[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2511 Reported in House (RH)]






                                                  Union Calendar No. 93
107th CONGRESS
  1st Session
                                H. R. 2511

                          [Report No. 107-157]

To amend the Internal Revenue Code of 1986 to provide tax incentives to 
     encourage energy conservation, energy reliability, and energy 
                              production.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 17, 2001

 Mr. McCrery introduced the following bill; which was referred to the 
                      Committee on Ways and Means

                             July 24, 2001

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]
 [For text of introduced bill, see copy of bill as introduced on July 
                               17, 2001]

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide tax incentives to 
     encourage energy conservation, energy reliability, and energy 
                              production.

    Be it enacted by the Senate and House of 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 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

                         TITLE I--CONSERVATION

Sec. 101. Credit for residential solar energy property.
Sec. 102. Extension and expansion of credit for electricity produced 
                            from renewable resources.
Sec. 103. Credit for qualified stationary fuel cell powerplants.
Sec. 104. Alternative motor vehicle credit.
Sec. 105. Extension of deduction for certain refueling property.
Sec. 106. Modification of credit for qualified electric vehicles.
Sec. 107. Tax credit for energy efficient appliances.
Sec. 108. Credit for energy efficiency improvements to existing homes.
Sec. 109. Business credit for construction of new energy efficient 
                            home.
Sec. 110. Allowance of deduction for energy efficient commercial 
                            building property.
Sec. 111. Allowance of deduction for qualified energy management 
                            devices and retrofitted qualified meters.
Sec. 112. 3-year applicable recovery period for depreciation of 
                            qualified energy management devices.
Sec. 113. Energy credit for combined heat and power system property.
Sec. 114. New nonrefundable personal credits allowed against regular 
                            and minimum taxes.
Sec. 115. Phaseout of 4.3-cent motor fuel excise taxes on railroads and 
                            inland waterway transportation which remain 
                            in general fund.
Sec. 116. Reduced motor fuel excise tax on certain mixtures of diesel 
                            fuel.
Sec. 117. Credit for investment in qualifying advanced clean coal 
                            technology.
Sec. 118. Credit for production from qualifying advanced clean coal 
                            technology.

                         TITLE II--RELIABILITY

Sec. 201. Natural gas gathering lines treated as 7-year property.
Sec. 202. Natural gas distribution lines treated as 10-year property.
Sec. 203. Petroleum refining property treated as 7-year property.
Sec. 204. Expensing of capital costs incurred in complying with 
                            environmental protection agency sulfur 
                            regulations.
Sec. 205. Environmental tax credit.
Sec. 206. Determination of small refiner exception to oil depletion 
                            deduction.
Sec. 207. Tax-exempt bond financing of certain electric facilities.
Sec. 208. Sales or dispositions to implement Federal Energy Regulatory 
                            Commission or State electric restructuring 
                            policy.
Sec. 209. Distributions of stock to implement Federal Energy Regulatory 
                            Commission or State electric restructuring 
                            policy.
Sec. 210. Modifications to special rules for nuclear decommissioning 
                            costs.
Sec. 211. Treatment of certain income of cooperatives.
Sec. 212. Repeal of requirement of certain approved terminals to offer 
                            dyed diesel fuel and kerosene for 
                            nontaxable purposes.
Sec. 213. Arbitrage rules not to apply to prepayments for natural gas.

                         TITLE III--PRODUCTION

Sec. 301. Oil and gas from marginal wells.
Sec. 302. Temporary suspension of limitation based on 65 percent of 
                            taxable income and extension of suspension 
                            of taxable income limit with respect to 
                            marginal production.
Sec. 303. Deduction for delay rental payments.
Sec. 304. Election to expense geological and geophysical expenditures.
Sec. 305. 5-year net operating loss carryback for losses attributable 
                            to operating mineral interests of oil and 
                            gas producers.
Sec. 306. Extension and modification of credit for producing fuel from 
                            a nonconventional source.
Sec. 307. Business related energy credits allowed against regular and 
                            minimum tax.
Sec. 308. Temporary repeal of alternative minimum tax preference for 
                            intangible drilling costs.
Sec. 309. Allowance of enhanced recovery credit against the alternative 
                            minimum tax.
Sec. 310. Extension of certain benefits for energy-related businesses 
                            on Indian reservations.

                         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.
            ``(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 sections 23, 25D, 
                and 25E) and section 27 for the taxable year.
    ``(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, 2001.

SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED 
              FROM RENEWABLE RESOURCES.

    (a) Extension of Credit for Wind and Closed-Loop Biomass 
Facilities.--Subparagraphs (A) and (B) of section 45(c)(3) are each 
amended by striking ``2002'' and inserting ``2007''.
    (b) Expansion of Credit for Open-loop biomass and landfill gas 
facilities.--Paragraph (3) of section 45(c) is amended by adding at the 
end the following new subparagraphs:
                    ``(D) Open-loop biomass facilities.--In the case of 
                a facility using open-loop biomass to produce 
                electricity, the term `qualified facility' means any 
                facility owned by the taxpayer which is originally 
                placed in service before January 1, 2007.
                    ``(E) Landfill gas facilities.--In the case of a 
                facility producing electricity from gas derived from 
                the biodegradation of municipal solid waste, the term 
                `qualified facility' means any facility owned by the 
                taxpayer which is originally placed in service before 
                January 1, 2007.''.
    (c) Definition and Special Rules.--Subsection (c) of section 45 is 
amended by adding at the end the following new paragraphs:
            ``(5) Open-loop biomass.--The term `open-loop biomass' 
        means any solid, nonhazardous, cellulosic waste material which 
        is segregated from other waste materials and which is derived 
        from--
                    ``(A) any of the following forest-related 
                resources: mill residues, precommercial thinnings, 
                slash, and brush, but not including old-growth timber,
                    ``(B) solid wood waste materials, including waste 
                pallets, crates, dunnage, manufacturing and 
                construction wood wastes (other than 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 subparagraph--
                    ``(A) subsection (a)(1) shall be applied by 
                substituting `1.0 cents' for `1.5 cents', and
                    ``(B) the 5-year period beginning on the date of 
                the enactment of this paragraph shall be substituted in 
                lieu of the 10-year period in subsection (a)(2)(A)(ii).
            ``(7) Limit on reductions for grants, etc., for open-loop 
        biomass facilities.--If the amount of the credit determined 
        under subsection (a) with 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 \4/5\.
            ``(8) Coordination with section 29.--The term `qualified 
        facility' shall not include any facility the production from 
        which is allowed as a credit under section 29 for the taxable 
        year or any prior taxable year.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to electricity sold after the date of the enactment of this Act.

SEC. 103. CREDIT FOR QUALIFIED STATIONARY FUEL CELL POWERPLANTS.

    (a) Business Property.--
            (1) In general.--Subparagraph (A) of section 48(a)(3) 
        (defining energy property) is amended by striking ``or'' at the 
        end of clause (i), by adding ``or'' at the end of clause (ii), 
        and by inserting after clause (ii) the following new clause:
                            ``(iii) equipment which is part of a 
                        qualified stationary fuel cell powerplant,''.
            (2) Qualified stationary fuel cell powerplant.--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 stationary fuel cell powerplant.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `qualified stationary 
                fuel cell powerplant' means a stationary fuel cell 
                power plant that has an electricity-only generation 
                efficiency greater than 30 percent.
                    ``(B) Limitation.--In the case of qualified 
                stationary fuel cell powerplant placed in service 
                during the taxable year, the credit under subsection 
                (a) for such year may not exceed $1,000 for each 
                kilowatt of capacity.
                    ``(C) Stationary fuel cell power plant.--The term 
                `stationary fuel cell power plant' means an integrated 
                system comprised of a fuel cell stack assembly and 
                associated balance of plant components that converts a 
                fuel into electricity using electrochemical means.
                    ``(D) Termination.--Such term shall not include any 
                property placed in service after December 31, 2006.''
            (3) Effective date.--The amendments made by this subsection 
        shall apply to property placed in service after December 31, 
        2001, under rules similar to the rules of section 48(m) of the 
        Internal Revenue Code of 1986 (as in effect on the day before 
        the date of the enactment of the Revenue Reconciliation Act of 
        1990).
    (b) Nonbusiness Property.--
            (1) In general.--Subpart A of part IV of 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 STATIONARY FUEL CELL POWERPLANT.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 10 percent of the qualified stationary 
fuel cell powerplant expenditures which are paid or incurred during 
such year.
    ``(b) Limitations.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for the taxable year and all prior taxable years shall not 
        exceed $1,000 for each kilowatt of capacity.
            ``(2) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the 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 sections 23 and 
                25E) and section 27 for the taxable year.
    ``(c) Qualified Stationary Fuel Cell Powerplant Expenditures.--For 
purposes of this section, the term `qualified stationary fuel cell 
powerplant expenditures' means expenditures by the taxpayer for any 
qualified stationary fuel cell powerplant (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 
                                        stationary fuel cell 
                                        powerplant.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to expenditures paid or incurred after December 31, 
        2001.

SEC. 104. ALTERNATIVE MOTOR VEHICLE CREDIT.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.) is amended by adding at the end 
the following:

``SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the sum of--
            ``(1) the new qualified fuel cell motor vehicle credit 
        determined under subsection (b),
            ``(2) the new qualified hybrid motor vehicle credit 
        determined under subsection (c),
            ``(3) the new qualified alternative fuel motor vehicle 
        credit determined under subsection (d), and
            ``(4) the advanced lean burn technology motor vehicle 
        credit determined under subsection (e).
    ``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified fuel cell motor vehicle credit determined under this 
        subsection with respect to a new qualified fuel cell motor 
        vehicle placed in service by the taxpayer during the taxable 
        year is--
                    ``(A) $4,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $20,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(2) Increase for fuel efficiency.--
                    ``(A) In general.--The amount determined under 
                paragraph (1)(A) with respect to a new qualified fuel 
                cell motor vehicle which is a passenger automobile or 
                light truck shall be increased by--
                            ``(i) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                            ``(ii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2000 model year city fuel economy,
                            ``(iii) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                            ``(iv) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy,
                            ``(v) $3,000, if such vehicle achieves at 
                        least 250 percent but less than 275 percent of 
                        the 2000 model year city fuel economy,
                            ``(vi) $3,500, if such vehicle achieves at 
                        least 275 percent but less than 300 percent of 
                        the 2000 model year city fuel economy, and
                            ``(vii) $4,000, if such vehicle achieves at 
                        least 300 percent of the 2000 model year city 
                        fuel economy.
                    ``(B) 2000 model year city fuel economy.--For 
                purposes of subparagraph (A), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined in accordance with the following tables:
                            ``(i) In the case of a passenger 
                        automobile:

``If vehicle inertia weight class   The 2000 model year city fuel 
        is:                                 economy is:
    1,500 or 1,750 lbs............................            43.7 mpg 
    2,000 lbs.....................................            38.3 mpg 
    2,250 lbs.....................................            34.1 mpg 
    2,500 lbs.....................................            30.7 mpg 
    2,750 lbs.....................................            27.9 mpg 
    3,000 lbs.....................................            25.6 mpg 
    3,500 lbs.....................................            22.0 mpg 
    4,000 lbs.....................................            19.3 mpg 
    4,500 lbs.....................................            17.2 mpg 
    5,000 lbs.....................................            15.5 mpg 
    5,500 lbs.....................................            14.1 mpg 
    6,000 lbs.....................................            12.9 mpg 
    6,500 lbs.....................................            11.9 mpg 
    7,000 or 8,500 lbs............................            11.1 mpg.
                            ``(ii) In the case of a light truck:

``If vehicle inertia weight class   The 2000 model year city fuel 
        is:                                 economy is:
    1,500 or 1,750 lbs............................            37.6 mpg 
    2,000 lbs.....................................            33.7 mpg 
    2,250 lbs.....................................            30.6 mpg 
    2,500 lbs.....................................            28.0 mpg 
    2,750 lbs.....................................            25.9 mpg 
    3,000 lbs.....................................            24.1 mpg 
    3,500 lbs.....................................            21.3 mpg 
    4,000 lbs.....................................            19.0 mpg 
    4,500 lbs.....................................            17.3 mpg 
    5,000 lbs.....................................            15.8 mpg 
    5,500 lbs.....................................            14.6 mpg 
    6,000 lbs.....................................            13.6 mpg 
    6,500 lbs.....................................            12.8 mpg 
    7,000 or 8,500 lbs............................            12.0 mpg.
                    ``(C) Vehicle inertia weight class.--For purposes 
                of subparagraph (B), the term `vehicle inertia weight 
                class' has the same meaning as when defined in 
                regulations prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of the 
                administration of title II of the Clean Air Act (42 
                U.S.C. 7521 et seq.).
            ``(3) New qualified fuel cell motor vehicle.--For purposes 
        of this subsection, the term `new qualified fuel cell motor 
        vehicle' means a motor vehicle--
                    ``(A) which is propelled by power derived from one 
                or more cells which convert chemical energy directly 
                into electricity by combining oxygen with hydrogen fuel 
                which is stored on board the vehicle in any form and 
                may or may not require reformation prior to use,
                    ``(B) which, in the case of a passenger automobile 
                or light truck--
                            ``(i) for 2002 and later model vehicles, 
                        has received a certificate of conformity under 
                        the Clean Air Act and meets or exceeds the 
                        equivalent qualifying California low emission 
                        vehicle standard under section 243(e)(2) of the 
                        Clean Air Act for that make and model year, and
                            ``(ii) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Tier II emission level 
                        established in regulations prescribed by the 
                        Administrator of the Environmental Protection 
                        Agency under section 202(i) of the Clean Air 
                        Act for that make and model year vehicle,
                    ``(C) the original use of which commences with the 
                taxpayer,
                    ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(E) which is made by a manufacturer.
    ``(c) New Qualified Hybrid Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified hybrid motor vehicle credit determined under this 
        subsection with respect to a new qualified hybrid motor vehicle 
        placed in service by the taxpayer during the taxable year is 
        the credit amount determined under paragraph (2).
            ``(2) Credit amount.--
                    ``(A) In general.--The credit amount determined 
                under this paragraph shall be determined in accordance 
                with the following tables:
                            ``(i) In the case of a new qualified hybrid 
                        motor vehicle which is a passenger automobile 
                        or light truck and which provides the following 
                        percentage of the maximum available power:

``If percentage of the maximum      The credit amount is:
        available power is:
    At least 2.5 percent but less than 10 percent.                $250 
    At least 10 percent but less than 20 percent..                $500 
    At least 20 percent but less than 30 percent..                $750 
    At least 30 percent...........................              $1,000.
                            ``(ii) In the case of a new qualified 
                        hybrid motor vehicle which is a heavy duty 
                        hybrid motor vehicle and which provides the 
                        following percentage of the maximum available 
                        power:
                                    ``(I) If such vehicle has a gross 
                                vehicle weight rating of not more than 
                                14,000 pounds:

``If percentage of the maximum      The credit amount is:
        available power is:
    At least 20 percent but less than 30 percent..              $1,500 
    At least 30 percent but less than 40 percent..              $1,750 
    At least 40 percent but less than 50 percent..              $2,000 
    At least 50 percent but less than 60 percent..              $2,250 
    At least 60 percent...........................              $2,500.
                                    ``(II) If such vehicle has a gross 
                                vehicle weight rating of more than 
                                14,000 but not more than 26,000 pounds:

``If percentage of the maximum      The credit amount is:
        available power is:
    At least 20 percent but less than 30 percent..              $4,000 
    At least 30 percent but less than 40 percent..              $4,500 
    At least 40 percent but less than 50 percent..              $5,000 
    At least 50 percent but less than 60 percent..              $5,500 
    At least 60 percent...........................              $6,000.
                                    ``(III) If such vehicle has a gross 
                                vehicle weight rating of more than 
                                26,000 pounds:

