) to the extent that the aggregate sales during 
the recovery period do not exceed the load loss 
mitigation sales limit for such period. 
‘‘(iii) For purposes of clause (ii), the load 
loss mitigation sales limit for the recovery period 
is the sum of the annual load losses for each year 
of such period. 
‘‘(iv) For purposes of clause (iii), a mutual 
or cooperative electric company’s annual load 
loss for each year of the recovery period is the 
amount (if any) by which—
‘‘(I) the megawatt hours of electric en-
ergy sold during such year to members of 
such electric company are less than 
‘‘(II) the megawatt hours of electric en-
ergy sold during the base year to such mem-
bers.
‘‘(v) For purposes of clause (iv)(II), the 
term ‘base year’ means—
‘‘(I) the calendar year preceding the 
start-up year, or 
‘‘(II) at the election of the electric com-
pany, the second or third calendar years 
preceding the start-up year. 
‘‘(vi) For purposes of this subparagraph, the 
recovery period is the 7-year period beginning 
with the start-up year. 
‘‘(vii) For purposes of this subparagraph, 
the start-up year is the calendar year which in-
cludes the date of the enactment of this subpara-
graph or, if later, at the election of the mutual 
or cooperative electric company—
‘‘(I) the first year that such electric 
company offers nondiscriminatory open ac-
cess, or 
‘‘(II) the first year in which at least 10 
percent of such electric company’s sales are 
not to members of such electric company. 
‘‘(viii) A company shall not fail to be treat-
ed as a mutual or cooperative company for pur-
poses of this paragraph or as a corporation oper-
ating on a cooperative basis for purposes of sec-
tion 1381(a)(2)(C) by reason of the treatment 
under clause (i). 
‘‘(ix) For purposes of subparagraph (A), in 
the case of a mutual or cooperative electric com-
pany, income received, or accrued, indirectly 
from a member shall be treated as an amount 
collected from members for the sole purpose of 
meeting losses and expenses.’’. 
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(18) TREATMENT OF MUTUAL OR 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 subparagraph (H) 
thereof.’’. 
(d) CROSS REFERENCE.—Section 1381 is amended by 
adding at the end the following new subsection:
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss trans-
actions of organizations described in subsection 
(a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after the date 
of the enactment of this Act.
SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS. 
(a) IN GENERAL.—Subsection (b) of section 148 (relat-
ing to higher yielding investments) is amended by adding 
at the end the following new paragraph: 
‘‘(4) SAFE
HARBOR
FOR
PREPAID
NATURAL 
GAS.—
‘‘(A) IN GENERAL.—The term ‘investment-
type property’ does not include a prepayment 
under a qualified natural gas supply contract. 
‘‘(B) QUALIFIED
NATURAL
GAS
SUPPLY 
CONTRACT.—For purposes of this paragraph, the 
term ‘qualified natural gas supply contract’ 
means any contract to acquire natural gas for 
resale by a utility owned by a governmental unit 
if the amount of gas permitted to be acquired 
under the contract by the utility during any 
year does not exceed the sum of—
‘‘(i) the annual average amount during 
the testing period of natural gas purchased 
(other than for resale) by customers of such 
utility who are located within the service 
area of such utility, and 
‘‘(ii) the amount of natural gas to be 
used to transport the prepaid natural gas to 
the utility during such year.
‘‘(C) NATURAL
GAS
USED
TO
GENERATE 
ELECTRICITY.—Natural gas used to generate 
electricity shall be taken into account in deter-
mining 
the 
average 
under 
subparagraph 
(B)(i)—
‘‘(i) only if the electricity is generated 
by a utility owned by a governmental unit, 
and 
‘‘(ii) only to the extent that the elec-
tricity is sold (other than for resale) to cus-
tomers of such utility who are located with-
in the service area of such utility. 
