< Back to H.R. 1531 (108th Congress, 2003–2004)

Text of the Energy Tax Policy Act of 2003

This bill was introduced on April 3, 2003, in a previous session of Congress, but was not enacted. The text of the bill below is as of Apr 1, 2003 (Introduced).

This is not the latest text of this bill.

Download PDF

Source: GPO

HR 1531 IH

108th CONGRESS

1st Session

H. R. 1531

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


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 Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    (a) SHORT TITLE- This Act may be cited as the ‘Energy 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 considered to be made to a section or other provision of the Internal 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 renewable 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 minimum taxes.

      Sec. 108. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland waterway 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.

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 sulphur diesel fuel.

      Sec. 206. Determination of small refiner exception to oil depletion deduction.

      Sec. 207. Sales or dispositions to implement Federal energy regulatory commission 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 income 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 nonconventional 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 I--CONSERVATION

SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROPERTY.

    (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 individual, 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 heating property expenditures made by the taxpayer during 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 described in subsection (c)(1), and

        ‘(B) $2,000 for each system of property described 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 performance and safety by the non-profit Solar Rating 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 PROPERTY 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 EXPENDITURE- The term ‘qualified photovoltaic property expenditure’ means an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit.

      ‘(3) SOLAR PANELS- No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property described in paragraph (1) or (2) solely because it constitutes a structural component of the structure on which it is installed.

      ‘(4) LABOR COSTS- Expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property described 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 account for purposes of this section.

    ‘(d) SPECIAL RULES-

      ‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCUPANCY- In the case of any dwelling unit which is jointly occupied and used during any calendar year as a residence by 2 or more individuals the following shall apply:

        ‘(A) The amount of the credit allowable under subsection (a) by reason of expenditures (as the case may be) made during such calendar year by any of such individuals with respect to such dwelling unit shall be determined by treating all of such individuals as 1 taxpayer whose taxable year is such calendar year.

        ‘(B) There shall be allowable with respect to such expenditures to each of such individuals, a credit under subsection (a) for the taxable year in which such calendar year ends in an amount which bears the same ratio to the amount determined under subparagraph (A) as the amount of such expenditures made by such individual during such calendar year bears to the aggregate of such expenditures made by all of such individuals during such calendar year.

      ‘(2) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION- In the case of an individual who is a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined 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 expenditures of such corporation.

      ‘(3) CONDOMINIUMS-

        ‘(A) IN GENERAL- In the case of an individual who is a member of a condominium management association with respect to a condominium which he owns, such individual shall be treated as having made his proportionate share of any expenditures of such association.

        ‘(B) CONDOMINIUM MANAGEMENT ASSOCIATION- 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 subparagraph (E) thereof) with respect to a condominium 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 nonbusiness 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 reconstruction of a structure, such expenditure shall be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins.

        ‘(C) AMOUNT- The amount of any expenditure shall be the cost thereof.

      ‘(6) PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING- For purposes of determining the amount of expenditures made by any individual with respect to any dwelling unit, there shall not be taken in to account expenditures which are made from subsidized energy financing (as defined in section 48(a)(4)(A)).

    ‘(e) BASIS ADJUSTMENTS- For purposes of this subtitle, if a credit is allowed under this section for any expenditure 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 section shall not apply to taxable years beginning after December 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 striking the period at the end of paragraph (28) and inserting ‘, and’, and by adding at the end the following 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 FACILITIES- Paragraph (3) of section 45(c) is amended by adding at the end the following new subparagraphs:

        ‘(D) OPEN-LOOP BIOMASS FACILITIES- In the case of a facility using open-loop biomass to produce electricity, the term ‘qualified facility’ means any facility owned by the taxpayer which is originally placed in service before January 1, 2007.

        ‘(E) LANDFILL GAS FACILITIES- In the case of a facility producing electricity from gas derived from the biodegradation of municipal solid waste, the term ‘qualified facility’ means any facility owned by the taxpayer which is originally placed in service before January 1, 2007.

        ‘(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 service after the date of the enactment of this subparagraph 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 resources: mill residues, precommercial thinnings, slash, and brush,

        ‘(B) solid wood waste materials, including waste pallets, crates, dunnage, manufacturing and construction wood wastes (other than pressure-treated, chemically-treated, or painted wood wastes), and landscape or right-of-way tree trimmings, 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 subsection (a)(2)(A)(ii).

      ‘(7) CREDIT ELIGIBILITY FOR OPEN-LOOP BIOMASS FACILITIES- In the case of any facility described in paragraph (3)(D) which is placed in service 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 respect 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 described 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.

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- Subsection (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 capacity of the power plant, reduced by

          ‘(ii) the aggregate energy credits allowed 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 system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means.