``If percentage of the maximum      The credit amount is:
        available power is:
    At least 20 percent but less than 30 percent..              $6,000 
    At least 30 percent but less than 40 percent..              $7,000 
    At least 40 percent but less than 50 percent..              $8,000 
    At least 50 percent but less than 60 percent..              $9,000 
    At least 60 percent...........................             $10,000.
                    ``(B) Increase for fuel efficiency.--
                            ``(i) Amount.--The amount determined under 
                        subparagraph (A)(i) with respect to a passenger 
                        automobile or light truck shall be increased 
                        by--
                                    ``(I) $1,000, if such vehicle 
                                achieves at least 125 percent but less 
                                than 150 percent of the 2000 model year 
                                city fuel economy,
                                    ``(II) $1,500, if such vehicle 
                                achieves at least 150 percent but less 
                                than 175 percent of the 2000 model year 
                                city fuel economy,
                                    ``(III) $2,000, if such vehicle 
                                achieves at least 175 percent but less 
                                than 200 percent of the 2000 model year 
                                city fuel economy,
                                    ``(IV) $2,500, if such vehicle 
                                achieves at least 200 percent but less 
                                than 225 percent of the 2000 model year 
                                city fuel economy,
                                    ``(V) $3,000, if such vehicle 
                                achieves at least 225 percent but less 
                                than 250 percent of the 2000 model year 
                                city fuel economy, and
                                    ``(VI) $3,500, if such vehicle 
                                achieves at least 250 percent of the 
                                2000 model year city fuel economy.
                            ``(ii) 2000 model year city fuel economy.--
                        For purposes of clause (i), the 2000 model year 
                        city fuel economy with respect to a vehicle 
                        shall be determined using the tables provided 
                        in subsection (b)(2)(B) with respect to such 
                        vehicle.
                            ``(iii) Option to use like vehicle.--For 
                        purposes of clause (i), at the option of the 
                        vehicle manufacturer, the increase for fuel 
                        efficiency may be calculated by comparing the 
                        new qualified hybrid motor vehicle to a `like 
                        vehicle'.
                    ``(C) Increase for accelerated emissions 
                performance.--The amount determined under subparagraph 
                (A)(ii) with respect to an applicable heavy duty hybrid 
                motor vehicle shall be increased by the increase credit 
                amount determined in accordance with the following 
                tables:
                            ``(i) In the case of a vehicle which has a 
                        gross vehicle weight rating of not more than 
                        14,000 pounds:

``If the model year is:             The increase credit amount is:
    2002..........................................              $3,500 
    2003..........................................              $3,000 
    2004..........................................              $2,500 
    2005..........................................              $2,000 
    2006..........................................              $1,500.
                            ``(ii) In the case of a vehicle which has a 
                        gross vehicle weight rating of more than 14,000 
                        pounds but not more than 26,000 pounds:

``If the model year is:             The increase credit amount is:
    2002..........................................              $9,000 
    2003..........................................              $7,750 
    2004..........................................              $6,500 
    2005..........................................              $5,250 
    2006..........................................              $4,000.
                            ``(iii) In the case of a vehicle which has 
                        a gross vehicle weight rating of more than 
                        26,000 pounds:

``If the model year is:             The increase credit amount is:
    2002..........................................             $14,000 
    2003..........................................             $12,000 
    2004..........................................             $10,000 
    2005..........................................              $8,000 
    2006..........................................              $6,000.
                    ``(D) Conservation credit.--
                            ``(i) Amount.--The amount determined under 
                        subparagraph (A)(i) with respect to a passenger 
                        automobile or light truck shall be increased 
                        by--
                                    ``(I) $250, if such vehicle 
                                achieves a lifetime fuel savings of at 
                                least 1,500 gallons of gasoline, and
                                    ``(II) $500, if such vehicle 
                                achieves a lifetime fuel savings of at 
                                least 2,500 gallons of gasoline.
                            ``(ii) Lifetime fuel savings for like 
                        vehicle.--For purposes of clause (i), at the 
                        option of the vehicle manufacturer, the 
                        lifetime fuel savings fuel may be calculated by 
                        comparing the new qualified hybrid motor 
                        vehicle to a `like vehicle'.
                    ``(E) Definitions.--
                            ``(i) Applicable heavy duty hybrid motor 
                        vehicle.--For purposes of subparagraph (C), the 
                        term `applicable heavy duty hybrid motor 
                        vehicle' means a heavy duty hybrid motor 
                        vehicle which is powered by an internal 
                        combustion or heat engine which is certified as 
                        meeting the emission standards set in the 
                        regulations prescribed by the Administrator of 
                        the Environmental Protection Agency for 2007 
                        and later model year diesel heavy duty engines 
                        or 2008 and later model year ottocycle heavy 
                        duty engines, as applicable.
                            ``(ii) Heavy duty hybrid motor vehicle.--
                        For purposes of this paragraph, the term `heavy 
                        duty hybrid motor vehicle' means a new 
                        qualified hybrid motor vehicle which has a 
                        gross vehicle weight rating of more than 10,000 
                        pounds and draws propulsion energy from both of 
                        the following onboard sources of stored energy:
                                    ``(I) An internal combustion or 
                                heat engine using consumable fuel 
                                which, for 2002 and later model 
                                vehicles, has received a certificate of 
                                conformity under the Clean Air Act and 
                                meets or exceeds a level of not greater 
                                than 3.0 grams per brake horsepower-
                                hour of oxides of nitrogen and 0.01 per 
                                brake horsepower-hour of particulate 
                                matter.
                                    ``(II) A rechargeable energy 
                                storage system.
                            ``(iii) Maximum available power.--
                                    ``(I) Passenger automobile or light 
                                truck.--For purposes of subparagraph 
                                (A)(i), the term `maximum available 
                                power' means the maximum power 
                                available from the battery or other 
                                electrical storage device, during a 
                                standard 10 second pulse power test, 
                                divided by the sum of the battery or 
                                other electrical storage device and the 
                                SAE net power of the heat engine.
                                    ``(II) Heavy duty hybrid motor 
                                vehicle.--For purposes of subparagraph 
                                (A)(ii), the term `maximum available 
                                power' means the maximum power 
                                available from the battery or other 
                                electrical storage device, during a 
                                standard 10 second pulse power test, 
                                divided by the vehicle's total traction 
                                power. The term `total traction power' 
                                means the sum of the electric motor 
                                peak power and the heat engine peak 
                                power of the vehicle, except that if 
                                the electric motor is the sole means by 
                                which the vehicle can be driven, the 
                                total traction power is the peak 
                                electric motor power.
                            ``(iv) Like vehicle.--For purposes of 
                        subparagraph (B)(iii), the term `like vehicle' 
                        for a new qualified hybrid motor vehicle 
                        derived from a conventional production vehicle 
                        produced in the same model year means a model 
                        that is equivalent in the following areas:
                                    ``(I) Body style (2-door or 4-
                                door).
                                    ``(II) Transmission (automatic or 
                                manual).
                                    ``(III) Acceleration performance 
                                (<plus-minus> 0.05 seconds).
                                    ``(IV) Drivetrain (2-wheel drive or 
                                4-wheel drive).
                                    ``(V) Certification by the 
                                Administrator of the Environmental 
                                Protection Agency.
                            ``(v) Lifetime fuel savings.--For purposes 
                        of subsection (c)(2)(D), the term `lifetime 
                        fuel savings' shall be calculated by dividing 
                        120,000 by the difference between the 2000 
                        model year city fuel economy for the vehicle 
                        inertia weight class and the city fuel economy 
                        for the new qualified hybrid motor vehicle.
            ``(3) New qualified hybrid motor vehicle.--For purposes of 
        this subsection, the term `new qualified hybrid motor vehicle' 
        means a motor vehicle--
                    ``(A) which draws propulsion energy from onboard 
                sources of stored energy which are both--
                            ``(i) an internal combustion or heat engine 
                        using combustible fuel, and
                            ``(ii) a rechargeable energy storage 
                        system,
                    ``(B) which, in the case of a passenger automobile 
                or light truck, for 2002 and later model vehicles, has 
                received a certificate of conformity under the Clean 
Air Act and meets or exceeds the equivalent qualifying California low 
emission vehicle standard under section 243(e)(2) of the Clean Air Act 
for that make and model year,
                    ``(C) the original use of which commences with the 
                taxpayer,
                    ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(E) which is made by a manufacturer.
    ``(d) New Qualified Alternative Fuel Motor Vehicle Credit.--
            ``(1) Allowance of credit.--Except as provided in paragraph 
        (5), the credit determined under this subsection is an amount 
        equal to the applicable percentage of the incremental cost of 
        any new qualified alternative fuel motor vehicle placed in 
        service by the taxpayer during the taxable year.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage with respect to any new 
        qualified alternative fuel motor vehicle is--
                    ``(A) 50 percent, plus
                    ``(B) 30 percent, if such vehicle--
                            ``(i) has received a certificate of 
                        conformity under the Clean Air Act and meets or 
                        exceeds the most stringent standard available 
                        for certification under the Clean Air Act for 
                        that make and model year vehicle (other than a 
                        zero emission standard), or
                            ``(ii) has received an order from an 
                        applicable State certifying the vehicle for 
                        sale or lease in California and meets or 
                        exceeds the most stringent standard available 
                        for certification under the State laws of 
                        California (enacted in accordance with a waiver 
                        granted under section 209(b) of the Clean Air 
                        Act) for that make and model year vehicle 
                        (other than a zero emission standard).
            ``(3) Incremental cost.--For purposes of this subsection, 
        the incremental cost of any new qualified alternative fuel 
        motor vehicle is equal to the amount of the excess of the 
        manufacturer's suggested retail price for such vehicle over 
        such price for a gasoline or diesel fuel motor vehicle of the 
        same model, to the extent such amount does not exceed--
                    ``(A) $5,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $25,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(4) Qualified alternative fuel motor vehicle defined.--
        For purposes of this subsection--
                    ``(A) In general.--The term `qualified alternative 
                fuel motor vehicle' means any motor vehicle--
                            ``(i) which is only capable of operating on 
                        an alternative fuel,
                            ``(ii) the original use of which commences 
                        with the taxpayer,
                            ``(iii) which is acquired by the taxpayer 
                        for use or lease, but not for resale, and
                            ``(iv) which is made by a manufacturer.
                    ``(B) Alternative fuel.--The term `alternative 
                fuel' means compressed natural gas, liquefied natural 
                gas, liquefied petroleum gas, hydrogen, and any liquid 
                at least 85 percent of the volume of which consists of 
                methanol.
            ``(5) Credit for mixed-fuel vehicles.--
                    ``(A) In general.--In the case of a mixed-fuel 
                vehicle placed in service by the taxpayer during the 
                taxable year, the credit determined under this 
                subsection is an amount equal to--
                            ``(i) in the case of a 75/25 mixed-fuel 
                        vehicle, 70 percent of the credit which would 
                        have been allowed under this subsection if such 
                        vehicle was a qualified alternative fuel motor 
                        vehicle, and
                            ``(ii) in the case of a 95/5 mixed-fuel 
                        vehicle, 95 percent of the credit which would 
                        have been allowed under this subsection if such 
                        vehicle was a qualified alternative fuel motor 
                        vehicle.
                    ``(B) Mixed-fuel vehicle.--For purposes of this 
                subsection, the term `mixed-fuel vehicle' means any 
                motor vehicle described in subparagraph (C) or (D) of 
                paragraph (3), which--
                            ``(i) is certified by the manufacturer as 
                        being able to perform efficiently in normal 
                        operation on a combination of an alternative 
                        fuel and a petroleum-based fuel,
                            ``(ii) either--
                                    ``(I) has received a certificate of 
                                conformity under the Clean Air Act, or
                                    ``(II) has received an order from 
                                an applicable State certifying the 
                                vehicle for sale or lease in California 
                                and meets or exceeds the low emission 
                                vehicle standard under section 88.105-
                                94 of title 40, Code of Federal 
                                Regulations, for that make and model 
                                year vehicle,
                            ``(iii) the original use of which commences 
                        with the taxpayer,
                            ``(iv) which is acquired by the taxpayer 
                        for use or lease, but not for resale, and
                            ``(v) which is made by a manufacturer.
                    ``(C) 75/25 mixed-fuel vehicle.--For purposes of 
                this subsection, the term `75/25 mixed-fuel vehicle' 
                means a mixed-fuel vehicle which operates using at 
                least 75 percent alternative fuel and not more than 25 
                percent petroleum-based fuel.
                    ``(D) 95/5 mixed-fuel vehicle.--For purposes of 
                this subsection, the term `95/5 mixed-fuel vehicle' 
                means a mixed-fuel vehicle which operates using at 
                least 95 percent alternative fuel and not more than 5 
                percent petroleum-based fuel.
    ``(e) Advanced Lean Burn Technology Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the 
        advanced lean burn technology motor vehicle credit determined 
        under this subsection with respect to a new qualified advanced 
        lean burn technology motor vehicle placed in service by the 
        taxpayer during the taxable year is the credit amount 
        determined under paragraph (2).
            ``(2) Credit amount.--
                    ``(A) Increase for fuel efficiency.--The credit 
                amount determined under this paragraph shall be--
                            ``(i) $1,000, if such vehicle achieves at 
                        least 125 percent but less than 150 percent of 
                        the 2000 model year city fuel economy,
                            ``(ii) $1,500, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                            ``(iii) $2,000, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
the 2000 model year city fuel economy,
                            ``(iv) $2,500, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                            ``(v) $3,000, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy, and
                            ``(vi) $3,500, if such vehicle achieves at 
                        least 250 percent of the 2000 model year city 
                        fuel economy.
                For purposes of clause (i), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined using the tables provided in subsection 
                (b)(2)(B) with respect to such vehicle.
                    ``(B) Conservation credit.--The amount determined 
                under subparagraph (A) with respect to an advanced lean 
                burn technology motor vehicle shall be increased by--
                            ``(i) $250, if such vehicle achieves a 
                        lifetime fuel savings of at least 1,500 gallons 
                        of gasoline, and
                            ``(ii) $500, if such vehicle achieves a 
                        lifetime fuel savings of at least 2,500 gallons 
                        of gasoline.
                    ``(C) Option to use like vehicle.--At the option of 
                the vehicle manufacturer, the increase for fuel 
                efficiency and conservation credit may be calculated by 
                comparing the new advanced lean-burn technology motor 
                vehicle to a like vehicle.
            ``(3) Definitions.--For purposes of this subsection.--
                    ``(A) Advanced lean burn technology motor 
                vehicle.--The term `advanced lean burn technology motor 
                vehicle' means a motor vehicle with an internal 
                combustion engine that--
                            ``(i) is designed to operate primarily 
                        using more air than is necessary for complete 
                        combustion of the fuel,
                            ``(ii) incorporates direct injection,
                            ``(iii) achieves at least 125 percent of 
                        the 2000 model year city fuel economy, and
                            ``(iv) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Bin 5, Tier 2 emission 
                        levels (for passenger vehicles) or Bin 8, Tier 
                        2 emission levels (for light trucks) 
                        established in regulations prescribed by the 
                        Administrator of the Environmental Protection 
                        Agency under section 202(i) of the Clean Air 
                        Act for that make and model year vehicle.
                    ``(B) Like vehicle.--The term `like vehicle' for an 
                advanced lean burn technology motor vehicle derived 
                from a conventional production vehicle produced in the 
                same model year means a model that is equivalent in the 
                following areas:
                            ``(i) Body style (2-door or 4-door),
                            ``(ii) Transmission (automatic or manual),
                            ``(iii) Acceleration performance 
                        (<plus-minus> 0.05 seconds).
                            ``(iv) Drivetrain (2-wheel drive or 4-wheel 
                        drive).
                            ``(v) Certification by the Administrator of 
                        the Environmental Protection Agency.
                    ``(C) Lifetime fuel savings.--The term `lifetime 
                fuel savings' shall be calculated by dividing 120,000 
                by the difference between the 2000 model year city fuel 
                economy for the vehicle inertia weight class and the 
                city fuel economy for the new qualified hybrid motor 
                vehicle.
    ``(f) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under subpart A and 
        sections 27, 29, and 30A for the taxable year.
    ``(g) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Consumable fuel.--The term `consumable fuel' means 
        any solid, liquid, or gaseous matter which releases energy when 
        consumed by an auxiliary power unit.
            ``(2) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
            ``(3) 2000 model year city fuel economy.--The 2000 model 
        year city fuel economy with respect to any vehicle shall be 
        measured under rules similar to the rules under section 
        4064(c).
            ``(4) Other terms.--The terms `automobile', `passenger 
        automobile', `light truck', and `manufacturer' have the 
        meanings given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency for 
        purposes of the administration of title II of the Clean Air Act 
        (42 U.S.C. 7521 et seq.).
            ``(5)  Reduction in basis.--For purposes of this subtitle, 
        the basis of any property for which a credit is allowable under 
        subsection (a) shall be reduced by the amount of such credit so 
        allowed.
            ``(6) No double benefit.--The amount of any deduction or 
        credit allowable under this chapter (other than the credit 
        allowable under this section)--
                    ``(A) for any incremental cost taken into account 
                in computing the amount of the credit determined under 
                subsection (d) shall be reduced by the amount of such 
                credit attributable to such cost, and
                    ``(B) with respect to a vehicle described under 
                subsection (b) or (c), shall be reduced by the amount 
                of credit allowed under subsection (a) for such vehicle 
                for the taxable year.
            ``(7) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease document the 
        specific amount of any credit otherwise allowable to the entity 
        under this section and reduces the sale or lease price of such 
        vehicle by an equivalent amount of such credit.
            ``(8) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
            ``(9) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection (a) 
        with respect to any property referred to in section 50(b) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
            ``(10) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
            ``(11) Carryforward allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (f) for such 
                taxable year (referred to as the `unused credit year' 
                in this paragraph), such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable years 
                following the unused credit year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryforward 
                under subparagraph (A).
            ``(12) Interaction with air quality and motor vehicle 
        safety standards.--Unless otherwise provided in this section, a 
        motor vehicle shall not be considered eligible for a credit 
        under this section unless such vehicle is in compliance with--
                    ``(A) the applicable provisions of the Clean Air 
                Act for the applicable make and model year of the 
                vehicle (or applicable air quality provisions of State 
                law in the case of a State which has adopted such 
                provision under a waiver under section 209(b) of the 
                Clean Air Act), and
                    ``(B) the motor vehicle safety provisions of 
                sections 30101 through 30169 of title 49, United States 
                Code.
    ``(h) Regulations.--
            ``(1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out the provisions of this 
        section.
            ``(2) Administrator of environmental protection agency.--
        The Administrator of the Environmental Protection Agency, in 
        coordination with the Secretary of Transportation and the 
        Secretary of the Treasury, shall prescribe such regulations as 
        necessary to determine whether a motor vehicle meets the 
        requirements to be eligible for a credit under this section.
    ``(i) Termination.--This section shall not apply to any property 
placed in service after--
            ``(1) in the case of a new qualified fuel cell motor 
        vehicle (as described in subsection (b)), December 31, 2011, 
        and
            ``(2) in the case of any other property, December 31, 
        2007.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (29), by striking the period at the end of 
        paragraph (30) and inserting ``, and'', and by adding at the 
        end the following:
            ``(31) to the extent provided in section 30B(g)(5).''.
            (2) Section 6501(m) is amended by inserting ``30B(g)(10),'' 
        after ``30(d)(4),''.
            (3) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 30A the following:

                              ``Sec. 30B. Alternative motor vehicle 
                                        credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2001, in taxable 
years ending after such date.