‘‘(D) ADJUSTMENTS FOR CHANGES IN CUS-
TOMER BASE.—
‘‘(i) NEW BUSINESS CUSTOMERS.—If—
‘‘(I) after the close of the testing 
period and before the date of issuance 
of the issue, the utility owned by a gov-
ernmental unit enters into a contract 
to supply natural gas (other than for 
resale) for a business use at a property 
within the service area of such utility, 
and 
‘‘(II) the utility did not supply 
natural gas to such property during
the testing period or the ratable 
amount of natural gas to be supplied 
under the contract is significantly 
greater than the ratable amount of gas 
supplied to such property during the 
testing period, 
then a contract shall not fail to be treated 
as a qualified natural gas supply contract 
by reason of supplying the additional nat-
ural gas under the contract referred to in 
subclause (I). 
‘‘(ii) LOST CUSTOMERS.—The average 
under subparagraph (B)(i) shall not exceed 
the annual amount of natural gas reason-
ably expected to be purchased (other than 
for resale) by persons who are located with-
in the service area of such utility and who, 
as of the date of issuance of the issue, are 
customers of such utility. 
‘‘(E) RULING
REQUESTS.—The Secretary 
may increase the average under subparagraph 
(B)(i) for any period if the utility owned by the 
governmental unit establishes to the satisfaction 
of the Secretary that, based on objective evidence 
of growth in natural gas consumption or popu-
lation, such average would otherwise be insuffi-
cient for such period. 
‘‘(F) ADJUSTMENT FOR NATURAL GAS OTH-
ERWISE ON HAND.—
‘‘(i) IN GENERAL.—The amount other-
wise permitted to be acquired under the 
contract for any period shall be reduced 
by—
‘‘(I) the applicable share of nat-
ural gas held by the utility on the date 
of issuance of the issue, and 
‘‘(II) the natural gas (not taken 
into account under subclause (I)) 
which the utility has a right to acquire 
during such period (determined as of 
the date of issuance of the issue). 
‘‘(ii) APPLICABLE
SHARE.—For pur-
poses of the clause (i), the term ‘applicable 
share’ means, with respect to any period, 
the natural gas allocable to such period if 
the gas were allocated ratably over the pe-
riod to which the prepayment relates. 
‘‘(G) INTENTIONAL
ACTS.—Subparagraph 
(A) shall cease to apply to any issue if the util-
ity owned by the governmental unit engages in
any intentional act to render the volume of nat-
ural gas acquired by such prepayment to be in 
excess of the sum of—
‘‘(i) the amount of natural gas needed 
(other than for resale) by customers of such 
utility who are located within the service 
area of such utility, and 
‘‘(ii) the amount of natural gas used to 
transport such natural gas to the utility. 
‘‘(H) TESTING
PERIOD.—For purposes of 
this paragraph, the term ‘testing period’ means, 
with respect to an issue, the most recent 5 cal-
endar years ending before the date of issuance of 
the issue. 
‘‘(I) SERVICE AREA.—For purposes of this 
paragraph, the service area of a utility owned by 
a governmental unit shall be comprised of—
‘‘(i) any area throughout which such 
utility provided at all times during the test-
ing period—
‘‘(I) in the case of a natural gas 
utility, natural gas transmission or 
distribution services, and 
‘‘(II) in the case of an electric 
utility, electricity distribution services,
‘‘(ii) any area within a county contig-
uous to the area described in clause (i) in 
which retail customers of such utility are lo-
cated if such area is not also served by an-
other utility providing natural gas or elec-
tricity services, as the case may be, and 
‘‘(iii) any area recognized as the serv-
ice area of such utility under State or Fed-
eral law.’’. 
(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY 
TO PREPAYMENTS FOR NATURAL GAS.—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) is a qualified natural gas supply con-
tract (as defined in section 148(b)(4)).’’. 
(c) EFFECTIVE DATE.—The amendment made by this 
section shall apply to obligations issued after the date of 
the enactment of this Act.
SEC. 211. PREPAYMENT OF PREMIUM LIABILITY FOR COAL 
INDUSTRY HEALTH BENEFITS. 