        ‘(D) TERMINATION- Such term shall not include any property placed in service after December 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 subchapter A of chapter 1 (relating to nonrefundable personal 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 subsection (a) with respect to any qualified fuel cell power plant for any taxable year shall not exceed--

          ‘(i) $500 for each 1/2 kilowatt of capacity of the power plant, reduced by

          ‘(ii) the aggregate energy credits allowed with respect to such power plant for all prior taxable years.

    ‘(c) QUALIFIED FUEL CELL POWER PLANT EXPENDITURES- 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 defined in section 48(a)(4))--

      ‘(1) which meets the requirements of subparagraphs (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 residence.

    Such term includes expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation 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 subtitle, if a credit is allowed under this section for any expenditure 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 paragraph (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.

SEC. 104. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS 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 EXISTING HOMES.

    ‘(a) ALLOWANCE OF CREDIT- 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 20 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed 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 IMPROVEMENTS- 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 International Energy Conservation Code (or, in the case of metal roofs with appropriate pigmented coatings, meets the Energy 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 meaning of section 121),

      ‘(2) the original use of such component commences 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 product labeling requirements) for the measurement of energy efficiency, based upon energy use or building envelope component performance, for the energy efficient building envelope component,

      ‘(2) provided by a local building regulatory authority, 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 Residential Energy Services Network (RESNET), and

      ‘(3) made in writing in a manner that specifies in readily verifiable fashion the energy efficient building 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 individual who is a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined 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 individual who is a member of a condominium management association with respect to a condominium which he owns, such individual shall be treated as having paid his proportionate share of the cost of qualified energy efficiency improvements made by such association.

        ‘(B) CONDOMINIUM MANAGEMENT ASSOCIATION- 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 subparagraph (E) thereof) with respect to a condominium 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 primarily designed to reduce the heat loss or gain of a dwelling when installed in or on such dwelling, exterior windows (including skylights) and doors, and metal roofs with appropriate pigmented coatings which are specifically and primarily designed to reduce 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 Standards (24 CFR 3280).

    ‘(g) BASIS ADJUSTMENT- For purposes of this subtitle, if a credit is allowed under this section for any expenditure 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 striking the period at the end of paragraph (30) and inserting ‘, and’, and by adding at the end the following 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 installed in a qualified new energy efficient home during construction 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 manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (24 CFR 3280), the manufactured home producer of such home.

      ‘(2) ENERGY EFFICIENT PROPERTY- The term ‘energy efficient property’ means any energy efficient building envelope component, and any energy efficient 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 substantially completed after December 31, 2003,

        ‘(C) the original use of which is as a principal residence (within the meaning of section 121) which commences with the person who acquires such dwelling from the eligible contractor, and

        ‘(D) which is certified to have a level of annual 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 Energy Conservation Code and to have building envelope 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 purchase and, in the case of reconstruction and rehabilitation, 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 primarily designed to reduce the heat loss or gain of a dwelling when installed in or on such dwelling, exterior windows (including skylights) and doors, and metal roofs with appropriate pigmented coatings which are specifically and primarily designed to reduce the heat gain of a dwelling when installed in or on such dwelling.

      ‘(7) MANUFACTURED HOME INCLUDED- The term ‘dwelling’ includes a manufactured home conforming to Federal Manufactured Home Construction and Safety Standards (24 CFR 3280).

    ‘(d) CERTIFICATION-

      ‘(1) METHOD- A certification described in subsection (c)(3)(D) shall be determined on the basis of one of the following methods:

        ‘(A) The technical specifications or applicable ratings (including product labeling requirements) for the measurement of energy efficiency for the energy efficient building envelope component or energy efficient heating or cooling appliance, 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 provided by--

        ‘(A) in the case of a method described in paragraph (1)(A), a local building regulatory authority, a utility, a manufactured home production inspection primary inspection agency (IPIA), or an accredited home energy rating systems provider who is accredited by, or otherwise authorized to use, approved energy performance measurement methods by the Home Energy Ratings Systems Council or the National Association 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 envelope components and energy efficient heating or cooling 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 application of a permissible energy performance measurement method to the specific circumstances of such dwelling.

      ‘(4) REGULATIONS-

        ‘(A) IN GENERAL- In prescribing regulations under this subsection for energy performance measurement methods, the Secretary shall prescribe procedures for calculating annual energy costs for heating and cooling and cost savings 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 Officials, the Home Energy Rating Guidelines of the Home Energy Rating Systems Council, or the modified 2001 California Residential ACM manual,

          ‘(ii) provide that any calculation procedures be developed such that the same energy efficiency measures allow a home to qualify for the credit under this section regardless of whether the house uses a gas or oil furnace or boiler or an electric heat pump, and

          ‘(iii) require that any computer software 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 paragraph (2)(B), the Secretary shall establish requirements 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 subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.