SEC. 105. EXTENSION OF DEDUCTION FOR CERTAIN REFUELING PROPERTY.

    (a) In General.--Section 179A(f) (relating to termination) is 
amended by striking ``2004'' and inserting ``2007''.
    (b) Modification of Phaseout.--Subparagraph (B) of section 
179A(b)(1) is amended--
            (1) in clause (i), by striking ``2002'' and inserting 
        ``2005'',
            (2) in clause (ii), by striking ``2003'' and inserting 
        ``2006'', and
            (3) in clause (iii), by striking ``2004'' and inserting 
        ``2007''.

SEC. 106. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

    (a) Amount of Credit.--
            (1) In general.--Section 30(a) (relating to allowance of 
        credit) is amended by striking ``10 percent of''.
            (2) Limitation of credit according to type of vehicle.--
        Section 30(b) (relating to limitations) is amended--
                    (A) by striking paragraphs (1) and (2) and 
                inserting the following:
            ``(1) Limitation according to type of vehicle.--The amount 
        of the credit allowed under subsection (a) for any vehicle 
        shall not exceed the greatest of the following amounts 
        applicable to such vehicle:
                    ``(A) In the case of a vehicle which conforms to 
                the Motor Vehicle Safety Standard 500 prescribed by the 
                Secretary of Transportation, the lesser of--
                            ``(i) 10 percent of the manufacturer's 
                        suggested retail price of the vehicle, or
                            ``(ii) $4,000.
                    ``(B) In the case of a vehicle not described in 
                subparagraph (A) with a gross vehicle weight rating not 
                exceeding 8,500 pounds--
                            ``(i) $4,000, or
                            ``(ii) $5,000, if such vehicle is--
                                    ``(I) capable of a driving range of 
                                at least 70 miles on a single charge of 
                                the vehicle's rechargeable batteries 
                                and measured pursuant to the urban 
                                dynamometer schedules under appendix I 
                                to part 86 of title 40, Code of Federal 
                                Regulations, or
                                    ``(II) capable of a payload 
                                capacity of at least 1,000 pounds.
                    ``(C) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 8,500 pounds but not exceeding 
                14,000 pounds, $10,000.
                    ``(D) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 14,000 pounds but not exceeding 
                26,000 pounds, $20,000.
                    ``(E) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 26,000 pounds, $40,000.'', and
                    (B) by redesignating paragraph (3) as paragraph 
                (2).
            (3) Conforming amendments.--
                    (A) Section 53(d)(1)(B)(iii) is amended by striking 
                ``section 30(b)(3)(B)'' and inserting ``section 
                30(b)(2)(B)''.
                    (B) Section 55(c)(2) is amended by striking 
                ``30(b)(3)'' and inserting ``30(b)(2)''.
    (b) Qualified Battery Electric Vehicle.--
            (1) In general.--Section 30(c)(1)(A) (defining qualified 
        electric vehicle) is amended to read as follows:
                    ``(A) which is--
                            ``(i) operated solely by use of a battery 
                        or battery pack, or
                            ``(ii) powered primarily through the use of 
                        an electric battery or battery pack using a 
                        flywheel or capacitor which stores energy 
                        produced by an electric motor through 
                        regenerative braking to assist in vehicle 
                        operation,''.
            (2) Leased vehicles.--Section 30(c)(1)(C) is amended by 
        inserting ``or lease'' after ``use''.
            (3) Conforming amendments.--
                    (A) Subsections (a) and (c) of section 30 are each 
                amended by inserting ``battery'' after ``qualified'' 
                each place it appears.
                    (B) The heading of subsection (c) of section 30 is 
                amended by inserting ``Battery'' after ``Qualified''.
                    (C) The heading of section 30 is amended by 
                inserting ``battery'' after ``qualified''.
                    (D) The item relating to section 30 in the table of 
                sections for subpart B of part IV of subchapter A of 
                chapter 1 is amended by inserting ``battery'' after 
                ``qualified''.
                    (E) Section 179A(c)(3) is amended by inserting 
                ``battery'' before ``electric''.
                    (F) The heading of paragraph (3) of section 179A(c) 
                is amended by inserting ``battery'' before 
                ``electric''.
    (c) Additional Special Rules.--Section 30(d) (relating to special 
rules) is amended by adding at the end the following:
            ``(5) No double benefit.--The amount of any deduction or 
        credit allowable under this chapter for any cost taken into 
        account in computing the amount of the credit determined under 
        subsection (a) shall be reduced by the amount of such credit 
        attributable to such cost.
            ``(6) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a vehicle 
        which is acquired by an entity exempt from tax under this 
        chapter, the person which sells or leases such vehicle to the 
        entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease contract the 
        specific amount of any credit otherwise allowable to the entity 
        under this section and reduces the sale or lease price of such 
        vehicle by an equivalent amount of such credit.
            ``(7) Carryforward allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (b)(3) for 
                such taxable year, such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable years 
                following such taxable year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryforward 
                under subparagraph (A).''
    (d) Extension.--Section 30(e) (relating to termination) is amended 
by striking ``2004'' and inserting ``2007''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2001, in taxable 
years ending after such date.

SEC. 107. TAX CREDIT FOR ENERGY EFFICIENT APPLIANCES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits) is amended by adding at the end 
the following new section:

``SEC. 45G. ENERGY EFFICIENT APPLIANCE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the energy 
efficient appliance credit determined under this section for the 
taxable year is an amount equal to the applicable amount determined 
under subsection (b) with respect to the eligible production of 
qualified energy efficient appliances produced by the taxpayer during 
the calendar year ending with or within the taxable year.
    ``(b) Applicable Amount; Eligible Production.--For purposes of 
subsection (a)--
            ``(1) Applicable amount.--The applicable amount is--
                    ``(A) $50 in the case of an energy efficient 
                clothes washer described in subsection (d)(2)(A) or an 
                energy efficient refrigerator described in subsection 
                (d)(3)(B)(i), and
                    ``(B) $100 in the case of any other energy 
                efficient clothes washer or energy efficient 
                refrigerator.
            ``(2) Eligible production.--
                    ``(A) In general.--The eligible production of each 
                category of qualified energy efficient appliances is 
                the excess of--
                            ``(i) the number of appliances in such 
                        category which are produced by the taxpayer 
                        during such calendar year, over
                            ``(ii) the average number of appliances in 
                        such category which were produced by the 
                        taxpayer during calendar years 1998, 1999, and 
                        2000.
                    ``(B) Categories.--For purposes of subparagraph 
                (A), the categories are--
                            ``(i) energy efficient clothes washers 
                        described in subsection (d)(2)(A),
                            ``(ii) energy efficient clothes washers 
                        described in subsection (d)(2)(B),
                            ``(iii) energy efficient refrigerators 
                        described in subsection (d)(3)(B)(i), and
                            ``(iv) energy efficient refrigerators 
                        described in subsection (d)(3)(B)(ii).
                    ``(C) Special rule for 2001 production.--For 
                purposes of determining eligible production for 
                calendar year 2001--
                            ``(i) only production after the date of the 
                        enactment of this section shall be taken into 
                        account under subparagraph (A)(i), and
                            ``(ii) the amount taken into account under 
                        subparagraph (A)(ii) shall be an amount which 
                        bears the same ratio to the amount which would 
                        (but for this subparagraph) be taken into 
                        account under subparagraph (A)(ii) as--
                                    ``(I) the number of days in 
                                calendar year 2001 after the date of 
                                the enactment of this section, bears to
                                    ``(II) 365.
    ``(c) Limitation on Maximum Credit.--
            ``(1) In general.--The maximum amount of credit allowed 
        under subsection (a) with respect to a taxpayer for all taxable 
        years shall be--
                    ``(A) $30,000,000 with respect to the credit 
                determined under subsection (b)(1)(A), and
                    ``(B) $30,000,000 with respect to the credit 
                determined under subsection (b)(1)(B).
            ``(2) Limitation based on gross receipts.--The credit 
        allowed under subsection (a) with respect to a taxpayer for the 
        taxable year shall not exceed an amount equal to 2 percent of 
        the average annual gross receipts of the taxpayer for the 3 
        taxable years preceding the taxable year in which the credit is 
        determined.
            ``(3) Gross receipts.--For purposes of this subsection, the 
        rules of paragraphs (2) and (3) of section 448(c) shall apply.
    ``(d) Qualified Energy Efficient Appliance.--For purposes of this 
section:
            ``(1) In general.--The term `qualified energy efficient 
        appliance' means--
                    ``(A) an energy efficient clothes washer, or
                    ``(B) an energy efficient refrigerator.
            ``(2) Energy efficient clothes washer.--The term `energy 
        efficient clothes washer' means a residential clothes washer, 
        including a residential style coin operated washer, which is 
        manufactured with--
                    ``(A) a 1.26 MEF or greater, or
                    ``(B) a 1.42 MEF (1.5 MEF for washers produced 
                after 2004) or greater.
            ``(3) Energy efficient refrigerator.--The term `energy 
        efficient refrigerator' means an automatic defrost 
        refrigerator-freezer which--
                    ``(A) has an internal volume of at least 16.5 cubic 
                feet, and
                    ``(B) consumes--
                            ``(i) 10 percent less kw/hr/yr than the 
                        energy conservation standards promulgated by 
                        the Department of Energy for refrigerators 
                        produced during 2001, and
                            ``(ii) 15 percent less kw/hr/yr than such 
                        energy conservation standards for refrigerators 
                        produced after 2001.
            ``(4) MEF.--The term `MEF' means Modified Energy Factor (as 
        determined by the Secretary of Energy).
    ``(e) Special Rules.--
            ``(1) In general.--Rules similar to the rules of 
        subsections (c), (d), and (e) of section 52 shall apply for 
        purposes of this section.
            ``(2) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 or 
        subsection (m) or (o) of section 414 shall be treated as 1 
        person for purposes of subsection (a).
    ``(f) Verification.--The taxpayer shall submit such information or 
certification as the Secretary, in consultation with the Secretary of 
Energy, determines necessary to claim the credit amount under 
subsection (a).
    ``(g) Termination.--This section shall not apply--
            ``(1) with respect to energy efficient refrigerators 
        described in subsection (d)(3)(B)(i) produced after 2004, and
            ``(2) with respect to all other qualified energy efficient 
        appliances produced after 2006.''.
    (b) Limitation on Carryback.--Section 39(d) (relating to transition 
rules) is amended by adding at the end the following new paragraph:
            ``(11) No carryback of energy efficient appliance credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the energy 
        efficient appliance credit determined under section 45G may be 
        carried to a taxable year ending before the date of the 
        enactment of section 45G.''.
    (c) Conforming Amendment.--Section 38(b) (relating to general 
business credit) is amended by striking ``plus'' at the end of 
paragraph (14), by striking the period at the end of paragraph (15) and 
inserting ``, plus'', and by adding at the end the following new 
paragraph:
            ``(16) the energy efficient appliance credit determined 
        under section 45G(a).''.
    (d) 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. Energy efficient appliance 
                                        credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 108. CREDIT FOR ENERGY EFFICIENCY 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.
            ``(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 23) and 
                section 27 for the taxable year.
    ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by subsection (b)(3) for 
such taxable year, such 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 1998 
International Energy Conservation Code, if--
            ``(1) such component is installed in or on a dwelling--
                    ``(A) located in the United States, and
                    ``(B) owned and used by the taxpayer as the 
                taxpayer's principal residence (within the 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 Home 
        Energy Ratings Systems Council or the National Association of 
        State Energy Officials, 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 C.F.R. 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, 
2001 and before January 1, 2007.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 is amended by striking 
        ``and'' at the end of paragraph (30), by striking the period at 
        the end of paragraph (31) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(32) to the extent provided in section 25E(g), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25E.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
item relating to section 25D the following new item:

                              ``Sec. 25E. Energy efficiency 
                                        improvements to existing 
                                        homes.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2001.

SEC. 109. BUSINESS CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT 
              HOME.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 45G the following new section:

``SEC. 45H. NEW ENERGY EFFICIENT HOME CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor, the credit determined under this section for the 
taxable year is an amount equal to the aggregate adjusted bases of all 
energy efficient property 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 C.F.R. 
        3280), the manufactured home producer of such home.
            ``(2) Energy efficient property.--The term `energy 
        efficient property' means any energy efficient building 
        envelope component, and any energy 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, 2001,
                    ``(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 
                1998 International Energy Conservation Code.
            ``(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 C.F.R. 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 1998 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, 2002, and 
ending on December 31, 2006.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to current year business credit) is amended by 
striking ``plus'' at the end of paragraph (15), by striking the period 
at the end of paragraph (16) and inserting ``, plus'', and by adding at 
the end thereof the following new paragraph:
            ``(17) the new energy efficient home credit determined 
        under section 45H.''.
    (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 45H.''.
    (d) Limitation on Carryback.--Subsection (d) of section 39 is 
amended by adding at the end the following new paragraph:
            ``(12) No carryback of new energy 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 45H may be carried back to any taxable 
        year ending before January 1, 2002.''.
    (e) Deduction for Certain Unused Business Credits.--Subsection (c) 
of section 196 is amended by striking ``and'' at the end of paragraph 
(9), by striking the period at the end of paragraph (10) and inserting 
``, and'', and by adding after paragraph (10) the following new 
paragraph:
            ``(11) the new energy efficient home credit determined 
        under section 45H.''.
    (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 45G the following new item:

                              ``Sec. 45H. New energy efficient home 
                                        credit.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2001.

SEC. 110. ALLOWANCE OF DEDUCTION FOR ENERGY EFFICIENT COMMERCIAL 
              BUILDING PROPERTY.