(a) IN GENERAL.—Section 9704 (relating to liability 
of assigned operators) is amended by adding at the end the 
following new subsection: 
‘‘(j) PREPAYMENT OF PREMIUM LIABILITY.—
‘‘(1) IN GENERAL.—If—
‘‘(A) any assigned operator who is a mem-
ber of a controlled group of corporations (within 
the meaning of section 52(a)) makes a payment 
meeting the requirements of paragraph (2) to the 
Combined Fund, and 
‘‘(B) the common parent of such group—
‘‘(i) is jointly and severally liable for 
any premium which would (but for this 
subsection) be required to be paid by such 
operator, and 
‘‘(ii) provides security which meets the 
requirements of paragraph (3), 
then no person (other than such common parent) shall 
be liable for any premium for which such operator 
would otherwise be liable. 
‘‘(2) REQUIREMENTS.—A payment meets the re-
quirements of this paragraph if—
‘‘(A) the amount of the payment is not less 
than the present value of the total premium li-
ability of the assigned operator for its assignees 
under this chapter with respect to the Combined 
Fund (as determined by the operator’s enrolled 
actuary, as defined in section 7701(a)(35)), 
using actuarial methods and assumptions each of 
which is reasonable and which are reasonable in 
the aggregate, as determined by such enrolled ac-
tuary, 
‘‘(B) a signed actuarial report is filed with 
the Secretary of Labor by such enrolled actuary 
containing—
‘‘(i) the date of the actuarial valuation 
applicable to the report, and 
‘‘(ii) a statement by the enrolled actu-
ary signing the report that to the best of the 
actuary’s knowledge the report is complete 
and accurate and that in the actuary’s 
opinion the actuarial assumptions used are 
in the aggregate reasonably related to the 
experience of the operator and to reasonable 
expectations, 
‘‘(C) a description of the security described 
in paragraph (3) is filed with the Secretary of 
Labor by the common parent, and
‘‘(D) 30 calendar days have elapsed after 
the report required by subparagraph (B), and 
the description required by subparagraph (C), 
are filed with the Secretary of Labor, and the 
Secretary of Labor has not notified the assigned 
operator in writing that the requirements of this 
paragraph have not been satisfied. 
‘‘(3) SECURITY.—Security meets the require-
ments of this paragraph if—
‘‘(A) the security (in the form of a bond, let-
ter of credit, or cash escrow) is provided to the 
trustees of the 1992 UMWA Benefit Plan, solely 
for the purpose of paying premiums for bene-
ficiaries described in section 9712(b)(2)(B), 
equal in amount to one year’s liability of the as-
signed operator under section 9711, determined 
by using the average cost of such operator’s li-
ability during its prior 3 calendar years; and 
‘‘(B) the security will remain in place for 
5 years. 
‘‘(4) USE
OF
PREPAYMENT.—Any payment to 
which this subsection applies (and earnings thereon) 
shall be used exclusively to pay premiums which 
would (but for this subsection) be required to be paid 
by the assigned operator making such payment.’’.
100
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on 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: 
‘‘SEC. 45I. 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.—
101
‘‘(A) IN GENERAL.—The $3 and 50 cents 
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which 
bears the same ratio to such amount (determined 
without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for quali-
fied natural gas production), bears to 
‘‘(ii) $3 ($0.33 for qualified natural 
gas production). 
The applicable reference price for a taxable year 
is the reference price of the calendar year pre-
ceding the calendar year in which the taxable 
year begins. 
‘‘(B) INFLATION ADJUSTMENT.—In the case 
of any taxable year beginning in a calendar year 
after 2003, each of the dollar amounts contained 
in subparagraph (A) shall be 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 ‘2002’ for ‘1990’). 
‘‘(C) REFERENCE PRICE.—For purposes of 
this paragraph, the term ‘reference price’ means, 
with respect to any calendar year—
107
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, 2003, 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 ‘‘2004’’ and inserting 
‘‘2007’’. 
(c) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2003.