    ‘(f) APPLICATION OF SECTION- Subsection (a) shall apply to dwellings purchased during the period beginning on January 1, 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 determined under section 45G.’.

    (c) DENIAL OF DOUBLE BENEFIT- Section 280C (relating 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 deduction 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 EFFICIENT 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 determined under section 45G.’.

    (f) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended 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 following new clause:

          ‘(iv) combined heat and power system property,’.

    (b) COMBINED HEAT AND POWER SYSTEM PROPERTY- Subsection (a) of section 48 is amended by redesignating paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by inserting after paragraph (4) the following new paragraph:

      ‘(5) COMBINED HEAT AND POWER SYSTEM PROPERTY- 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 generation 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 cooling 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 electrical or mechanical power (or combination thereof),

          ‘(iv) the energy efficiency percentage of which exceeds 60 percent (70 percent in the case of a system with an electrical capacity in excess of 50 megawatts or a mechanical energy capacity in excess of 67,000 horsepower, or an equivalent combination of electrical and mechanical energy capacities), and

          ‘(v) which is placed in service after December 31, 2003, and before January 1, 2007.

        ‘(B) SPECIAL RULES-

          ‘(i) ENERGY EFFICIENCY PERCENTAGE- 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 mechanical 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 include 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 PUBLIC UTILITY PROPERTY- If the combined 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 subsection if, with respect to such property, 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 RECOVERY 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 EFFECTIVE DATE- Subsection (d) of section 39 is amended by adding at the end the following new paragraph:

      ‘(12) NO CARRYBACK OF ENERGY CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable 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 December 31, 2003.

SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED 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 following new paragraph:

      ‘(3) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

        ‘(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax 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--

        (A) by striking ‘The credit’ and inserting the following:

      ‘(1) IN GENERAL- The credit’, and

        (B) by adding at the end the following new paragraph:

      ‘(2) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

        ‘(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax 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 following new paragraph:

      ‘(3) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

        ‘(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax 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 section’.

      (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 inserting ‘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 December 31, 2003.

SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN GENERAL FUND.

    (a) TAXES ON TRAINS-

      (1) IN GENERAL- Subparagraph (A) of section 4041(a)(1) is amended by striking ‘or a diesel-powered 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 redesignating 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 diesel-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 liquid under section 4081.’

        (D) Subsection (e) of section 4082 is amended 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 section 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 subparagraph (C).

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on October 1, 2003.

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 Environmental 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 EMULSIONS-

      (1) REFUNDS FOR TAX-PAID PURCHASES- Section 6427 is amended by redesignating subsections (m) through (p) as subsections (n) through (q), respectively, and by inserting after subsection (l) the following new subsection:

    ‘(m) DIESEL FUEL USED TO PRODUCE EMULSION-

      ‘(1) IN GENERAL- Except as provided in subsection (k), if any diesel fuel on which tax was imposed 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 ‘regular tax rate’ means the aggregate rate of tax imposed by section 4081 determined without regard to section 4081(a)(2)(C).

        ‘(B) INCENTIVE TAX RATE- The term ‘incentive 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- Section 4081 (relating to imposition of tax) is amended by redesignating subsection (d) as subsection (e) and inserting after subsection (c) the following new subsection:

    ‘(c) LATER SEPARATION OF FUEL FROM DIESEL-WATER FUEL EMULSION- If any person separates the taxable 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 removal or entry of such fuel.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on October 1, 2003.

SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELECTRIC 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 section 179A(b) (relating to qualified clean-fuel vehicle property) is amended to read as follows:

      ‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROPERTY- 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 described 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 capacity of at least 20 adults (not including the driver).’.

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 redesignating 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 appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, or

        ‘(B) the pipe, equipment, and appurtenances 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 transmission 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- Subparagraph (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.

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 inserting ‘, 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- Subparagraph (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.

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 defined in section 1245(a)(3)) used in the transmission at 69 or more kilovolts of electricity 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- Subparagraph (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.

SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    (a) IN GENERAL- Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by inserting after section 179A the following new section:

‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    ‘(a) TREATMENT AS EXPENSES- A small business refiner (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 during 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 described 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 barrels.

    ‘(c) BASIS REDUCTION- For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a).’.

    (b) CLERICAL AMENDMENT- The table of sections for part VI of subchapter 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 regulations.’.

    (c) EFFECTIVE DATE- The amendment made by this section shall apply to expenses paid or incurred after March 31, 2003.

SEC. 205. CREDIT FOR PRODUCTION OF LOW SULPHUR DIESEL 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 SULPHUR DIESEL FUEL.

    ‘(a) IN GENERAL- For purposes of section 38, the amount of the low sulphur diesel fuel production credit determined 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 determined 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 respect to such facility, reduced by

        ‘(B) the aggregate credits determined under this section for all prior taxable years with respect to such facility.

      ‘(2) 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 described in paragraph (1) shall be reduced (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 facility, those costs paid or incurred during the applicable period for compliance with the applicable EPA regulations with respect to such facility, including expenditures for the construction of new process operation 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 Environmental 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 content of 15 parts per million or less.

    ‘(d) REDUCTION IN BASIS- For purposes of this subtitle, if a credit is determined under this section with respect to any property by reason of qualified capital costs, the basis of such property shall be reduced by the amount of the credit so determined.

    ‘(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 sulphur 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 taxpayer’s qualified capital costs with respect to such facility will result in compliance with the applicable EPA regulations.

      ‘(2) CONTENTS OF APPLICATION- An application for certification shall include relevant information regarding unit capacities and operating characteristics sufficient for the Secretary, in consultation with the Administrator of the Environmental Protection 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 application.

      ‘(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 described in paragraph (3) ends, and

        ‘(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

    ‘(f) CONTROLLED GROUPS- For purposes of this section, all persons treated as a single employer under subsection (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 paragraph (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 sulphur diesel fuel production credit determined under section 45H(a).’.

    (c) DENIAL OF DOUBLE BENEFIT- Section 280C (relating to certain expenses for which credits are allowable) is amended by adding after subsection (d) the following new subsection:

    ‘(e) LOW SULPHUR DIESEL FUEL PRODUCTION CREDIT- No deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for the taxable year under section 45H(a).’.

    (d) BASIS ADJUSTMENT- Section 1016(a) (relating to adjustments to basis) 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 new paragraph:

      ‘(32) 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 amended by adding at the end the following new item:

‘Sec. 45H. Credit for production of low sulphur 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 taxpayer or a related person engages in the refining of crude oil, subsection (c) shall not apply to the taxpayer for a taxable year if the average daily refinery runs of the taxpayer and 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 December 31, 2003.

SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL 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 taxpayer 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 previously taken into account under this subsection, 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 subsection, 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 transaction in excess of the amount described in subparagraph (A) which is required to be included in gross income for such taxable year (determined 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 providing electric transmission services,

      but only if such sale or disposition is to an independent 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 Regulatory Commission determines in its authorization of the transaction under section 203 of the Federal Power Act (16 U.S.C. 824b) or by declaratory order is not a market participant within the meaning of such Commission’s rules applicable to independent transmission providers, and

          ‘(ii) whose transmission facilities to which the election under this subsection applies are under the operational control of a Federal Energy Regulatory Commission-approved independent transmission provider before the close of the period specified in such authorization, but not later than the close of the period applicable under subsection (a)(2)(B) as extended under paragraph (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 transmission 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 utility property’ means property used in the trade or business of--

          ‘(i) generating, transmitting, distributing, or selling electricity, or

          ‘(ii) producing, transmitting, distributing, or selling natural gas.

        ‘(B) NONRECOGNITION OF GAIN BY REASON OF ACQUISITION OF STOCK- Acquisition of control 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 another member of such group shall be treated as purchased by such corporation for purposes of applying paragraph (1)(A).

      ‘(7) TIME FOR ASSESSMENT OF DEFICIENCIES- 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 realized, 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 prescribe) of the purchase of exempt utility property described in paragraph (1)(A)(i) or of an intention not to purchase such property, and

        ‘(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding any law or rule of law which would otherwise prevent such assessment.

      ‘(8) PURCHASE- For purposes of this subsection, the taxpayer shall be considered to have purchased 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.

SEC. 208. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR 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 taxpayer 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 nuclear decommissioning costs allocable to the taxpayer’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 TRANSFERS- Subsection (e) of section 468A is amended by adding at the end the following new paragraph:

      ‘(8) TREATMENT OF FUND TRANSFERS- If, in connection with the transfer of the taxpayer’s interest in a nuclear power plant, the taxpayer transfers the Fund with respect to such power plant to the transferee of such interest and the transferee elects to continue the application of this section to such Fund--

        ‘(A) the transfer of such Fund shall not cause such Fund to be disqualified from the application of this section, and

        ‘(B) no amount shall be treated as distributed 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 subsection (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 determining the ruling amount in effect immediately before the transfer.

      ‘(2) DEDUCTION FOR AMOUNTS TRANSFERRED-

        ‘(A) IN GENERAL- Except as provided in subparagraph (C), the deduction allowed by subsection (a) for any transfer permitted by this subsection shall be allowed ratably over the remaining estimated useful life (within the meaning of subsection (d)(2)(A)) of the nuclear power plant beginning with the taxable year during which the transfer is made.

        ‘(B) DENIAL OF DEDUCTION FOR PREVIOUSLY DEDUCTED AMOUNTS- No deduction shall be allowed for any transfer under this subsection 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 previously deducted or excluded amounts to the extent 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 thereafter,

        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 RECOGNIZED- No gain or loss shall be recognized on any transfer permitted by this subsection.

          ‘(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- Paragraph (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- Notwithstanding 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 ACCOUNT TOTAL COSTS- Subparagraph (A) of section 468A(d)(2) is amended to read as follows:

        ‘(A) fund the total nuclear decommissioning 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 December 31, 2003.

SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

    (a) INCOME FROM OPEN ACCESS AND NUCLEAR DECOMMISSIONING 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 nondiscriminatory open access basis under an independent transmission provider agreement approved by FERC (other than income received or accrued directly or indirectly from a member),

          ‘(iii) from any nuclear decommissioning transaction, or

          ‘(iv) from any asset exchange or conversion transaction.’.

      (2) DEFINITIONS AND SPECIAL RULES- Paragraph (12) of section 501(c) is amended by adding at the end the following new subparagraphs:

        ‘(E) For purposes of this subparagraph and subparagraph (C)(ii), the term ‘FERC’ means the Federal Energy Regulatory 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 transaction’ means any voluntary exchange or involuntary conversion of any property related to generating, transmitting, distributing, or selling electric energy by a mutual or cooperative electric 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 constitutes property which is used, or to be used, for--

          ‘(i) generating, transmitting, distributing, or selling electric energy, or

          ‘(ii) producing, transmitting, distributing, or selling natural gas.’.

    (b) TREATMENT OF INCOME FROM LOAD LOSS TRANSACTIONS, ETC- Paragraph (12) of section 501(c), as amended by subsection (a)(2), is amended by adding after subparagraph (G) the following new subparagraph:

        ‘(H)(i) In the case of a mutual or cooperative electric company described in this paragraph or an organization described in section 1381(a)(2)(C), income received or accrued from a load loss transaction shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.

        ‘(ii) For purposes of clause (i), the term ‘load loss transaction’ means any wholesale or retail sale of electric energy (other than to members) to the extent that the aggregate sales during the recovery period does 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 energy sold during such year to members of such electric company are less than

          ‘(II) the megawatt hours of electric energy sold during the base year to such members.

        ‘(v) For purposes of clause (iv)(II), the term ‘base year’ means--

          ‘(I) the calendar year preceding the start-up year, or

          ‘(II) at the election of the electric company, the second or third calendar years preceding the start-up year.

        ‘(vi) For purposes of this subparagraph, the recovery period is the 7-year period beginning with the start-up year.

        ‘(vii) For purposes of this subparagraph, the start-up year is the calendar year which includes the date of the enactment of this subparagraph or, if later, at the election of the mutual or cooperative electric company--

          ‘(I) the first year that such electric company offers nondiscriminatory open access, 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 treated as a mutual or cooperative company for purposes of this paragraph or as a corporation operating on a cooperative basis for purposes of section 1381(a)(2)(C) by reason of the treatment under clause (i).

        ‘(ix) For purposes of this subparagraph, in the case of a mutual or cooperative electric company, income received, or accrued, indirectly from a member shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.’.

    (c) EXCEPTION FROM UNRELATED BUSINESS TAXABLE INCOME- Subsection (b) of section 512 (relating to modifications) is amended by adding at the end the following 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 transactions of organizations described in subsection (a)(2)(C), see section 501(c)(12)(H).’.

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.

    (a) IN GENERAL- Subsection (b) of section 148 (relating to higher yielding investments) is amended by adding at the end the following new paragraph:

      ‘(4) SAFE HARBOR FOR PREPAID NATURAL GAS-

        ‘(A) IN GENERAL- The term ‘investment-type property’ does not include a prepayment under a qualified natural gas supply contract.

        ‘(B) QUALIFIED NATURAL GAS SUPPLY CONTRACT- For purposes of this paragraph, the 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 determining 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 electricity is sold (other than for resale) to customers of such utility who are located within the service area of such utility.

        ‘(D) ADJUSTMENTS FOR CHANGES IN CUSTOMER BASE-

          ‘(i) NEW BUSINESS CUSTOMERS- If--

            ‘(I) after the close of the testing period and before the date of issuance of the issue, the utility owned by a governmental unit enters into a 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 natural 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 reasonably expected to be purchased (other than for resale) by persons who are located within the service area of such utility and who, as of the date of issuance of the issue, are customers of such utility.

        ‘(E) RULING REQUESTS- The Secretary may increase the average under subparagraph (B)(i) for any period if the utility owned by the governmental unit establishes to the satisfaction of the Secretary that, based on objective evidence of growth in natural gas consumption or population, such average would otherwise be insufficient for such period.

        ‘(F) ADJUSTMENT FOR NATURAL GAS OTHERWISE ON HAND-

          ‘(i) IN GENERAL- The amount otherwise permitted to be acquired under the contract for any period shall be reduced by--

            ‘(I) the applicable share of natural 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) APPLICALBE SHARE- For purposes 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 period to which the prepayment relates.

        ‘(G) INTENTIONAL ACTS- Subparagraph (A) shall cease to apply to any issue if the utility owned by the governmental unit engages in any intentional act to render the volume of natural 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 calendar years ending before the date of issuance of the issue.

        ‘(I) SERVICE AREA- For purposes of this paragraph, the service area of a utility owned by a governmental unit shall be comprised of--

          ‘(i) any area throughout which such utility provided at all times during the testing period--

            ‘(I) in the case of a natural gas utility, natural gas transmission or distribution services, and

            ‘(II) in the case of an electric utility, electricity distribution services,

          ‘(ii) any area within a county contiguous to the area described in clause (i) in which retail customers of such utility are located if such area is not also served by another utility providing natural gas or electricity services, as the case may be, and

          ‘(iii) any area recognized as the service area of such utility under State or Federal 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 financing test) is amended by striking ‘or’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, or’, and by adding at the end the following new subparagraph:

        ‘(C) is a qualified natural gas supply contract (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 member 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 requirements of this paragraph if--

        ‘(A) the amount of the payment is not less than the present value of the total premium liability 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 actuary,

        ‘(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 actuary 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, and

        ‘(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 requirements of this paragraph if--

        ‘(A) the security (in the form of a bond, letter of credit, or cash escrow) is provided to the trustees of the 1992 UMWA Benefit Plan, solely for the purpose of paying premiums for beneficiaries described in section 9712(b)(2)(B), equal in amount to one year’s liability of the assigned operator under section 9711, determined by using the average cost of such operator’s liability 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.’

    (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 qualified natural gas production.

      ‘(2) REDUCTION AS OIL AND GAS PRICES INCREASE-

        ‘(A) IN GENERAL- The $3 and 50 cents amounts under paragraph (1) shall each be reduced (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 applicable reference price over $15 ($1.67 for qualified natural gas production), bears to

          ‘(ii) $3 ($0.33 for qualified natural gas production).

        The applicable reference price for a taxable year is the reference price of the calendar year preceding the calendar year in which the 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 calendar 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--

          ‘(i) in the case of qualified crude oil production, the reference price determined under section 29(d)(2)(C), and

          ‘(ii) in the case of qualified natural gas production, the Secretary’s estimate of the annual average wellhead price per 1,000 cubic feet for all domestic natural gas.

    ‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRODUCTION- For purposes of this section--

      ‘(1) IN GENERAL- The terms ‘qualified crude oil production’ and ‘qualified natural gas production’ mean domestic crude oil or natural gas which is produced from a qualified marginal well.

      ‘(2) Limitation on amount of production which may qualify-

        ‘(A) IN GENERAL- Crude oil or natural gas produced during any taxable year from any well shall not be treated or qualified crude oil production or qualified natural gas production to the extent production from the well during the taxable year exceeds 1,095 barrels or barrel equivalents.

        ‘(B) Proportionate reductions-

          ‘(i) SHORT TAXABLE YEARS- In the case of a short taxable year, the limitations under this paragraph shall be proportionately reduced to reflect the ratio which the number of days in such taxable year bears to 365.

          ‘(ii) WELLS NOT IN PRODUCTION ENTIRE YEAR- In the case of a well which is not capable of production during each day of a taxable year, the limitations under this paragraph applicable to the well shall be proportionately reduced to reflect the ratio which the number of days of production bears to the total number of days in the taxable year.

      ‘(3) Definitions-

        ‘(A) QUALIFIED MARGINAL WELL- The term ‘qualified marginal well’ means a domestic well--

          ‘(i) the production from which during the taxable year is treated as marginal production under section 613A(c)(6), or

          ‘(ii) which, during the taxable year--

            ‘(I) has average daily production of not more than 25 barrel equivalents, and

            ‘(II) produces water at a rate not less than 95 percent of total well effluent.

        ‘(B) CRUDE OIL, ETC- The terms ‘crude oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have the meanings given such terms by section 613A(e).

        ‘(C) BARREL EQUIVALENT- The term ‘barrel equivalent’ means, with respect to natural gas, a conversation ratio of 6,000 cubic feet of natural gas to 1 barrel of crude oil.

    ‘(d) Other Rules-

      ‘(1) PRODUCTION ATTRIBUTABLE TO THE TAXPAYER- In the case of a qualified marginal well in which there is more than one owner of operating interests in the well and the crude oil or natural gas production exceeds the limitation under subsection (c)(2), qualifying crude oil production or qualifying natural gas production attributable to the taxpayer shall be determined on the basis of the ratio which taxpayer’s revenue interest in the production bears to the aggregate of the revenue interests of all operating interest owners in the production.

      ‘(2) OPERATING INTEREST REQUIRED- Any credit under this section may be claimed only on production which is attributable to the holder of an operating interest.

      ‘(3) PRODUCTION FROM NONCONVENTIONAL SOURCES EXCLUDED- In the case of production from a qualified marginal well which is eligible for the credit allowed under section 29 for the taxable year, no credit shall be allowable under this section unless the taxpayer elects not to claim the credit under section 29 with respect to the well.’.

    (b) CREDIT TREATED AS BUSINESS CREDIT- Section 38(b) is amended by striking ‘plus’ at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting ‘, plus’, and by adding at the end the following:

      ‘(18) the marginal oil and gas well production credit determined under section 45I(a).’.

    (c) CARRYBACK- Subsection (a) of section 39 (relating to carryback and carryforward of unused credits generally) is amended by adding at the end the following:

      ‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL AND GAS WELL PRODUCTION CREDIT- In the case of the marginal oil and gas well production credit--

        ‘(A) this section shall be applied separately from the business credit (other than the marginal oil and gas well production credit),

        ‘(B) paragraph (1) shall be applied by substituting ‘10 taxable years’ for ‘1 taxable years’ in subparagraph (A) thereof, and

        ‘(C) paragraph (2) shall be applied--

          ‘(i) by substituting ‘31 taxable years’ for ‘21 taxable years’ in subparagraph (A) thereof, and

          ‘(ii) by substituting ‘30 taxable years’ for ‘20 taxable years’ in subparagraph (A) thereof.’.

    (d) COORDINATION WITH SECTION 29- Section 29(a) is amended by striking ‘There’ and inserting ‘At the election of the taxpayer, there’.

    (e) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following:

‘Sec. 45I. Credit for producing oil and gas from marginal wells.’.

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to production in taxable years beginning after December 31, 2003.

SEC. 302. TEMPORARY SUSPENSION OF LIMITATION BASED ON 65 PERCENT OF TAXABLE INCOME AND EXTENSION OF SUSPENSION OF TAXABLE INCOME LIMIT WITH RESPECT TO MARGINAL PRODUCTION.

    (a) LIMITATION BASED ON 65 PERCENT OF TAXABLE INCOME- Subsection (d) of section 613A (relating to limitation on percentage depletion in case of oil and gas wells) is amended by adding at the end the following new paragraph:

      ‘(6) TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT- Paragraph (1) shall not apply to taxable years beginning after December 31, 2003, and before January 1, 2007, including with respect to amounts carried under the second sentence of paragraph (1) to such taxable years.’.

    (b) EXTENSION OF SUSPENSION OF TAXABLE INCOME LIMIT WITH RESPECT TO MARGINAL PRODUCTION- Subparagraph (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 subsection (a) shall apply to taxable years beginning after December 31, 2003.

SEC. 303. AMORTIZATION OF DELAY RENTAL PAYMENTS.

    (a) IN GENERAL- Section 167 (relating to depreciation) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:

    ‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS FOR DOMESTIC OIL AND GAS WELLS-

      ‘(1) IN GENERAL- Any delay rental payment paid or incurred in connection with the development of oil or gas wells within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such payment was paid or incurred.

      ‘(2) HALF-YEAR CONVENTION- For purposes of paragraph (1), any payment paid or incurred during the taxable year shall be treated as paid or incurred on the mid-point of such taxable year.

      ‘(3) EXCLUSIVE METHOD- Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments.

      ‘(4) TREATMENT UPON ABANDONMENT- If any property to which a delay rental payment relates is retired or abandoned during the 2-year period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection shall continue with respect to such payment.

      ‘(5) DELAY RENTAL PAYMENTS- For purposes of this subsection, the term ‘delay rental payment’ means an amount paid for the privilege of deferring development of an oil or gas well under an oil or gas lease.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2003.

SEC. 304. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) IN GENERAL- Section 167 (relating to depreciation) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:

    ‘(i) AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES-

      ‘(1) IN GENERAL- Any geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid or incurred.

      ‘(2) SPECIAL RULES- For purposes of this subsection, rules similar to the rules of paragraphs (2), (3), and (4) of subsection (h) shall apply.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to costs paid or incurred in taxable years beginning after December 31, 2003.

SEC. 305. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.

    (a) IN GENERAL- Section 29 is amended by adding at the end the following new subsection:

    ‘(h) EXTENSION FOR OTHER FACILITIES-

      ‘(1) EXTENSION FOR OIL AND CERTAIN GAS- In the case of a well for producing qualified fuels described in subparagraph (A) or (B)(i) of subsection (c)(1)--

        ‘(A) APPLICATION OF CREDIT FOR NEW WELLS- Notwithstanding subsection (f), this section shall apply with respect to such fuels--

          ‘(i) which are produced from a well drilled after the date of the enactment of this subsection and before January 1, 2007, and

          ‘(ii) which are sold not later than the close of the 4-year period beginning on the date that such well is drilled, or, if earlier, January 1, 2010.

        ‘(B) EXTENSION OF CREDIT FOR OLD WELLS- Subsection (f)(2) shall be applied by substituting ‘2007’ for ‘2003’ with respect to wells described in subsection (f)(1)(A) with respect to such fuels.

      ‘(2) EXTENSION FOR FACILITIES PRODUCING QUALIFIED FUEL FROM LANDFILL GAS-

        ‘(A) IN GENERAL- In the case of a facility for producing qualified fuel from landfill gas which was placed in service after June 30, 1998, and before January 1, 2007, this section shall apply to fuel produced at such facility during the 5-year period beginning on the later of--

          ‘(i) the date such facility was placed in service, or

          ‘(ii) the date of the enactment of this subsection.

        ‘(B) REDUCTION OF CREDIT FOR CERTAIN LANDFILL FACILITIES- In the case of a facility to which paragraph (1) applies and which is subject to the 1996 New Source Performance Standards/Emissions Guidelines of the Environmental Protection Agency, subsection (a)(1) shall be applied by substituting ‘$2’ for ‘$3’.

      ‘(3) SPECIAL RULES- In determining the amount of credit allowable under this section solely by reason of this subsection--

        ‘(A) DAILY LIMIT- The amount of qualified fuels sold during any taxable year which may be taken into account by reason of this subsection with respect to any project shall not exceed an average barrel-of-oil equivalent of 200,000 cubic feet of natural gas per day. Days before the date the project is placed in service shall not be taken into account in determining such average.

        ‘(B) EXTENSION PERIOD TO COMMENCE WITH UNADJUSTED CREDIT AMOUNT- In the case of fuels sold during 2003, the dollar amount applicable under subsection (a)(1) shall be $3 (without regard to subsection (b)(2)). In the case of fuels sold after 2003, subparagraph (B) of subsection (d)(2) shall be applied by substituting ‘2003’ for ‘1979’.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to fuel sold after the date of the enactment of this Act.

SEC. 306. BUSINESS RELATED ENERGY CREDITS ALLOWED AGAINST REGULAR AND MINIMUM TAX.

    (a) IN GENERAL- Subsection (c) of section 38 (relating to limitation based on amount of tax) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:

      ‘(4) SPECIAL RULES FOR SPECIFIED ENERGY CREDITS-

        ‘(A) IN GENERAL- In the case of specified energy credits--

          ‘(i) this section and section 39 shall be applied separately with respect to such credits, and

          ‘(ii) in applying paragraph (1) to such credits--

            ‘(I) the tentative minimum tax shall be treated as being zero, and

            ‘(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the specified energy credits).

        ‘(B) SPECIFIED ENERGY CREDITS- For purposes of this subsection, the term ‘specified energy credits’ means the credits determined under sections 45G, 45H, and 45I.’.

    (b) CONFORMING AMENDMENTS- Paragraphs (2)(A)(ii)(II) and (3)(A)(ii)(II) of section 38(c) are each amended by inserting ‘or the specified energy credits’ after ‘employee credit’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 307. TEMPORARY REPEAL OF ALTERNATIVE MINIMUM TAX PREFERENCE FOR INTANGIBLE DRILLING COSTS.

    (a) IN GENERAL- Clause (ii) of section 57(a)(2)(E) is amended by adding at the end the following new sentence: ‘The preceding sentence shall not apply to taxable years beginning after December 31, 2003, and before January 1, 2006.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2003.

SEC. 308. ALLOWANCE OF ENHANCED RECOVERY CREDIT AGAINST THE ALTERNATIVE MINIMUM TAX.

    (a) IN GENERAL- Subparagraph (B) of section 38(c)(4), as amended by section 306, is amended by adding at the end the following new sentence: ‘For taxable years beginning after December 31, 2003, and before January 1, 2006, such term includes the credit determined under section 43.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2003.