    (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 ENERGY EFFICIENT COMMERCIAL BUILDING 
              PROPERTY.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a deduction an 
        amount equal to energy efficient commercial building property 
        expenditures made by a taxpayer for the taxable year.
            ``(2) Maximum amount of deduction.--The amount of energy 
        efficient commercial building property expenditures taken into 
        account under paragraph (1) shall not exceed an amount equal to 
        the product of--
                    ``(A) $2.25, and
                    ``(B) the square footage of the building with 
                respect to which the expenditures are made.
            ``(3) Year deduction allowed.--The deduction under 
        paragraph (1) shall be allowed for the taxable year in which 
        the building is placed in service.
    ``(b) Energy Efficient Commercial Building Property Expenditures.--
For purposes of this section, the term `energy efficient commercial 
building property expenditures' means an amount paid or incurred for 
energy efficient commercial building property installed on or in 
connection with new construction or reconstruction of property--
            ``(1) for which depreciation is allowable under section 
        167,
            ``(2) which is located in the United States, and
            ``(3) the construction or erection of which is completed by 
        the taxpayer.
Such property includes all residential rental property, including low-
rise multifamily structures and single family housing property which is 
not within the scope of Standard 90.1-1999 (described in subsection 
(c)). Such term includes expenditures for labor costs properly 
allocable to the onsite preparation, assembly, or original installation 
of the property.
    ``(c) Energy Efficient Commercial Building Property.--For purposes 
of subsection (b)--
            ``(1) In general.--The term `energy efficient commercial 
        building property' means any property which reduces total 
        annual energy and power costs with respect to the lighting, 
        heating, cooling, ventilation, and hot water supply systems of 
        the building by 50 percent or more in comparison to a reference 
        building which meets the requirements of Standard 90.1-1999 of 
        the American Society of Heating, Refrigerating, and Air 
        Conditioning Engineers and the Illuminating Engineering Society 
        of North America using methods of calculation under paragraph 
        (2) and certified by qualified professionals as provided under 
        subsection (f).
            ``(2) Methods of calculation.--The Secretary, in 
        consultation with the Secretary of Energy, shall promulgate 
        regulations which describe in detail methods for calculating 
        and verifying energy and power consumption and cost, taking 
        into consideration the provisions of the 1998 California 
        Nonresidential ACM Manual. These procedures shall meet the 
        following requirements:
                    ``(A) In calculating tradeoffs and energy 
                performance, the regulations shall prescribe the costs 
                per unit of energy and power, such as kilowatt hour, 
                kilowatt, gallon of fuel oil, and cubic foot or Btu of 
                natural gas, which may be dependent on time of usage.
                    ``(B) The calculational methodology shall require 
                that compliance be demonstrated for a whole building. 
                If some systems of the building, such as lighting, are 
                designed later than other systems of the building, the 
                method shall provide that either--
                            ``(i) the expenses taken into account under 
                        subsection (a) shall not occur until the date 
                        designs for all energy-using systems of the 
                        building are completed,
                            ``(ii) the energy performance of all 
                        systems and components not yet designed shall 
                        be assumed to comply minimally with the 
                        requirements of such Standard 90.1-1999, or
                            ``(iii) the expenses taken into account 
                        under subsection (a) shall be a fraction of 
                        such expenses based on the performance of less 
                        than all energy-using systems in accordance 
                        with subparagraph (C).
                    ``(C) The expenditures in connection with the 
                design of subsystems in the building, such as the 
                envelope, the heating, ventilation, air conditioning 
                and water heating system, and the lighting system shall 
                be allocated to the appropriate building subsystem 
                based on system-specific energy cost savings targets in 
                regulations promulgated by the Secretary of Energy 
                which are equivalent, using the calculation 
                methodology, to the whole building requirement of 50 
                percent savings.
                    ``(D) The calculational methods under this 
                subparagraph need not comply fully with section 11 of 
                such Standard 90.1-1999.
                    ``(E) The calculational methods shall be fuel 
                neutral, such that the same energy efficiency features 
                shall qualify a building for the deduction under this 
                subsection regardless of whether the heating source is 
                a gas or oil furnace or an electric heat pump.
                    ``(F) The calculational methods shall provide 
                appropriate calculated energy savings for design 
                methods and technologies not otherwise credited in 
                either such Standard 90.1-1999 or in the 1998 
                California Nonresidential ACM Manual, including the 
                following:
                            ``(i) Natural ventilation.
                            ``(ii) Evaporative cooling.
                            ``(iii) Automatic lighting controls such as 
                        occupancy sensors, photocells, and timeclocks.
                            ``(iv) Daylighting.
                            ``(v) Designs utilizing semi-conditioned 
                        spaces that maintain adequate comfort 
                        conditions without air conditioning or without 
                        heating.
                            ``(vi) Improved fan system efficiency, 
                        including reductions in static pressure.
                            ``(vii) Advanced unloading mechanisms for 
                        mechanical cooling, such as multiple or 
                        variable speed compressors.
                            ``(viii) The calculational methods may take 
                        into account the extent of commissioning in the 
                        building, and allow the taxpayer to take into 
                        account measured performance that exceeds 
                        typical performance.
            ``(3) Computer software.--
                    ``(A) In general.--Any calculation under this 
                subsection shall be prepared by qualified computer 
                software.
                    ``(B) Qualified computer software.--For purposes of 
                this paragraph, the term `qualified computer software' 
                means software--
                            ``(i) for which the software designer has 
                        certified that the software meets all 
                        procedures and detailed methods for calculating 
                        energy and power consumption and costs as 
                        required by the Secretary,
                            ``(ii) which provides such forms as 
                        required to be filed by the Secretary in 
                        connection with energy efficiency of property 
                        and the deduction allowed under this section, 
                        and
                            ``(iii) which provides a notice form which 
                        summarizes the energy efficiency features of 
                        the building and its projected annual energy 
                        costs.
    ``(d) Allocation of Deduction for Public Property.--In the case of 
energy efficient commercial building property installed on or in public 
property, the Secretary shall promulgate a regulation to allow the 
allocation of the deduction to the person primarily responsible for 
designing the property in lieu of the public entity which is the owner 
of such property. Such person shall be treated as the taxpayer for 
purposes of this section.
    ``(e) Notice to Owner.--The qualified individual shall provide an 
explanation to the owner of the building regarding the energy 
efficiency features of the building and its projected annual energy 
costs as provided in the notice under subsection (c)(3)(B)(iii).
    ``(f) Certification.--The Secretary, in consultation with the 
Secretary of Energy, shall establish requirements for certification and 
compliance procedures similar to the procedures under section 45H(d).
    ``(g) Basis Reduction.--For purposes of this title, the basis of 
any property shall be reduced by the amount of the deduction with 
respect to such property which is allowed by subsection (a).
    ``(h) Termination.--This section shall not apply to property placed 
in service after December 31, 2006.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (31), by striking the period at the end of 
        paragraph (32) and inserting ``, and'', and by inserting the 
        following new paragraph:
            ``(33) to the extent provided in section 179B(g).''.
            (2) Section 1245(a) is amended by inserting ``179B,'' after 
        ``179A,'' both places it appears in paragraphs (2)(C) and 
        (3)(C).
            (3) Section 1250(b)(3) is amended by inserting before the 
        period at the end of the first sentence ``or by section 179B''.
            (4) Section 263(a)(1) is amended by striking ``or'' at the 
        end of subparagraph (G), by striking the period at the end of 
        subparagraph (H) and inserting ``, or'', and by inserting after 
        subparagraph (H) the following new subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 179B.''.
            (5) Section 312(k)(3)(B) is amended by striking ``or 179A'' 
        each place it appears in the heading and text and inserting ``, 
        179A, or 179B''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding after section 179A the 
following new item:

                              ``Sec. 179B. Deduction for energy 
                                        efficient commercial building 
                                        property.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 111. ALLOWANCE OF DEDUCTION FOR QUALIFIED ENERGY MANAGEMENT 
              DEVICES AND RETROFITTED QUALIFIED METERS.

    (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 179B the following new section:

``SEC. 179C. DEDUCTION FOR QUALIFIED ENERGY MANAGEMENT DEVICES AND 
              RETROFITTED METERS.

    ``(a) Allowance of Deduction.--In the case of a taxpayer who is a 
supplier of electric energy or natural gas or a provider of electric 
energy or natural gas services, there shall be allowed as a deduction 
an amount equal to the cost of each qualified energy management device 
placed in service during the taxable year.
    ``(b) Maximum Deduction.--The deduction allowed by this section 
with respect to each qualified energy management device shall not 
exceed $30.
    ``(c) Qualified Energy Management Device.--The term `qualified 
energy management device' means any tangible property to which section 
168 applies if such property is a meter or metering device--
            ``(1) which is acquired and used by the taxpayer to enable 
        consumers to manage their purchase or use of electricity or 
        natural gas in response to energy price and usage signals, and
            ``(2) which permits reading of energy price and usage 
        signals on at least a daily basis.
    ``(d) Property Used Outside the United States Not Qualified.--No 
deduction shall be allowed under subsection (a) with respect to 
property which is used predominantly outside the United States or with 
respect to the portion of the cost of any property taken into account 
under section 179.
    ``(e) Basis Reduction.--
            ``(1) In general.--For purposes of this title, the basis of 
        any property shall be reduced by the amount of the deduction 
        with respect to such property which is allowed by subsection 
        (a).
            ``(2) Ordinary income recapture.--For purposes of section 
        1245, the amount of the deduction allowable under subsection 
        (a) with respect to any property that is of a character subject 
        to the allowance for depreciation shall be treated as a 
        deduction allowed for depreciation under section 167.''.
    (b) Conforming Amendments.--
            (1) Section 263(a)(1) is amended by striking ``or'' at the 
        end of subparagraph (H), by striking the period at the end of 
        subparagraph (I) and inserting ``, or'', and by inserting after 
        subparagraph (I) the following new subparagraph:
                    ``(J) expenditures for which a deduction is allowed 
                under section 179C.''.
            (2) Section 312(k)(3)(B) is amended by striking ``or 179B'' 
        each place it appears in the heading and text and inserting ``, 
        179B, or 179C''.
            (3) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (32), by striking the period at the end of 
        paragraph (33) and inserting ``, and'', and by inserting after 
        paragraph (33) the following new paragraph:
            ``(34) to the extent provided in section 179C(e)(1).''.
            (4) Section 1245(a) is amended by inserting ``179C,'' after 
        ``179B,'' both places it appears in paragraphs (2)(C) and 
        (3)(C).
            (5) The table of contents for subpart B of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 179B the following new item:

                              ``Sec. 179C. Deduction for qualified 
                                        energy management devices and 
                                        retrofitted meters.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to qualified energy management devices placed in service after 
the date of the enactment of this Act.

SEC. 112. 3-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF 
              QUALIFIED ENERGY MANAGEMENT DEVICES.

    (a) In General.--Subparagraph (A) of section 168(e)(3) (relating to 
classification of property) is amended by striking ``and'' at the end 
of clause (ii), by striking the period at the end of clause (iii) and 
inserting ``, and'', and by adding at the end the following new clause:
                            ``(iv) any qualified energy management 
                        device.''.
    (b) Definition of Qualified Energy Management Device.--Section 
168(i) (relating to definitions and special rules) is amended by 
inserting at the end the following new paragraph:
            ``(15) Qualified energy management device.--The term 
        `qualified energy management device' means any qualified energy 
        management device as defined in section 179C(c) which is placed 
        in service by a taxpayer who is a supplier of electric energy 
        or natural gas or a provider of electric energy or natural gas 
        services.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 113. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

    (a) In General.--Subparagraph (A) of section 48(a)(3) (defining 
energy property) is amended by striking ``or'' at the end of clause 
(ii), by adding ``or'' at the end of clause (iii), and by inserting 
after clause (iii) the 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, 2001, 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:
            ``(13) 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, 2002.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2001.

SEC. 114. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST REGULAR 
              AND MINIMUM TAXES.

    (a) In General.--Paragraph (1) of section 26(a) is amended by 
striking ``and 25B'' and inserting ``25B, 25C, 25D, and 25E''.
    (b) Conforming Amendments.--
            (1) Section 24(b)(3)(B) is amended by striking ``and 25B'' 
        and inserting ``, 25B, 25C, 25D, and 25E''.
            (2) Section 25(e)(1)(C) is amended by inserting ``25C, 25D, 
        and 25E'' after ``25B,''.
            (3) Section 25B(g)(2) is amended by striking ``section 23'' 
        and inserting ``sections 23, 25C, 25D, and 25E''.
            (4) Section 904(h) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
            (5) Section 1400C(d) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 115. PHASEOUT 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.--Clause (ii) of section 4041(a)(1)(C) is 
        amended by striking subclauses (I), (II), and (III) and 
        inserting the following new subclauses:
                                    ``(I) 3.3 cents per gallon after 
                                September 30, 2001, and before January 
                                1, 2005,
                                    ``(II) 2.3 cents per gallon after 
                                December 31, 2004, and before January 
                                1, 2007,
                                    ``(III) 1.3 cents per gallon after 
                                December 31, 2006, and before January 
                                1, 2009,
                                    ``(IV) 0.3 cent per gallon after 
                                December 31, 2008, and before January 
                                1, 2010, and
                                    ``(V) 0 after December 31, 2009.''.
            (2) Conforming amendments.--
                    (A) Subsection (d) of section 4041 is amended by 
                redesignating paragraph (3) as paragraph (4) and by 
                inserting after paragraph (2) the following new 
                paragraph:
            ``(3) Diesel fuel used in trains.--In the case of any sale 
        for use (or use) after September 30, 2010, there is hereby 
        imposed a tax of 0.1 cent per gallon on any liquid other than 
        gasoline (as defined in 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.''
                    (B) Subsection (f) of section 4082 is amended by 
                striking ``section 4041(a)(1)'' and inserting 
                ``subsections (a)(1) and (d)(3) of section 4041''.
                    (C) Subparagraph (B) of section 6421(f)(3) is 
                amended to read as follows:
                    ``(B) so much of the rate specified in section 
                4081(a)(2)(A) as does not exceed the rate applicable 
                under section 4041(a)(1)(C)(ii).''.
                    (D) Subparagraph (B) of section 6427(l)(3) is 
                amended to read as follows:
                    ``(B) so much of the rate specified in section 
                4081(a)(2)(A) as does not exceed the rate applicable 
                under section 4041(a)(1)(C)(ii).''.
    (b) Fuel Used on Inland Waterways.--Subparagraph (C) of section 
4042(b)(2) is amended to read as follows:
                    ``(C) The deficit reduction rate is--
                            ``(i) 3.3 cents per gallon after September 
                        30, 2001, and before January 1, 2005,
                            ``(ii) 2.3 cents per gallon after December 
                        31, 2004, and before January 1, 2007,
                            ``(iii) 1.3 cents per gallon after December 
                        31, 2006, and before January 1, 2009,
                            ``(iv) 0.3 cent per gallon after December 
                        31, 2008, and before January 1, 2010, and
                            ``(v) 0 after December 31, 2009.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2001.

SEC. 116. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN MIXTURES OF DIESEL 
              FUEL.

    (a) In General.--Clause (iii) of section 4081(a)(2)(A) is amended 
by inserting before the period ``(19.7 cents per gallon in the case of 
a diesel-water fuel emulsion at least 14 percent of which is water)''.
    (b) Refunds for Tax-Paid Purchases.--
            (1) In general.--Section 6427 is amended by redesignating 
        subsections (m) through (p) as 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)(A) which is sold or used in 
        such person's trade or business, the Secretary shall pay 
        (without interest) to such person an amount equal to the excess 
        of the regular tax rate over the incentive tax rate with 
        respect to such fuel.
            ``(2) Definitions.--For purposes of paragraph (1)--
                    ``(A) Regular tax rate.--The term `regular tax 
                rate' means the aggregate rate of tax imposed by 
                section 4081 determined without regard to the 
                parenthetical in section 4081(a)(2)(A).
                    ``(B) Incentive tax rate.--The term `incentive tax 
                rate' means the aggregate rate of tax imposed by 
                section 4081 determined with regard to the 
                parenthetical in section 4081(a)(2)(A).''
    (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2001.

SEC. 117. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    (a) Allowance of Qualifying Advanced Clean Coal Technology Facility 
Credit.--Section 46 (relating to amount of credit) is amended by 
striking ``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``, and'', and by adding at the 
end the following:
            ``(4) the qualifying advanced clean coal technology 
        facility credit.''.
    (b) Amount of Qualifying Advanced Clean Coal Technology Facility 
Credit.--Subpart E of part IV of subchapter A of chapter 1 (relating to 
rules for computing investment credit) is amended by inserting after 
section 48 the following:

``SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY FACILITY CREDIT.

    ``(a) In General.--For purposes of section 46, the qualifying 
advanced clean coal technology facility credit for any taxable year is 
an amount equal to 10 percent of the qualified investment in a 
qualifying advanced clean coal technology facility for such taxable 
year.
    ``(b) Qualifying Advanced Clean Coal Technology Facility.--
            ``(1) In general.--For purposes of subsection (a), the term 
        `qualifying advanced clean coal technology facility' means a 
        facility of the taxpayer which--
                    ``(A)(i)(I) original use of which commences with 
                the taxpayer, or
                    ``(II) is a retrofitted or repowered conventional 
                technology facility, the retrofitting or repowering of 
                which is completed by the taxpayer (but only with 
                respect to that portion of the basis which is properly 
                attributable to such retrofitting or repowering), or
                    ``(ii) is acquired through purchase (as defined by 
                section 179(d)(2)),
                    ``(B) is depreciable under section 167,
                    ``(C) has a useful life of not less than 4 years,
                    ``(D) is located in the United States, and
                    ``(E) uses qualifying advanced clean coal 
                technology.
            ``(2) Special rule for sale-leasebacks.--For purposes of 
        subparagraph (A) of paragraph (1), in the case of a facility 
        which--
                    ``(A) is originally placed in service by a person, 
                and
                    ``(B) is sold and leased back by such person, or is 
                leased to such person, within 3 months after the date 
                such facility was originally placed in service, for a 
                period of not less than 12 years,
        such facility shall be treated as originally placed in service 
        not earlier than the date on which such property is used under 
        the leaseback (or lease) referred to in subparagraph (B). The 
        preceding sentence shall not apply to any property if the 
        lessee and lessor of such property make an election under this 
        sentence. Such an election, once made, may be revoked only with 
        the consent of the Secretary.
    ``(c) Qualifying Advanced Clean Coal Technology.--For purposes of 
this section--
            ``(1) In general.--The term `qualifying advanced clean coal 
        technology' means, with respect to clean coal technology--
                    ``(A) which has--
                            ``(i) multiple applications, with a 
                        combined capacity of not more than 5,000 
                        megawatts (4,000 megawatts before 2009), of 
                        advanced pulverized coal or atmospheric 
                        fluidized bed combustion technology--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2000 and 
                                2012, and
                                    ``(III) having a design net heat 
                                rate of not more than 9,500 Btu per 
                                kilowatt hour when the design coal has 
                                a heat content of more than 9,000 Btu 
                                per pound, or a design net heat rate of 
                                not more than 9,900 Btu per kilowatt 
                                hour when the design coal has a heat 
                                content of 9,000 Btu per pound or less,
                            ``(ii) multiple applications, with a 
                        combined capacity of not more than 1,000 
                        megawatts (500 megawatts before 2009 and 750 
                        megawatts before 2013), of pressurized 
                        fluidized bed combustion technology--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2000 and 
                                2016, and
                                    ``(III) having a design net heat 
                                rate of not more than 8,400 Btu per 
                                kilowatt hour when the design coal has 
                                a heat content of more than 9,000 Btu 
                                per pound, or a design net heat rate of 
                                not more than 9,900 Btu's per kilowatt 
                                hour when the design coal has a heat 
                                content of 9,000 Btu per pound or less, 
                                and
                            ``(iii) multiple applications, with a 
                        combined capacity of not more than 2,000 
                        megawatts (1,000 megawatts before 2009 and 
                        1,500 megawatts before 2013), of integrated 
                        gasification combined cycle technology, with or 
                        without fuel or chemical co-production--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2000 and 
                                2016,
                                    ``(III) having a design net heat 
                                rate of not more than 8,550 Btu per 
                                kilowatt hour when the design coal 
has a heat content of more than 9,000 Btu per pound, or a design net 
heat rate of not more than 9,900 Btu per kilowatt hour when the design 
coal has a heat content of 9,000 Btu per pound or less, and
                                    ``(IV) having a net thermal 
                                efficiency on any fuel or chemical co-
                                production of not less than 39 percent 
                                (higher heating value), or
                            ``(iv) multiple applications, with a 
                        combined capacity of not more than 2,000 
                        megawatts (1,000 megawatts before 2009 and 
                        1,500 megawatts before 2013) of technology for 
                        the production of electricity--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2000 and 
                                2016, and
                                    ``(III) having a carbon emission 
                                rate which is not more than 85 percent 
                                of conventional technology, and
                    ``(B) which reduces the discharge into the 
                atmosphere of 1 or more of the following pollutants to 
                not more than--
                            ``(i) 5 percent of the potential combustion 
                        concentration sulfur dioxide emissions for a 
                        coal with a potential combustion concentration 
                        sulfur emission of 1.2 lb/million btu of heat 
                        input or greater,
                            ``(ii) 15 percent of the potential 
                        combustion concentration sulfur dioxide 
                        emissions for a coal with a potential 
                        combustion concentration sulfur emission of 
                        less than 1.2 lb/million btu of heat input,
                            ``(iii) nitrogen oxide emissions of 0.1 lb 
                        per million btu of heat input from other than 
                        cyclone-fired boilers,
                            ``(iv) 15 percent of the uncontrolled 
                        nitrogen oxide emissions from cyclone-fired 
                        boilers,
                            ``(v) particulate emissions of 0.02 lb per 
                        million btu of heat input, and
                            ``(vi) the emission levels specified in the 
                        new source performance standards of the Clean 
                        Air Act (42 U.S.C. 7411) in effect at the time 
                        of retrofitting, repowering, or replacement of 
                        the qualifying clean coal technology unit for 
                        the category of source if such level is lower 
                        than the levels specified in clause (i), (ii), 
                        (iii), (iv), or (v).
            ``(2) Exceptions.--Such term shall not include any projects 
        receiving or scheduled to receive funding under the Clean Coal 
        Technology Program, or the Power Plant Improvement administered 
        by the Secretary of the Department of Energy.
    ``(d) Clean Coal Technology.--For purposes of this section, the 
term `clean coal technology' means advanced technology which uses coal 
to produce 75 percent or more of its thermal output as electricity 
including advanced pulverized coal or atmospheric fluidized bed 
combustion, pressurized fluidized bed combustion, integrated 
gasification combined cycle with or without fuel or chemical co-
production, and any other technology for the production of electricity 
which exceeds the performance of conventional technology.
    ``(e) Conventional Technology.--The term `conventional technology' 
means--
            ``(1) coal-fired combustion technology with a design net 
        heat rate of not less than 9,500 Btu per kilowatt hour (HHV) 
        and a carbon equivalents emission rate of not more than 0.54 
        pounds of carbon per kilowatt hour when the design coal has a 
        heat content of more than 9,000 Btu per pound,
            ``(2) coal-fired combustion technology with a design net 
        heat rate of not less than 10,500 Btu per kilowatt hour (HHV) 
        and a carbon equivalents emission rate of not more than 0.60 
        pounds of carbon per kilowatt hour when the design coal has a 
        heat content of 9,000 Btu per pound or less, or
            ``(3) natural gas-fired combustion technology with a design 
        net heat rate of not less than 7,500 Btu per kilowatt hour 
        (HHV) and a carbon equivalents emission rate of not more than 
        0.24 pounds of carbon per kilowatt hour.
    ``(f) Design Net Heat Rate.--The design net heat rate shall be 
based on the design annual heat input to and the design annual net 
electrical output from the qualifying advanced clean coal technology 
(determined without regard to such technology's co-generation of 
steam).
    ``(g) Selection Criteria.--Selection criteria for qualifying 
advanced clean coal technology facilities--
            ``(1) shall be established by the Secretary of Energy as 
        part of a competitive solicitation,
            ``(2) shall include primary criteria of minimum design net 
        heat rate, maximum design thermal efficiency, environmental 
        performance, and lowest cost to the government, and
            ``(3) shall include supplemental criteria as determined 
        appropriate by the Secretary of Energy.
    ``(h) Qualified Investment.--For purposes of subsection (a), the 
term `qualified investment' means, with respect to any taxable year, 
the basis of a qualifying advanced clean coal technology facility 
placed in service by the taxpayer during such taxable year.
    ``(i) Qualified Progress Expenditures.--
            ``(1) Increase in qualified investment.--In the case of a 
        taxpayer who has made an election under paragraph (5), the 
        amount of the qualified investment of such taxpayer for the 
        taxable year (determined under subsection (c) without regard to 
        this section) shall be increased by an amount equal to the 
        aggregate of each qualified progress expenditure for the 
        taxable year with respect to progress expenditure property.
            ``(2) Progress expenditure property defined.--For purposes 
        of this subsection, the term `progress expenditure property' 
        means any property being constructed by or for the taxpayer and 
        which it is reasonable to believe will qualify as a qualifying 
        advanced clean coal technology facility which is being 
        constructed by or for the taxpayer when it is placed in 
        service.
            ``(3) Qualified progress expenditures defined.--For 
        purposes of this subsection--
                    ``(A) Self-constructed property.--In the case of 
                any self-constructed property, the term `qualified 
                progress expenditures' means the amount which, for 
                purposes of this subpart, is properly chargeable 
                (during such taxable year) to capital account with 
                respect to such property.
                    ``(B) Nonself-constructed property.--In the case of 
                nonself-constructed property, the term `qualified 
                progress expenditures' means the amount paid during the 
                taxable year to another person for the construction of 
                such property.
            ``(4) Other definitions.--For purposes of this subsection--
                    ``(A) Self-constructed property.--The term `self-
                constructed property' means property for which it is 
                reasonable to believe that more than half of the 
                construction expenditures will be made directly by the 
                taxpayer.
                    ``(B) Nonself-constructed property.--The term 
                `nonself-constructed property' means property which is 
                not self-constructed property.
                    ``(C) Construction, etc.--The term `construction' 
                includes reconstruction and erection, and the term 
                `constructed' includes reconstructed and erected.
                    ``(D) Only construction of qualifying advanced 
                clean coal technology facility to be taken into 
                account.--Construction shall be taken into account only 
                if, for purposes of this subpart, expenditures therefor 
                are properly chargeable to capital account with respect 
                to the property.
            ``(5) Election.--An election under this subsection may be 
        made at such time and in such manner as the Secretary may by 
        regulations prescribe. Such an election shall apply to the 
        taxable year for which made and to all subsequent taxable 
        years. Such an election, once made, may not be revoked except 
        with the consent of the Secretary.
    ``(j) Coordination With Other Credits.--This section shall not 
apply to any property with respect to which the rehabilitation credit 
under section 47 or the energy credit under section 48 is allowed 
unless the taxpayer elects to waive the application of such credit to 
such property.
    ``(k) Termination.--This section shall not apply with respect to 
any qualified investment made after December 31, 2011.
    ``(l) National Limitation.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, the term `qualifying advanced clean coal 
        technology facility' shall include such a facility only to the 
        extent that such facility is allocated a portion of the 
        national megawatt limitation under this subsection.
            ``(2) National megawatt limitation.--The national megawatt 
        limitation under this subsection is 7,500 megawatts.
            ``(3) Allocation of limitation.--The national megawatt 
        limitation shall be allocated by the Secretary under rules 
        prescribed by the Secretary. Not later than 6 months after the 
        date of enactment of this subsection, the Secretary shall 
        prescribe such regulations as may be necessary or appropriate 
        to carry out the purposes of this section, including 
        regulations--
                    ``(A) to limit which facility qualifies as 
                `qualified advanced clean coal technology' in 
                subsection (c) to particular facilities, a portion of 
                particular facilities, or a portion of the production 
                from particular facilities, so that when all such 
                facilities (or portions thereof) are placed in service 
                over the ten year period in section (k), the 
                combination of facilities approved for tax credits 
                (and/or portions of facilities approved for tax 
credits) will not exceed a combined capacity of 7,500 megawatts;
                    ``(B) to provide a certification process in 
                consultation with the Secretary of Energy under 
                subsection (g) that will approve and allocate the 7,500 
                megawatts of available tax credits authority--
                            ``(i) to encourage that facilities with the 
                        highest thermal efficiencies and environmental 
                        performance be placed in service as soon as 
                        possible;
                            ``(ii) to allocate credits to taxpayers 
                        that have a definite and credible plan for 
                        placing into commercial operation a qualifying 
                        advanced clean coal technology facility, 
                        including--
                                    ``(I) a site,
                                    ``(II) contractual commitments for 
                                procurement and construction,
                                    ``(III) filings for all necessary 
                                preconstruction approvals,
                                    ``(IV) a demonstrated record of 
                                having successfully completed 
                                comparable projects on a timely basis, 
                                and
                                    ``(V) such other factors that the 
                                Secretary shall determine are 
                                appropriate;
                            ``(iii) to allocate credits to a portion of 
                        a facility (or a portion of the production from 
                        a facility) if the Secretary determines that 
                        such an allocation should maximize the amount 
                        of efficient production encouraged with the 
                        available tax credits;
                    ``(C) to set progress requirements and conditional 
                approvals so that credits for approved projects that 
                become unlikely to meet the necessary conditions that 
                can be reallocated by the Secretary to other projects;
                    ``(D) to reallocate credits that are not allocated 
                to 1 technology described in clauses (i) through (iv) 
                of subsection (c)(1)(A) because an insufficient number 
                of qualifying facilities requested credits for one 
                technology, to another technology described in another 
                subparagraph of subsection (c) in order to maximize the 
                amount of energy efficient production encouraged with 
                the available tax credits; and
                    ``(E) to provide taxpayers with opportunities to 
                correct administrative errors and omissions with 
                respect to allocations and recordkeeping within a 
                reasonable period after their discovery, taking into 
                account the availability of regulations and other 
                administrative guidance from the Secretary.''.
    (c) Recapture.--Section 50(a) (relating to other special rules) is 
amended by adding at the end the following:
            ``(6) Special rules relating to qualifying advanced clean 
        coal technology facility.--For purposes of applying this 
        subsection in the case of any credit allowable by reason of 
        section 48A, the following shall apply:
                    ``(A) General rule.--In lieu of the amount of the 
                increase in tax under paragraph (1), the increase in 
                tax shall be an amount equal to the investment tax 
                credit allowed under section 38 for all prior taxable 
                years with respect to a qualifying advanced clean coal 
                technology facility (as defined by section 48A(b)(1)) 
                multiplied by a fraction whose numerator is the number 
                of years remaining to fully depreciate under this title 
                the qualifying advanced clean coal technology facility 
                disposed of, and whose denominator is the total number 
                of years over which such facility would otherwise have 
                been subject to depreciation. For purposes of the 
                preceding sentence, the year of disposition of the 
                qualifying advanced clean coal technology facility 
                property shall be treated as a year of remaining 
                depreciation.
                    ``(B) Property ceases to qualify for progress 
                expenditures.--Rules similar to the rules of paragraph 
                (2) shall apply in the case of qualified progress 
                expenditures for a qualifying advanced clean coal 
                technology facility under section 48A, except that the 
                amount of the increase in tax under subparagraph (A) of 
                this paragraph shall be substituted in lieu of the 
                amount described in such paragraph (2).
                    ``(C) Application of paragraph.--This paragraph 
                shall be applied separately with respect to the credit 
                allowed under section 38 regarding a qualifying 
                advanced clean coal technology facility.''.
    (d) Transitional Rule.--Section 39(d) (relating to transitional 
rules) is amended by adding at the end the following:
            ``(14) No carryback of section 48a credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the qualifying advanced clean 
        coal technology facility credit determined under section 48A 
        may be carried back to a taxable year ending before January 1, 
        2002.''.
    (e) Technical Amendments.--
            (1) Section 49(a)(1)(C) is amended by striking ``and'' at 
        the end of clause (ii), by striking the period at the end of 
        clause (iii) and inserting ``, and'', and by adding at the end 
        the following:
                            ``(iv) the portion of the basis of any 
                        qualifying advanced clean coal technology 
                        facility attributable to any qualified 
                        investment (as defined by section 48A(c)).''
            (2) Section 50(a)(4) is amended by striking ``and (2)'' and 
        inserting ``, (2), and (6)''.
            (3) Section 50(c) is amended by adding at the end the 
        following new paragraph:
            ``(6) Special rule for qualifying advanced clean coal 
        technology facilities.--Paragraphs (1) and (2) shall not apply 
        to any property with respect to the credit determined under 
        section 48A.''
            (4) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 48 the following:

                              ``Sec. 48A. Qualifying advanced clean 
                                        coal technology facility 
                                        credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to periods after December 31, 2001, under rules similar to the 
rules of section 48(m) of the Internal Revenue Code of 1986 (as in 
effect on the day before the date of enactment of the Revenue 
Reconciliation Act of 1990).

SEC. 118. CREDIT FOR PRODUCTION FROM QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    (a) Credit for Production From Qualifying Advanced Clean Coal 
Technology.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding after 
section 45J the following:

``SEC. 45K. CREDIT FOR PRODUCTION FROM QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    ``(a) General Rule.--For purposes of section 38, the qualifying 
advanced clean coal technology production credit of any taxpayer for 
any taxable year is equal to--
            ``(1) the applicable amount of advanced clean coal 
        technology production credit, multiplied by
            ``(2) the sum of--
                    ``(A) the kilowatt hours of electricity, plus
                    ``(B) each 3,413 Btu of fuels or chemicals,
        produced by the taxpayer during such taxable year at a 
        qualifying advanced clean coal technology facility during the 
10-year period beginning on the date the facility was originally placed 
in service.
    ``(b) Applicable Amount.--For purposes of this section, the 
applicable amount of advanced clean coal technology production credit 
with respect to production from a qualifying advanced clean coal 
technology facility shall be determined as follows:
            ``(1) Where the design coal has a heat content of more than 
        9,000 Btu per pound:
                    ``(A) In the case of a facility originally placed 
                in service before 2009, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 8,400.........         $.0060                $.0038
More than 8,400 but not more         $.0025                $.0010
 than 8,550.
More than 8,550 but not more         $.0010                $.0010.
 than 8,750.
------------------------------------------------------------------------

                    ``(B) In the case of a facility originally placed 
                in service after 2008 and before 2013, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 7,770.........         $.0105                $.0090
More than 7,770 but not more         $.0085                $.0068
 than 8,125.
More than 8,125 but not more         $.0075                $.0055.
 than 8,350.
------------------------------------------------------------------------

                    ``(C) In the case of a facility originally placed 
                in service after 2012 and before 2017, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 7,380.........         $.0140                 $.01
More than 7,380 but not more         $.0120                $.0090.
 than 7,720.
------------------------------------------------------------------------

            ``(2) Where the design coal has a heat content of not more 
        than 9,000 Btu per pound:
                    ``(A) In the case of a facility originally placed 
                in service before 2009, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 8,500.........         $.0060                $.0038
More than 8,500 but not more         $.0025                $.0010
 than 8,650.
More than 8,650 but not more         $.0010                $.0010.
 than 8,750.
------------------------------------------------------------------------

                    ``(B) In the case of a facility originally placed 
                in service after 2008 and before 2013, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 8,000.........         $.0105                 $.009
More than 8,000 but not more         $.0085                $.0068
 than 8,250.
More than 8,250 but not more         $.0075                $.0055.
 than 8,400.
------------------------------------------------------------------------

                    ``(C) In the case of a facility originally placed 
                in service after 2012 and before 2017, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 7,800.........         $.0140                $.0115
More than 7,800 but not more         $.0120                $.0090.
 than 7,950.
------------------------------------------------------------------------

            ``(3) Where the clean coal technology facility is producing 
        fuel or chemicals:
                    ``(A) In the case of a facility originally placed 
                in service before 2009, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 thermal efficiency (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not less than 40.6 percent..         $.0060                $.0038
Less than 40.6 but not less          $.0025                $.0010
 than 40 percent.
Less than 40 but not less            $.0010                $.0010.
 than 39 percent.
------------------------------------------------------------------------

                    ``(B) In the case of a facility originally placed 
                in service after 2008 and before 2013, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 thermal efficiency (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not less than 43.9 percent..         $.0105                 $.009
Less than 43.9 but not less          $.0085                $.0068
 than 42 percent.
Less than 42 but not less            $.0075                $.0055.
 than 40.9 percent.
------------------------------------------------------------------------

                    ``(C) In the case of a facility originally placed 
                in service after 2012 and before 2017, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 thermal efficiency (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not less than 44.2 percent..         $.0140                $.0115
Less than 44.2 but not less          $.0120                $.0090.
 than 43.6 percent.
------------------------------------------------------------------------

    ``(c) Inflation Adjustment Factor.--For calendar years after 2001, 
each amount in paragraphs (1), (2), and (3) shall be adjusted by 
multiplying such amount by the inflation adjustment factor for the 
calendar year in which the amount is applied. If any amount as 
increased under the preceding sentence is not a multiple of 0.01 cent, 
such amount shall be rounded to the nearest multiple of 0.01 cent.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) In general.--Any term used in this section which is 
        also used in section 48A shall have the meaning given such term 
        in section 48A.
            ``(2) Applicable rules.--The rules of paragraphs (3), (4), 
        and (5) of section 45 shall apply.
            ``(3) Inflation adjustment factor.--The term `inflation 
        adjustment factor' means, with respect to a calendar year, a 
        fraction the numerator of which is the GDP implicit price 
        deflator for the preceding calendar year and the denominator of 
        which is the GDP implicit price deflator for the calendar year 
        2001.
            ``(4) GDP implicit price deflator.--The term `GDP implicit 
        price deflator' means the most recent revision of the implicit 
        price deflator for the gross domestic product as computed by 
        the Department of Commerce before March 15 of the calendar 
        year.''.
    (b) Credit Treated as Business Credit.--Section 38(b) is amended by 
striking ``plus'' at the end of paragraph (18), by striking the period 
at the end of paragraph (19) and inserting ``, plus'', and by adding at 
the end the following:
            ``(20) the qualifying advanced clean coal technology 
        production credit determined under section 45K(a).''.
    (c) Transitional Rule.--Section 39(d) (relating to transitional 
rules) is amended by adding after paragraph (14) the following:
            ``(15) No carryback of section 45k credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the qualifying advanced clean 
        coal technology production credit determined under section 45K 
        may be carried back to a taxable year ending before the date of 
        enactment of section 45K.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following:

                              ``Sec. 45K. Credit for production from 
                                        qualifying advanced clean coal 
                                        technology.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to production after the date of enactment of this Act.

                         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 clause (ii) of section 168(e)(3)(C)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 10-YEAR PROPERTY.

    (a) In General.--Subparagraph (D) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (i), by striking the period at the end of clause (ii) 
and by inserting ``, and'', and by adding at the end the following new 
clause:
                            ``(iii) any natural gas distribution 
                        line.''
    (b) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by inserting after the item relating to 
subparagraph (D)(ii) the following:

``(D)(iii).....................................................   20''.
    (c) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``or 
in clause (iii) of section 168(e)(3)(D)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 203. PETROLEUM REFINING PROPERTY TREATED AS 7-YEAR PROPERTY.

    (a) In General.--Subparagraph (C) of section 168(e)(3) (relating to 
classification of certain property), as amended by section 201, is 
amended by striking ``and'' at the end of clause (ii), by redesignating 
clause (iii) as clause (iv), and by inserting after clause (ii) the 
following new clause:
                            ``(iii) any property used for the 
                        distillation, fractionation, and catalytic 
                        cracking of crude petroleum into gasoline and 
                        its other components, and''.
    (b) Alternative System.--The table contained in section 
168(g)(3)(B), as amended by section 201, is amended by inserting after 
the item relating to subparagraph (C)(ii) the following:

``(C)(iii).....................................................   10''.
    (c) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1), as amended by section 201, is amended by inserting ``or 
(iii)'' after ``clause (ii)''.
    (d) Effective Date.--The amendment made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act.

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

    (a) In General.--Section 179(b) (relating to election to expense 
certain depreciable business assets) is amended by adding at the end 
the following new paragraph:
            ``(5) Limitation for small business refiners.--
                    ``(A) In general.--In the case of a small business 
                refiner electing to expense qualified costs, in lieu of 
                the dollar limitations in paragraph (1), the limitation 
                on the aggregate costs which may be taken into account 
                under subsection (a) for any taxable year shall not 
                exceed 75 percent of the qualified costs.
                    ``(B) Qualified costs.--For purposes of this 
                paragraph, the term `qualified costs' means costs paid 
                or incurred by a small business refiner for the purpose 
                of complying with the Highway Diesel Fuel Sulfur 
                Control Requirements of the Environmental Protection 
                Agency.
                    ``(C) Small business refiner.--For purposes of this 
                paragraph, the term `small business refiner' means, 
                with respect to any taxable year, a refiner which, 
                within the refining operations of the business, employs 
                not more than 1,500 employees on business days during 
                such taxable year performing services in the refining 
                operations of such businesses and has an average total 
                capacity of 155,000 barrels per day or less.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to expenses paid or incurred after the date of the enactment of this 
Act.

SEC. 205. ENVIRONMENTAL TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits) is amended by adding at the end 
the following new section:

``SEC. 45I. ENVIRONMENTAL TAX CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
environmental tax credit determined under this section with respect to 
any small business refiner for any taxable year is an amount equal to 5 
cents for every gallon of 15 parts per million or less sulfur diesel 
produced at a facility by such small business refiner.
    ``(b) Maximum Credit.--For any small business refiner, the 
aggregate amount allowable as a credit under subsection (a) for any 
taxable year with respect to any facility shall not exceed 25 percent 
of the qualified capital costs incurred by such small business refiner 
with respect to such facility not taken into account in determining the 
credit under subsection (a) for any preceding taxable year.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Small business refiner.--The term `small business 
        refiner' means, with respect to any taxable year, a refiner 
        which, within the refining operations of the business, employs 
        not more than 1,500 employees on business days during such 
        taxable year performing services in the refining operations of 
        such businesses and has an average total capacity of 155,000 
        barrels per day or less.
            ``(2) Qualified capital costs.--The term `qualified capital 
        costs' means, with respect to any 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 15 parts 
        per million or less 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 
        the day after the date of the enactment of this section and 
        ending with the date which is one year after the date on which 
        the taxpayer must comply with the applicable EPA regulations 
        with respect to such facility.
    ``(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 
        environmental tax 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) Recapture.--Notwithstanding subsection (f), failure 
        to obtain certification under paragraph (1) constitutes a 
        recapture event under subsection (f) with an applicable 
        percentage of 100 percent.
    ``(f) Recapture of Environmental Tax Credit.--
            ``(1) In general.--Except as provided in subsection (e), 
        if, as of the close of any taxable year, there is a recapture 
        event with respect to any facility of the small business 
        refiner, then the tax of such refiner under this chapter for 
        such taxable year shall be increased by an amount equal to the 
        product of--
                    ``(A) the applicable recapture percentage, and
                    ``(B) the aggregate decrease in the credits allowed 
                under section 38 for all prior taxable years which 
                would have resulted if the qualified capital costs of 
                the taxpayer described in subsection (c)(2) with 
                respect to such facility had been zero.
            ``(2) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

  
                                                         The applicable
  
                                                              recapture
            ``If the recapture event occurs in:
                                                         percentage is:
                Year 1...............................          100     
                Year 2...............................           80     
                Year 3...............................           60     
                Year 4...............................           40     
                Year 5...............................           20     
                Years 6 and thereafter...............            0.    
                    ``(B) Years.--For purposes of subparagraph (A), 
                year 1 shall begin on the first day of the taxable year 
                in which the qualified capital costs with respect to a 
                facility described in subsection (c)(2) are paid or 
                incurred by the taxpayer.
            ``(3) Recapture event defined.--For purposes of this 
        subsection, the term `recapture event' means--
                    ``(A) Failure to comply.--The failure by the small 
                business refiner to meet the applicable EPA regulations 
                within the applicable period with respect to the 
                facility.
                    ``(B) Cessation of operation.--The cessation of the 
                operation of the facility as a facility which produces 
                15 parts per million or less sulfur diesel after the 
                applicable period.
                    ``(C) Change in ownership.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the disposition of a small 
                        business refiner's interest in the facility 
                        with respect to which the credit described in 
                        subsection (a) was allowable.
                            ``(ii) Agreement to assume recapture 
                        liability.--Clause (i) shall not apply if the 
                        person acquiring such interest in the facility 
                        agrees in writing to assume the recapture 
                        liability of the person disposing of such 
                        interest in effect immediately before such 
                        disposition. In the event of such an 
                        assumption, the person acquiring the interest 
                        in the facility shall be treated as the 
                        taxpayer for purposes of assessing any 
                        recapture liability (computed as if there had 
                        been no change in ownership).
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) only with 
                respect to credits allowed by reason of this section 
                which were used to reduce tax liability. In the case of 
                credits not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 shall be 
                appropriately adjusted.
                    ``(B) No credits against tax.--Any increase in tax 
                under this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under this chapter or for purposes 
                of section 55.
                    ``(C) No recapture by reason of casualty loss.--The 
                increase in tax under this subsection shall not apply 
                to a cessation of operation of the facility by reason 
                of a casualty loss to the extent such loss is restored 
                by reconstruction or replacement within a reasonable 
                period established by the Secretary.
    ``(g) 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 a single employer.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to general business credit) is amended by striking 
``plus'' at the end of paragraph (16), by striking the period at the 
end of paragraph (17) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(18) in the case of a small business refiner, the 
        environmental tax credit determined under section 45I(a).''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding after 
subsection (d) the following new subsection:
    ``(e) Environmental Tax Credit.--No deduction shall be allowed for 
that portion of the expenses otherwise allowable as a deduction for the 
taxable year which is equal to the amount of the credit determined for 
the taxable year under section 45I(a).''.
    (d) Basis Adjustment.--Section 1016(a) (relating to adjustments to 
basis) is amended by striking ``and'' at the end of paragraph (33), by 
striking the period at the end of paragraph (34) and inserting ``, 
and'', and by adding at the end the following new paragraph:
            ``(35) in the case of a facility with respect to which a 
        credit was allowed under section 45I, to the extent provided in 
        section 45I(d).''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

                              ``Sec. 45I. Environmental tax credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to expenses paid or incurred after the date of the enactment of 
this Act.

SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
              DEDUCTION.

    (a) In General.--Paragraph (4) of section 613A(d) (relating to 
certain refiners excluded) is amended to read as follows:
            ``(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, 2001.

SEC. 207. TAX-EXEMPT BOND FINANCING OF CERTAIN ELECTRIC FACILITIES.

    (a) In General.--Subpart A of part IV of subchapter B of chapter 1 
(relating to tax exemption requirements for State and local bonds) is 
amended by inserting after section 141 the following new section:

``SEC. 141A. TREATMENT OF GOVERNMENT-OWNED ELECTRIC OUTPUT FACILITIES.

    ``(a) Exceptions From Private Business Use Limitations Where Open 
Access Requirements Met.--
            ``(1) General rule.--For purposes of this part, the term 
        `private business use' shall not include--
                    ``(A) any permitted open access activity by a 
                governmental unit with respect to an electric output 
                facility owned by such unit, or
                    ``(B) any permitted sale of electricity by a 
                governmental unit which is generated at an existing 
                generation facility owned by such unit.
            ``(2) Permitted open access activity.--For purposes of this 
        section--
                    ``(A) In general.--The term `permitted open access 
                activity' means any activity meeting the open access 
                requirements of any of the following clauses with 
                respect to such electric output facility:
                            ``(i) Transmission and ancillary 
                        facility.--In the case of a transmission 
                        facility or a facility providing ancillary 
                        services, the provision of transmission service 
                        and ancillary services meets the open access 
                        requirements of this clause only if such 
                        services are provided on a nondiscriminatory 
                        open access basis--
                                    ``(I) pursuant to an open access 
                                transmission tariff filed with and 
                                approved by FERC, including an 
                                acceptable reciprocity tariff, or
                                    ``(II) under a regional 
                                transmission organization agreement 
                                approved by FERC.
                            ``(ii) Distribution facilities.--In the 
                        case of a distribution facility, the delivery 
                        of electric energy meets the open access 
                        requirements of this clause only if such 
                        delivery is made on a nondiscriminatory open 
                        access basis.
                            ``(iii) Generation facilities.--In the case 
                        of a generation facility, the delivery of 
                        electric energy generated by such facility 
                        meets the open access requirements of this 
                        clause only if--
                                    ``(I) such facility is directly 
                                connected to distribution facilities 
                                owned by the governmental unit which 
                                owns the generation facility, and
                                    ``(II) such distribution facilities 
                                meet the open access requirements of 
                                clause (ii).
                    ``(B) Special rules.--
                            ``(i) Voluntarily filed tariffs.--
                        Subparagraph (A)(i)(I) shall apply in the case 
                        of a voluntarily filed tariff only if the 
                        governmental unit files a report with FERC 
                        within 90 days after the date of the enactment 
                        of this section relating to whether or not such 
                        governmental unit will join a regional 
                        transmission organization.
                            ``(ii) Control of transmission facilities 
                        by regional transmission organization.--A 
                        governmental unit shall be treated as meeting 
                        the open access requirements of subparagraph 
                        (A)(i) if a regional transmission organization 
                        controls the transmission facilities.
                            ``(iii) ERCOT utility.--References to FERC 
                        in subparagraph (A) shall be treated as 
                        references to the Public Utility 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))).
            ``(3) Permitted sale.--For purposes of this subsection--
                    ``(A) In general.--The term `permitted sale' 
                means--
                            ``(i) any sale of electricity to an on-
                        system purchaser if the seller meets the open 
                        access requirements of paragraph (2) with 
                        respect to all distribution and transmission 
                        facilities (if any) owned by such seller, and
                            ``(ii) subject to subparagraphs (B) and 
                        (C), any sale of electricity to a wholesale 
                        native load purchaser, and any load loss sale, 
                        if--
                                    ``(I) the seller meets the open 
                                access requirements of paragraph (2) 
                                with respect to all transmission 
                                facilities (if any) owned by such 
                                seller, or
                                    ``(II) in any case in which the 
                                seller does not own any transmission 
                                facilities, all persons providing 
                                transmission services to the seller's 
                                wholesale native load purchasers meet 
                                the open access requirements of 
                                paragraph (2) with respect to all 
                                transmission facilities owned by such 
                                persons.
                    ``(B) Limitation on sales to wholesale native load 
                purchasers.--A sale to a wholesale native load 
                purchaser shall be treated as a permitted sale only to 
                the extent that--
                            ``(i) such purchaser resells the 
                        electricity directly at retail to persons 
                        within the purchaser's distribution area, or
                            ``(ii) such electricity is resold by such 
                        purchaser through one or more wholesale 
                        purchasers (each of whom as of June 30, 2000, 
                        was a party to a requirements contract or a 
                        firm power contract described in paragraph 
                        (5)(B)(ii)) to retail purchasers in the 
                        ultimate wholesale purchaser's distribution 
                        area.
                    ``(C) Load loss sales.--
                            ``(i) In general.--The term `load loss 
                        sale' means any sale at wholesale to the extent 
                        that--
                                    ``(I) the aggregate sales at 
                                wholesale during the recovery period 
                                does not exceed the load loss 
                                mitigation sales limit for such period, 
                                and
                                    ``(II) the aggregate sales at 
                                wholesale during the first calendar 
                                year after the recovery period does not 
                                exceed the excess carried under clause 
                                (iv) to such year.
                            ``(ii) Load loss mitigation sales limit.--
                        For purposes of clause (i), the load loss 
                        mitigation sales limit for the recovery period 
                        is the sum of the annual load losses for each 
                        year of such period.
                            ``(iii) Annual load loss.--A governmental 
                        unit's annual load loss for each year of the 
                        recovery period is the amount (if any) by 
                        which--
                                    ``(I) the megawatt hours of 
                                electric energy sold during such year 
                                to wholesale native load purchasers 
                                which do not constitute private 
                                business use are less than
                                    ``(II) the megawatt hours of 
                                electric energy sold during the base 
                                year to wholesale native load 
                                purchasers which do not constitute 
                                private business use.
                        The annual load loss for any year shall not 
                        exceed the portion of the amount determined 
                        under the preceding sentence which is 
                        attributable to open access requirements.
                            ``(iv) Carryovers.--If the limitation under 
                        clause (i) for the recovery period exceeds the 
                        aggregate sales during such period which are 
                        taken into account under clause (i), such 
                        excess (but not more than 10 percent of such 
                        limitation) may be carried over to the first 
                        calendar year following the recovery period.
                            ``(v) Recovery period.--The recovery period 
                        is the 7-year period beginning with the start-
                        up year.
                            ``(vi) Start-up year.--The start-up year is 
                        the calendar year which includes the date of 
                        the enactment of this section or, if later, at 
                        the election of the governmental unit--
                                    ``(I) the first year that the 
                                governmental unit offers 
                                nondiscriminatory open transmission 
                                access, or
                                    ``(II) the first year in which at 
                                least 10 percent of the governmental 
                                unit's wholesale customers' aggregate 
                                retail native load is open to retail 
                                competition.
            ``(4) On-system purchaser.--For purposes of this section, 
        the term `on-system purchaser' means any person whose electric 
        equipment is directly connected with any transmission or 
        distribution facility owned by the governmental unit owning the 
        existing generation facility if--
                    ``(A) such person--
                            ``(i) purchases electric energy from such 
                        governmental unit at retail, and
                            ``(ii)(I) was within such unit's 
                        distribution area at the close of the base year 
                        or
                            ``(II) is a person as to whom the 
                        governmental unit has a statutory service 
                        obligation, or
                    ``(B) is a wholesale native load purchaser from 
                such governmental unit.
            ``(5) Wholesale native load purchaser.--For purposes of 
        this section--
                    ``(A) In general.--The term `wholesale native load 
                purchaser' means a wholesale purchaser as to whom the 
                governmental unit had--
                            ``(i) a statutory service obligation at 
                        wholesale at the close of the base year, or
                            ``(ii) an obligation at the close of the 
                        base year under a requirements or firm sales 
                        contract if, as of June 30, 2000, such contract 
                        had been in effect for (or had an initial term 
                        of) at least 10 years.
                    ``(B) Permitted sales under existing contracts.--A 
                private business use sale during any year to a 
                wholesale native load purchaser (other than a person to 
                whom the governmental unit had a statutory service 
                obligation) under a contract shall be treated as a 
                permitted sale by reason of being a load loss sale only 
                to the extent that the private business use sales under 
                the contract during such year exceed the lesser of--
                            ``(i) the private business use sales under 
                        the contract during the base year, or
                            ``(ii) the maximum private business use 
                        sales which would (but for this section) be 
                        permitted without causing the bonds to be 
                        private activity bonds.
                This subparagraph shall only apply to the extent that 
                the sale is allocable to bonds issued before the date 
                of the enactment of this section (or bonds issued to 
                refund such bonds).
            ``(6) Special rules.--
                    ``(A) Time of sale rule.--For purposes of 
                paragraphs (3)(C)(iii) and (5)(B), the determination of 
                whether a sale after the date of the enactment of this 
                section is a private business use shall be made with 
                regard to this section.
                    ``(B) Joint action agencies.--To the extent 
                provided in regulations, a joint action agency, or a 
                member of (or a wholesale native load purchaser from) a 
                joint action agency, which is entitled to make a sale 
                described in subparagraph (A) or (B) in a year, may 
                transfer the entitlement to make that sale to the 
                member (or purchaser), or the joint action agency, 
                respectively.
    ``(b) Certain Bonds for Transmission and Distribution Facilities 
Not Tax Exempt.--
            ``(1) In general.--Section 103 shall not apply to any bond 
        issued on or after the date of the enactment of this section if 
        any portion of the proceeds of the issue of which such bond is 
        a part is used (directly or indirectly) to finance--
                    ``(A) any electric transmission facility, or
                    ``(B) any start-up electric utility distribution 
                facility.
            ``(2) Exceptions relating to transmission facilities.--
        Paragraph (1)(A) shall not apply to any bond issued to 
        finance--
                    ``(A) any repair of a transmission facility in 
                service on the date of the enactment of this section, 
                so long as the repair does not--
                            ``(i) increase the voltage level of such 
                        facility over its level at the close of the 
                        base year, or
                            ``(ii) increase the thermal load limit of 
                        such facility by more than 3 percent over such 
                        limit at the close of the base year,
                    ``(B) any qualifying upgrade of an electric 
                transmission facility in service on the date of the 
                enactment of this section, or
                    ``(C) any transmission facility necessary to comply 
                with an obligation under a shared or reciprocal 
                transmission agreement in effect on such date.
            ``(3) Exception for local electric transmission facility.--
        For purposes of this subsection--
                    ``(A) In general.--In the case of a governmental 
                unit which owns distribution facilities, paragraph 
                (1)(A) shall not apply to any bond issued to finance an 
                electric transmission facility owned by such 
                governmental unit and located within such governmental 
                unit's distribution area, but only to the extent such 
                facility is, or will be, necessary to supply 
                electricity to serve the retail native load, or 
                wholesale native load, of such governmental unit or of 
                1 or more other governmental units owning distribution 
facilities which are directly connected to such electric transmission 
facility.
                    ``(B) Retail load.--The term `retail load' means, 
                with respect to a governmental unit, the electric load 
                of end-users in the distribution area of the 
                governmental unit.
                    ``(C) Wholesale native load.--The term `wholesale 
                native load' means--
                            ``(i) the retail load of such unit's 
                        wholesale native load purchasers (or of an 
                        ultimate wholesale purchaser described in 
                        subsection (a)(3)(B)(ii)), and
                            ``(ii) the electric load of purchasers (not 
                        described in clause (i)) under wholesale 
                        requirements contracts which--
                                    ``(I) do not constitute private 
                                business use (determined without regard 
                                to this section), and
                                    ``(II) were in effect in the base 
                                year.
                    ``(D) Necessary to serve load.--For purposes of 
                determining whether a transmission facility is, or will 
                be, necessary to supply electricity to retail native 
                load or wholesale native load--
                            ``(i) the governmental unit's available 
                        transmission rights shall be taken into 
                        account,
                            ``(ii) electric reliability standards or 
                        requirements of national or regional 
                        reliability organizations, regional 
                        transmission organizations and the Electric 
                        Reliability Council of Texas shall be taken 
                        into account, and
                            ``(iii) transmission, siting and 
                        construction decisions of regional transmission 
                        organizations and State and Federal regulatory 
                        and siting agencies, after a proceeding that 
                        provides for public input, shall be presumptive 
                        evidence regarding whether transmission 
                        facilities are necessary to serve native load.
                    ``(E) Qualifying upgrade.--The term `qualifying 
                upgrade' means an improvement or addition to 
                transmission facilities of the governmental unit in 
                service on the date of the enactment of this section 
                which--
                            ``(i) is ordered or approved by a regional 
                        transmission organization or by a State 
                        regulatory or siting agency, after a proceeding 
                        that provides for public input, and
                            ``(ii) is, or will be, necessary to supply 
                        electricity to serve the retail native load, or 
                        wholesale native load, of such governmental 
                        unit or of one or more governmental units 
                        owning distribution facilities which are 
                        directly connected to such transmission 
                        facility.
            ``(4) Start-up electric utility distribution facility 
        defined.--For purposes of this subsection, the term `start-up 
        electric utility distribution facility' means any distribution 
        facility to provide electric service for sale to the public if 
        such facility is placed in service--
                    ``(A) by a governmental unit that did not operate 
                an electric utility on the date of the enactment of 
                this section, and
                    ``(B) during the first 10 years after the date such 
                governmental unit begins operating an electric utility.
        A governmental unit is treated as having operated an electric 
        utility on the date of the enactment of this section if it 
        operates electric output facilities which were (on such date) 
        operated by another governmental unit to provide electric 
        service for sale to the public.
            ``(5) Exception for refunding bonds.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any eligible refunding bond.
                    ``(B) Eligible refunding bond.--For purposes of 
                subparagraph (A), the term `eligible refunding bond' 
                means any bond (or series of bonds) issued to refund 
                any bond issued before the date of the enactment of 
                this section if the average maturity date of the issue 
                of which the refunding bond is a part is not later than 
                the average maturity date of the bonds to be refunded 
                by such issue.
    ``(c) Definitions; Special Rules.--For purposes of this section--
            ``(1) Base year.--The term `base year' means--
                    ``(A) the calendar year preceding the start-up 
                year, or
                    ``(B) at the election of the governmental unit, the 
                second or third calendar years preceding the start-up 
                year.
            ``(2) Distribution area.--The term `distribution area' 
        means the area in which a governmental unit owns distribution 
        facilities.
            ``(3) Electric output facility.--The term `electric output 
        facility' means an output facility that is an electric 
        generation, transmission, or distribution facility.
            ``(4) Distribution facility.--The term `distribution 
        facility' means an electric output facility that is not a 
        generation or transmission facility.
            ``(5) Transmission facility.--The term `transmission 
        facility' means an electric output facility (other than a 
        generation facility) that operates at an electric voltage of 69 
        kV or greater. To the extent provided in regulations, such term 
        includes any output facility that FERC determines is a 
        transmission facility under standards applied by FERC under the 
        Federal Power Act (as in effect on the date of the enactment of 
        this section).
            ``(6) Existing generation facility.--
                    ``(A) In general.--The term `existing generation 
                facility' means any electric generation facility if--
                            ``(i) such facility is originally placed in 
                        service on or before the date of enactment of 
                        this Act and is owned by any governmental unit 
                        on such date, or
                            ``(ii) such facility is originally placed 
                        in service after such date if the construction 
                        of the facility commenced before June 1, 2000, 
                        and such facility is owned by any governmental 
                        unit when it is placed in service.
                    ``(B) Denial of treatment to expansions.--Such term 
                shall not include any facility to the extent the 
                generating capacity of such facility as of any date is 
                3 percent above the greater of its nameplate or rated 
                capacity as of the date of the enactment of this 
                section (or, in the case of a facility described in 
                subparagraph (A)(ii), the date that the facility is 
                placed in service).
            ``(7) Regional transmission organization.--The term 
        `regional transmission organization' includes an independent 
        system operator.
            ``(8) FERC.--The term `FERC' means the Federal Energy 
        Regulatory Commission.
            ``(9) Government-owned facility.--An electric transmission 
        facility shall be treated as owned by a governmental unit as of 
any date to the extent that--
                    ``(A) such unit acquired (before the base year) 
                long-term firm transmission capacity (as determined 
                under regulations) of such facility for the purposes of 
                serving customers to which such unit had at the close 
                of the base year--
                            ``(i) a statutory service obligation, or
                            ``(ii) an obligation under a requirements 
                        contract, and
                    ``(B) such unit holds such capacity as of such 
                date.
            ``(10) Statutory service obligation.--The term `statutory 
        service obligation' means an obligation under State or Federal 
        law (exclusive of an obligation arising solely under a contract 
        entered into with a person) to provide electric distribution 
        services or electric sales services, as provided in such law.
            ``(11) Contract modifications.--A material modification of 
        a contract shall be treated as a new contract.
    ``(d) Election To Terminate Tax-Exempt Bond Financing for Certain 
Electric Output Facilities.--
            ``(1) In general.--At the election of a governmental unit, 
        section 103(a) shall not apply to any bond issued by or on 
        behalf of such unit after the date of such election if any 
        portion of the proceeds of the issue of which such bond is a 
        part are used to provide any electric output facilities. Such 
        an election, once made, shall be irrevocable.
            ``(2) Other effects of election.--During the period that 
        the election under paragraph (1) is in effect with respect to a 
        governmental unit, the term `private activity bond' shall not 
        include--
                    ``(A) any bond issued by such unit before the date 
                of the enactment of this section to provide an electric 
                output facility if, as of the date of the election, 
                such bond was not a private activity bond, and
                    ``(B) any bond to which paragraph (1) does not 
                apply by reason of paragraph (3).
            ``(3) Exceptions for certain property.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any bond issued to provide property owned by a 
                governmental unit if such property is--
                            ``(i) any qualifying transmission facility,
                            ``(ii) any qualifying distribution 
                        facility,
                            ``(iii) any facility necessary to meet 
                        Federal or State environmental requirements 
                        applicable to an existing generation facility 
                        owned by the governmental unit as of the date 
                        of the election,
                            ``(iv) any property to repair any existing 
                        generation facility owned by the governmental 
                        unit as of the date of the election,
                            ``(v) any qualified facility (as defined in 
                        section 45(c)(3)) producing electricity from 
                        any qualified energy resource (as defined in 
                        section 45(c)(1)), and
                            ``(vi) any energy property (as defined in 
                        section 48(a)(3)) placed in service during a 
                        period that the energy percentage under section 
                        48(a) is greater than zero.
                    ``(B) Limitation on use by nongovernmental 
                persons.--Subparagraph (A) shall not apply to any 
                property constructed, acquired or financed for a 
                principal purpose of providing the facility (or the 
                output thereof) to nongovernmental persons.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) Qualifying distribution facility.--The term 
                `qualifying distribution facility' means a distribution 
                facility meeting the open access requirements of 
                subsection (a)(2)(A)(ii).
                    ``(B) Qualifying transmission facility.--The term 
                `qualifying transmission facility' means a local 
                transmission facility (as defined in subsection (b)(3)) 
                meeting the open access requirements of subsection 
                (a)(2)(A)(i).
            ``(5) Effect of election.--
                    ``(A) In general.--An election under paragraph (1) 
                shall be binding on any successor in interest to, or 
                any related party with respect to, the electing 
                governmental unit. For purposes of this paragraph, a 
                governmental unit shall be treated as related to 
                another governmental unit if it is a member of the same 
                controlled group (as determined under regulations).
                    ``(B) Treatment of electing governmental unit.--A 
                governmental unit which makes an election under 
                paragraph (1) shall be treated for purposes of section 
                141 as a person--
                            ``(i) which is not a governmental unit, and
                            ``(ii) which is engaged in a trade or 
                        business,
                with respect to its purchase of electricity generated 
                by an electric output facility placed in service after 
                the date of such election if such purchase is under a 
                contract executed after such date.''
    (b) Waiver of Certain Limitations Not To Apply to Distribution 
Facilities.--Section 141(d)(5) is amended by inserting ``(except in the 
case of an electric output facility that is a distribution facility)'' 
after ``this subsection''.
    (c) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter B of chapter 1 is amended by inserting after the 
item relating to section 141 the following new item:

                              ``Sec. 141A. Treatment of government-
                                        owned electric output 
                                        facilities.''
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        take effect on the date of the enactment of this Act, except 
        that a governmental unit may elect to have section 141A(a)(1) 
        of the Internal Revenue Code of 1986, as added by subsection 
        (a), take effect on April 14, 1996.
            (2) Binding contracts.--The amendment made by subsection 
        (b) (relating to waiver of certain limitations not to apply to 
        distribution facilities) shall not apply to facilities acquired 
        pursuant to a contract which was entered into before the date 
        of the enactment of this Act and which was binding on such date 
        and at all times thereafter before such acquisition.
            (3) Comparable treatment to bonds under 1954 code rules.--
        References in the amendments made by this Act to sections of 
        the Internal Revenue Code of 1986 shall be deemed to include 
        references to comparable sections of the Internal Revenue Code 
        of 1954.

SEC. 208. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY 
              COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

    (a) In General.--Section 1033 (relating to involuntary conversions) 
is amended by redesignating subsection (k) as subsection (l) and by 
inserting after subsection (j) the following new subsection:
    ``(k) Sales or Dispositions To Implement Federal Energy Regulatory 
Commission or State Electric Restructuring Policy.--
            ``(1) In general.--For purposes of this subtitle, if a 
        taxpayer elects the application of this subsection to a 
        qualifying electric transmission transaction--
                    ``(A) such transaction shall be treated as an 
                involuntary conversion to which this section applies, 
                and
                    ``(B) exempt utility property shall be treated as 
                property which is similar or related in service or use 
                to the property disposed of in such transaction.
            ``(2) Extension of replacement period.--In the case of any 
        involuntary conversion described in paragraph (1), subsection 
        (a)(2)(B) shall be applied by substituting `4 years' for `2 
        years' in clause (i) thereof.
            ``(3) Qualifying electric transmission transaction.--For 
        purposes of this subsection, the term `qualifying electric 
        transmission transaction' means any sale or other disposition 
        before January 1, 2009, of--
                    ``(A) property used in the trade or business of 
                providing electric transmission services, or
                    ``(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) a regional transmission organization 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. 823b) is not a 
                        market participant within the meaning of such 
                        Commission's rules applicable to regional 
                        transmission organizations, 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 
                        regional transmission organization 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 
                exclusive jurisdiction of the Public Utility Commission 
                of Texas, a person which is approved by that Commission 
                as consistent with Texas State law regarding an 
                independent transmission organization.
            ``(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 
                section 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, such corporation shall be treated as 
        satisfying the purchase requirement of subsection (a)(2) with 
        respect to any qualifying electric transmission transaction 
        engaged in by such corporation to the extent such requirement 
        is satisfied by another member of such group.
            ``(7) Election.--An election under paragraph (1), once 
        made, shall be irrevocable.''
    (b) Exception From Gain Recognition under Section 1245.--Subsection 
(b) of section 1245 is amended by adding at the end the following new 
paragraph:
            ``(9) Dispositions to implement federal energy regulatory 
        commission or state electric restructuring policy.--At the 
        election of the taxpayer, the amount of gain which would (but 
        for this paragraph) be recognized under this section on any 
        qualified electric transmission transaction (as defined in 
        section 1033(k)) for which an election under section 1033 is 
        made shall be reduced by the aggregate reduction in the basis 
        of section 1245 property held by the taxpayer or, if 
        insufficient, by a member of an affiliated group which includes 
        the taxpayer at any time during the taxable year in which such 
        transaction occurred. The manner and amount of such reduction 
        shall be determined under regulations prescribed by the 
        Secretary.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions occurring after the date of the enactment of this 
Act.

SEC. 209. DISTRIBUTIONS OF STOCK TO IMPLEMENT FEDERAL ENERGY REGULATORY 
              COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

    (a) In General.--Subparagraph (A) of section 355(e)(3) (relating to 
special rules relating to acquisitions) is amended by inserting after 
clause (iv) the following new clause:
                            ``(v) The acquisition of stock in any 
                        controlled corporation in a qualifying electric 
                        transmission transaction (as defined in section 
                        1033(k)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions after the date of the enactment of this Act.

SEC. 210. 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 powerplant 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 
        powerplant, the taxpayer transfers the Fund with respect to 
        such powerplant 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 powerplant may transfer into such Fund up 
        to an amount equal to the excess of the total nuclear 
        decommissioning costs with respect to such nuclear powerplant 
        over the portion of such costs taken into account in 
        determining the ruling amount in effect immediately before the 
        transfer.
            ``(2) Deduction for amounts transferred.--
                    ``(A) In general.--The deduction allowed by 
                subsection (a) for any transfer permitted by this 
                subsection shall be allowed ratably over the remaining 
                estimated useful life (within the meaning of subsection 
                (d)(2)(A)) of the nuclear powerplant beginning with the 
                taxable year 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 transferee and not to the 
                transferor. The preceding sentence shall not apply if 
                the transferor is an organization exempt from tax 
                imposed by this chapter.
                    ``(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 powerplant over the estimated 
                useful life of such powerplant, and''.
    (d) Deduction for Nuclear Decommissioning Costs When Paid.--
Paragraph (2) of section 468A(c) is amended to read as follows:
            ``(2) Deduction of nuclear decommissioning costs.--In 
        addition to any deduction under subsection (a), nuclear 
        decommissioning costs paid or incurred by the taxpayer during 
        any taxable year shall constitute ordinary and necessary 
        expenses in carrying on a trade or business under section 
        162.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 211. 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 the period at the end of clause (ii) and inserting a 
        comma, and by adding at the end the following new clauses:
                            ``(iii) from any open access transaction 
                        (other than income received or accrued directly 
                        or indirectly from a member), or
                            ``(iv) from any nuclear decommissioning 
                        transaction.''
            (2) Definitions.--Paragraph (12) of section 501(c) is 
        amended by adding at the end the following new subparagraph:
                    ``(E) For purposes of subparagraph (C)--
                            ``(i) The term `open access transaction' 
                        means any activity which would be a permitted 
                        open access activity (as defined in section 
                        141A(a)(2)) if the cooperative were a 
                        governmental unit.
                            ``(ii) 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 cooperative's interest 
                                in a nuclear powerplant or nuclear 
                                powerplant unit,
                                    ``(II) any distribution from such a 
                                trust, fund, or instrument, or
                                    ``(III) any earnings from such a 
                                trust, fund, or instrument.''
    (b) Income From Load Loss Transactions Treated as Member Income.--
Paragraph (12) of section 501(c) is amended by adding after 
subparagraph (E) the following new subparagraph:
                    ``(F)(i) In the case of a mutual or cooperative 
                electric company, income received or accrued from a 
                load loss transaction shall be treated as an amount 
                collected from members for the sole purpose of meeting 
                losses and expenses.
                    ``(ii) For purposes of clause (i), the term `load 
                loss transaction' means any sale (whether at wholesale 
                or at retail) which would be a load loss sale under 
                rules similar to the rules of section 141A(3)(C).
                    ``(iii) A company shall not fail to be treated as a 
                mutual cooperative company for purposes of this 
                paragraph by reason of the treatment under clause (i).
                    ``(iv) A rule similar to the rule of this 
                subparagraph shall apply to an organization to which 
                section 1381 does not apply by reason of section 
                1381(a)(2)(C).''
    (c) Exception From Unrelated Business Taxable Income.--Subsection 
(b) of section 512 (relating to modifications) is amended by adding at 
the end the following new paragraph:
            ``(18) Treatment of load loss sales 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 (F) thereof.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 212. REPEAL OF REQUIREMENT OF CERTAIN APPROVED TERMINALS TO OFFER 
              DYED DIESEL FUEL AND KEROSENE FOR NONTAXABLE PURPOSES.

    Section 4101 (relating to certain approved terminals of registered 
persons required to offer dyed diesel fuel and kerosene for nontaxable 
purposes) is amended by striking subsection (e).

SEC. 213. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.

    (a) In General.--Subsection (b) of section 148 (defining higher 
yielding investments) is amended by adding at the end the following new 
paragraph:
            ``(4) Exception for certain prepayments to ensure natural 
        gas supply.--The term `investment property' shall not include 
        any prepayment for the purpose of obtaining a supply of a 
        natural gas--
                    ``(A) at least 85 percent of which is to be used in 
                the State in which the issuer is located, and
                    ``(B) which is to be used in a business of one or 
                more utilities each of which is owned and operated by a 
                State or local government, any political subdivision or 
                instrumentality thereof, or any governmental unit 
                acting for or on behalf of such a utility.''.
    (b) Private Loan Financing Test Not To Apply to Prepayments for 
Natural Gas.--Paragraph (2) of section 141(c) (providing exceptions to 
the private loan 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) arises from a transaction described in 
                section 148(b)(4).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after October 22, 1986; except that section 
148(b)(4)(A) of the Internal Revenue Code of 1986, as added by this 
section, shall apply only to obligations issued after the date of the 
enactment of this Act.

                         TITLE III--PRODUCTION

SEC. 301. OIL AND GAS FROM MARGINAL WELLS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business credits) is amended by adding at the end the 
following:

``SEC. 45J. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

    ``(a) General Rule.--For purposes of section 38, the marginal well 
production credit for any taxable year is an amount equal to the 
product of--
            ``(1) the credit amount, and
            ``(2) the qualified credit oil production and the qualified 
        natural gas production which is attributable to the taxpayer.
    ``(b) Credit Amount.--For purposes of this section--
            ``(1) In general.--The credit amount is--
                    ``(A) $3 per barrel of qualified crude oil 
                production, and
                    ``(B) 50 cents per 1,000 cubic feet of 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 2001, 
                each of the dollar amounts contained in subparagraph 
                (A) shall be increased to an amount equal to such 
                dollar amount multiplied by the inflation adjustment 
                factor for such calendar year (determined under section 
                43(b)(3)(B) by substituting `2000' for `1990').
                    ``(C) Reference price.--For purposes of this 
                paragraph, the term `reference price' means, with 
                respect to any calendar year--
                            ``(i) in the case of qualified crude oil 
                        production, the reference price determined 
                        under section 29(d)(2)(C), and
                            ``(ii) in the case of qualified natural gas 
                        production, the Secretary's estimate of the 
                        annual average wellhead price per 1,000 cubic 
                        feet for all domestic natural gas.
    ``(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.
            ``(4) Noncompliance with pollution laws.--For purposes of 
        subsection (c)(3)(A), a marginal well which is not in 
        compliance with the applicable State and Federal pollution 
        prevention, control, and permit requirements for any period of 
        time shall not be considered to be a qualified marginal well 
        during such period.''.
    (b) Credit Treated as Business Credit.--Section 38(b) is amended by 
striking ``plus'' at the end of paragraph (17), by striking the period 
at the end of paragraph (18) and inserting ``, plus'', and by adding at 
the end the following:
            ``(19) the marginal oil and gas well production credit 
        determined under section 45J(a).''.
    (c) Carryback.--Subsection (a) of section 39 (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 I is amended by adding at the end 
the following:

                              ``Sec. 45J. Credit for producing oil and 
                                        gas from marginal wells.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to production in taxable years beginning after December 31, 2001.

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, 2001, 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 ``2002'' and inserting 
``2007''.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2001.

SEC. 303. DEDUCTION FOR DELAY RENTAL PAYMENTS.

    (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding after subsection (i) the following:
    ``(j) Delay Rental Payments for Domestic Oil and Gas Wells.--
            ``(1) In general.--Notwithstanding subsection (a), a 
        taxpayer may elect to treat delay rental payments incurred in 
        connection with the development of oil or gas within the United 
        States (as defined in section 638) as payments which are not 
        chargeable to capital account. Any payments so treated shall be 
        allowed as a deduction in the taxable year in which paid or 
        incurred.
            ``(2) Delay rental payments.--For purposes of paragraph 
        (1), the term `delay rental payment' means an amount paid for 
        the privilege of deferring development of an oil or gas well 
        under an oil or gas lease.''.
    (b) Conforming Amendment.--Section 263A(c)(3) is amended by 
inserting ``263(j),'' after `263(i),'.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 304. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding after subsection (j) the following:
    ``(k) Geological and Geophysical Expenditures for Domestic Oil and 
Gas Wells.--Notwithstanding subsection (a), a taxpayer may elect to 
treat geological and geophysical expenses incurred in connection with 
the exploration for, or development of, oil or gas within the United 
States (as defined in section 638) as expenses which are not chargeable 
to capital account. Any expenses so treated shall be allowed as a 
deduction in the taxable year in which paid or incurred.''.
    (b) Conforming Amendment.--Section 263A(c)(3), as amended by 
section 303(b), is amended by inserting ``263(k),'' after ``263(j),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 305. 5-YEAR NET OPERATING LOSS CARRYBACK FOR LOSSES ATTRIBUTABLE 
              TO OPERATING MINERAL INTERESTS OF OIL AND GAS PRODUCERS.

    (a) In General.--Paragraph (1) of section 172(b) (relating to years 
to which loss may be carried) is amended by adding at the end the 
following new subparagraph:
                    ``(H) Losses on operating mineral interests of oil 
                and gas producers.--In the case of a taxpayer which has 
                an eligible oil and gas loss (as defined in subsection 
                (j)) for a taxable year, such eligible oil and gas loss 
                shall be a net operating loss carryback to each of the 
                5 taxable years preceding the taxable year of such 
                loss.''.
    (b) Eligible Oil and Gas Loss.--Section 172 is amended by 
redesignating subsection (j) as subsection (k) and by inserting after 
subsection (i) the following new subsection:
    ``(j) Eligible Oil and Gas Loss.--For purposes of this section--
            ``(1) In general.--The term `eligible oil and gas loss' 
        means the lesser of--
                    ``(A) the amount which would be the net operating 
                loss for the taxable year if only income and deductions 
                attributable to operating mineral interests (as defined 
in section 614(d)) in oil and gas wells are taken into account, or
                    ``(B) the amount of the net operating loss for such 
                taxable year.
            ``(2) Coordination with subsection (b)(2).--For purposes of 
        applying subsection (b)(2), an eligible oil and gas loss for 
        any taxable year shall be treated in a manner similar to the 
        manner in which a specified liability loss is treated.
            ``(3) Election.--Any taxpayer entitled to a 5-year 
        carryback under subsection (b)(1)(H) from any loss year may 
        elect to have the carryback period with respect to such loss 
        year determined without regard to subsection (b)(1)(H).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to net operating losses for taxable years beginning after 
December 31, 2001.

SEC. 306. 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/Emmissions 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 2001 
                and 2002, the dollar amount applicable under subsection 
                (a)(1) shall be $3 (without regard to subsection 
                (b)(2)). In the case of fuels sold after 2002, 
                subparagraph (B) of subsection (d)(2) shall be applied 
                by substituting `2002' 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. 307. 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 (3) as paragraph (4) and by inserting after paragraph (2) the 
following new paragraph:
            ``(3) 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, 
                45I, 45J, and 45K.''.
    (b) Conforming Amendment.--Subclause (II) of section 
38(c)(2)(A)(ii) is amended by inserting ``or the specified energy 
credits'' after ``employment credit''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of enactment of this Act.

SEC. 308. 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, 2001, and 
before January 1, 2005.''.
    (b) Effective Dates.--The amendment made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 309. ALLOWANCE OF ENHANCED RECOVERY CREDIT AGAINST THE ALTERNATIVE 
              MINIMUM TAX.

    (a) In General.--Subparagraph (B) of section 38(c)(4) is amended by 
adding at the end the following new sentence: ``For taxable years 
beginning before January 1, 2005, 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, 2001.

SEC. 310. EXTENSION OF CERTAIN BENEFITS FOR ENERGY-RELATED BUSINESSES 
              ON INDIAN RESERVATIONS.

    (a) Depreciation for Property on Indian Reservations.--Paragraph 
(8) of section 168(j) (relating to termination) is amended by adding at 
the end the following new sentence: ``The preceding sentence shall be 
applied by substituting `December 31, 2006' for `December 31, 2003' in 
the case of property placed in service as part of a facility for--
                    ``(A) the generation or transmission of electricity 
                (including from any qualified energy resource, as 
                defined in section 45(c)),
                    ``(B) an oil or gas well,
                    ``(C) the transmission or refining of oil or gas, 
                or
                    ``(D) the production of any qualified fuel (as 
                defined in section 29(c)).''
    (b) Employment of Indians.--Subsection (f) of section 45A (relating 
to termination) is amended by adding at the end the following new 
sentence: ``The preceding sentence shall be applied by substituting 
`December 31, 2006' for `December 31, 2003' in the case of wages paid 
for services performed at a facility described in section 168(j)(8).''




                                                  Union Calendar No. 93

107th CONGRESS

  1st Session

                               H. R. 2511

                          [Report No. 107-157]

_______________________________________________________________________

                                 A BILL

To amend the Internal Revenue Code of 1986 to provide tax incentives to 
     encourage energy conservation, energy reliability, and energy 
                              production.

_______________________________________________________________________

                             July 24, 2001

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed