[House Report 107-157]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    107-157

======================================================================



 
                     ENERGY TAX POLICY ACT OF 2001

                                _______
                                

 July 24, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                    DISSENTING AND ADDITIONAL VIEWS

                        [To accompany H.R. 2511]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2511) to amend the Internal Revenue Code of 1986 to 
provide tax incentives to encourage energy conservation, energy 
reliability, and energy production, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I.  Summary and Background.........................................51
          A. Purpose and Summary.................................    51
          B. Background and Need for Legislation.................    51
          C. Legislative History.................................    51
 II. Explanation of the Bill.........................................52
     Title I--Conservation...........................................52
          A. Tax Credit for Residential Solar Energy.............    52
          B. Extension and Modification of the Section 45 
              Electricity Production Credit......................    53
          C. Tax Incentives for Fuel Cells.......................    55
          D. Modifications and Extensions of Provisions Relating 
              to Electric Vehicles, Clean-Fuel Vehicles, and 
              Clean-Fuel Vehicles Refueling Property.............    57
          E. Tax Credit for Energy Efficient Appliances..........    59
          F. Credit for Energy Efficiency Improvements to 
              Existing Homes.....................................    61
          G. Business Credit for Construction of New Energy-
              Efficient Homes....................................    62
          H. Allowance of Deduction for Energy-Efficient 
              Commercial Building Property.......................    63
          I. Allowance of Deduction for Qualified Energy 
              Management Devices and Retrofitted Qualified Meters    64
          J. Three-Year Applicable Recovery Period for 
              Depreciation of Qualified Energy Management Devices    65
          K. Energy Credit for Combined Heat and Power System 
              Property...........................................    66
          L. Allow Nonbusiness Energy Credits Against the 
              Alternative Minimum Tax............................    67
          M. Repeal Certain Excise Taxes on Rail Diesel Fuel and 
              Inland Waterway Barge Fuels........................    68
          N. Btu-Based Rate for Diesel/Water Emulsion Fuel.......    69
          O. Investment and Production Credits for Clean Coal 
              Technology.........................................    69
     Title II--Reliability...........................................71
          A. Natural Gas Gathering Pipelines Treated as Seven-
              Year Property......................................    71
          B. Natural Gas Distribution Lines Treated as Ten-Year 
              Property...........................................    72
          C. Petroleum Refining Property Treated as Seven-Year 
              Property...........................................    72
          D. Expensing of Capital Costs Incurred and Credit for 
              Production in Complying with Environmental 
              Protection Agency Sulfur Regulations...............    73
          E. Determination of Small Refiner Exception to Oil 
              Depletion Deduction................................    74
          F. Modifications to Rules Governing Issuance of Tax-
              Exempt Bonds for Public Power Facilities...........    75
          G. Sales or Dispositions Under Section 1033 to 
              Implement Federal Energy Regulatory Commission or 
              State Electric Restructuring Policy................    89
          H. Distributions of Stock Under Section 355(e) to 
              Implement Federal Energy Regulatory Commission or 
              State Electric Restructuring Policy................    91
          I. Modification to Special Rules for Nuclear 
              Decommissioning Costs..............................    93
          J. Treatment of Certain Income of Electric Cooperatives    96
          K. Repeal of Requirement of Certain Approved Terminals 
              to Offer Dyed Diesel or Kerosene Terminal for 
              Nontaxable Purposes................................    99
          L. Exempt Certain Prepayments for Natural Gas from Tax-
              Exempt Bond Arbitrage Rules........................   100
     Title III--Production..........................................101
          A. Tax Credit for Oil and Gas Production From Marginal 
              Wells..............................................   101
          B. Temporary Suspension of Limitation Based on 65 
              Percent of Taxable Income and Extension of 
              Suspension of Taxable Income Limit with Respect to 
              Marginal Production................................   102
          C. Deduction for Delay Rental Payments.................   104
          D. Election to Expense Geological and Geophysical 
              Expenditures.......................................   105
          E. Allow Net Operating Losses from Oil and Gas 
              Properties to be Carried Back for Up to Five Years.   107
          F. Extension and Modification of Credit for Producing 
              Fuel from a Non-Conventional Source................   108
          G. Allow Business Energy Credits Against the 
              Alternative Minimum Tax............................   110
          H. Repeal Alternative Minimum Tax Intangible Drilling 
              Costs (``IDC'') Preference for Oil and Gas 
              Production.........................................   110
          I. Allow Enhanced Oil Recovery Credit Against the 
              Alternative Minimum Tax............................   111
          J. Extension of Tax Incentives for Energy-Related 
              Businesses on Indian Reservations..................   111
III. Votes of the Committee.........................................113
 IV. Budget Effects of the Bill.....................................115
  V. Other Matters To Be Discussed Under the Rules of the House.....121
          A. Committee Oversight Findings and Recommendations....   121
          B. Statement of General Performance Goals and 
              Objectives.........................................   121
          C. Constitutional Authority Statement..................   121
          D. Information Relating to Unfunded Mandates...........   122
          E. Applicability of House Rule XXI 5(b)................   122
          F. Tax Complexity Analysis.............................   122
 VI. Changes in Existing Law Made by the Bill as Reported...........122
VII. Dissenting Views...............................................203

VIII.Additional Views...............................................205

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

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 
                                ( 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 
                        ( 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
                                  ``(III) 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).''

                       I. SUMMARY AND BACKGROUND


                         A. PURPOSE AND SUMMARY

    The bill, H.R. 2511, as amended (the ``Energy Tax Policy 
Act of 2001''), provides incentives for taxpayers to conserve 
energy, to enhance the reliability of domestic energy supplies, 
and to increase domestic supplies of energy.
    The bill provides net tax reductions of over $18.707 
billion over fiscal years 2001-2006.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    The provisions approved by the Committee provide incentives 
for taxpayers to conserve energy, to convert to cleaner forms 
of energy, to enhance the reliability of domestic energy 
supplies, and to increase domestic supplies of energy. The 
estimated revenue effects of the provisions comply with the 
most recent Congressional Budget Office revisions of budget 
surplus projections.

                         C. LEGISLATIVE HISTORY


                            COMMITTEE ACTION

    The Subcommittee on Oversight held hearings on March 5, 
2001 on the impact of Federal tax laws on the cost and supply 
of energy. The Subcommittee on Select Revenue Measures held 
hearings on May 3, June 12, and June 13, 2001 on the effect of 
Federal tax laws on the production, supply, and conservation of 
energy.
    The Committee on Ways and Means marked up the provisions of 
the bill on July 18, 2001, and reported the provisions, as 
amended, on July 18, 2001, by a roll call vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL


                         TITLE I--CONSERVATION


               A. TAX CREDIT FOR RESIDENTIAL SOLAR ENERGY


          (Sec. 101 of the bill and New Sec. 25C of the Code)


                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law personal tax credit for residential 
solar energy property.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use 
represents a large share of national energy consumption, and 
accordingly believes that measures to encourage alternative 
energy sources for residential use have the potential to 
substantially reduce national reliance on traditional energy 
sources. The Committee believes that a tax credit for 
investments in solar energy sources will help to achieve that 
goal. Furthermore, the Committee believes that the on-site 
generation of electricity and hot water will reduce reliance on 
the United States' electricity grid and on natural gas 
pipelines.

                        EXPLANATION OF PROVISION

    The provision provides a personal tax credit for the 
purchase of qualified photovoltaic property and qualified solar 
water heating property that is used exclusively for purposes 
other than heating swimming pools and hot tubs. The credit is 
equal to 15 percent of qualified investment up to a maximum 
credit of $2,000 for solar water heating property and $2,000 
forrooftop photovoltaic property. This credit is nonrefundable, 
and the adjusted basis of the property is reduced by the amount of the 
credit.
    Qualifying solar water heating property 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. Qualified photovoltaic property is 
property that uses solar energy to generate electricity for use 
in a dwelling unit. Expenditures for labor costs allocable to 
onsite preparation, assembly, or original installation of 
property eligible for the credit are eligible expenditures.
    Certain equipment safety requirements need to be met to 
qualify for the credit. Special proration rules apply in the 
case of jointly owned property, condominiums, and tenant-
stockholders in cooperative housing corporations.

                             EFFECTIVE DATE

    The credit applies to purchases in taxable years ending 
after December 31, 2001 and before January 1, 2007 (January 1, 
2009 in the case of qualified photovoltaic property).

B. EXTENSION AND MODIFICATION OF THE SECTION 45 ELECTRICITY PRODUCTION 
                                 CREDIT


             (Sec. 102 of the Bill and Sec. 45 of the Code)


                              PRESENT LAW

    An income tax credit is allowed for the production of 
electricity from either qualified wind energy, qualified 
``closed-loop'' biomass, or qualified poultry waste facilities 
(sec. 45). The amount of the credit is 1.5 cents per kilowatt 
hour (indexed for inflation) of electricity produced. The 
amount of the credit is 1.7 cents per kilowatt hour for 2001. 
The credit is reduced for grants, tax-exempt bonds, subsidized 
energy financing, and other credits.
    The credit applies to electricity produced by a wind energy 
facility placed in service after December 31, 1993, and before 
January 1, 2002, to electricity produced by a closed-loop 
biomass facility placed in service after December 31, 1992, and 
before January 1, 2002, and to a poultry waste facility placed 
in service after December 31, 1999, and before January 1, 2002. 
The credit is allowable for production during the 10-year 
period after a facility is originally placed in service. In 
order to claim the credit, a taxpayer must own the facility and 
sell the electricity produced by the facility to an unrelated 
party. In the case of a poultry waste facility, the taxpayer 
may claim the credit as a lessee/operator of a facility owned 
by a governmental unit.
    Closed-loop biomass is plant matter, where the plants are 
grown for the sole purpose of being used to generate 
electricity. It does not include waste materials (including, 
but not limited to, scrap wood, manure, and municipal or 
agricultural waste). The credit also is not available to 
taxpayers who use standing timber to produce electricity. 
Poultry waste means poultry manure and litter, including wood 
shavings, straw, rice hulls, and other bedding material for the 
disposition of manure.
    The credit for electricity produced from wind, closed-loop 
biomass, or poultry waste is a component of the general 
business credit (sec. 38(b)(8)). The credit, when combined with 
all other components of the general business credit, generally 
may not exceed for any taxable year the excess of the 
taxpayer's net income tax over the greater of (1) 25 percent of 
net regular tax liability above $25,000, or (2) the tentative 
minimum tax. For credits arising in taxable years beginning 
after December 31, 1997, an unused general business credit 
generally may be carried back one year and carried forward 20 
years (sec. 39). To coordinate the carryback with the period of 
application for this credit, the credit for electricity 
produced from closed-loop biomass facilities may not be carried 
back to a tax year ending before 1993 and the credit for 
electricity produced from wind energy may not be carried back 
to a tax year ending before 1994 (sec. 39).

                           REASONS FOR CHANGE

    The committee recognizes that the section 45 production 
credit has fostered additional electricity generation capacity 
in the form of non-polluting wind power. The committee believes 
it is important to continue this tax credit by extending the 
placed in service date for such facilities to bring more wind 
energy to the United States's electric grid.
    Based on the success of the section 45 credit in the 
development of wind power as an alternative source of 
electricity generation, the committee further believes the 
country will benefit from the expansion of the production 
credit to certain other ``environmentally friendly'' sources of 
electricity generation. While open-loop biomass and landfill 
gas facilities are not pollution free, they do address 
environmental concerns related to waste disposal and, in the 
case of landfill gas, mitigate the release of methane gas into 
the atmosphere. In addition, these potential power sources 
further diversify the nation's energy supply.
    Lastly, the committee believes that certain pre-existing 
facilities should qualify for the section 45 production credit, 
albeit at a reduced rate. These facilities previously received 
explicit subsidies, or implicit subsidies provided through rate 
regulation. In a deregulated electricity market, these 
facilities, and the environmental benefits they yield, may be 
uneconomic without additional economic incentive. The committee 
believes the benefits provided by such existing facilities 
warrant their inclusion in the section 45 production credit.

                        EXPLANATION OF PROVISION

    The committee bill extends the placed-in-service date for 
wind facilities and closed-loop biomass facilities to 
facilities placed in service after December 31, 1993 (December 
31, 1992 in the case of closed-loop biomass facilities) and 
before January 1, 2007.
    The bill also defines two new qualifying facilities: open-
loop biomass facilities and landfill gas facilities. Open-loop 
biomass is any solid, nonhazardous, cellulosic waste material 
which is segregated from other waste materials and which is 
derived from any forest-related resources, solid wood waste 
materials, or agricultural sources. Eligible forest-related 
resources are mill residues, precommercial thinnings, slash, 
and brush, but not including old-growth timber. Solid wood 
waste materials include 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. Agricultural 
sources include orchard tree crops, vineyard, grain, legumes, 
sugar, and other crop by-products or residues. However, 
qualifying open-loop biomass does not include municipal solid 
waste (garbage) or paper that iscommonly recycled. Landfill gas 
is methane gas derived from the biodegradation of municipal solid 
waste. Qualifying open-loop biomass facilities and qualifying landfill 
gas facilities include facilities used to produce electricity placed in 
service before January 1, 2007.
    In the case of qualifying open-loop biomass facilities and 
qualifying landfill gas facilities placed in service on or 
before the date of enactment, the taxpayer may claim the sec. 
45 production credit for only five years, commencing on the 
date of enactment. In the case of qualifying open-loop biomass 
facilities and qualifying landfill gas facilities placed in 
service on or before the date of enactment, the taxpayer may 
claim two-thirds of the otherwise allowable credit for 
electricity produced at the facility.
    In the case of qualifying open-loop biomass facilities, the 
reduction in the otherwise allowable credit by reason of 
grants, tax-exempt bonds, subsidized energy financing, and 
other credits may not exceed 80 percent of the otherwise 
allowable credit.
    The bill provides that no facility that previously claimed 
or currently claims credit under sec. 29 of the Code is a 
qualifying facility for purposes of sec. 45.

                             EFFECTIVE DATE

    The provision is effective for electricity sold from 
qualifying facilities after the date of enactment.

                    C. TAX INCENTIVES FOR FUEL CELLS


          (Sec. 103 of the Bill and New Sec. 25D of the Code)


                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for stationary fuel cell 
power plant property.

                           REASONS FOR CHANGE

    The Committee believes that investments in qualified 
stationary fuel cell power plants represent a promising means 
to produce electricity through non-polluting means and from 
nonconventional energy sources. Furthermore, the on-site 
generation of electricity provided by stationary fuel cell 
power plants will reduce reliance on the United States' 
electricity grid. The Committee believes that providing a tax 
credit for investment in qualified stationary fuel cell power 
plants will encourage investments in such systems.

                        EXPLANATION OF PROVISION

    The provision provides a 10-percent credit for the purchase 
of qualified stationary fuel cell power plants for businesses 
and individuals. A qualified stationary fuel cell power plant 
is 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, and which has an 
electricity-only generation efficiency of greater than 30 
percent. The credit may not exceed $1,000 for each kilowatt of 
capacity. For individuals, the qualified fuel cell power plant 
must be installed on or in connection with a dwelling unit 
located in the United States and used by the taxpayer as a 
principal residence. The credit is nonrefundable. The 
taxpayer's basis in the property is reduced by the amount of 
the credit claimed.

                             EFFECTIVE DATE

    The credit for businesses applies to property placed in 
service after December 31, 2001 and before January 1, 2007, 
under rules similar to 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). The 
credit for individuals applies to expenditures made after 
December 31, 2001 and before January 1, 2007.

  D. Modifications and Extensions of Provisions Relating to Electric 
    VEHICLES, CLEAN-FUEL VEHICLES, AND CLEAN-FUEL VEHICLE REFUELING 
                                PROPERTY


(Secs. 104, 105, and 106 of the Bill and Secs. 179A and 30 and New Sec. 
                            30B of the Code)


                              PRESENT LAW

    A 10-percent tax credit is provided for the cost of a 
qualified electric vehicle, up to a maximum credit of $4,000 
(sec. 30). A qualified electric vehicle is a motor vehicle that 
is powered primarily by an electric motor drawing current from 
rechargeable batteries, fuel cells, or other portable sources 
of electrical current, the original use of which commences with 
the taxpayer, and that is acquired for the use by the taxpayer 
and not for resale. The full amount of the credit is available 
for purchases prior to 2002. The credit phases down in the 
years 2002 through 2004, and is unavailable for purchases after 
December 31, 2004.
    Certain costs of qualified clean-fuel vehicle property and 
clean-fuel vehicle refueling property may be expensed and 
deducted when such property is placed in service (sec. 179A). 
Qualified clean-fuel vehicle property includes motor vehicles 
that use certain clean-burning fuels(natural gas, liquefied 
natural gas, liquefied petroleum gas, hydrogen, electricity and any 
other fuel at least 85 percent of which is methanol, ethanol, any other 
alcohol or ether). The maximum amount of the deduction is $50,000 for a 
truck or van with a gross vehicle weight over 26,000 pounds or a bus 
with seating capacities of at least 20 adults; $5,000 in the case of a 
truck or van with a gross vehicle weight between 10,000 and 26,000 
pounds; and $2,000 in the case of any other motor vehicle. Qualified 
electric vehicles do not qualify for the clean-fuel vehicle deduction.
    Clean-fuel vehicle refueling property comprises property 
for the storage or dispensing of a clean-burning fuel, if the 
storage or dispensing is the point at which the fuel is 
delivered into the fuel tank of a motor vehicle. Clean-fuel 
vehicle refueling property also includes property for the 
recharging of electric vehicles, but only if the property is 
located at a point where the electric vehicle is recharged. Up 
to $100,000 of such property at each location owned by the 
taxpayer may be expensed with respect to that location.
    The deduction phases down in the years 2002 through 2004, 
and is unavailable for purchases after December 31, 2004.

                           REASONS FOR CHANGE

    The committee believes that automobile transportation in 
the United States in the 21st century can, and should, be less 
polluting of the air and more fuel efficient. The committee 
recognizes that various different technological solutions may 
lead to this result. The committee believes that tax benefits 
to lower the cost of new technology automotive alternatives can 
help lower consumer resistance to these technologies and speed 
the nation's advancement down the highway to cleaner, more 
efficient, automobiles. However, the committee believes no one 
technology has established that it alone provides the solution. 
Therefore, the committee concludes it is appropriate to provide 
tax benefits tailored to each specific technology.

                        EXPLANATION OF PROVISION

Alternative motor vehicle credits

    The bill provides a credit for the purchase of a new 
qualified fuel cell motor vehicle, a new qualified hybrid motor 
vehicle, a new qualified alternative fuel motor vehicle, and a 
new advanced lean burn technology motor vehicle.
    Fuel cell motor vehicles.--The credit for the purchase of 
new qualified fuel cell motor vehicles generally ranges between 
$4,000 and $40,000 depending upon the weight class of the 
vehicle. For automobiles and light trucks, the otherwise 
allowable credit amount is increased by an amount from $1,000 
to $4,000 depending upon the vehicle's fuel efficiency.
    Hybrid vehicles.--The credit for the purchase of a new 
qualified hybrid vehicle generally ranges from $250 to $10,000 
depending upon the weight of the vehicle and the maximum power 
available from the vehicle's battery system. For automobiles 
and light trucks, the otherwise allowable credit amount is 
increased by an amount from $1,000 to $3,500 depending upon the 
vehicle's fuel efficiency. For automobiles and light trucks, 
the otherwise allowable credit amount is increased by $250 or 
$500 if certain estimated lifetime fuel savings standards are 
met. For heavy duty hybrid vehicles, the otherwise allowable 
credit is increased by $1,500 to $14,000 depending upon the 
vehicle's weight, the vehicle's emissions performance, and the 
model year of the vehicle.
    Alternative fuel vehicles.--The credit for the purchase of 
a new alternative fuel vehicle equals 50 percent of the 
incremental cost of such vehicle, plus an additional 30 percent 
if the vehicle meets certain emissions standards. For 
computation of the credit, incremental costs of the vehicle may 
not exceed between $5,000 and $40,000 depending upon the weight 
of the vehicle.
    Advanced lean burn technology vehicles.--The credit for the 
purchase of a new advanced lean burn technology vehicle ranges 
between $1,000 and $4,000 depending upon the fuel efficiency of 
the vehicle. In the case of a vehicle that is eligible for the 
$1,000 credit, the otherwise allowable credit amount is 
increased by $250 or $500 if certain estimated lifetime fuel 
savings standards are met.
    Credit may not be claimed for qualified fuel cell vehicles 
purchased after December 31, 2011, and for any other vehicle 
purchased after December 31, 2007. The taxpayer's basis in the 
property is reduced by the amount of credit claimed.

Extension of present-law section 179A

    The bill extends the deduction for costs of qualified 
clean-fuel vehicle property and clean-fuel vehicle refueling 
property through December 31, 2007. The phase-down of present 
law would begin in 2005.

Modification of credit for qualified electric vehicles

    The bill modifies the present-law credit for electric 
vehicles to provide that the credit for qualifying vehicles 
generally ranges between $4,000 and $40,000 depending upon the 
weight of the vehicle.\1\ In the case of a vehicle with a gross 
vehicle weight rating less than or equal to 8,500 pounds and 
for which the taxpayer may otherwise claim a $4,000 credit, the 
taxpayer may instead claim a $5,000 credit if the vehicle is 
capable of a driving range of 70 miles or more on a single 
battery charge. The provision also extends the expiration date 
of the credit from December 31, 2004 to December 31, 2007 and 
repeals the phaseout schedule of present law.
---------------------------------------------------------------------------
    \1\ In the case of a vehicle that conforms to the Department of 
Transportation's Motor Vehicle Safety Standard 500, the credit equals 
the lesser of 10 percent of the manufacturer's suggested retail price 
of the vehicle or $4,000. The committee intends that vehicles 
qualifying for the credit by reason of conforming to the Department of 
Transportation's Motor Vehicle Safety Standard 500 would not otherwise 
qualify as a vehicle with gross weight less than 8,500 pounds and, 
thereby, eligible for a $4,000 credit regardless of the manufacturer's 
suggested retail price.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision relating to the credit for new fuel cell 
vehicles, hybrid vehicles, alternative fuel vehicles, and 
advanced lean burn technology vehicles applies to property 
placed in service after December 31, 2001, in taxable years 
ending after December 31, 2001.
    The provision relating to the extension of present-law 
section 179A is effective on the date of enactment.
    The provision relating to the electric vehicle credit is 
effective for property placed in service after December 31, 
2001, in taxable years ending after December 31, 2001.

             E. TAX CREDIT FOR ENERGY-EFFICIENT APPLIANCES


          (Sec. 107 of the Bill and New Sec. 45G of the Code)


                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment: (1) 
that uses solar energy to generate electricity, to heat or cool 
a structure, or to provide solar process heat; or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of: (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for the manufacture of 
energy-efficient appliances.

                           REASONS FOR CHANGE

    The Committee believes that providing a tax credit for the 
production of energy-efficient clothes washers and 
refrigerators will encourage manufacturers to produce such 
products currently and to invest in technologies to achieve 
higher energy-efficiency standards for the future.

                        EXPLANATION OF PROVISION

    The provision provides a credit for the manufacture of 
certain energy-efficient clothes washers and refrigerators. The 
credit is $50 per appliance for energy-efficient clothes 
washers manufactured with a modified energy factor (``MEF'') of 
1.26 or greater and for refrigerators that consume 10 percent 
less kilowatt-hours per year than the energy conservation 
standards promulgated by the Department of Energy for 
refrigerators produced during 2001. The credit is $100 for 
energy-efficient clothes washers manufactured with a MEF of 
1.42 or greater (1.5 or greater for washers produced after 
2004) and for refrigerators that consume 15 percent less 
kilowatt-hours per year than the energy conservation standards 
promulgated by the Department of Energy for refrigerators 
produced during 2001. An energy-efficient refrigerator is an 
automatic defrost refrigerator-freezer with an internal volume 
of at least 16.5 cubic feet.
    For each category of appliances (i.e., washers that meet 
the lower MEF standard, washers that meet the higher MEF 
standard, refrigerators that meet the 10 percent standard, 
refrigerators that meet the 15 percent standard), only 
production in excess of average production for each such 
category during calendar years 1998-2001 is eligible for the 
credit. Special proration rules for production in 2001. The 
taxpayer may not claim credits in excess of $30 million for all 
taxable years for appliances that qualify for the $50 credit, 
and may not claim credits in excess of $30 million for all 
taxable years for appliances that qualify for the $100 credit. 
Additionally, the credit allowed for all appliances may not 
exceed two percent of the average annual gross receipts of the 
taxpayer for the three taxable years preceding the taxable year 
in which the credit is determined. The present-law carry back 
rules of the general business credit generally apply except 
that no credit attributable to an energy-efficient appliance 
may be carried back before the effective date of this 
provision.

                             EFFECTIVE DATE

    The credit applies to appliances produced after the date of 
enactment of the bill and prior to (1) January 1, 2005 in the 
case of refrigerators that only meet the 10 percent credit 
standard, or (2) January 1, 2007 in the case of all other 
qualified energy-efficient appliances.

     F. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES


          (Sec. 108 of the Bill and New Sec. 25E of the Code)


                              PRESENT LAW

    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present law credit for energy efficiency 
improvements to existing homes.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use for 
heating and cooling represents a large share of national energy 
consumption, and accordingly believes that measures to reduce 
heating and cooling energy requirements have the potential to 
substantially reduce national energy consumption. The Committee 
further recognizes that many existing homes are inadequately 
insulated. Accordingly, the Committee believes that a tax 
credit for certain energy-efficiency improvements related to a 
home's envelope (exterior windows (including skylights) and 
doors, insulation, and certain roofing systems) will encourage 
homeowners to improve the insulation of their homes, which in 
turn will reduce national energy consumption.

                        EXPLANATION OF PROVISION

    The provision provides a 20-percent nonrefundable credit 
for the purchase of qualified energy efficiency improvements. 
The maximum credit for a taxpayer with respect to the same 
dwelling for all taxable years is $2,000. A qualified energy 
efficiency improvement is any energy efficiency building 
envelope component that meets or exceeds the prescriptive 
criteria for such a component established by the 1998 
International Energy Conservation Code, and (1) that is 
installed in or on a dwelling located in the United States; (2) 
owned and used by the taxpayer as the taxpayer's principal 
residence; (3) the original use of which commences with the 
taxpayer; and (4) such component reasonably can be expected to 
remain in use for at least five years. In the case of 
expenditures that exceed $1,000, certain certification 
requirements must be met to establish that the energy 
efficiency standards have been met.
    Building envelope components are: (1) insulation materials 
or systems which are specifically and primarily designed to 
reduce the heat loss or gain for a dwelling; (2) exterior 
windows (including skylights) and doors; and (3) metal roofs 
with appropriate pigmented coating which are specifically and 
primarily designed to reduce the heat loss or gain for a 
dwelling.
    The taxpayer's basis in the property is reduced by the 
amount of the credit. Special rules apply in the case of 
condominiums and tenant-stockholders in cooperative housing 
corporations.

                             EFFECTIVE DATE

    The credit is effective for qualified energy efficiency 
improvements installed after December 31, 2001 and before 
January 1, 2007.

   G. BUSINESS CREDIT FOR CONSTRUCTION OF NEW ENERGY-EFFICIENT HOMES


          (Sec. 109 of the Bill and New Sec. 45H of the Code)


                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for the construction of new 
energy-efficient homes.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use for 
heating and cooling represents a large share of national energy 
consumption, and accordingly believes that measures to reduce 
heating and cooling energy requirements have the potential to 
substantially reduce national energy consumption. The Committee 
further recognizes that the most cost-effective time to 
properly insulate a home is when it is under construction. 
Accordingly, the Committee believes that a tax credit for the 
use of energy-efficiency components in a home's envelope 
(exterior windows (including skylights) and doors, insulation, 
and certain roofing systems) or heating and cooling appliances 
will encourage contractors to produce highly energy-efficient 
homes, which in turn will reduce national energy consumption.

                        EXPLANATION OF PROVISION

    The provision provides a credit to an eligible contractor 
for energy-efficient property installed in a qualified new 
energy-efficient home during construction. The credit is equal 
to the aggregate adjusted bases of all qualified new energy-
efficient property, subject to a $2,000 limit per dwelling.
    The eligible contractor is the person who constructs the 
home, or in the case of a manufactured home, the producer of 
such home. Energy efficiency property is any energy-efficient 
building envelope component (insulation materials, exterior 
windows and doors, metal roofs with appropriate pigmented 
coatings) and any energy-efficient heating or cooling 
appliance.
    To qualify as an energy-efficient new home, the home must 
be: (1) a dwelling located in the United States; (2) the 
principal residence of the person who acquires the dwelling 
from the eligible contractor; and (3) 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. Other rules apply.

                             EFFECTIVE DATE

    The credit applies any home whose construction is 
substantially completed after December 31, 2001 and which are 
purchased during the period beginning on January 1, 2002 and 
ending on December 31, 2006.

  H. ALLOWANCE OF DEDUCTION FOR ENERGY-EFFICIENT COMMERCIAL BUILDING 
                                PROPERTY


          (Sec. 110 of the Bill and New Sec. 179B of the Code)


                              PRESENT LAW

    No special deduction is currently provided for expenses 
incurred for energy-efficient commercial building property.

                           REASONS FOR CHANGE

    The Committee recognizes that commercial buildings consume 
a significant amount of energy resources and that reductions in 
commercial energy use have the potential to significantly 
reduce national energy consumption. Accordingly, the Committee 
believes that a special deduction for commercial building 
property (lighting, heating, cooling, ventilation, and hot 
water supply systems) that meets a high energy-efficiency 
standard will encourage construction of buildings that are 
significantly more energy efficient than the norm. The 
Committee further believes that the special deduction will 
encourage innovation to reduce the costs of meeting the energy-
efficiency standard.

                        EXPLANATION OF PROVISION

    The provision provides a deduction equal to energy-
efficient commercial building property expenditures made by the 
taxpayer. Energy-efficient commercial building property 
expenditures are amounts paid or incurred for energy-efficient 
commercial building property installed in connection with the 
new construction or reconstruction of property: (1) which would 
otherwise be depreciable property; (2) which is located in the 
United States, and (3) the construction or erection of which is 
completed by the taxpayer. The deduction is limited to an 
amount equal to the product of $2.25 and the square footage of 
the property for which such expenditures were made. The 
deduction is allowed in the year in which the property is 
placed in service. The taxpayer's basis in the property is 
reduced by the amount of the deduction.
    Energy-efficient commercial building property means any 
property that 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 a Standard 90.1-1999 of the American Society of Heating, 
Refrigerating, and Air Conditioning Engineers and the 
Illuminating Engineering Society of North America.
    For public property, such as schools, the Secretary will 
issue regulations to allow the deduction to be allocated to the 
person primarily responsible for designing the property in lieu 
of the public entity owner. Other rules apply.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2001 and for property placed in service 
before January 1, 2007.

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


          (Sec. 111 of the Bill and New Sec. 179C of the Code)


                              PRESENT LAW

    No special deduction is currently provided for expenses 
incurred for qualified energy management devices.

                           REASONS FOR CHANGE

    The Committee believes that consumers could better manage 
their electricity and natural gas use if they had better 
information concerning its price. In the case of electricity, 
if time-of-day pricing is used, energy management devices that 
provide information to consumers regarding their peak 
electrical use and the time-of-day price variation could 
encourage consumers to defer certain electrical use, such as 
use of a clothes washer and dryer, to periods of the day when 
electricity prices are lower. In addition to reducing 
consumers' electricity bill, spreading the demand for 
electricity throughout the day will reduce the need for utility 
investments in generation capacity to satisfy peak demand 
periods.
    The Committee believes that a deduction for qualified 
energy management devices, in conjunction with a 3-year 
recovery period for qualified energy management devices 
provided in the bill, will provide sufficient incentive to 
encourage their adoption as a means for consumers to control 
electricity and natural gas usage.

                        EXPLANATION OF PROVISION

    The provision provides a deduction of up to $30 for each 
qualified new or retrofitted energy management device placed in 
service by any taxpayer who is a supplier of electric energy or 
natural gas or is a provider of electric energy or natural gas 
services. A qualified energy management device is any tangible 
property eligible for accelerated depreciation under section 
168 that enables consumers to manage their purchase or use of 
electricity in response to energy price and usage signals and 
that permits reading of energy price and usage signals on at 
least a daily basis. Property used predominantly outside of the 
United States is not eligible for the deduction.
    A taxpayer is required to reduce the adjusted basis of such 
property by the amount of the deduction. The deduction is not 
allowed for property used outside of the United States. Other 
rules apply.

                             EFFECTIVE DATE

    The provision is effective for any qualified energy 
management device placed in service after the date of enactment 
of the Act.

J. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF QUALIFIED 
                       ENERGY MANAGEMENT DEVICES


            (Sec. 112 of the Bill and Sec. 168 of the Code)


                              PRESENT LAW

    No special recovery period is currently provided for 
depreciation of qualified energy management devices.

                           REASONS FOR CHANGE

    The Committee believes that consumers could better manage 
their electricity and natural gas costs if they had better 
information concerning the price of electricity and natural gas 
use. In the case of electricity, if time-of-day pricing is 
used, energy management devices that provide information to 
consumers regarding their peak electrical use and the time-of-
day price variation could encourage consumers to defer certain 
electrical use, such as use of a clothes washer and dryer, to 
periods of the day when electricity prices are lower. In 
addition to reducing consumers' electricity bill, spreading the 
demand for electricity throughout the day will reduce the need 
for utility investments in generation capacity to satisfy peak 
demand periods.
    The Committee believes that a 3-year recovery period for 
qualified energy management devices, in conjunction with the 
special deduction for qualified energy management devices 
provided in the bill, will provide sufficient incentive to 
encourage their adoption as a means for consumers to control 
electricity and natural gas usage.

                        EXPLANATION OF PROVISION

    The provision provides a 3-year recovery period for 
qualified new or retrofitted energy management devices placed 
in service by any taxpayer who is a supplier of electric energy 
or natural gas or is a provider of electric energy or natural 
gas services. A qualified energy management device is any 
tangible property eligible for accelerated depreciation under 
code section 168 that enables consumers to manage their 
purchase or use of electricity in response to energy price and 
usage signals and that permits reading of energy price and 
usage signals on at least a daily basis. Property used 
predominantly outside of the United States is not eligible for 
the 3-year recovery period.

                             EFFECTIVE DATE

    The provision is effective for any qualified energy 
management device placed in service after the date of enactment 
of the Act.

      K. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY


             (Sec. 113 of the Bill and Sec. 48 of the Code)


                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for combined heat and power 
(``CHP'') property.

                           REASONS FOR CHANGE

    The Committee believes that investments in combined heat 
and power systems represent a promising means to achieve 
greater national energy efficiency by encouraging the dual use 
of the energy from the burning of fossil fuels. Furthermore, 
the on-site generation of electricity provided by CHP systems 
will reduce reliance on the United States' electricity grid. 
The Committee believes that providing a tax credit for 
investment in combined heat and power property will encourage 
investments in such systems.

                        EXPLANATION OF PROVISION

    The provision provides a 10-percent credit for the purchase 
of combined heat and power property.
    CHP property means property: (1) 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); (2) 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; (3) which produces at least 20 
percent of its totaluseful energy in the form of thermal energy 
and at least 20 percent in the form of electrical or mechanical power 
(or a combination thereof); and (4) whose energy efficiency percentage 
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 capacities).
    CHP property does not include property used to transport 
the energy source to the generating facility or to distribute 
energy produced by the facility.
    If a taxpayer is allowed a credit for CHP property, and the 
property would ordinarily have a depreciation class life of 15 
years or less, the depreciation period for the property is 
treated as having a 22-year class life. The present-law carry 
back rules of the general business credit generally apply 
except that no credits attributable to combined heat and power 
property may be carried back before the effective date of this 
provision.

                             EFFECTIVE DATE

    The credit applies to property placed in service after 
December 31, 2001 and before January 1, 2007.

L. ALLOW NONBUSINESS ENERGY CREDITS AGAINST THE ALTERNATIVE MINIMUM TAX


             (Sec. 114 of the Bill and Sec. 26 of the Code)


                              PRESENT LAW

    Present law imposes an alternative minimum tax on 
individuals in an amount equal to the excess of the tentative 
minimum tax over the regular tax liability. The tentative 
minimum tax is an amount equal to specified rates of tax 
imposed on the excess of the alternative minimum taxable income 
over an exemption amount.
    Generally, for taxable years beginning after December 31, 
2001, nonrefundable personal credits may not exceed the excess 
of the regular tax liability over the tentative minimum tax.

                           REASONS FOR CHANGE

    The Committee believes that the nonbusiness energy credits 
should be utilized by offsetting both the regular tax and the 
alternative minimum tax.

                        EXPLANATION OF PROVISION

    The provision allows the personal energy credits added by 
the bill to offset both the regular tax and the alternative 
minimum tax. These credits include the credit for residential 
solar energy property (sec. 25C), the credit for certain 
energy-efficient property (sec. 25D), and the credit for energy 
efficient improvements to existing homes (sec. 25E).

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2001.

M. REPEAL CERTAIN EXCISE TAXES ON RAIL DIESEL FUEL AND INLAND WATERWAY 
                              BARGE FUELS


       (Sec. 115 of the Bill and Secs. 4041 and 4042 of the Code)


                              PRESENT LAW

    Under present law, diesel fuel used in trains is subject to 
a 4.4-cents-per gallon excise tax. Revenues from 4.3 cents per 
gallon of this excise tax are retained in the General Fund of 
the Treasury. The remaining 0.1 cent per gallon is deposited in 
the Leaking Underground Storage Tank (``LUST'') Trust Fund.
    Similarly, fuels used in barges operating on the designated 
inland waterways system are subject to a 4.3-cents-per-gallon 
General Fund excise tax. This tax is in addition to the 20.1-
cents-per-gallon tax rates that are imposed on fuels used in 
these barges to fund the Inland Waterways Trust Fund and the 
Leaking Underground Storage Tank Trust Fund.
    In both cases, the 4.3-cents-per-gallon excise tax rates 
are permanent. The LUST tax is scheduled to expire after March 
31, 2005.

                           REASONS FOR CHANGE

    The Committee notes that in 1993, the Congress enacted the 
present-law 4.3-cents-per-gallon excise tax on motor fuels as a 
deficit reduction measure, with the receipts payable to the 
General Fund. Since that time, the Congress has diverted the 
4.3-cents-per-gallon excise tax for most uses to specified 
trust funds that provide benefits for those motor fuel users 
who ultimately bear the burden of these taxes. As a result, the 
Committee finds that generally only rail and barge operators 
remain as motor fuel users subject to the 4.3-cents-per-gallon 
excise tax who receive no benefits from a dedicated trust fund 
as a result of their tax burden. The Committee observes that 
rail and barge operators compete with other transportation 
service providers who benefit from expenditures paid from 
dedicated trust funds. The Committee concludes that, in light 
of the fact the Federal government is not running a deficit, it 
is inequitable and distortive of transportation decisions to 
continue to impose the 4.3-cents-per-gallon excise tax on 
diesel fuel used in trains and barges.

                        DESCRIPTION OF PROVISION

    Under the provision, the 4.3-cents-per-gallon General Fund 
excise tax on diesel fuel used in trains and fuels used in 
barges operating on the designated inland waterways system is 
repealed over a prescribed phase-out period. The 4.3-cents-per-
gallon tax would be reduced by 1 cent per gallon beginning on 
October 1, 2001 and through December 31, 2004. The reduction 
would be 2 cents per gallon in calendar years 2005 and 2006; 3 
cents per gallon in calendar years 2007 and 2008, and 4 cents 
per gallon in calendar year 2009. The tax would be fully 
repealed effective on January 1, 2010.

                             EFFECTIVE DATE

    The provision is effective on October 1, 2001.

            N. BTU-BASED RATE FOR DIESEL/WATER EMULSION FUEL


          (Sec. 116 of the Bill and 4081 and 6427 of the Code)


                              PRESENT LAW

    A 24.3 cents per gallon excise tax is imposed on diesel 
fuel to finance the Highway Trust Fund. Gasoline and most 
special motor fuels are subject to tax at 18.3 cents per gallon 
for the Trust Fund. The statutory rate for certain special 
motor fuels is determined on an energy equivalent basis, as 
follows:

Liquefied petroleum gas (propane): 13.6 cents per gallon
Liquefied natural gas: 11.9 cents per gallon
Methanol derived from petroleum or natural gas: 9.15 cents per 
        gallon
Compressed natural gas: 48.54 cents per MCF

    No special tax rate is provided for diesel fuel blended in 
a water emulsion fuel.

                           REASONS FOR CHANGE

    The Highway Trust Fund taxes are structured to reflect use 
of the highway system. Because diesel/water emulsion fuels have 
fewer Btu's, larger quantities must be purchased to travel the 
same number of miles as regular diesel fuel. A Btu-based tax 
rate better correlates highway use and tax paid. The committee 
further understands that the diesel fuel/water emulsion fuel 
may reduce air pollutants relative to regular diesel fuel and 
believes that the Btu-based rate, by removing a tax 
disadvantage to use of the fuel, will be beneficial to the 
environment.

                        EXPLANATION OF PROVISION

    A special tax rate of 19.7 cents per gallon is provided for 
diesel fuel blended with water into a diesel/water emulsion 
fuel to reflect the reduced Btu content per gallon resulting 
from the water. Emulsion fuels eligible for the special rate 
must consist of not more than 86 percent diesel fuel (and other 
minor chemical additives to enhance combustion) and at least 14 
percent water.

                             EFFECTIVE DATE

    The provision applies to fuels removed after September 30, 
2001.

     O. INVESTMENT AND PRODUCTION CREDITS FOR CLEAN COAL TECHNOLOGY


      (Sec. 118 of the Bill and New Secs. 48A and 45K of the Code)


                              PRESENT LAW

    Present law does not provide an investment credit for 
electricity generating facilities that use coal as a fuel. Nor 
does present law provide a production credit for electricity 
generated at facilities that use coal as a fuel. However, a 
nonrefundable, 10-percent investment tax credit (``business 
energy credit'') is allowed for the cost of new equipment (1) 
that uses solar energy to generate electricity, to heat or cool 
a structure, or to provide solar process heat, or (2) that is 
used to produce, distribute, or use energy derived from a 
geothermal deposit, but only, in the case of electricity 
generated by geothermal power, up to the electric transmission 
stage (sec. 48). Also, an income tax credit is allowed for the 
production of electricity from either qualified wind energy, 
qualified ``closed-loop'' biomass, or qualified poultry waste 
facilities (sec. 45). The credit allowed equals 1.5 cents per 
kilowatt-hour of electricity sold. The 1.5 cent figure is 
indexed for inflation and equals 1.7 cents for 2001. The credit 
is allowable for production during the 10-year period after a 
facility is originally placed in service. The business energy 
tax credits and the production tax credit are components of the 
general business credit (sec. 38(b)(1)).

                           REASONS FOR CHANGE

    The committee recognizes that coal is the nation's most 
abundant fuel source. The committee believes that to 
effectively tap this resource new technologies need to be 
developed. Towards that end, the committee believes it is 
appropriate to provide investment and production credits to a 
limited number of experimental production-scale electricity 
generating facilities to reduce the cost of building and 
operating facilities that represent the frontier of thermal 
efficiency and pollution control.

                        EXPLANATION OF PROVISION

    The provision provides a 10-percent investment tax credit 
for qualified investments in advanced clean coal technology 
facilities. Qualifying advanced clean coal electricity 
production facilities must utilize advanced pulverized coal or 
atmospheric fluidized bed combustion technology and must meet 
certain capacity, thermal efficiency, and emissions standards. 
In addition, to be a qualified investment in advanced clean 
coal technology, the taxpayer must receive a certificate from 
the Secretary of the Treasury. The Secretary may grant 
certificates to investments only to the point that 7,500 
megawatts of electricity production capacity qualifies for the 
credit. The taxpayer's basis in the property is reduced by the 
amount of any credit claimed.
    The provision also provides a production credit for 
electricity produced from a qualified advanced clean coal 
technology electricity generation unit. The production credit 
is claimed on the sum of each kilowatt-hour of electricity 
produced and the heat value of other fuels or chemicals 
produced by the taxpayer at the facility. The value of the 
credit (indexed for inflation) varies depending upon the year 
the facility was placed in service and the rated thermal 
efficiency of the facility. The production credit may be 
claimed for the 10-year period commencing with the date the 
qualifying facility is placed in service, with the credit 
allowable in the second five years less (before making any 
inflation adjustment) than that allowable for the first five 
years.

                             EFFECTIVE DATE

    The provisions relating to investments and electricity 
production related to advanced clean coal technology are 
effective for periods after December 31, 2001.

                         TITLE II--RELIABILITY


     A. NATURAL GAS GATHERING LINES TREATED AS SEVEN-YEAR PROPERTY


         (Sec. 201 of the Bill and Sec. 168 and 56 of the Code)


                              PRESENT LAW

    The applicable recovery period for assets placed in service 
under the Modified Accelerated Cost Recovery System is based on 
the ``class life of the property.'' The class lives of assets 
placed in service after 1986 are generally set forth in Revenue 
Procedure 87-56.\2\ Revenue Procedure 87-56 includes two asset 
classes that could describe natural gas gathering lines owned 
by nonproducers of natural gas. Asset class 46.0, describing 
pipeline transportation, provides a class life of 22 years and 
a recovery period of 15 years. Asset class 13.2, describing 
assets used in the exploration for and production of petroleum 
and natural gas deposits, provides a class life of 14 years and 
a depreciation recovery period of seven years. The uncertainty 
regarding the appropriate recovery period of natural gas 
gathering lines has resulted in litigation between taxpayers 
and the IRS. Recently, the 10th Circuit Court of Appeals held 
that natural gas gathering lines owned by nonproducers falls 
within the scope of Asset class 13.2 (i.e., 7-year recovery 
period).\3\
---------------------------------------------------------------------------
    \2\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
    \3\ Duke Energy v. Commissioner, 172 F.3d 1255 (10th Cir. 1999), 
rev'g 109 T.C. 416 (1997). See also True v. United States, 97-2 U.S. 
Tax Cas. (CCH) par. 50,946 (D. Wyo. 1997).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes the appropriate recovery period for 
natural gas gathering lines is seven years.

                        EXPLANATION OF PROVISION

    The provision establishes a statutory 7-year recovery 
period and a class life of 10 years for natural gas gathering 
lines. In addition, the provision provides that there would be 
no adjustment to the allowable amount of depreciation for 
purposes of computing a taxpayer's alternative minimum taxable 
income with respect to such property. A natural gas gathering 
line is defined to include any pipe, equipment, and 
appurtenance that is (1) determined to be a gathering line by 
the Federal Energy Regulatory Commission, or (2) used to 
deliver natural gas from the wellhead or a common point to the 
point at which such gas first reaches (a) a gas processing 
plant, (b) an interconnection with an interstate transmission 
line, (c) an interconnection with an intrastate transmission 
line, or (d) a direct interconnection with a local distribution 
company, a gas storage facility, or an industrial consumer.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment. No inference is intended as to the 
proper treatment of natural gas gathering lines placed in 
service before the date of enactment.

     B. NATURAL GAS DISTRIBUTION LINES TREATED AS TEN-YEAR PROPERTY


         (Sec. 202 of the Bill and Sec. 168 and 56 of the Code)


                              PRESENT LAW

    The applicable recovery period for assets placed in service 
under the Modified Accelerated Cost Recovery System is based on 
the ``class life of the property.'' The class lives of assets 
placed in service after 1986 are generally set forth in Revenue 
Procedure 87-56.\4\ Natural gas distribution pipelines are 
assigned a 20-year recovery period and a class life of 35 
years.
---------------------------------------------------------------------------
    \4\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes the importance of modernizing our 
aging energy infrastructure to meet the demands of the twenty-
first century, and the Committee also recognizes that both 
short-term and long-term solutions are required to meet this 
challenge. The Committee understands that investment in our 
energy infrastructure has not kept pace with the nation's 
needs. In light of this, the Committee believes it is 
appropriate to reduce the recovery period for investment in 
certain energy infrastructure property to encourage investment 
in such property.

                        EXPLANATION OF PROVISION

    The provision establishes a statutory 10-year recovery 
period and a class life of 20 years for natural gas 
distribution lines. In addition, the provision provides that 
there would be no adjustment to the allowable amount of 
depreciation for purposes of computing a taxpayer's alternative 
minimum taxable income with respect to such property.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment.

     C. PETROLEUM REFINING PROPERTY TREATED AS SEVEN-YEAR PROPERTY


         (Sec. 203 of the Bill and Sec. 168 and 56 of the Code)


                              PRESENT LAW

    The applicable recovery period for assets placed in service 
under the Modified Accelerated Cost Recovery System is based on 
the ``class life of the property.'' The class lives ofassets 
placed in service after 1986 are generally set forth in Revenue 
Procedure 87-56.\5\ Asset class 13.3, describing petroleum refining, 
provides a class life of 16 years and a recovery period of 10 years.
---------------------------------------------------------------------------
    \5\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes the importance of modernizing our 
aging energy infrastructure to meet the demands of the twenty-
first century, and the Committee also recognizes that both 
short-term and long-term solutions are required to meet this 
challenge. The Committee understands that investment in our 
energy infrastructure has not kept pace with the nation's 
needs. The National Energy Policy Development Group indicates 
that petroleum refineries are now operating at nearly 100 
percent capacity and that there has been little investment in 
such assets in the past ten years. In light of this, the 
Committee believes it is appropriate to reduce the recovery 
period for investment in petroleum refining assets to spur 
investment in such property to ensure an adequate supply of 
petroleum products for the nation.

                        EXPLANATION OF PROVISION

    The provision establishes a statutory 7-year recovery 
period and a class life of 10 years for assets used in 
petroleum refining. In addition, the provision provides that 
there would be no adjustment to the allowable amount of 
depreciation for purposes of computing a taxpayer's alternative 
minimum taxable income with respect to such property.
    Petroleum refining assets are defined to include assets 
used for the distillation, fractionation, and catalytic 
cracking of crude petroleum into gasoline and its other 
components.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
on or after the date of enactment.

  D. Expensing of Capital Costs Incurred and Credit for Production in 
   Complying with Environmental Protection Agency Sulfur Regulations


    (Sec. 204 of the Bill and Sec. 179 and New Sec. 45I of the Code)


                              PRESENT LAW

    Taxpayers generally may recover the costs of investments in 
refinery property through annual depreciation deductions. 
Present law does not provide a credit for the production of 
low-sulfur diesel fuel.

                           REASONS FOR CHANGE

    The committee believes it is important for all refiners to 
meet applicable pollution control standards. However, the 
committee is concerned that the cost of complying with the 
Highway Diesel Fuel Sulfur Control Requirement of the 
Environmental Protection Agency may force some small refiners 
out of business. To maintain this refining capacity and to 
foster compliance with pollution control standards the 
committee believes it is appropriate to modify cost recovery 
provisions for small refiners to reduce their capital costs of 
complying with the Highway Diesel Fuel Sulfur Control 
Requirement of the Environmental Protection Agency.

                        EXPLANATION OF PROVISION

    The bill permits small business refiners to claim an 
immediate deduction (i.e., expensing) for up to 75 percent of 
the costs paid or incurred for the purpose of complying with 
the Highway Diesel Fuel Sulfur Control Requirements of the 
Environmental Protection Agency (``EPA''). In addition, the 
provision provides that a small business refiner may claim 
credit equal to five cents per gallon for each gallon of low 
sulfur diesel fuel produced during the taxable year. The total 
production credit claimed by the taxpayer is limited to 25 
percent of the capital costs incurred to come into compliance 
with the EPA diesel fuel requirements. The taxpayer's basis in 
such property is reduced by the amount of production credit 
claimed. Recapture of the credits occurs for failure to comply 
with EPA regulations, cessation of operation, or certain 
changes in ownership.
    For these purposes a small business refiner is a taxpayer 
who is within the business of refining petroleum products 
employs not more than 1,500 employees directly in refining and 
has less than 155,000 barrels per day (average) of total 
refinery capacity.

                             EFFECTIVE DATE

    The provision is effective for expenses paid or incurred 
after the date of enactment.

 E. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION DEDUCTION


            (Sec. 206 of the Bill and Sec. 613A of the Code)


                              PRESENT LAW

    Present law classifies oil and gas producers as independent 
producers or integrated companies. The Code provides numerous 
special tax rules for operations by independent producers. One 
such rule allows independent producers to claim percentage 
depletion deductions rather than deducting the costs of their 
asset, a producing well, based on actual production from the 
well (i.e., cost depletion).
    A producer is an independent producer only if its refining 
and retail operations are relatively small. For example, an 
independent producer may not have refining operations the runs 
from which exceed 50,000 barrels on any day in the taxable year 
during which independent producer status is claimed.

                           REASONS FOR CHANGE

    The Committee believes that the goal of present law, to 
identify producers without significant refining capacity, can 
be achieved while permitting more flexibility to refinery 
operations.

                        EXPLANATION OF PROVISION

    The provision increases the current 50,000-barrel-per-day 
limitation to 75,000. In addition, the provision changes the 
refinery limitation on claiming independent producer status 
from a limit based on actual daily production to a limit based 
on average daily production for the taxable year. Accordingly, 
the average daily refinery run for the taxable year may not 
exceed 75,000 barrels. For this purpose, the taxpayer 
calculates average daily production by dividing total 
production for the taxable year by the total number of days in 
the taxable year.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2001.

 F. MODIFICATIONS TO RULES GOVERNING ISSUANCE OF TAX-EXEMPT BONDS FOR 
                        PUBLIC POWER FACILITIES


          (Sec. 207 of the Bill and New Sec. 141A of the Code)


In general

    Interest on debt \6\ incurred by States or local 
governments is excluded from income if the proceeds of the 
borrowing are used to carry out governmental functions of those 
entities or the debt is repaid with governmental funds (sec. 
103).\7\ Interest on bonds that nominally are issued by States 
or local governments, but the proceeds of which are used 
(directly or indirectly) by a private person and payment of 
which is derived from funds of such a private person (``private 
activity bonds'') is taxable, unless the purpose of the 
borrowing is approved specifically in the Code or in another 
provision of a revenue Act. The term ``private person'' 
generally includes the Federal Government and all other 
individuals and entities other than States or local 
governments.\8\
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    \6\ Hereinafter referred to as ``State or local government bonds,'' 
even though not all tax-exempt debt results in the issuance of a formal 
bond (e.g., installment sales agreements are treated as bonds).
    \7\ Interest on this debt is included in calculating the ``adjusted 
current earnings'' preference of the corporate alternative minimum tax.
    \8\ Interest on Federal debt is taxable. However, unlike most State 
or local government debt, Federal debt benefits from the Federal 
Government's guarantee of repayment. The Code includes limited 
exceptions allowing the combination of these benefits, generally for 
programs that were in existence before enactment of the Tax Reform Act 
of 1984.
    One such exception allows certain tax-exempt financing of State or 
local government facilities that transmit and distribute electric power 
supplied by the Bonneville Power Administration (the ``BPA''), a 
Federal instrumentality. In addition, section 1316(d) of the Tax Reform 
Act of 1986 codified a prior-law Treasury Department regulation that 
treated the BPA as a State or local government unit rather than as a 
Federal entity. These exceptions are unique to the BPA; other Federal 
power agencies are treated as Federal entities and are not permitted to 
benefit from tax-exempt financing or to guarantee such financing.
---------------------------------------------------------------------------
    The general structure of the rules for determining whether 
a tax-exempt bond is a governmental or a private activity bond 
was established in 1968. The Tax Reform Act of 1986 (the ``1986 
Act'') further restricted the amount of private use that may be 
financed before a State or local government bond is classified 
as a private activity bond, and enacted extensive additional 
restrictions on tax-exempt financing generally.
    The provision of electric service (generation, 
transmission, distribution, and retailing) is an activity 
eligible for financing with governmental tax-exempt bonds when 
the financed facilities are used by or paid for by a State or 
local governmental entity (e.g., ``public power'').\9\ As with 
other governmental activities, public power entities also are 
eligible for limited tax-exempt financing of working capital 
costs (e.g., salaries of employees and similar expenses). 
Except as described below, IOUs and co-ops generally are not 
eligible for tax-exempt financing of their facilities. With the 
exception of certain charitable organizations that are 
described in Code section 501(c)(3), private businesses are not 
eligible to finance working capital costs with tax-exempt bonds 
(except with proceeds of a permitted five-percent ``bad money'' 
portion of a bond issue which may be used for any type of 
expenditure).
---------------------------------------------------------------------------
    \9\ Section 115 also exempts the income that States and local 
governments derive from the operation of public power systems as 
governmental activities.
---------------------------------------------------------------------------

Classification of bonds as private activity bonds

    Present law provides two tests for determining whether a 
State or local government bond is, in substance, a private 
activity bond (sec. 141(b) and (c)).
    Private business test.--Private business use and private 
payments result in State or local government bonds being 
private activity bonds if both parts of a two-part private 
business test are violated----
          (1) More than 10 percent of the bond proceeds is to 
        be used (directly or indirectly) by a private business 
        (the ``private business use test''); and
          (2) More than 10 percent of the debt service on the 
        bonds directly or indirectly is secured by an interest 
        in property to be used for a private business use or is 
        to be derived from payments in respect of such property 
        (the ``private payment test'').
    The 10-percent private business use and payment threshold 
is reduced to five percent for private business uses that are 
unrelated to a governmental purpose also being financed with 
proceeds of the bond issue. For example, a privately operated 
cafeteria in a government office building financed as part of 
the building's construction could represent a related private 
business use. On the other hand, a separate, private 
manufacturing facility financed with proceeds of the same bond 
issue would constitute an unrelated private business use of 
bond proceeds. Additionally, as described more fully below, 
since enactment of the 1986 Act, the 10-percent private 
business use and private payment thresholds are phased-down for 
larger bond issues forthe financing of certain ``output'' 
facilities. The term output facility includes electric generation, 
transmission, and distribution facilities.
    Private business use generally includes any use by a 
business entity (including the Federal Government), which 
occurs pursuant to terms not generally available to the general 
public. For example, if bond-financed property is leased to a 
private business (other than pursuant to certain short-term 
leases for which safe harbors are provided under Treasury 
Department regulations), bond proceeds used to finance the 
property are treated as used in a private business use, and 
rental payments are treated as securing the payment of the 
bonds. Similarly, in the case of public power entities, if 
output of an electric generating plant or transmission or 
distribution facilities is provided to a private business on 
terms not generally available to other customers of the entity, 
an allocable portion of bonds financing the facilities is 
treated as used in a private business use and as secured by the 
payments from the private business.\10\
---------------------------------------------------------------------------
    \10\ See, Joint Committee on Taxation, General Explanation of the 
Tax Reform Act of 1986, (JCS-10-87), May 4, 1987, stating as follows:

      The determination of who uses bond proceeds or bond-
      financed property generally is made by reference to the 
      ultimate user of the proceeds or property. . . . [B]ond 
      proceeds used to satisfy contractual obligations undertaken 
      in connection with general governmental operations, such as 
      payment of government salaries, or to pay legal judgments 
      against a governmental unit, are not treated as used in the 
      business of the payee. This is to be contrasted with the 
      indirect nongovernmental private use of bond proceeds that 
      occurs when a government contracts with a nongovernmental 
      person to supply that person's trade or business with a 
      service (e.g., electric energy) on a basis different from 
      that on which the service is provided to the public 
      generally or to finance property used in that person's 
      business (e.g., a manufacturing plant). In both of these 
      instances a nongovernmental person is considered to use the 
      bond proceeds other than as a member of the general public. 
---------------------------------------------------------------------------
      (p. 1160)

    Private business use also can arise when a governmental 
entity contracts for the operation of a governmental facility 
by a private business under a management contract that does not 
satisfy Treasury Department regulatory safe harbors regarding 
the types of payments made to the private operator and the 
length of the contract.\11\ These rules require public power 
entities to restrict the period of contracts with private 
businesses as well as the aggregate amount of electric service 
provided to private businesses on terms that are not generally 
available to customers of the entity, if interest on their 
bonds is to remain tax-exempt.
---------------------------------------------------------------------------
    \11\ See Treas. Reg. sec. 1.141-3(b)(4) and Revenue Procedure 97-
13, 1997-1 C.B. 632.
---------------------------------------------------------------------------
    Private loan test.--The second standard for determining 
whether a State or local government bond is a private activity 
bond is whether an amount exceeding the lesser of (1) five 
percent of the bond proceeds or (2) $5 million is used directly 
or indirectly to finance loans to private persons. Private 
loans include both business and other (e.g., personal) uses and 
payments by private persons; however, in the case of business 
uses and payments, all private loans also constitute private 
business uses and payments subject to the private business 
test.
    Present law provides that the substance, rather than the 
form, of a transaction governs in determining whether a 
transaction gives rise to a private loan. In general, any 
transaction, which transfers tax ownership of property to a 
private person, is treated as a loan. In the context of 
electric facilities, longer-term contracts for the sale of 
electricity may violate the private loan test, because these 
contracts have the substantive characteristics of a loan.
Special legislative rules for tax-exempt financing of governmental 
        ``output'' facilities
    In addition to the general private business use and payment 
tests, the Code includes three specific provisions governing 
the issuance of governmental tax-exempt bonds to finance 
electric service facilities.
    $15 million limit on private business use.--As stated 
above, the 1986 Act provided an additional restriction on 
private business use of State or local government bonds whose 
proceeds are to be used to finance ``output'' facilities.\12\ 
Output facilities include, inter alia, facilities for electric 
and gas generation, transmission, and distribution. A bond is 
treated as issued to finance an output facility (and subject to 
this restriction) if five percent or more of the proceeds is to 
be used with respect to any output facility. Under this 
restriction, the 10-percent private business use and private 
payment tests in substance are phased down for facilities that 
receive more than $15 million in tax-exempt bond financing. 
Significantly, unlike most tax-exempt bond restrictions, which 
are determined on a bond-issue-by-bond-issue basis, this 
restriction is measured by reference to all outstanding tax-
exempt financing from which a facility benefits.
---------------------------------------------------------------------------
    \12\ Sec. 141(b)(4).
---------------------------------------------------------------------------
    Special rules disregarding certain private business use 
under the private activity bond tests.--The legislative history 
accompanying the 1986 Act further clarified that certain sales 
of electric power by public power entities to private 
businesses generally are disregarded in applying the private 
business and private loan tests. For example, the presence of a 
nongovernmental person acting solely as a conduit for exchange 
of electric output among governmentally owned and operated 
public power entities are to be disregarded. In addition, 
exchange agreements that provide for ``swapping'' of 
electricity between governmentally owned and operated entities 
and IOUs do not give rise to private business use when (1) the 
``swapped'' amounts are approximately equal over a period of 
one year or less, (2) the electricity is swapped pursuant to an 
arrangement which does not involve output-type contracts, and 
(3) the purpose of the arrangements is to enable the parties to 
satisfy differing peak load demands or to accommodate temporary 
outages.\13\ Finally, the legislative history of the 1986 Act 
provides that ``spot sales'' of excess power capacity for 
temporary periods not exceeding 30 days do not violate the 
private business tests.
---------------------------------------------------------------------------
    \13\ See, Joint Committee on Taxation, General Explanation of the 
Tax Reform Act of 1986, (JCS-10-87), May 4, 1987 at 1164.
---------------------------------------------------------------------------
    Bonds for acquisition of existing output property per se 
private activity.--In general, any bond with respect to which 
five percent or more ($5 million if less) of the proceeds is to 
be used, directly or indirectly, by a governmental entity to 
acquire existing output property is per se a private activity 
bond.\14\ As such, interest on the bond is taxable, unless the 
use of the acquired facility satisfies the provisions 
applicable to tax-exempt private activity bonds for the local 
furnishing of electricity, including receipt of an allocation 
of the applicable State's annual private activity bond volume 
authority (described below). The two-county (or a city and a 
contiguous county) service area requirement that applies to 
facilities for the local furnishing of electricity does not 
apply in this circumstance.
---------------------------------------------------------------------------
    \14\ Sec. 141(d). A permanent exception allows the Long Island 
Power Authority to issue governmental tax-exempt bonds for the 
acquisition of the Long Island Lighting Company (``LILCO'') and 
conversion of that electric utility from a private investor-owned 
utility to a public power entity. Pub. L. No. 100-203, sec. 10631(c)(3) 
(1987).
---------------------------------------------------------------------------
    There are two exceptions to the rule regarding the 
acquisition of existing output property. First, the rule does 
not apply to bonds for the acquisition of existing facilities 
that will provide service in a ``qualified service area'' of 
the issuer. A qualified service area is defined as an area 
throughout which the acquiring entity has provided electric 
service for at least the 10-year period preceding the date of 
the acquisition. Second, the rule does not apply to bonds 
issued to acquire existing output property to be used in a 
``qualified annexed area'' of a public power entity. The term 
qualified annexed area includes only areas (1) that are 
contiguous to existing service areas, (2) that are annexed for 
general governmental purposes, and (3) the size of which does 
not exceed 10 percent of the public power entity's service area 
before the annexation occurs.

Temporary Treasury regulations

    On January 18, 2001, the Treasury Department issued 
temporary and proposed regulations to provide guidance to 
issuers of governmental bonds for output facilities (``the 
regulations''). The regulations provide special rules for 
determining whether arrangements for the purchase of output 
from an output facility cause an issue of bonds to meet the 
private business tests. The regulations replace temporary and 
proposed regulations issued in January of 1998. The regulations 
generally apply to bonds sold on or after January 19, 2001, and 
are scheduled for a public hearing before the IRS on July 24, 
2001. The regulations generally allow public power entities to 
participate in certain electric industry restructuring 
arrangements without endangering tax-exemption for interest on 
their bonds.
            General rule
    The regulations provide that purchase by a private person 
of available output of an output facility financed with the 
proceeds of an issue is taken into account under the private 
business tests if the purchase has the effect of (1) 
transferring substantial benefits of owning the facility and 
(2) transferring substantial burdens of paying the debt service 
on bonds used to finance the facility (the benefits and burdens 
test).\15\ An arrangement transfers substantial benefits if it 
provides the purchaser with rights to bond-financed property 
that are preferential to the rights of the general public. An 
arrangement transfers substantial burdens of paying debt 
service to the extent the issuer reasonably expects that it is 
substantially certain that payments will be made under the 
terms of the contract (disregarding default, insolvency, or 
other similar circumstances).
---------------------------------------------------------------------------
    \15\ Temp. Treas. Reg. sec. 1.141-7T(c)(1) and (c)(2).
---------------------------------------------------------------------------
    Requirements contracts.--The regulations provide that 
requirements contracts give rise to private use provided the 
benefits and burden tests are met.\16\ Significant factors that 
tend to establish that a wholesale requirements contract 
results in private business use include, but are not limited 
to: (1) the purchaser's customer base has significant 
indicators of stability, (2) the contract covers historical 
requirements of the purchaser, and (3) the purchaser agrees not 
to construct or acquire other power resources to meet the 
requirements covered by the contract.
---------------------------------------------------------------------------
    \16\ Temp. Treas. Reg. sec. 1.141-7T(c)(4).
---------------------------------------------------------------------------
    Payments pursuant to pledged contract.--Payments made or to 
be made under the terms of an output contract that is pledged 
as security for an issue are taken into account under the 
private business tests even if the issuer reasonably expects 
that it is not substantially certain that payments will be made 
under the contract (disregarding default, insolvency, or other 
similar circumstances).
            Measuring available output
    Generation facilities.--Under the regulations, the private 
business use of a generating facility is generally measured 
based on the amount of ``output purchased'' by the private user 
divided by the available output of the facility. Available 
output is generally defined as the annual nameplate capacity of 
the generating facility multiplied by the number of years in 
the underlying bond's measurement period.\17\ Generally, the 
regulations provide that nameplate capacity is not reduced for 
reserves, maintenance or unutilized capacity.\18\
---------------------------------------------------------------------------
    \17\ Temp. Treas. Reg. sec. 1.141-7T(b)(1) and (b)(1)(i).
    \18\ Id.
---------------------------------------------------------------------------
    Transmission facilities.--For transmission facilities, the 
regulations provide that the available output of transmission 
facilities may be determined in a manner consistent with 
reporting rules and requirements for transmission networks 
promulgated by the Federal Energy Regulatory Commission.\19\
---------------------------------------------------------------------------
    \19\ Temp. Treas. Reg. sec. 1.141-7T(f)(4).
---------------------------------------------------------------------------
            Certain contracts not taken into account under the private 
                    business tests
    Small purchases of output.--The regulations provide that an 
output contract is not taken into account under the private 
business tests if the average annual payments under a contract 
that are substantially certain to be made by a private user do 
not exceed .05 percent of the averageannual debt service on all 
outstanding tax-exempt bonds issued to finance the facility determined 
as of the date of the contract.\20\
---------------------------------------------------------------------------
    \20\ Temp. Treas. Reg. sec. 1.141-7T(f)(1).
---------------------------------------------------------------------------
    Short term contracts.--Under the regulations, an output 
contract with a private user is not taken into account under 
the private business tests if: (1) the term of the contract 
(including renewal options) is not longer than one year; (2) 
the contract is an arm's length agreement that provides for 
compensation at fair market value, or is based on generally 
applicable and uniformly applied rates; and (3) the output 
facility was not financed for a principal purpose of providing 
that facility for use by a private person.\21\
---------------------------------------------------------------------------
    \21\ Temp. Treas. Reg. sec. 1.141-7T(f)(3).
---------------------------------------------------------------------------
    Excess generating capacity resulting from participation in 
open access.--The regulations contain an exception to the 
private use test for the sale of excess generating capacity due 
to participation in open access.\22\ Under the regulations, 
output sales attributable to excess generating capacity from 
participation in open access are not treated as private use if 
the following requirements are satisfied: (1) the term of the 
contract is not longer than three years (including renewal 
options); (2) the issuer does not make expenditures to increase 
the generating capacity of its system with tax-exempt bonds by 
more than three percent during the term of the contract; (3) 
the issuer offers open access transmission tariffs under rules 
promulgated by the Federal Energy Regulatory Commission under 
sections 205 and 206 of the Federal Power Act (or comparable 
provisions of State law); (4) all of the output sold under the 
contract is attributable to excess capacity resulting from open 
access transmission tariffs; and (5) all payments received by 
the issuer (less operating expenses) are promptly applied to 
redeem tax-exempt bonds that financed the facility.
---------------------------------------------------------------------------
    \22\ Temp. Treas. Reg. sec. 1.141-7T(f)(4).
---------------------------------------------------------------------------
            Special exceptions for transmission facilities
    The regulations include two exceptions for transmission and 
distribution facilities under which mandated wheeling, and 
actions taken to implement nondiscriminatory open access, will 
not be treated as deliberate actions resulting in private 
business use. The first exception is for contracts entered into 
in response to (or in anticipation of) an order under sections 
211 or 212 of the Federal Power Act (or comparable State laws). 
The terms of the contract must be bona fide and arm's length 
and the consideration paid must be consistent with the 
provisions of section 212(a) of the Federal Power Act. The 
second exception is for other actions taken by public power 
entities to implement the offering of non-discriminatory, open-
access tariffs for the use of transmission facilities financed 
by an issue in a manner consistent with rules promulgated by 
the Federal Energy Regulatory Commission under sections 205 and 
206 of the Federal Power Act (or comparable provisions of State 
law). The exceptions, however, do not apply to the sale, 
exchange, or other disposition of facilities to a private 
person.\23\
---------------------------------------------------------------------------
    \23\ Temp. Treas. Reg. sec. 1.141-7T(f)(5)(ii).
---------------------------------------------------------------------------

Issuance of tax-exempt bonds for private activities

    As stated above, interest on State or local government 
bonds to finance activities of private persons (both business 
and personal activities) is taxable unless a specific exception 
is contained in the Code (or in non-Code provision of a revenue 
Act). The Code includes exceptions permitting States or local 
governments to act as conduits providing tax-exempt financing 
for certain private activities. In most cases, the aggregate 
volume of these tax-exempt private activity bonds is restricted 
by annual aggregate volume limits imposed on bonds issued by 
issuers within each State. The Code further imposes several 
additional restrictions on tax-exempt private activity bonds 
that do not apply to bonds for governmental activities.
            Eligible activities
    In general.--States or local governments may issue tax-
exempt exempt-facility bonds to finance facilities for certain 
private businesses.\24\ Business uses eligible for this 
financing generally include transportation (airports, ports, 
local mass commuting, and high speed intercity rail 
facilities); privately owned and/or privately operated public 
works facilities (sewage, solid waste disposal, local district 
heating or cooling, and hazardous waste disposal facilities); 
privately-owned and/or operated low-income rental housing; and, 
certain private facilities for the local furnishing of 
electricity or gas. A further provision allows tax-exempt 
financing for ``environmental enhancements of hydro-electric 
generating facilities.'' This provision was enacted to permit 
tax-exempt financing of certain renovations to the dams and 
accompanying hydroelectric electric generating facilities along 
the Columbia River that are a part of the Bonneville Power 
Administration system.\25\
---------------------------------------------------------------------------
    \24\ A separate non-Code exception allows the State of Iowa to 
issue tax-exempt private activity bonds to finance an industrial new 
jobs program.
    \25\ Two additional non-Code provisions allow tax-exempt financing 
for certain electric generating facilities located in the State of 
Alaska. The first of these treats the Bradley Lake hydro-electric 
generating plant as a facility for the local furnishing of electricity. 
The second authorized issue of tax-exempt private activity bonds to 
finance the sale by the Federal Government of the Snettisham electric 
generating facility, also in Alaska, without satisfaction of the 
general rehabilitation requirement applicable to private activity 
bonds, because after the sale the facility's output is sold to an IOU 
in Juneau, Alaska.
---------------------------------------------------------------------------
    Tax-exempt financing is authorized for capital expenditures 
for certain manufacturing facilities and land and equipment for 
first-time farmers (``qualified small-issue bonds''), certain 
local redevelopment activities (``qualified redevelopment 
bonds''), and eligible empowerment zone and enterprise 
community businesses. Further, certain non-business private 
purposes may be financed with proceeds of these bonds: certain 
student loans, mortgage loans for first-time home buyers 
satisfying moderate income and home purchase price 
requirements, and mortgage loans generally for certain pre-1977 
veterans who purchase homes in any of the five States 
thathistorically authorized issuance of these bonds.\26\ Finally, both 
capital expenditures and limited working capital expenditures of 
charitable organizations described in section 501(c)(3) of the Code may 
be financed with tax-exempt bonds (``qualified 501(c)(3) bonds'').
---------------------------------------------------------------------------
    \26\ The five States are Alaska, California, Oregon, Texas, and 
Wisconsin. A non-Code exception allows the State of Texas to issue tax-
exempt private activity bonds to finance limited amounts of land for 
veterans (in addition to any veterans mortgage bonds that Texas may 
issue).
---------------------------------------------------------------------------
    Private activity bonds for the local furnishing of 
electricity.--Tax-exempt private activity bonds may be issued 
by States or local governments acting as conduits to finance 
generation, transmission, and distribution facilities for 
private businesses engaged in the local furnishing of 
electricity (``local furnishers''). A business is treated as 
engaged in local furnishing of electricity if the service 
territory in which the electricity is provided does not exceed 
(1) two contiguous counties, or (2) a city and a contiguous 
county. Historically, local furnishers eligible for this tax-
exempt financing have included both IOUs and independent power 
ventures. These bonds may be issued for the benefit of only 
those persons that were engaged in local furnishing of 
electricity in the service territory in which the new 
facilities will be used as of January 1, 1997, or in qualified 
expansions of those service territories. A ``qualified 
expansion'' is limited to service territory that is a part of a 
county in which the local furnisher was providing electric 
service on that date. For example, if a local furnisher was 
providing electric service to one county and a portion of a 
contiguous county on January 1, 1997, bonds may be issued for 
the continued provision of service both within that area and 
also for service to be provided in the remaining portion of the 
contiguous county in the future. In addition to persons 
actually engaged in local furnishing activities on January 1, 
1997, the Code allows certain successors in interest to persons 
that qualified as local furnishers on that date to ``step into 
the shoes'' of the predecessor local furnishers provided that 
the service territories served otherwise satisfy the 
requirements for local furnishing.
    Notwithstanding the general limits on service territories 
of local furnishers, the Code includes special rules allowing 
these electric service providers to transmit (``wheel'') 
electricity through their systems, if ordered by the Federal 
Energy Regulatory Commission to do so under sections 211 or 213 
of the Federal Power Act, provided that the size of the 
transmission lines or other facilities used in these wheeling 
activities does not exceed the capacity required to serve their 
otherwise qualified two county or city and a county service 
area.
    In general, if a local furnisher ceases to qualify as such, 
interest on outstanding tax-exempt bonds issued for its benefit 
becomes taxable, and interest payments by the local furnisher 
on loans securing the bonds becomes nondeductible. A special 
election allows local furnishers to avoid these penalties if 
the local furnishers do not benefit from any tax-exempt bonds 
issued after August 19, 1996. If that election is made, in lieu 
of loss of tax-exemption on outstanding bonds and loss of 
interest deductions on underlying loans, all outstanding bonds 
from which the local furnisher benefits must be redeemed no 
later than six months after the earliest date on which 
redemption is permitted under the bond covenants (or the date 
of the election, if later). This election must be made for all 
local furnishing facilities of the local furnisher rather than 
on a facility-by-facility or bond-issue by bond-issue basis.

            Additional restrictions imposed on private activity tax-
                    exempt bonds
    State volume limitations.--Issuance of most tax-exempt 
private activity bonds is subject to an annual volume 
limitation that each State receives. Each State (including 
local governments within the State) is allowed to issue an 
annual amount of these bonds not exceeding the greater of 
$62.50 per resident of the State or $187.5 million in calendar 
year 2001. These volume limits are scheduled to increase to $75 
per resident of the State or $225 million beginning in calendar 
year 2002. Beginning in calendar year 2003, the volume limit 
will be adjusted annually for inflation. States may elect to 
carryover their unused private activity bond volume authority 
for designated activities for a period of up to three years. 
Bond authority that is not used within the carryforward period 
lapses.
    This limit also applies to the private business portion of 
certain larger governmental bond issues; such private business 
use in excess of $15 million (and up to the permitted 10 
percent of the issue) must receive an allocation of State 
volume limitation for interest on the overall bond issue to be 
tax-exempt.\27\ Exceptions to the volume limitation are 
provided for bonds to finance airports, ports, solid waste 
disposal facilities (if governmentally owned), qualified 
501(c)(3) bonds, and high speed intercity rail facility bonds 
(if governmentally owned), and bonds for environmental 
enhancements of hydro-electric generating facilities. 
Additionally, bonds for privately owned high-speed intercity 
rail facilities are required to receive a State volume 
limitation allocation only for 25 percent of the amount of the 
bonds.
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    \27\ Unlike this general provision for larger governmental bond 
issues, the $15 million limit on private business use of output 
facility bonds, described above, is an absolute limit which may not be 
waived by an allocation of State private activity bond volume 
limitation.
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    Miscellaneous other restrictions.--Tax-exempt private 
activity bonds are subject to several other restrictions that 
do not apply to governmental bonds. These restrictions include 
the requirement of a public hearing and approval of their 
issuance by an appropriate elected governmental official, a 
prohibition on advance refundings,\28\ a restriction on the 
term to maturity of the bonds measured by reference to the 
economic lives of the property to be financed, minimum 
rehabilitation requirements for bonds used to finance 
acquisition of existing property, and, in general, slightly 
more restrictive limits on arbitrage profits that may be 
earned.\29\
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    \28\ The prohibition does not apply to qualified 501(c)(3) bonds. 
Governmental bonds and qualified 501(c)(3) bonds may be advance 
refunded one time. An advance refunding occurs when the refunded bonds 
remain outstanding for a period greater than 90 days after issuance of 
the refunding bonds. Advance refundings typically are undertaken 
because an issuer includes provisions in its original bond documents 
agreeing not to redeem the bonds before expiration of a minimum period. 
Advance refundings are used to restructure debt service generally, to 
eliminate restrictive covenants contained in outstanding bond 
documents, or to hedge against anticipated future interest rate 
increases by locking in for the future what is believed to be a 
favorable rate. In an advance refunding both the refunded and the 
refunding bonds remain outstanding until the refunded bonds may be 
redeemed under their contractual terms. Proceeds of the refunding bonds 
are deposited in a yield-restricted escrow account until that time.
    \29\ The Code in general limits the amount of arbitrage profits 
that may be earned on tax-exempt bonds and requires that most such 
profits be rebated to the Federal Government. These provisions are 
designed to preclude issuance of tax-exempt bonds earlier than 
necessary for the governmental or approved private activity which is 
the stated purpose of the borrowing or in larger amounts than required 
for the purpose. Absent such restrictions, State or local governments 
as tax-exempt entities could borrow at tax-exempt rates and invest in, 
for example, taxable Federal Government debt, as an income production 
undertaking. Such as undertaking would reduce Federal revenues by 
substituting tax-exempt debt for taxable debt in the hands of taxable 
bond investors.
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Penalties for violation of tax-exempt bond restrictions after issuance

            General change in use penalties and administrative 
                    alternatives
    In general, the determination of whether interest on State 
or local government bonds is tax-exempt is made when the bonds 
are issued. That is, the determination is made by reference to 
how the bond proceeds are ``to be used'' (sec. 141). 
Intentional acts after the date of issuance to use bond-
financed property (indirectly a use of bond proceeds) in a 
manner not qualifying for tax exemption may render interest on 
the bonds taxable, retroactive to the date of issuance (the 
``change in use rules''). Such a prohibited change in use may 
be illustrated by the subsequent sale of public power electric 
output to private businesses in a manner not qualifying for tax 
exemption after the bond-financed property is placed in 
service. Other privatization programs transferring the 
operation of State or local government programs to private 
businesses similarly can give rise to a prohibited change in 
use as can the sale or lease of bond-financed State or local 
government facilities to private businesses.
    Treasury Department regulations and an accompanying Revenue 
Procedure, provide alternative remedies to loss of tax-
exemption for certain changes in use of governmental bonds.\30\ 
The alternative remedies are available only if five conditions 
are satisfied:
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    \30\ Treas. Reg. sec. 1.141-12; Rev. Proc. 97-15, 1997-1 C.B. 635.
---------------------------------------------------------------------------
          (1) The issuer of the bonds must have reasonably 
        expected on the date of the borrowing that the bonds 
        would not meet the private business and private loan 
        tests (i.e., would not become private activity bonds) 
        for their entire term; \31\
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    \31\ Absent satisfaction of this reasonable expectations test, 
bonds are eligible for the alternative remedies only if the issuer (1) 
on the issue date, reasonably expected to use the bond-financed 
property in a qualified use for a substantial period, (2) redeems all 
nonqualified bonds within six months of any action changing that use to 
a nonqualified one, (3) has no arrangement with a private business as 
of the issue date regarding a nonqualified change in use, and (4) 
otherwise meets the regulatory remedial actions. The requirement that 
all nonqualified bonds be redeemed includes redemption in cases where 
bond-financed property is disposed of for less than the unpaid bond 
amount. In such cases, the issuer must make up any shortfall in the 
disposition proceeds from other sources to avoid bond interest being 
rendered taxable.
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          (2) The term of the bonds must not be longer than is 
        reasonably necessary for the governmental purposes of 
        the borrowing;
          (3) The change in use must result from a bona fide, 
        arm's length transaction for fair market value; \32\
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    \32\ The determination of fair market value may take into account 
restrictions on the use of the bond-financed property that serve ``a 
bona fide government purpose.''
---------------------------------------------------------------------------
          (4) Any disposition proceeds must be treated as 
        ``gross proceeds'' of the bond issue, subject to the 
        Code arbitrage rules; and
          (5) The bond proceeds must have been spent for the 
        purpose of the borrowing before the change in use 
        occurs (unless the bonds are redeemed) (Treas. Reg. 
        sec. 1.141-12(a)).
    If the five conditions are satisfied, four possible 
alternative remedies to loss of tax-exemption are available for 
post-bond-issuance actions violating the private business 
tests. First, all currently callable bonds may be redeemed 
within 90 days after the change in use and all other bonds may 
be defeased with a yield-restricted escrow and called on the 
first date when that action is permitted under the bond terms 
(Treas. Reg. sec. 1.141-12(d)).\33\ Second, in the case of 
dispositions entirely for cash where the bond issuer expects to 
spend the disposition proceeds within two years after the 
change in use, the disposition proceeds may be treated as bond 
proceeds and used accordingly, subject to all of the Code's 
tax-exempt bond provisions (Treas. Reg. sec. 1.141-12(e)). To 
the extent the disposition proceeds are not used for a 
qualifying use within the two-year period, bonds must be 
redeemed.
---------------------------------------------------------------------------
    \33\ The maximum period of the escrow account may not exceed 10-\1/
2\ years.
---------------------------------------------------------------------------
    A third remedy provides that loss of tax-exemption will not 
occur if bond-financed property is transferred in a transaction 
constituting a change in use from a governmental use to a use 
that is eligible for financing with tax-exempt private activity 
bonds provided that the issuer treats the bonds as reissued on 
the date the change in use occurs and satisfies rules 
applicable to the revised use of the bonds (including where 
applicable, allocation of State private activity bond volume 
limitation) (Treas. Reg. sec. 1.141-12(f)).\34\ The final 
alternative remedy to loss of tax-exemption allows the issuer 
to pay the Federal Government an amount equal to lost tax 
revenues from allowing nonqualified tax-exempt bonds to remain 
outstanding as tax-exempt (Rev. Proc. 97-15).
---------------------------------------------------------------------------
    \34\ Because the original tax-exempt bonds remain outstanding, a 
purchaser of property financed with tax-exempt bonds qualifying for 
this remedy is not permitted to finance any acquisition costs with 
additional tax-exempt bonds (e.g., tax-exempt exempt-facility bonds 
could not be issued to finance the transfer of a governmental solid 
waste disposal system to a private business).
---------------------------------------------------------------------------

Additional change in use penalties for private activity tax-exempt 
        bonds

    In addition to loss of tax-exemption on bond interest, 
conduit borrowers receiving tax-exempt private activity bond 
financing lose interest deductions on their underlying loans if 
the use of the bond-financed property changes to a non-
qualified use after issuance (the ``additional change-in-use 
rules''). For example, if the output of an IOU facility for the 
local furnishing of electric service is used to provide service 
beyond the permitted two county or city and a county area, 
interest paid by the IOU on loans underlying the tax-exempt 
bonds is nondeductible (sec. 150(b)(4)).\35\
---------------------------------------------------------------------------
    \35\ An exception to this rule, enacted in 1996 and described 
above, provided that this penalty and loss of tax-exemption on bonds 
not apply to bonds issued before August 20, 1996, in the case of 
service territory expansions by local furnishers of electricity or gas 
that elect to forego additional tax-exempt financing from bonds issued 
after August 19, 1996, and satisfy certain other conditions.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The committee determined that modifications to the tax-
exempt bond private business use rules are appropriate in light 
of the changing structure of the electric service industry.

                        EXPLANATION OF PROVISION

    The bill provides special, liberalized private business use 
rules for bonds issued by public power entities to finance 
electric output facilities when the entities participate in 
qualifying electric industry restructuring arrangements. These 
rules apply both to facilities financed with currently 
outstanding bonds and to certain facilities financed with bonds 
issued in the future. The bill further allows public power 
entities that engage in activities beyond those allowed under 
the liberalized private business use rules to elect to forego 
certain future issuances of tax-exempt bonds while preserving 
the tax-exempt status of their previously issued bonds. (This 
portion of the bill primarily affects electric generation 
facilities.) Finally, the bill modifies current rules regarding 
issuance of tax-exempt bonds for the acquisition of existing 
electric output facilities. The provision applies only to 
governmental bonds issued by public power entities. Thus, bond-
financed facilities must be governmentally owned, determined 
under generally applicable tax rules.

Liberalize private business use rules

    The bill provides that no private business use arises in 
transactions (that otherwise would violate present-law 
restrictions) that are either (1) ``permitted open access 
activities,'' or (2) ``permitted sales transactions.'' The 
effect of this provision is to protect the tax-exempt status of 
interest on previously issued electric output facility bonds 
and to allow future issuance of such bonds for facilities to be 
used consistent with the new rules.
    Permitted open access transmission and distribution 
activities are defined as--
    (1) Activities pursuant to an open access transmission 
tariff filed with and approved by the FERC \36\ (including an 
acceptable reciprocity tariff), but only if, in the case of a 
voluntarily filed tariff, the public power entity files a 
report with the FERC within 90 days of enactment relating to 
whether it will join a regional transmission organization 
(``RTO'').
---------------------------------------------------------------------------
    \36\ The term FERC includes the Public Utility Commission of Texas 
in the case of an ERCOT utility.
---------------------------------------------------------------------------
    (2) Activities under an RTO agreement approved by FERC. 
Permitted activities include the transfer of control (but not 
ownership) of transmission facilities.
    (3) Delivery on a nondiscriminatory open access basis of 
electric energy sold to end-users served by distribution 
facilities owned by the public power entity or of electric 
energy generated by generation facilities connected to 
distribution facilities owned by that entity.

            Permitted sales
    The category of permitted sales transactions relates to 
sales from existing generation facilities and is in addition to 
any sales allowed as an open access activity. Existing 
generation facilities are defined as facilities that were in 
operation on or under construction before June 1, 2000, and 
were owned by the governmental unit on that date. Permitted 
sales transactions are defined as--
    (1) Sales to on-system purchasers whose facilities are 
directly connected to those of the seller if the seller 
provides open access distribution services (and transmission 
services if the seller owns transmission facilities).
    The effect of this provision is to waive completely the 
private business use restrictions on the types of contracts 
that public power entities may enter with on-system consumers. 
On-system purchasers are defined as retail purchasers that were 
within the seller's distribution area at the close of the 
prescribed base year or are persons to whom the seller has a 
statutory service obligation. On-system purchasers also include 
wholesale native load purchasers, defined as below under (2), 
whose facilities are directly connected to those of the seller.
    (1) Wholesale sales to a ``native load'' purchaser, defined 
as a purchaser to whom the seller had a statutory service 
obligation at wholesale in a defined base year or an obligation 
in the base year under a requirements contract or a firm sales 
contract which had been in effect for at least 10 years (or in 
the case of newer contracts in existence on the date of the 
proposal's enactment, had an initial term of at least 10 
years). Wholesale purchasers can only re-sell the electricity 
at retail to persons within their distribution area (i.e., 
cannot be power marketers).
    (2) Load loss sales, defined as wholesale sales to persons 
to whom the seller does not have a service obligation. These 
sales can be made without geographic limitation.The amount of 
load loss sales is limited by a formula based on annual sales 
reductions during a seven-year period following the base year.

Special rules for transmission facilities

    After date of enactment, tax-exempt bonds for new 
transmission facilities generally may only be issued for 
``local transmission facilities.'' Local transmission 
facilities are defined as facilities located within the public 
power entity's distribution area that are necessary to supply 
electricity to serve retail load or wholesale native load of 
the issuer or of one or more public power entities which are 
directly connected to such electric transmission facility.
    The term retail load is defined as the load of end-users 
served by distribution facilities owned by a public power 
entity, without regard to whether any service obligation to the 
geographic area currently exists. The term wholesale native 
load is defined as the retail native load of a public power 
entity's wholesale native load purchasers and other purchasers 
to whom electricity was being sold under requirements contracts 
in the base year.

            Exceptions
    Notwithstanding the general limitation on future 
transmission bond issuance, tax-exempt bonds can continue to be 
issued in the following circumstances, including for facilities 
that would not qualify as local transmission facilities, if the 
bonds are issued--
          (1) To refund (including advance refund) bonds issued 
        before the date of enactment;
          (2) To finance any repair of a transmission facility 
        that is in service on the date of the proposal's 
        enactment, provided that the repair does not increase 
        the voltage level of the facility over its base year 
        level or increase the thermal load limit of the 
        facility by more than three percent;
          (3) To finance any qualifying upgrade of a 
        transmission facility in service on the date of the 
        proposal's enactment;
          (4) To finance a transmission facility necessary to 
        comply with an obligation under a shared or reciprocal 
        transmission agreement in effect on the date of the 
        bill's enactment

Special rules for start-up distribution facilities

    The bill generally prohibits issuance of tax-exempt bonds 
for distribution facilities by newly established public power 
entities before the date on which the entity has provided 
electric service in an area for a period of ten years. This 
provision does not limit expansions of the service territory of 
existing public power entities. Similarly, public power 
entities can commence operations in the service territories of 
other public power entities without violating the restriction.

Election to forego issuance of certain future tax-exempt bonds for 
        increased generating capacity in exchange for elimination of 
        all private business use restrictions on existing bonds

    Public power entities desiring to engage in activities not 
qualifying under the liberalized private business use 
restrictions included in the provision will be allowed to make 
a special election to forego issuance of future tax-exempt 
bonds for new generating capacity without affecting the tax-
exemption on outstanding bonds. Nonetheless, tax-exempt bonds 
may be issued by these entities following such an election for 
the following--
          (1) To refund (including advance refund) bonds issued 
        before the date of enactment;
          (2) To finance any transmission or distribution 
        facility that continued to be used in qualified open 
        access activities after the date of the election;
          (3) To finance any governmentally owned equipment or 
        facilities ``necessary to meet Federal or State 
        environmental requirements'' applicable to an existing 
        generation facility;
          (4) To finance any repair of any governmentally owned 
        generation facility the construction of which had 
        commenced before June 1, 2000, provided that the repair 
        does not increase the generating capacity by more than 
        three percent above the greater of its nameplate or 
        rated capacity as of the date of the bill's enactment.
          (5) To finance any wind, biomass, solar, or 
        geothermal energy generating facility during a period 
        when income tax credits are allowed with respect to 
        production from similar facilities placed in service by 
        taxpayers.

                             EFFECTIVE DATE

    Subject to two exceptions, these provisions are effective 
on the date of enactment, applicable both to outstanding bonds 
and to bonds issued after that date. The first exception allows 
public power entities to elect to apply the rules with respect 
to permitted open access activities occurring on or after April 
14, 1996. The second exception provides that the repeal of 
certain special exceptions to rules governing bonds for the 
acquisition of existing electric output property do not apply 
to any acquisition pursuant to any agreement entered into 
before the date of the bill's enactment.

G. SALES OR DISPOSITIONS UNDER SECTION 1033 TO IMPLEMENT FEDERAL ENERGY 
      REGULATORY COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY


            (Sec. 208 of the Bill and Sec. 1033 of the Code)


                              PRESENT LAW

    Generally, a taxpayer recognizes gain to the extent the 
sales price (and any other consideration received) exceeds the 
seller's basis in the property. The recognized gain is subject 
to current income tax unless the gain is deferred or not 
recognized under a special tax provision.
    Under section 1033, gain realized by a taxpayer from an 
involuntary conversion of property is deferred to the extent 
the taxpayer purchases property similar or related in service 
or use to the converted property within the applicable period. 
The replacement property may be acquired directly or by 
acquiring control of a corporation (generally, 80 percent of 
the stock of the corporation) that owns the replacement 
property. The taxpayer's basis in the replacement property 
generally is the same as the taxpayer's basis in the converted 
property, decreased by the amount of any money or loss 
recognized on the conversion, and increased by the amount of 
any gain recognized on the conversion.
    The applicable period for the taxpayer to replace the 
converted property begins with the date of the disposition of 
the converted property (or if earlier, the earliest date of the 
threat or imminence of requisition or condemnation of the 
converted property) and ends two years after the close of the 
first taxable year in which any part of the gain upon 
conversion is realized (the ``replacement period'').
    Section 1033(g) provides that if real property held for 
productive use in a trade or business or investment is 
involuntarily converted, then property of a like kind shall be 
considered similar or related in service or use to real 
property involuntarily converted. In general, with respect to 
other business property the Internal Revenue Service takes the 
position that replacement property will not qualify as similar 
or related in service or use unless its physical 
characteristics and end uses are similar to the converted 
property.\37\
---------------------------------------------------------------------------
    \37\ Revenue Ruling 64-237, 1964-2 C.B. 319.
---------------------------------------------------------------------------
    Section 1245 requires that gain from the disposition of 
certain types of depreciable property\38\ be characterized as 
ordinary income to the extent of previously allowed 
depreciation deductions. Generally, such gain is recognized in 
the year of disposition notwithstanding any other provision. An 
exception from immediate recognition of such gain is provided 
for involuntary conversions of property. In such cases, the 
amount of ordinary income is limited to any gain recognized 
(without regard to section 1245), plus the fair market value of 
property acquired in exchange for depreciable property where 
the latter is exchanged for nondepreciable property or other 
non-qualifying property.\39\
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    \38\ Section 1245 applies generally to property subject to the 
allowance for depreciation under section 167 that is either personal 
property or other tangible property used in certain activities 
(including tangible property used in the furnishing of electrical 
energy, gas, water or sewage disposal services). Section 1245(a)(3).
    \39\ The realization of ordinary income is necessary in such cases 
since in the case because there is no opportunity for subsequent 
recovery of the ordinary income element.
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                           REASONS FOR CHANGE

    The Committee recognizes that electric deregulation has 
been occurring, and is continuing to occur, at both the Federal 
and State level. Federal and state energy regulators are 
calling for the ``unbundling'' of electric transmission assets 
held by vertically integrated utilities, with the transmission 
assets ultimately placed under the ownership or control of 
regional transmission organizations (or other similarly-
approved operators). This policy is intended to improve 
transmission management and facilitate the formation of 
competitive markets. To facilitate the implementation of these 
policy objectives, the Committee believes it is appropriate to 
assist taxpayers in moving forward with industry restructuring 
by providing a tax deferral for gain associated with certain 
dispositions of electric transmission assets. The Committee 
believes it is important that proceeds of such dispositions be 
reinvested in utility property to assist in modernizing our 
energy infrastructure. Thus, a deferral of gain will only be 
available if the proceeds of such disposition are reinvested in 
other utility property.

                        EXPLANATION OF PROVISION

    The provision permits a taxpayer to elect to treat an 
electric transmission transaction as an involuntary conversion 
and expand the types of replacement property that qualify as 
related or similar in use to converted electric transmission 
property.
    Under the provision, a taxpayer may elect to treat the sale 
or other disposition of property used in the trade or business 
of providing electric transmission services, or an ownership 
interest in an entity whose principal trade or business 
consists of providing electric transmission services, to an 
independent transmission company \40\ prior to January 1, 2009 
(a ``qualifying electric transmission transaction'') as an 
involuntary conversion.
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    \40\ In general, an independent transmission company is defined as: 
(1) a regional transmission organization approved by the FERC; (2) a 
person (i) who the FERC determines under section 203 of the Federal 
Power Act is not a ``market participant'' and (ii) whose transmission 
facilities are placed under the operational control of a FERC-approved 
regional transmission organization before the close of the replacement 
period (up to four years) for such transaction; or (3) in the case of 
facilities subject to the exclusive jurisdiction of the Public Utility 
Commission of Texas, a person who is approved by that commission as 
consistent with Texas state law regarding an independent transmission 
organization.
---------------------------------------------------------------------------
    The provision provides that exempt utility property be 
treated as similar or related in service or use to electric 
transmission property converted in a qualifying electric 
transmission transaction. Exempt utility property is defined 
as: (1) property used in the trade or business of generating, 
transmitting, distributing, or selling electricity or 
producing, transmitting, distributing, or selling natural gas, 
or (2) stock in a controlled corporation whose principal trade 
or business consists of the activities described in (1).
    The provision extends the applicable period for a taxpayer 
to replace the converted property in a qualifying electric 
transmission transaction from two years to four years after the 
close of the first taxable year in which any part of the gain 
on conversion is realized.
    In addition, if a taxpayer is a member of an affiliated 
group of corporations filing a consolidated return, the 
provision permits the replacement property to be purchased by 
any member of the affiliated group (in lieu of the 
taxpayer).\41\
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    \41\ It is anticipated that the Secretary of the Treasury will 
issue guidance as may be necessary to ensure that gain shall not be 
recognized under the consolidated return provisions and to ensure that 
any investment adjustments, or any other adjustments under the 
consolidated regulations, accurately reflect the implications of 
permitting another member of the consolidated group to purchase the 
replacement property or reduce the basis of depreciable property.
---------------------------------------------------------------------------
    The provision also provides an exception to section 1245 
gain recognition for a qualifying electric transmission 
transaction if the taxpayer (or any member of the affiliated 
group) reduces other section 1245 property by the amount of 
gain that would otherwise (absent this provision) be recognized 
solely due to section 1245.\42\
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    \42\ The manner and amount of such reduction shall be determined 
under regulations prescribed by the Secretary of the Treasury.
---------------------------------------------------------------------------
    A taxpayer electing the provisions of the provision is 
required to attach a statement to that effect in the tax return 
for the taxable year in which the transaction takes place in 
the manner as the Secretary shall prescribe. The election shall 
be binding for that taxable year and all subsequent taxable 
years.

                             EFFECTIVE DATE

    The provision is effective for transactions after the date 
of enactment.

  H. DISTRIBUTIONS OF STOCK UNDER SECTION 355(E) TO IMPLEMENT FEDERAL 
  ENERGY REGULATORY COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY


            (Sec. 209 of the Bill and Sec. 355 of the Code)


                              PRESENT LAW

    A corporation generally is required to recognize gain on 
the distribution of property (including stock of a subsidiary) 
as if such property had been sold for its fair market value. 
The shareholders generally treat the receipt of property as a 
taxable event as well. Section 355 of the Internal Revenue Code 
provides an exception to this rule for certain ``spin-off'' 
type distributions of stock of a controlled corporation, 
provided that various requirements are met, including certain 
restrictions relating to acquisitions and dispositions of stock 
of the distributing corporation (``distributing'') or the 
controlled corporation (``controlled'') prior and subsequent to 
a distribution.
    The Taxpayer Relief Act of 1997 adopted additional 
restrictions under section 355 on acquisitions and dispositions 
of the stock of the distributing or controlled corporation. 
Generally, if in connection with a distribution to which 
section 355 otherwise applies, either the distributing or 
controlled corporation is acquired pursuant to a plan (or 
series of related transactions), gain is recognized to the 
distributing corporation as of the date of the 
distribution.\43\ The amount of gain recognized is the amount 
that the distributing corporation would have recognized had the 
stock of the controlled corporation been sold for fair market 
value on the date of the distribution. Acquisitions occurring 
within the four-year period beginning two years before the date 
of distribution are presumed to have occurred pursuant to a 
plan unless the taxpayer establishes otherwise. Certain 
acquisitions are not taken into account in determining whether 
a 50-percent or greater interest in the distributing or 
controlled corporation has been acquired for this purpose.\44\
---------------------------------------------------------------------------
    \43\ Section 355(e).
    \44\ Section 355(e)(3)(A). In addition, section 355(e)(3)(B) treats 
certain asset acquisitions as stock acquisitions for this purpose.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Federal and state energy regulators are calling for the 
``unbundling'' of electric transmission assets held by 
vertically integrated utility companies, with the transmission 
assets ultimately placed under the ownership or control of 
regional transmission organizations (or other similarly-
approved operators). This policy is intended to improve 
transmission management and facilitate the formation of 
competitive markets. To facilitate the implementation of these 
policy objectives, the Committee believes it is appropriate to 
provide temporary relief from gain recognition to utility 
companies that distribute the stock of their transmission 
subsidiaries if, as part of a pre-arranged plan, an independent 
transmission company acquires such stock.

                        EXPLANATION OF PROVISION

    The provision creates an exception to section 355(e) for 
the acquisition of stock (or assets) of any controlled 
corporation in a ``qualifying electric transmission 
transaction.'' For this purpose, a qualifying electric 
transmission transaction is defined as the sale or other 
disposition of property used in the trade or business of 
providing electric transmission services, or an ownership 
interest in an entity whose principal trade or business 
consists of providing electric transmission services, to an 
independent transmission company prior to January 1, 2009.\45\ 
Thus, for example, a distribution of the stock of a controlled 
corporation whose principal trade or business consists of 
providing electric transmission services, to which section 355 
otherwise applies, does not result in gain to the distributing 
corporation under section 355(e) if the controlled corporation 
is acquired by an independent transmission company (prior to 
January 1, 2009) pursuant to a plan in effect on the date of 
the distribution.
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    \45\ It is defined in the same manner as under the provision that 
provides for deferral of gain for these transactions under section 
1033.
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                             EFFECTIVE DATE

    The provision is effective for distributions occurring 
after the date of enactment.

   I. MODIFICATION TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS


            (Sec. 210 of the Bill and Sec. 468A of the Code)


                              PRESENT LAW

Overview

    Special rules dealing with nuclear decommissioning reserve 
funds were adopted by Congress in the Deficit Reduction Act of 
1984 (``1984 Act''), when tax issues regarding the time value 
of money were addressed generally. Under general tax accounting 
rules, a deduction for accrual basis taxpayers is deferred 
until there is economic performance for the item for which the 
deduction is claimed. However, the 1984 Act contains an 
exception under which a taxpayer responsible for nuclear 
powerplant decommissioning may elect to deduct contributions 
made to a qualified nuclear decommissioning fund for future 
decommissioning costs. Taxpayers who do not elect this 
provision are subject to general tax accounting rules.

Qualified nuclear decommissioning fund

    A qualified nuclear decommissioning fund (a ``qualified 
fund'') is a segregated fund established by a taxpayer that is 
used exclusively for the payment of decommissioning costs, 
taxes on fund income, management costs of the fund, and for 
making investments. The income of the fund is taxed at a 
reduced rate of 20 percent for taxable years beginning after 
December 31, 1995.\46\
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     \46\As originally enacted in 1984, a qualified fund paid tax on 
its earnings at the top corporate rate and, as a result, there was no 
present-value tax benefit of making deductible contributions to a 
qualified fund. Also, as originally enacted, the funds in the trust 
could be invested only in certain low risk investments. Subsequent 
amendments to the provision have reduced the rate of tax on a qualified 
fund to 20 percent and removed the restrictions on the types of 
permitted investments that a qualified fund can make.
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    Contributions to a qualified fund are deductible in the 
year made to the extent that these amounts were collected as 
part of the cost of service to ratepayers (the ``cost of 
service requirement'').\47\ Funds withdrawn by the taxpayer to 
pay for decommissioning costs are included in the taxpayer's 
income, but the taxpayer also is entitled to a deduction for 
decommissioning costs as economic performance for such costs 
occurs.
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    \47\ Taxpayers are required to include in gross income customer 
charges for decommissioning costs (sec. 88).
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    Accumulations in a qualified fund are limited to the amount 
required to fund decommissioning costs of a nuclear powerplant 
for the period during which the qualified fund is in existence 
(generally post-1984 decommissioning costs of a nuclear 
powerplant). For this purpose, decommissioning costs are 
considered to accrue ratably over a nuclear powerplant's 
estimated useful life. In order to prevent accumulations of 
funds over the remaining life of a nuclear powerplant in excess 
of those required to pay future decommissioning costs of such 
nuclear powerplant and to ensure that contributions to a 
qualified fund are not deducted more rapidly than level funding 
(taking into account an appropriate discount rate), taxpayers 
must obtain a ruling from the IRS to establish the maximum 
annual contribution that may be made to a qualified fund (the 
``ruling amount''). In certain instances (e.g., change in 
estimates), a taxpayer is required to obtain a new ruling 
amount to reflect updated information.
    A qualified fund may be transferred in connection with the 
sale, exchange or other transfer of the nuclear powerplant to 
which it relates. If the transferee is a regulated public 
utility and meets certain other requirements, the transfer will 
be treated as a nontaxable transaction. No gain or loss will be 
recognized on the transfer of the qualified fund and the 
transferee will take the transferor's basis in the fund.\48\ 
The transferee is required to obtain a new ruling amount from 
the IRS or accept a discretionary determination by the IRS.\49\
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    \48\ Treas. reg. sec. 1.468A-6.
    \49\ Treas. reg. sec. 1.468A-6(f).
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Nonqualified Nuclear Decommissioning Funds

    Federal and State regulators may require utilities to set 
aside funds for nuclear decommissioning costs in excess of the 
amount allowed as a deductible contribution to a qualified 
fund. In addition, taxpayers may have set aside funds prior to 
the effective date of the qualified fund rules.\50\ The 
treatment of amounts set aside for decommissioning costs prior 
to 1984 varies. Some taxpayers may have received no tax benefit 
while others may have deducted such amounts or excluded such 
amounts from income. Since 1984, taxpayers have been required 
to include in gross income customer charges for decommissioning 
costs (sec. 88), and a deduction has not been allowed for 
amounts set aside to pay for decommissioning costs except 
through the use of a qualified fund. Income earned in a 
nonqualified fund is taxable to the fund's owner as it is 
earned.
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    \50\ These funds are generally referred to as ``nonqualified 
funds.''
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                           REASONS FOR CHANGE

    The Committee recognizes the national importance of 
reserving funds to pay for decommissioning costs and the need 
for appropriate incentives to ensure that adequate funds are 
available for such costs. The Committee believes that it is 
appropriate to permit all decommissioning costs associated with 
a nuclear powerplant to be funded through a qualified fund. In 
addition, the Committee does not believe a utility should be 
denied the opportunity to contribute to a qualified fund simply 
because it operates in a deregulated environment.

                        EXPLANATION OF PROVISION

Repeal of cost of service requirement

    The provision repeals the cost of service requirement for 
deductible contributions to a nuclear decommissioning fund. 
Thus, all taxpayers, including unregulated taxpayers, are 
allowed a deduction for amounts contributed to a qualified 
fund.

Permit contributions to a qualified fund for pre-1984 decommissioning 
        costs

    The provision also repeals the limitation that a qualified 
fund only accumulate an amount sufficient to pay for a nuclear 
powerplant's decommissioning costs incurred during the period 
that the qualified fund is in existence (generally post-1984 
decommissioning costs). Thus, any taxpayer is permitted to 
accumulate an amount sufficient to cover the present value of 
100 percent of a nuclear powerplant's estimated decommissioning 
costs in a qualified fund. The provision does not change the 
requirement that contributions to a qualified fund not be 
deducted more rapidly than level funding.

Exception to ruling amount for certain decommissioning costs

    The provision permits a taxpayer to make contributions to a 
qualified fund in excess of the ruling amount in one 
circumstance. Specifically, a taxpayer is permitted to 
contribute up to the present value of the amount required to 
fund a nuclear powerplant's decommissioning costs which, under 
present law, is not permitted to be accumulated in a qualified 
fund (generally pre-1984 decommissioning costs).\51\ It is 
anticipated that an amount that is permitted to be contributed 
under this special rule shall be determined using the estimate 
of total decommissioning costs used for purposes of determining 
the taxpayer's most recent ruling amount. Any amount 
transferred to the qualified fund under this special rule that 
has not previously been deducted, or excluded from gross income 
is allowed as a deduction over the remaining useful life of the 
nuclear powerplant.\52\ If a qualified fund that has received 
amounts under this rule is transferred to another person, that 
person will be entitled to the deduction at the same time and 
in the same manner as the transferor. Thus, if the transferor 
was not subject to tax at the time and thus would have been 
unable to use the deduction, the transferee will similarly not 
be able to utilize the deduction.
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    \51\ The ability to transfer property into a qualified fund under 
this special rule is available only to the extent the taxpayer has not 
obtained a new ruling amount incorporating the repeal of the limitation 
that a qualified fund only accumulate an amount sufficient to pay for 
decommissioning costs of a nuclear powerplant incurred during the 
period that the fund is in existence (generally post 1984 
decommissioning costs).
    \52\ A taxpayer recognizes no gain or loss on the contribution of 
property to a qualified fund under this special rule. The qualified 
fund will take a transferred (carryover) basis in such property. 
Correspondingly, a taxpayer's deduction (over the estimated life of the 
nuclear powerplant) is to be based on the adjusted tax basis of the 
property contributed rather than the fair market value of such 
property.
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Contributions to a qualified fund after useful life of powerplant

    The provision also allows deductible contributions to a 
qualified fund subsequent to the end of a nuclear powerplant's 
estimated useful life. Such payments are permitted to the 
extent they do not cause the assets of the qualified fund to 
exceed the present value of the taxpayer's allocable share 
(current or former) of the nuclear decommissioning costs of 
such nuclear powerplant.

Clarify treatment of transfers of qualified funds and deductibility of 
        decommissioning costs

    The provision clarifies the Federal income tax treatment of 
the transfer of a qualified fund. No gain or loss would be 
recognized to the transferor or the transferee as a result of 
the transfer of a qualified fund in connection with the 
transfer of the power plant with respect to which such fund was 
established. In addition, the provision provides that all 
nuclear decommissioning costs are deductible when paid.

                             EFFECTIVE DATE

    The provision would be effective for taxable years 
beginning after December 31, 2001.

        J. TREATMENT OF CERTAIN INCOME OF ELECTRIC COOPERATIVES


        (Sec. 211 of the Bill and Secs. 501 and 512 of the Code)


                              PRESENT LAW

In general

    Federal tax rules require any entity that is formed as a 
cooperative to operate on a cooperative basis. Although not 
defined by statute or regulation, the two principal criteria 
for determining whether an entity is operating on a cooperative 
basis are: (1) ownership of the cooperative by persons who 
patronize the cooperative; and (2) return of earnings to 
patrons in proportion to their patronage. The Internal Revenue 
Service requires that cooperatives must operate under the 
following principles: (1) subordination of capital to control 
over the cooperative undertaking and financial benefits from 
ownership; (2) democratic control by the members of the 
cooperative; (3) vesting in and allocation among the members of 
all excess of operating revenues over the expenses incurred to 
generate revenues in proportion to their participation in the 
cooperative (patronage); and (4) operation at cost (not 
operating for profit or below cost).\53\
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    \53\ Announcement 96-24, Proposed Examination Guidelines Regarding 
Rural Electric Cooperatives, 1996-16 I.R.B. 35.
---------------------------------------------------------------------------
    In general, cooperative members are those who participate 
in the management of the cooperative and who share in patronage 
capital. Income from the sale of electric energy by the 
cooperative may be member or non-member income to the 
cooperative, depending on the membership status of the 
purchaser. A municipal corporation may be a member or non-
member of a cooperative.
    Code section 1381(a)(2)(C) provides that the statutory tax 
rules for cooperatives under subchapter T (Code sections 1381 
through 1388) do not apply to rural electric cooperatives.

Tax exemption of rural electric cooperatives

    Section 501(c)(12) provides an income tax exemption for 
rural electric cooperatives if at least 85 percent of the 
cooperative's income consists of amounts collected from members 
for thesole purpose of meeting losses and expenses of providing 
service to its members. The Internal Revenue Service takes the position 
that rural electric cooperatives also must comply with the fundamental 
cooperative principles described above in order to qualify for tax 
exemption under section 501(c)(12).\54\ The 85-percent test is 
determined without taking into account any income from qualified pole 
rentals and cancellation of indebtedness income from prepayment of a 
loan under sections 306A, 306B, or 311 of the Rural Electrification Act 
of 1936 (as in effect on January 1, 1987). Rural electric cooperatives 
generally are subject to the tax on unrelated trade or business income 
under Code section 511.
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    \54\ Rev. Rul. 72-36, 1972-1 C.B. 151.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The purpose of the 85-percent test under section 501(c)(12) 
is to ensure that the primary activities of an electric 
cooperative fulfill the statutory tax-exempt purpose of 
providing electricity services to the members of the 
cooperative. Similarly, the fundamental cooperative principles 
described above are the defining characteristics of a 
cooperative upon which the Federal tax rules condition conduit 
treatment.
    The committee believes that the nature of an electric 
cooperative's activities does not change because it has income 
from open access transactions with non-members or from nuclear 
decommissioning transactions (as these terms are defined in the 
bill). Accordingly, the committee believes that the 85-percent 
test for tax exemption under present law should be applied 
without regard to such income. The committee intends that the 
term ``open access transaction'' shall be applied in a manner 
that allows an electric cooperative to carry out its statutory 
purpose in a restructured and deregulated electric energy 
market environment without adversely impacting its tax-exempt 
status.
    The committee further believes that electric energy sales 
to non-members should not result in a loss of tax-exempt status 
or cooperative status to the extent that such sales are 
necessary to replace lost sales of electric energy to members 
as a result of restructuring and deregulation of the electric 
energy industry. Accordingly, the committee believes that 
replacement electric energy sales to non-members (defined as 
``load loss transactions'' in the bill) should be treated, for 
a limited period of time, as member income in applying the 85-
percent test for tax exemption of rural electric cooperatives. 
The committee believes that such treatment also should apply 
for purposes of determining whether tax-exempt and taxable 
electric cooperatives comply with the fundamental cooperative 
principles. Finally, the committee believes that income from 
replacement electric energy sales should not be subject to the 
tax on unrelated trade or business income under Code section 
511.

                        EXPLANATION OF PROVISION

Treatment of income from open access transactions

    The bill provides that income received or accrued by a 
rural electric cooperative from any ``open access transaction'' 
(other than income received or accrued directly or indirectly 
from a member of the cooperative) is excluded in determining 
whether a rural electric cooperative satisfies the 85-percent 
test for tax exemption under section 501(c)(12).\55\ The term 
``open access transaction'' is defined as any activity that 
would be a ``permitted open access activity'' under the 
proposal concerning the tax-exempt bond rules for government-
owned electric output facilities.
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    \55\ This provision does not apply to open access transaction 
income that is directly or indirectly received or accrued from 
cooperative members because such income generally is treated as member 
income for purposes of the 85-percent test. For example, the provision 
does not apply to income that is directly or indirectly received or 
accrued by a cooperative for billing and collection services performed 
by the cooperative with respect to a member of that cooperative.
---------------------------------------------------------------------------
    As applied to rural electric cooperatives, the term 
``permitted open access activity'' is defined as--
          (1) the provision of transmission services and 
        ancillary services on a nondiscriminatory open access 
        basis pursuant to an open access transmission tariff 
        filed with and approved by the Federal Energy 
        Regulatory Commission (``FERC'') (including acceptable 
        reciprocity tariffs), but only if (in the case of a 
        voluntarily filed tariff) the cooperative files a 
        report with FERC within 90 days of enactment of this 
        provision relating to whether or not the cooperative 
        will join a regional transmission organization 
        (``RTO'');
          (2) the provision of transmission services and 
        ancillary services on a nondiscriminatory open access 
        basis under an RTO agreement approved by FERC 
        (including the transfer of control--but not ownership--
        of transmission facilities); or
          (3) the delivery on a nondiscriminatory open access 
        basis of electric energy sold to end-users served by 
        distribution facilities owned by the cooperative or of 
        electric energy generated by generation facilities 
        directly connected to distribution facilities owned by 
        that cooperative.

Treatment of income from nuclear decommissioning transactions

    The bill provides that income received or accrued by a 
rural electric cooperative from any ``nuclear decommissioning 
transaction'' also is excluded in determining whether a rural 
electric cooperative satisfies the 85-percent test for tax 
exemption under section 501(c)(12). The term ``nuclear 
decommissioning transaction'' is defined as--
          (1) 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;
          (2) any distribution from such a trust, fund, or 
        instrument; or
          (3) any earnings from such a trust, fund, or 
        instrument.

Treatment of income from load loss transactions

    Rural electric cooperatives.--The bill provides that income 
received or accrued by a rural electric cooperative from a 
``load loss transaction'' is treated under 501(c)(12) as income 
collected from members for the sole purpose of meeting losses 
and expenses of providing service to its members. Therefore, 
income from load loss transactions is treated as member income 
in determining whether a rural electric cooperative satisfies 
the 85-percent test for tax exemption under section 501(c)(12). 
The bill also provides that income from load loss transactions 
does not cause a rural electric cooperative to fail to be 
treated for Federal income tax purposes as a mutual cooperative 
company under the fundamental cooperative principles described 
above.
    The term ``load loss transaction'' is defined as any sale 
that would be a ``load loss sale'' under the provision 
concerning the tax-exempt bond rules for government-owned 
electric output facilities. As applied to cooperatives, the 
term ``load loss sale'' generally is defined as any wholesale 
or retail sale (other than directly or indirectly to members) 
that, when combined with other load loss sales during the same 
year, does not exceed the annual reduction of sales by the 
cooperative to members each year during a seven-year period 
following a base year. The sales could be made during the 
eighth year following the base year under certain 
circumstances.
    The bill also excludes income received or accrued by rural 
electric cooperatives from load loss transactions from the tax 
on unrelated trade or business income.
    Taxable electric cooperatives.--The bill provides that 
similar rules apply to the receipt or accrual of income from 
load loss transactions of taxable electric cooperatives. For 
example, income from a load loss transaction is excludible from 
the income of a taxable electric cooperative if the cooperative 
distributes such income pursuant to a pre-existing contract to 
distribute the income to a non-member patron.

                             EFFECTIVE DATE

    This provision is effective for taxable years beginning 
after the date of enactment.

 K. REPEAL OF REQUIREMENT OF CERTAIN APPROVED TERMINALS TO OFFER DYED 
               DIESEL OR KEROSENE FOR NONTAXABLE PURPOSES


            (Sec. 212 of the Bill and Sec. 4101 of the Code)


                         PRESENT AND PRIOR LAW

    Excise taxes are imposed on highway motor fuels, including 
gasoline, diesel fuel, and kerosene, to finance the Highway 
Trust Fund programs. Subject to limited exceptions, these taxes 
are imposed on all such fuels when they are removed from 
registered pipeline or barge terminal facilities, with any tax-
exemptions being accomplished by means of refunds to consumers 
of the fuel. One such exception allows removal of diesel fuel 
and kerosene without payment of tax if the fuel is destined for 
a nontaxable use (e.g., use as heating oil) and is indelibly 
dyed.
    Terminal facilities are not permitted to receive and store 
non-tax-paid motor fuels unless they are registered with the 
Internal Revenue Service. Under present law, a prerequisite to 
registration is that if the terminal offers for sale diesel 
fuel, it must offer both dyed and undyed diesel fuel. 
Similarly, if the terminal offers for sale kerosene, it must 
offer both dyed and undyed kerosene. This ``dyed-fuel mandate'' 
was enacted in 1997, to be effective on July 1, 1998. 
Subsequently, the effective date was delayed until July 1, 2000 
and delayed again through December 31, 2001.

                           REASONS FOR CHANGE

    When the rules governing taxation of kerosene used as a 
highway motor fuel were enacted in 1997, there was a concern 
that dyed kerosene (destined for nontaxable use) might not be 
available in markets where that fuel was commonly used (e.g., 
as heating oil). To ensure availability of untaxed kerosene for 
these uses, a requirement that terminals offer both dyed and 
undyed kerosene and diesel fuel (if they offered the fuels for 
sale at all) as a condition of receiving untaxed fuels was 
included. Since that time, markets have provided dyed kerosene 
and diesel fuel for nontaxable uses in markets where there is a 
demand for such fuel even in the absence of a statutory mandate 
for such fuels. The Committee believes that a statutory mandate 
is not necessary and should be repealed.

                        DESCRIPTION OF PROVISION

    The provision repeals the diesel fuel and kerosene-dyeing 
mandate.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

             L. EXEMPT CERTAIN PREPAYMENTS FOR NATURAL GAS


                  From Tax-Exempt Bond Arbitrage Rules


            (Sec. 213 of the Bill and Sec. 148 of the Code)


                              PRESENT LAW

    Interest on bonds issued by States or local governments to 
finance activities carried out or paid for by those entities 
generally is exempt from income tax (sec. 103). Restrictions 
are imposed on the ability of States or local governments to 
invest the proceeds of these bonds for profit (the ``arbitrage 
restrictions''). One such restriction limits the use of bond 
proceeds to acquire ``investment-type property.'' The term 
investment-type property includes the acquisition of property 
in a transaction involving a prepayment. A prepayment can 
produce prohibited arbitrage profits when the discount received 
for prepaying the costs exceeds the yield on the tax-exempt 
bonds. In general, prohibited prepayments include all 
prepayments that are not customary in an industry by both 
beneficiaries of tax-exempt bonds and other persons using 
taxable financing for the same transaction.

                           REASONS FOR CHANGE

    The Committee determined that a narrow exception to the 
general restrictions on investing tax-exempt bond proceeds in 
arbitrage transactions is appropriate for certainprepayments 
for natural gas. The Committee believes that this exception may assist 
in stabilizing energy supplies for State and local government 
utilities.

                        EXPLANATION OF PROVISION

    The provision creates a new exception to the general rule 
that tax-exempt-bond-financed prepayments violate the arbitrage 
restrictions. Under the provision, a prepayment financed with 
tax-exempt bond proceeds for the purpose of obtaining a supply 
of natural gas to be used in the business of one or more 
governmental utilities will not be treated as the acquisition 
of investment-type property.\56\ The exception applies only if 
at least 85 percent of the purchased natural gas is to be used 
by governmental utilities in the State where the issuer of the 
bonds is located.
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    \56\ The Committee recognizes that in exceptional circumstances it 
may be impossible to use the purchased natural gas as originally 
intended. For example, the Committee intends that if an extraordinary 
and unforeseen event occurs, such as a fire that severely damages a 
generating facility for which natural gas is acquired, then selling the 
natural gas that cannot be used because of the loss of service of the 
facility to a third party (in a transaction consistent with the general 
private business use limits) will not cause the bonds financing the gas 
contract to be arbitrage bonds.
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                             EFFECTIVE DATE

    The provision applies to bonds issued after October 22, 
1986 (the date of enactment of the Tax Reform Act of 1986) 
except the requirement that at least 85 percent of the 
purchased gas be for use in the State where the issuer is 
located does not apply to bonds issued before the date of the 
provision's enactment.

                         TITLE III--PRODUCTION


      A. TAX CREDIT FOR OIL AND GAS PRODUCTION FROM MARGINAL WELLS


          (Sec. 301 of the Bill and New Sec. 45J of the Code)


                              PRESENT LAW

    There is no credit for the production of oil and gas from 
marginal wells. The costs of such production may be recovered 
under the Code's depreciation and depletion rules and in other 
cases as a deduction for ordinary and necessary business 
expenses.

                           REASONS FOR CHANGE

    The highly volatile price of oil and gas can result in lost 
production during periods when prices are low. The Committee 
determined that a price support program administered through a 
tax credit will help ensure that supply is not lost as a result 
of low market prices.

                        EXPLANATION OF PROVISION

    The provision creates a new, $3 per barrel credit for the 
production of crude oil and a $0.50 per 1,000 cubic feet of 
qualified natural gas production. The maximum amount of 
production on which credit can be claimed is 1,095 barrels or 
barrel equivalents. In both cases, the credit is available only 
for production from a ``qualified marginal well.'' The credit 
is not available to production occurring if the reference price 
of oil exceeds $18 ($2.00 for natural gas). The credit is 
reduced proportionately as for reference prices between $15 and 
$28 ($1.67 and $2.00 for natural gas). Reference prices are 
determined on a one-year look-back basis.
    A qualified marginal well is defined as (1) a well 
production from which is marginal production for purposes of 
the Code percentage depletion rules or (2) a well that during 
the taxable year had (a) average daily production of not more 
than 25 barrel equivalents and (b) produced water at a rate of 
not less than 95 percent of total well effluent.
    The credit is treated as a general business credit; 
however, unused credits can be carried back for up to 10 years 
rather than the generally applicable carryback period of one 
year.

                             EFFECTIVE DATE

    The provision is effective for production in taxable years 
beginning after December 31, 2001.

 B. 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. 302 of the Bill and Sec. 613A of the Code)


                              PRESENT LAW

In general

    Depletion, like depreciation, is a form of capital cost 
recovery. In both cases, the taxpayer is allowed a deduction in 
recognition of the fact that an asset--in the case of depletion 
for oil or gas interests, the mineral reserve itself--is being 
expended in order to produce income. Certain costs incurred 
prior to drilling an oil or gas property are recovered through 
the depletion deduction. These include costs of acquiring the 
lease or other interest in the property and geological and 
geophysical costs (in advance of actual drilling).
    Depletion is available to any person having an economic 
interest in a producing property. An economic interest is 
possessed in every case in which the taxpayer has acquired by 
investment any interest in minerals in place, and secures, by 
any form of legal relationship, income derived from the 
extraction of the mineral, to which it must look for a return 
of its capital.\57\ Thus, for example, both working interests 
and royalty interests in an oil- or gas-producing property 
constitute economic interests, thereby qualifying the interest 
holders for depletion deductions with respect to the property. 
A taxpayer who has no capital investment in the mineral deposit 
does not possess an economic interest merely because it 
possesses an economic or pecuniary advantage derived from 
production through a contractual relation.
---------------------------------------------------------------------------
    \57\ Treas. Reg. sec. 1.611-1(b)(1).
---------------------------------------------------------------------------
            Cost depletion
    Two methods of depletion are currently allowable under the 
Internal Revenue Code (the ``Code''): (1) the cost depletion 
method, and (2) the percentage depletion method (secs. 611-
613). Under the cost depletion method, the taxpayer deducts 
that portion of the adjusted basis of the depletable property 
which is equal to the ratio of units sold from that property 
during the taxable year to the number of units remaining as of 
the end of taxable year plus the number of units sold during 
the taxable year. Thus, the amount recovered under cost 
depletion may never exceed the taxpayer's basis in the 
property.
            Percentage depletion and related income limitations
    The Code generally limits the percentage depletion method 
for oil and gas properties to independent producers and royalty 
owners.\58\ Generally, under the percentage depletion method 15 
percent of the taxpayer's gross income from an oil- or gas-
producing property is allowed as a deduction in each taxable 
year (sec. 613A(c)). The amount deducted generally may not 
exceed 100 percent of the net income from that property in any 
year (the ``net-income limitation'') (sec. 613(a)). By 
contrast, for any other mineral qualifying for the percentage 
depletion deduction, such deduction may not exceed 50 percent 
of the taxpayer's taxable income from the depletable property. 
A similar 50-percent net-income limitation applied to oil and 
gas properties for taxable years beginning before 1991. Section 
11522(a) of the Omnibus Budget Reconciliation Act of 1990 
prospectively changed the net-income limitation threshold to 
100 percent only for oil and gas properties, effective for 
taxable years beginning after 1990. The 100-percent net-income 
limitation for marginal wells has been suspended for taxable 
years beginning after December 31, 1997, and before January 1, 
2002.
    Additionally, the percentage depletion deduction for all 
oil and gas properties may not exceed 65 percent of the 
taxpayer's overall taxable income (determined before such 
deduction and adjusted for certain loss carrybacks and trust 
distributions) (sec. 613A(d)(1)).\59\ Because percentage 
depletion, unlike cost depletion, is computed without regard to 
the taxpayer's basis in the depletable property, cumulative 
depletion deductions may be greater than the amount expended by 
the taxpayer to acquire or develop the property.
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    \58\ Sec. 613A.
    \59\ Amounts disallowed as a result of this rule may be carried 
forward and deducted in subsequent taxable years, subject to the 65-
percent taxable income limitation for those years.
---------------------------------------------------------------------------
    A taxpayer is required to determine the depletion deduction 
for each oil or gas property under both the percentage 
depletion method (if the taxpayer is entitled to use this 
method) and the cost depletion method. If the cost depletion 
deduction is larger, the taxpayer must utilize that method for 
the taxable year in question (sec. 613(a)).

Limitation of oil and gas percentage depletion to independent producers 
        and royalty owners

    Generally, only independent producers and royalty owners 
(as contrasted to integrated oil companies) are allowed to 
claim percentage depletion. Percentage depletion for eligible 
taxpayers is allowed only with respect to up to 1,000 barrels 
of average daily production of domestic crude oil or an 
equivalent amount of domestic natural gas (sec. 613A(c)). For 
producers of both oil and natural gas, this limitation applies 
on a combined basis.
    In addition to the independent producer and royalty owner 
exception, certain sales of natural gas under a fixed contract 
in effect on February 1, 1975, and certain natural gas from 
geopressured brine,\60\ are eligible for percentage depletion, 
at rates of 22 percent and 10 percent, respectively. These 
exceptions apply without regard to the 1,000-barrel-per-day 
limitation and regardless of whether the producer is an 
independent producer or an integrated oil company.
---------------------------------------------------------------------------
    \60\ This exception is limited to wells, the drilling of which 
began between September 30, 1978, and January 1, 1984.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is concerned that, while current oil and gas 
operations may be profitable, the highly volatile nature of oil 
and gas prices could quickly create economic hardships in the 
industry. The potential problem could be particularly acute in 
those communities where a largepercentage of jobs are related 
to the oil and gas industry. Thus, to help minimize the adverse effects 
of future price fluctuations, the Committee believes it is appropriate 
to suspend the 65-percent of taxable income limitation related to 
percentage depletion deductions.

                        DESCRIPTION OF PROVISION

    The limit on percentage depletion deductions to no more 
than 65 percent of the taxpayer's overall taxable income is 
suspended for taxable years beginning after December 31, 2001, 
and before January 1, 2007. The suspension of the 100-percent 
net-income limitation for marginal wells is extended an 
additional five years, through taxable years beginning before 
January 1, 2007.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2001.

                 C. DEDUCTION FOR DELAY RENTAL PAYMENTS


       (Sec. 303 of the Bill and Secs. 263 and 263A of the Code)


                              PRESENT LAW

    Present law generally requires costs associated with 
inventory and property held for resale to be capitalized rather 
than currently deducted as they are incurred. (sec. 263). Oil 
and gas producers typically contract for mineral production in 
exchange for royalty payments. If mineral production is 
delayed, these contracts provide for ``delay rental payments'' 
as a condition of their extension. In proposed regulations 
issued in 2000, the Treasury Department took the position that 
the uniform capitalization rules of section 263A require delay 
rental payments to be capitalized.\61\
---------------------------------------------------------------------------
    \61\ 65 Fed. Reg. 6090 (2000).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that, in essence, a delay rental 
payment is a substitute, both in the eyes of the payor and the 
payee, for a royalty payment that would have been made had the 
property been brought into production. The Committee notes that 
a royalty payment is deductible currently and, therefore, 
believes that delay rental payments also should be deductible 
currently.

                        DESCRIPTION OF PROVISION

    The provision allows delay rental payments incurred in 
connection with the development of oil or gas within the United 
States to be deducted currently.

                             EFFECTIVE DATE

    The provision applies to delay rental payments paid or 
incurred in taxable years beginning after December 31, 2001. No 
inference is intended from the prospective effective date of 
this provision as to the proper treatment of pre-effective date 
delay rental payments.

     D. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES


            (Sec. 304 of the Bill and Sec. 263 of the Code)


                              PRESENT LAW

In general

    Geological and geophysical expenditures are costs incurred 
by a taxpayer for the purpose of obtaining and accumulating 
data that will serve as the basis for the acquisition and 
retention of mineral properties by taxpayers exploring for 
minerals. A key issue with respect to the tax treatment of such 
expenditures is whether or not they are capital in nature. 
Capital expenditures are not currently deductible as ordinary 
and necessary business expenses, but are allocated to the cost 
of the property.\62\
---------------------------------------------------------------------------
    \62\ Under section 263, capital expenditures are defined generally 
as any amount paid for new buildings or for permanent improvements or 
betterments made to increase the value of any property or estate. 
Treasury regulations define capital expenditures to include amounts 
paid or incurred (1) to add to the value, or substantially prolong the 
useful life, of property owned by the taxpayer or (2) to adapt property 
to a new or different use. Treas. Reg. sec. 1.263(a)-1(b).
---------------------------------------------------------------------------
    Courts have held that geological and geophysical costs are 
capital, and therefore are allocable to the cost of the 
property \63\ acquired or retained.\64\ The costs attributable 
to such exploration are allocable to the cost of the property 
acquired or retained. As described further below, IRS 
administrative rulings have provided further guidance regarding 
the definition and proper tax treatment of geological and 
geophysical costs.
---------------------------------------------------------------------------
    \63\ ``Property'' means an interest in a property as defined in 
section 614 of the Code, and includes an economic interest in a tract 
or parcel of land notwithstanding that a mineral deposit has not been 
established or proved at the time the costs are incurred.
    \64\ See, e.g., Schermerhorn Oil Corporation v. Commissioner, 46 
B.T.A. 151 (1942). By contrast, section 617 of the Code permits a 
taxpayer to elect to deduct certain expenditures incurred for the 
purpose of ascertaining the existence, location, extent, or quality of 
any deposit of ore or other mineral (but not oil and gas). These 
deductions are subject to recapture if the mine with respect to which 
the expenditures were incurred reaches the producing stage.
---------------------------------------------------------------------------

Revenue Ruling 77-188

    In Revenue Ruling 77-188 \65\ (hereinafter referred to as 
the ``1977 ruling''), the IRS provided guidance regarding the 
proper tax treatment of geological and geophysical costs. The 
ruling describes a typical geological and geophysical 
exploration program as containing the following elements:
---------------------------------------------------------------------------
    \65\ 1977-1 C.B. 76.
---------------------------------------------------------------------------
     It is customary in the search for mineral 
producing properties for a taxpayer to conduct an exploration 
program in one or more identifiable project areas. Each project 
area encompasses a territory that the taxpayer determines can 
be explored advantageously in a single integrated operation. 
This determination is made after analyzing certain variables 
such as (1) the size and topography of the project area to be 
explored, (2) the existing information available with respect 
to the project area and nearby areas, and (3) the quantity of 
equipment, the number of personnel, and the amount of money 
available to conduct a reasonable exploration program over the 
project area.
     The taxpayer selects a specific project area from 
which geological and geophysical data are desired and conducts 
a reconnaissance-type survey utilizing various geological and 
geophysical exploration techniques. These techniques are 
designed to yield data that will afford a basis for identifying 
specific geological features with sufficient mineral potential 
to merit further exploration.
     Each separable, noncontiguous portion of the 
original project area in which such a specific geological 
feature is identified is a separate ``area of interest.'' The 
original project area is subdivided into as many small projects 
as there are areas of interest located and identified within 
the original project area. If the circumstances permit a 
detailed exploratory survey to be conducted without an initial 
reconnaissance-type survey, the project area and the area of 
interest will be coextensive.
     The taxpayer seeks to further define the 
geological features identified by the prior reconnaissance-type 
surveys by additional, more detailed, exploratory surveys 
conducted with respect to each area of interest. For this 
purpose, the taxpayer engages in more intensive geological and 
geophysical exploration employing methods that are designed to 
yield sufficiently accurate sub-surface data to afford a basis 
for a decision to acquire or retain properties within or 
adjacent to a particular area of interest or to abandon the 
entire area of interest as unworthy of development by mine or 
well.
    The 1977 ruling provides that if, on the basis of data 
obtained from the preliminary geological and geophysical 
exploration operations, only one area of interest is located 
and identified within the original project area, then the 
entire expenditure for those exploratory operations is to be 
allocated to that one area of interest and thus capitalized 
into the depletable basis of that area of interest. On the 
other hand, if two or more areas of interest are located and 
identified within the original project area, the entire 
expenditure for the exploratory operations is to be allocated 
equally among the various areas of interest.
    If no areas of interest are located and identified by the 
taxpayer within the original project area, then the 1977 ruling 
states that the entire amount of the geological and geophysical 
costs related to the exploration is deductible as a loss under 
section 165. The loss is claimed in the taxable year in which 
that particular project area is abandoned as a potential source 
of mineral production.
    A taxpayer may acquire or retain a property within or 
adjacent to an area of interest, based on data obtained from a 
detailed survey that does not relate exclusively to any 
discrete property within a particular area of interest. 
Generally, under the 1977 ruling, the taxpayer allocates the 
entire amount of geological and geophysical costs to the 
acquired or retained property as a capital cost under section 
263(a). If more than one property is acquired, it is proper to 
determine the amount of the geological and geophysical costs 
allocable to each such property by allocating the entire amount 
of the costs among the properties on the basis of comparative 
acreage.
    If, however, no property is acquired or retained within or 
adjacent to that area of interest, the entire amount of the 
geological and geophysical costs allocable to the area of 
interest is deductible as a loss under section 165 for the 
taxable year in which such area of interest is abandoned as a 
potential source of mineral production.
    In 1983, the IRS issued Revenue Ruling 83-105,\66\ which 
elaborates on the positions set forth in the 1977 ruling by 
setting forth seven factual situations and applying the 
principles of the 1977 ruling to those situations. In addition, 
Revenue Ruling 83-105 explains what constitutes ``abandonment 
as a potential source of mineral production.''
---------------------------------------------------------------------------
    \66\ 1983-2 C.B. 51.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that substantial simplification for 
taxpayers and significant gains in taxpayer compliance and 
reductions in administrative cost can be obtained by 
establishing the simple rule that all geological and 
geophysical costs can be deducted currently, regardless of the 
taxpayer's determination of the suitability of the site or 
sites examined for future production.

                        DESCRIPTION OF PROVISION

    The provision allows geological and geophysical costs 
incurred in connection with oil and gas exploration in the 
United States to be deducted currently.

                             EFFECTIVE DATE

    The provision is effective for geological and geophysical 
costs paid or incurred in taxable years beginning after 
December 31, 2001.

E. ALLOW NET OPERATING LOSSES FROM OIL AND GAS PROPERTIES TO BE CARRIED 
                       BACK FOR UP TO FIVE YEARS


            (Sec. 305 of the Bill and Sec. 172 of the Code)


                              PRESENT LAW

    A net operating loss (``NOL'') generally is the amount by 
which business deductions of a taxpayer exceed business gross 
income. In general, an NOL may be carried back two years and 
carried forward 20 years to offset taxable income in such 
years. A carryback of an NOL results in the refund of Federal 
income tax for the carryback year. A carryforward of an NOL 
reduces Federal income tax for the carryforward year. Special 
NOL carryback rules apply to (1) casualty and theft losses of 
individual taxpayers, (2) Presidentially declared disasters for 
taxpayers engaged in a farming business or a small business, 
(3) real estate investment trusts, (4) specified liability 
losses, (5) excess interest losses, and (6) farm losses.

                           REASONS FOR CHANGE

    The Committee is concerned that, while current oil and gas 
operations may be profitable, the highly volatile nature of oil 
and gas prices could quickly create economic hardships in the 
industry. The potential problem could be particularly acute in 
those communities in which a large percentage of jobs are 
related to the oil and gas industry. Thus, to help minimize the 
adverse effects of future price fluctuations, the Committee 
believes it is appropriate to extend the carryback period for 
net operating losses in the oil and gas industry.

                        DESCRIPTION OF PROVISION

    The provision would provide a special five-year carryback 
for certain eligible oil and gas losses. The carryforward 
period would remain 20 years. An ``eligible oil and gas loss'' 
would be defined as the lesser of (1) the amount which would be 
the taxpayer's NOL for the taxable year if only income and 
deductions attributable to operating mineral interests in oil 
and gas wells were taken into account, or (2) the amount of 
such net operating loss for such taxable year. In calculating 
the amount of a taxpayer's NOL carrybacks, the portion of the 
NOL that would be attributable to an eligible oil and gas loss 
would be treated as a separate NOL and taken into account after 
the remaining portion of the NOL for the taxable year.

                             EFFECTIVE DATE

    The provision applies to NOLs arising in taxable years 
beginning after December 31, 2001.

 F. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NON-
                          CONVENTIONAL SOURCE


             (Sec. 306 of the Bill and Sec. 29 of the Code)


                              PRESENT LAW

    Certain fuels produced from ``non-conventional sources'' 
and sold to unrelated parties are eligible for an income tax 
credit equal to $3 (generally adjusted for inflation) per 
barrel or BTU oil barrel equivalent (sec. 29). Qualified fuels 
must be produced within the United States.
    Qualified fuels include:
          (1) oil produced from shale and tar sands;
          (2) gas produced from geopressured brine, Devonian 
        shale, coal seams, tight formations (``tight sands''), 
        or biomass; and
          (3) liquid, gaseous, or solid synthetic fuels 
        produced from coal (including lignite).
    In general, the credit is available only with respect to 
fuels produced from wells drilled or facilities placed in 
service after December 31, 1979, and before January 1, 1993. An 
exception extends the January 1, 1993 expiration date for 
facilities producing gas from biomass and synthetic fuel from 
coal if the facility producing the fuel is placed in service 
before July 1, 1998, pursuant to a binding contract entered 
into before January 1, 1997.
    The credit may be claimed for qualified fuels produced and 
sold before January 1, 2003 (in the case of non-conventional 
sources subject to the January 1, 1993 expiration date) or 
January 1, 2008 (in the case of biomass gas and synthetic fuel 
facilities eligible for the extension period).

                           REASONS FOR CHANGE

    The committee concludes that the section 29 credit has 
brought forth oil and natural gas from domestic sources and 
that in the absence of these non-conventional sources the 
demand for imported fuels may have increased. To increase 
domestic sources of supply, the committee believes it is 
appropriate to extend the section 29 credit to help foster new 
domestic fuel sources. The committee is also concerned that, 
because of the higher extraction costs of these non-
conventional sources, the expiration of existing section 29 
benefits after 2002 could lead to the loss of needed domestic 
fuel production. Therefore, the committee believes it is 
appropriate to extend the credit for certain fuels produced 
from existing wells or facilities.
    Lastly, the committee recognizes that the world price of 
oil as the nation enters the 21st century has not risen to 
levels forecast in 1978. Therefore, the committee believes it 
is appropriate to restart the section 29 credit at a level 
lower than that currently available to existing production.

                        EXPLANATION OF PROVISION

    The bill permits taxpayers to claim the sec. 29 credit for 
production of certain non-conventional fuels produced at wells 
placed in service after the date of enactment and before 
January 1, 2007. Qualifying fuels are oil from shale or tar 
sands, and gas from geopressured brine, Devonian shale, coal 
seams or a tight formation. The value of the credit is $3.00 
for production in 2001 and 2002 and is indexed for inflation 
commencing with the credit amount for 2003. The credit may be 
claimed for production from the well for each of the first four 
years of production, but not for any production occurring after 
December 31, 2009.
    Production from wells and facilities that currently 
qualifies for the section 29 credit would not be affected by 
the bill prior to the scheduled expiration of the section 29 
credit for production from such well or facility. However, the 
bill further permits production from certain existing wells 
(any well drilled after December 31, 1979 and before January 1, 
1993) to claim a credit equal to the newly, re-indexed value of 
$3.00 for production in 2003 through 2006.
    The provision also permits landfill gas sold to a third 
party from facilities placed in service after June 30, 1998 and 
before January 1, 2007 to be eligible for the taxpayer to claim 
five years of credit from the later of the date of enactment or 
the date the facility is placed in service. The amount of 
credit is $3.00 per barrel equivalent in 2001 and 2002 and is 
indexed for inflation commencing with the credit amount for 
2003. That is, the value of the credit for 2003 will reflect 
the first indexing adjustment. In the case of a landfill 
subject to the Environmental Protection Agency's 1996 New 
Source Performance Standards/Emissions Guidelines the amount of 
credit is $2.00 per barrel equivalent in 2001 and 2002 and is 
indexed for inflation commencing with the credit amount for 
2003.
    Under the proposal, the taxpayer may not claim any credit 
for production in excess of a daily average of 200,000 cubic 
feet of gas (or barrel of oil equivalent) from a qualifying 
well or facility.\67\
---------------------------------------------------------------------------
    \67\ The daily average is to be computed as total production 
divided by the total number of days the well or facility was in 
production during the year.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The proposal would apply to fuel sold from qualifying wells 
and facilities after the date of enactment.

  G. ALLOW BUSINESS ENERGY CREDITS AGAINST THE ALTERNATIVE MINIMUM TAX


             (Sec. 307 of the Bill and Sec. 38 of the Code)


                              PRESENT LAW

    Present law imposes an alternative minimum tax on 
individuals and corporations in an amount equal to the excess 
of the tentative minimum tax over the regular tax liability. 
The tentative minimum tax is an amount equal to specified rates 
of tax imposed on the excess of the alternative minimum taxable 
income over an exemption amount.
    Generally, business credits may not exceed the excess of 
the regular tax liability over the tentative minimum tax.

                           REASONS FOR CHANGE

    The Committee believes that the energy credits should be 
utilized by offsetting both the regular tax and the alternative 
minimum tax.

                        EXPLANATION OF PROVISION

    The provision makes the minimum tax limitation inapplicable 
to the business energy credits added by the bill. These credits 
include the credit for efficient appliances (sec. 45G), the 
credit for construction of new energy efficient homes (sec. 
45H), the environmental tax credit (sec. 45I), the credit for 
oil and gas production from marginal wells (sec. 45J), and the 
credit for production from qualifying advanced clean coal 
technology (sec. 45K).

                             EFFECTIVE DATE

    The provision applies to taxable years ending after the 
date of enactment.

H. REPEAL ALTERNATIVE MINIMUM TAX INTANGIBLE DRILLING COSTS (``IDCS'') 
                 PREFERENCE FOR OIL AND GAS PRODUCTION


             (Sec. 308 of the Bill and Sec. 57 of the Code)


                              PRESENT LAW

    Taxpayers who pay or incur intangible drilling or 
development costs (``IDCs'') in the development of domestic oil 
or gas production may elect to either expense or capitalize 
these amounts. If an election to expense IDCs is made, the 
taxpayer deducts the amount of the IDCs as an expense in the 
taxable year the cost is paid or incurred.
    The difference between the amount of a taxpayer's IDC 
deduction and the amount which would have been currently 
deductible had IDCs been capitalized and recovered over a 10-
year period is an item of tax preference for the alternative 
minimum tax (``AMT'') to the extent that this amount exceeds 65 
percent of the taxpayer's net income from oil and gas 
properties for the taxable year. This preference applies to 
taxpayers other than integrated oil companies only to the 
extent that the failure to apply the preference would result in 
a reduction of the taxpayer's alternative minimum taxable 
income by more than 40 percent.

                           REASONS FOR CHANGE

    The Committee wishes to increase the effectiveness of the 
IDC expensing provision by repealing the AMT preference for 
taxpayers other than integrated oil companies.

                        EXPLANATION OF PROVISION

    The provision repeals the AMT preference for IDCs for oil 
and gas wells for taxpayers other than integrated oil 
companies.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2001, and beginning before January 1, 2005.

 I. ALLOW ENHANCED OIL RECOVERY CREDIT AGAINST THE ALTERNATIVE MINIMUM 
                                  TAX


             (Sec. 309 of the Bill and Sec. 38 of the Code)


                              PRESENT LAW

    Present law imposes an alternative minimum tax on 
individuals and corporations in an amount equal to the excess 
of the tentative minimum tax over the regular tax liability. 
The tentative minimum tax is an amount equal to specified rates 
of tax imposed on the excess of the alternative minimum taxable 
income over an exemption amount.
    Generally, business credits may not exceed the excess of 
the regular tax liability over the tentative minimum tax. One 
of these credits is the enhanced oil recovery credit (sec. 43).

                           REASONS FOR CHANGE

    The Committee believes that the enhanced oil recovery 
credit should be utilized by offsetting both the regular tax 
and the alternative minimum tax.

                        EXPLANATION OF PROVISION

    The provision repeals the minimum tax limitation on the 
enhanced oil recovery credit.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2001, and beginning before January 1, 2005.

 J. EXTENSION OF TAX INCENTIVES FOR ENERGY-RELATED BUSINESS ON INDIAN 
                              RESERVATIONS


      (Sec. 310 of the Bill and Secs. 45A and 168(j) of the Code)


                              PRESENT LAW

    Present law includes the following tax incentives for 
businesses located within Indian reservations.

Accelerated depreciation

    With respect to certain property used in connection with 
the conduct of a trade or business within an Indian 
reservation, depreciation deductions under section 168(j) will 
be determined using the following recovery periods:

                                                                   Years
3-year property...................................................     2
5-year property...................................................     3
7-year property...................................................     4
10-year property..................................................     6
15-year property..................................................     9
20-year property..................................................    12
Nonresidential real property......................................    22

    ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property which is (1) used by 
the taxpayer predominantly in the active conduct of a trade or 
business within an Indian reservation, (2) not used or located 
outside the reservation on a regular basis, (3) not acquired 
(directly or indirectly) by the taxpayer from a person who is 
related to the taxpayer (within the meaning of section 
465(b)(3)(C)), and (4) described in the recovery-period table 
above. In addition, property is not ``qualified Indian 
reservation property'' if it is placed in service for purposes 
of conducting gaming activities. Certain ``qualified 
infrastructure property'' may be eligible for the accelerated 
depreciation even if located outside an Indian reservation, 
provided that the purpose of such property is to connect with 
qualified infrastructure property located within the 
reservation (e.g., roads, power lines, water systems, railroad 
spurs, and communications facilities).
    The depreciation deduction allowed for regular tax purposes 
is also allowed for purposes of the alternative minimum tax. 
The accelerated depreciation for Indian reservations is 
available with respect to property placed in service on or 
after January 1, 1994, and before December 31, 2003.

Indian employment credit

    In general, a credit against income tax liability is 
allowed to employers for the first $20,000 of qualified wages 
and qualified employee health insurance costs paid or incurred 
by the employer with respect to certain employees (sec. 45A). 
The credit is equal to 20 percent of the excess of eligible 
employee qualified wages and health insurance costs during the 
current year over the amount of such wages and costs incurred 
by the employer during 1993. The credit is an incremental 
credit, such that an employer's current-year qualified wages 
and qualified employee health insurance costs (up to $20,000 
per employee) are eligible for the credit only to the extent 
that the sum of such costs exceeds the sum of comparable costs 
paid during 1993. No deduction is allowed for the portion of 
the wages equal to the amount of the credit.
    Qualified wages means wages paid or incurred by an employer 
for services performed by a qualified employee. A qualified 
employee means any employee who is an enrolled member of an 
Indian tribe or the spouse of an enrolled member of an Indian 
tribe, who performs substantially all of the services within an 
Indian reservation, and whose principal place of abodewhile 
performing such services is on or near the reservation in which the 
services are performed. An employee will not be treated as a qualified 
employee for any taxable year of the employer if the total amount of 
wages paid or incurred by the employer with respect to such employee 
during the taxable year exceeds an amount determined at an annual rate 
of $30,000 (adjusted for inflation after 1993).
    The wage credit is available for wages paid or incurred on 
or after January 1, 1994, in taxable years that begin before 
December 31, 2003.

                           REASONS FOR CHANGE

    The Committee believes that extending the accelerated 
depreciation and wage credit tax incentives for energy 
production and transmission activities within Indian 
reservations will both increase the supply of energy as well as 
expand business and employment opportunities in these areas.

                        EXPLANATION OF PROVISION

Accelerated depreciation

    The provision extends the accelerated depreciation 
incentive for three years (to property placed in service before 
January 1, 2007), but only with respect to property that is 
part of a facility for (1) the generation or transmission of 
electricity (including from any qualified energy resource), (2) 
an oil or gas well, (3) the transmission or refining of oil or 
gas, or (4) the production of any qualified fuel (as defined in 
section 29(c)).

Indian employment credit

    The provision extends the Indian employment credit 
incentive for three years (to taxable years beginning before 
January 1, 2007), but only in the case of wages paid for 
services performed at a facility for (1) the generation or 
transmission of electricity (including from any qualified 
energy resource), (2) an oil or gas well, (3) the transmission 
or refining of oil or gas, or (4) the production of any 
qualified fuel (as defined in section 29(c)).

                             EFFECTIVE DATE

    The provisions are effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 2511.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 2511, as amended, was ordered favorably 
reported by a rollcall vote of 24 yeas to 17 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................        X   ........  .........  .................  ........  ........  .........
Mr. Hulshof....................        X   ........  .........  .................  ........  ........  .........
Mr. McInnis....................        X   ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................        X   ........  .........  .................  ........  ........  .........
Mr. Foley......................        X   ........  .........  .................  ........  ........  .........
Mr. Brady......................        X   ........  .........  .................  ........  ........  .........
Mr. Ryan.......................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. McDermott, which would add a new 
section relating to credits to holders of residential solar 
energy bonds, was defeated by a rollcall vote of 15 yeas to 25 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................  ........  ........  .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mrs. Thurman, which would make the 
provisions in the bill contingent upon sufficient non-Social 
Security, non-Medicare surpluses, was defeated by a rollcall 
vote of 17 yeas to 23 nays. The vote was as follows

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    A substitute amendment for the entire bill by Mr. Rangel, 
was defeated by a rollcall vote of 15 yeas to 25 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........  ........  ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 2511 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2001-2006:



B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing income tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 24, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2511, the Energy 
Tax Policy Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Erin 
Whitaker.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 2511--Energy Tax Policy Act of 2001

    Summary: H.R. 2511 would amend numerous provisions of tax 
law relating to energy. Provisions would enhance and create 
credits for the use and development of energy-efficient 
technologies, amend tax rules to provide greater recovery of 
assets and credits for businesses that provide energy, and 
enhance and create credits and deductions for the production of 
oil, gas, and other types of fuel. Provisions of the act would 
generally take effect in 2002, but some provisions would take 
effect on different dates, and some provisions would expire 
during the 2002-2011 period.
    The Congressional Budget Office (CBO) and the Joint 
Committee on Taxation (JCT) estimate that H.R. 2511 would 
decrease governmental receipts by about $1.7 billion in 2002, 
by $18.7 billion over the 2002-2006 period, and by $33.5 
billion over the 2002-2011 period. Since the bill would affect 
receipts, pay-as-you-go procedures would apply. H.R. 2511 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
not affect the budgets of state, local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2511 is shown in the following table. 
All estimates were provided by JCT.

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                          ------------------------------------------------------
                                                              2002       2003       2004       2005       2006
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues.......................................     -1,729     -3,373     -4,209     -4,838     -4,553
----------------------------------------------------------------------------------------------------------------

    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. For the 
purposes of enforcing pay-as-you-go procedures, only the 
effects in the current year, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           By fiscal year, in millions of dollars--
                                    --------------------------------------------------------------------------------------------------------------------
                                      2001     2002       2003       2004       2005       2006       2007       2008       2009       2010       2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays.................                                                     Not applicable
Changes in receipts................      0     -1,729     -3,373     -4,209     -4,838     -4,553     -4,057     -3,244     -2,680     -2,422     -2,416
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 2511 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Revenues: Erin Whitaker; impact on 
state, local, and tribal governments: Elyse Goldman; impact on 
the private sector: Paige Piper/Bach.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on taxpayers that 
the Committee concluded that it is appropriate and timely to 
enact the revenue provision included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



               Subpart A--Nonrefundable Personal Credits

     * * * * * * *
        Sec. 25B. Elective deferrals and IRA contributions by certain 
                  individuals.
        Sec. 25C. Residential solar energy property.
        Sec. 25D. Nonbusiness qualified stationary fuel cell powerplant.
        Sec. 25E. Energy efficiency improvements to existing homes.

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a) * * *
  (b) Limitation Based on Adjusted Gross Income.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any 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 25B], 25B, 25C, 25D, and 25E) 
                and section 27 for the taxable year.

           *       *       *       *       *       *       *


SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rules and Definitions.--For purposes of this 
section--
          (1) Carryforward of unused credit.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Applicable tax limit.--For purposes of 
                this paragraph, the term ``applicable tax 
                limit'' means the limitation imposed by section 
                26(a) for the taxable year reduced by the sum 
                of the credits allowable under this subpart 
                (other than this section and sections 23, 24, 
                25B, 25C, 25D, and 25E and 1400C) .

           *       *       *       *       *       *       *


SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
                    INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Limitation Based on Amount of Tax.--The credit allowed 
under subsection (a) for the taxable year shall not exceed the 
excess of--
          (1) * * *
          (2) the sum of the credits allowable under this 
        subpart (other than this section and [section 23] 
        sections 23, 25C, 25D, and 25E) and section 27 for the 
        taxable year.
  (g) Termination.--This section shall not apply to taxable 
years beginning after December 31, 2006.

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).

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.

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.

SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 
                    LIABILITY.

  (a) Limitation base on Amount of Tax.--
          (1) In general.--The aggregate amount of credits 
        allowed by this subpart (other than sections 23, 24, 
        [and 25B] 25B, 25C, 25D, and 25E) for the taxable year 
        shall not exceed the excess (if any) of--
                  (A) * * *

           *       *       *       *       *       *       *


                  Subpart B--Foreign Tax Credit, Etc.

        Sec. 27.  Tax of foreign countries and possessions of the United 
                  States; possession tax credit.
     * * * * * * *
        Sec. 30.  Credit for qualified battery electric vehicles.
        Sec. 30A.   Puerto Rico economic activity credit.
        Sec. 30B.   Alternative motor vehicle credit.
     * * * * * * *

SEC. 29. CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.

  (a) Allowance of Credit.--[There] At the election of the 
taxpayer, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount equal 
to--
          (1) * * *

           *       *       *       *       *       *       *

  (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''.

SEC. 30. CREDIT FOR QUALIFIED BATTERY ELECTRIC VEHICLES.

  (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 [10 percent of] the cost of any qualified 
battery electric vehicle placed in service by the taxpayer 
during the taxable year.
  (b) Limitations.--
          [(1) Limitation per vehicle.--The amount of the 
        credit allowed under subsection (a) for any vehicle 
        shall not exceed $4,000.
          [(2) Phaseout.--In the case of any qualified electric 
        vehicle placed in service after December 31, 2001, the 
        credit otherwise allowable under subsection (a) 
        (determined after the application of paragraph (1)) 
        shall be reduced by--
                  [(A) 25 percent in the case of property 
                placed in service in calendar year 2002,
                  [(B) 50 percent in the case of property 
                placed in service in calendar year 2003, and
                  [(C) 75 percent in the case of property 
                placed in service in calendar year 2004.]
          (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.
          [(3)] (2) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of--
                  (A) the regular tax for the taxable year 
                reduced by the sum of the credits allowable 
                under subpart A and sections 27 and 29, over--
                  (B) the tentative minimum tax for the taxable 
                year.
  (c) Qualified Battery Electric Vehicle.--For purposes of this 
section--
          (1) In general.--The term ``qualified battery 
        electric vehicle'' means any motor vehicle--
                  [(A) which is powered primarily by an 
                electric motor drawing current from 
                rechargeable batteries, fuel cells, or other 
                portable sources of electrical current,]
                  (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,
                  (B) the original use of which commences with 
                the taxpayer, and
                  (C) which is acquired for use or lease by the 
                taxpayer and not for resale.

           *       *       *       *       *       *       *

  (d) Special rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (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).
  (e) Termination.--This section shall not apply to any 
property placed in service after December 31, [2004] 2007.

           *       *       *       *       *       *       *


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 wThe 2000 model year city fuel economy is:
    1,500 or 1,750 lbs........................................ 43.7 mpg 
    2,000 lbs................................................. 38.3 mpg 
    2,250 lbs................................................. 34.1 mpg 
    2,500 lbs................................................. 30.7 mpg 
    2,750 lbs................................................. 27.9 mpg 
    3,000 lbs................................................. 25.6 mpg 
    3,500 lbs................................................. 22.0 mpg 
    4,000 lbs................................................. 19.3 mpg 
    4,500 lbs................................................. 17.2 mpg 
    5,000 lbs................................................. 15.5 mpg 
    5,500 lbs................................................. 14.1 mpg 
    6,000 lbs................................................. 12.9 mpg 
    6,500 lbs................................................. 11.9 mpg 
    7,000 or 8,500 lbs........................................ 11.1 mpg.

                          (ii) In the case of a light truck:

If vehicle inertia wThe 2000 model year city fuel economy is:
    1,500 or 1,750 lbs........................................ 37.6 mpg 
    2,000 lbs................................................. 33.7 mpg 
    2,250 lbs................................................. 30.6 mpg 
    2,500 lbs................................................. 28.0 mpg 
    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 theThe credit amount is:wer 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 theThe credit amount is:wer 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 theThe credit amount is:wer 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 theThe credit amount is:wer 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 isThe 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 isThe 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 isThe 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 ( 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.--For purposes of subparagraph (E), 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 
                        ( 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.

           *       *       *       *       *       *       *


                  Subpart D--Business Related Credits

        Sec. 38.  General business credit.
     * * * * * * *
        Sec. 45G.  Energy efficient appliance credit.
        Sec. 45H.  New energy efficient home credit.
        Sec. 45I.  Environmental tax credit.
        Sec. 45J.  Credit for producing oil and gas from marginal wells.
        Sec. 45K.  Credit for production from qualifying advanced clean 
                  coal technology.

           *       *       *       *       *       *       *


SEC. 38. GENERAL BUSINESS CREDIT.

  (a) * * *
  (b) Current Year Business Credit.--For purposes of this 
subpart, the amount of the current year business credit is the 
sum of the following credits determined for the taxable year:
          (1) * * *

           *       *       *       *       *       *       *

          (14) in the case of an eligible employer (as defined 
        in section 45E(c)), the small employer pension plan 
        startup cost credit determined under section 45E(a), 
        [plus]
          (15) the employer-provided child care credit 
        determined under section 45F[.],
          (16) the energy efficient appliance credit determined 
        under section 45G(a),
          (17) the new energy efficient home credit determined 
        under section 45H,
          (18) in the case of a small business refiner, the 
        environmental tax credit determined under section 
        45I(a),
          (19) the marginal oil and gas well production credit 
        determined under section 45J(a), plus
          (20) the qualifying advanced clean coal technology 
        production credit determined under section 45K(a).
  (c) Limitation Based on Amount of Tax.--
          (1) * * *
          (2) Empowerment zone employment credit may offset 25 
        percent of minimum tax.--
                  (A) In general.--In the case of the 
                empowerment zone employment credit--
                          (i) * * *
                          (ii) for purposes of applying 
                        paragraph (1) to such credit--
                                  (I) 75 percent of the 
                                tentative minimum tax shall be 
                                substituted for the tentative 
                                minimum tax under subparagraph 
                                (A) thereof, 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 
                                empowerment zone employment 
                                credit or the specified energy 
                                credits).
          (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.
          [(3)] (4) Special rules.--
                  (A) * * *
                  (B) Controlled groups.--In the case of a 
                controlled group, the $25,000 amount specified 
                under subparagraph (B) of paragraph (1) shall 
                be reduced for each component member of such 
                group by apportioning $25,000 among the 
                component members of such group in such manner 
                as the Secretary shall by regulations 
                prescribe. For purposes of the preceding 
                sentence, the term ``controlled group'' has the 
                meaning given to such term by section 1563(a). 
                For taxable years beginning before January 1, 
                2005, such term includes the credit determined 
                under section 43.

           *       *       *       *       *       *       *


SEC. 39. CARRYBACK AND CARRYFORWARD OF UNUSED CREDITS.

  (a) In general.--
          (1) * * *

           *       *       *       *       *       *       *

          (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) Transitional Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.
          (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.
          (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.
          (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.
          (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.

SEC. 45. ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Qualified facility.--
                  (A) Wind facility.--In the case of a facility 
                using wind to produce electricity, the term 
                ``qualified facility'' means any facility owned 
                by the taxpayer which is originally placed in 
                service after December 31, 1993, and before 
                January 1, [2002] 2007.
                  (B) Closed-loop biomass facility.--In the 
                case of a facility using closed-loop biomass to 
                produce electricity, the term ``qualified 
                facility'' means any facility owned by the 
                taxpayer which is originally placed in service 
                after December 31, 1992, and before January 1, 
                [2002] 2007.

           *       *       *       *       *       *       *

                  (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.

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *


SEC. 45A. INDIAN EMPLOYMENT CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Termination.--This section shall not apply to taxable 
years beginning after December 31, 2003. 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).

           *       *       *       *       *       *       *


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.

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.

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.

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.

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 equal   For 1st 5 years of     For 2d 5 years of
             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 equal   For 1st 5 years of     For 2d 5 years of
             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 equal   For 1st 5 years of     For 2d 5 years of
             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 equal   For 1st 5 years of     For 2d 5 years of
             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 equal   For 1st 5 years of     For 2d 5 years of
             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 equal   For 1st 5 years of     For 2d 5 years of
             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.

         Subpart E--Rules for Computing Work Investment Credit

        Sec. 46.  Amount of credit.
     * * * * * * *
        Sec. 48A.   Qualifying advanced clean coal technology facility 
                  credit.
     * * * * * * *

SEC. 46. AMOUNT OF CREDIT.

  For purposes of section 38, the amount of the investment 
credit determined under this section for any taxable year shall 
be the sum of--
          (1) the rehabilitation credit,
          (2) the energy credit, [and]
          (3) the reforestation credit[.]; and
          (4) the qualifying advanced clean coal technology 
        facility credit.

           *       *       *       *       *       *       *


SEC. 48. ENERGY CREDIT; REFORESTATION CREDIT.

  (a) Energy credit.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Energy property.--For purposes of this subpart, 
        the term ``energy property'' means any property--
                  (A) which is--
                          (i) equipment which uses solar energy 
                        to generate electricity, to heat or 
                        cool (or provide hot water for use in) 
                        a structure, or to provide solar 
                        process heat, [or]
                          (ii) equipment used to produce, 
                        distribute, or use energy derived from 
                        a geothermal deposit (within the 
                        meaning of section 613(e)(2)), but 
                        only, in the case of electricity 
                        generated by geothermal power, up to 
                        (but not including) the electrical 
                        transmission stage,
                          (iii) equipment which is part of a 
                        qualified stationary fuel cell 
                        powerplant, or
                          (iv) combined heat and power system 
                        property,

           *       *       *       *       *       *       *

          (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.
          (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.
          [(4)] (6) Special rule for property financed by 
        subsidized energy financing or industrial development 
        bonds.--
                  (A) Reduction of basis.--For purposes of 
                applying the energy percentage to any property, 
                if such property is financed in whole or in 
                part by--
                          (i) subsidized energy financing, or

           *       *       *       *       *       *       *

          [(5)] (7) Certain progress expenditure rules made 
        applicable.--Rules similar to the rules of subsections 
        (c)(4) and (d) of section 46 (as in effect on the day 
        before the date of the enactment of the Revenue 
        Reconciliation Act of 1990) shall apply for purposes of 
        this subsection.

           *       *       *       *       *       *       *


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.

SEC. 49. AT-RISK RULES.

  (a) General Rule.--
          (1) Certain nonrecourse financing excluded from 
        credit base.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Credit base defined.--For purposes of 
                this paragraph, the term ``credit base'' 
                means--
                          (i) the portion of the basis of any 
                        qualified rehabilitated building 
                        attributable to qualified 
                        rehabilitation expenditures,
                          (ii) the basis of any energy 
                        property, [and]
                          (iii) the amortizable basis of any 
                        qualified timber property[.], and
                          (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)).

           *       *       *       *       *       *       *


SEC. 50. OTHER SPECIAL RULES.

  (a) Recapture in case of dispositions, etc.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Subsection not to apply in certain cases.--
        Paragraphs (1) [and (2)], (2), and (6) shall not apply 
        to--
                  (A) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *

  (c) Basis Adjustment to Investment Credit Property.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *


   Subpart G--Credit Against Regular Tax for Prior Year Minimum Tax 
Liability

           *       *       *       *       *       *       *


SEC. 53. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this section--
          (1) Net minimum tax.--
                  (A) * * *
                  (B) Credit not allowed for exclusion 
                preferences.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Special rule.--The adjusted net 
                        minimum tax for the taxable year shall 
                        be increased by the amount of the 
                        credit not allowed under section 29 
                        (relating to credit for producing fuel 
                        from a nonconventional source) solely 
                        by reason of the application of section 
                        29(b)(6)(B), or not allowed under 
                        section 30 solely by reason of the 
                        application of [section 30(b)(3)(B)] 
                        section 30(b)(2)(B).

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Regular Tax.--
          (1) * * *
          (2) Cross References.--

          For provisions providing that certain credits are not 
        allowable against the tax imposed by this section, see sections 
        26(a), 29(b)(6), [30(b)(3)] 30(b)(2) and 38(c).

           *       *       *       *       *       *       *


SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

  (a) Adjustments Applicable to All Taxpayers.--In determining 
the amount of the alternative minimum taxable income for any 
taxable year the following treatment shall apply (in lieu of 
the treatment applicable for purposes of computing the regular 
tax):
          (1) Depreciation.--
                  (A) * * *
                  (B) Exception for certain property.--This 
                paragraph shall not apply to property described 
                in paragraph (1), (2), (3), or (4) of section 
                168(f) or in clause (ii) or (iii) of section 
                168(e)(3)(C) or in clause (iii) of section 
                168(e)(3)(D).

           *       *       *       *       *       *       *


SEC. 57. ITEMS OF TAX PREFERENCE.

  (a) General Rule.--For purposes of this part, the items of 
tax preference determined under this section are--
          (1) * * *
          (2) Intangible drilling costs.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Exception for independent producers.--In 
                the case of any oil or gas well--
                          (i) * * *
                          (ii) Limitation on benefit.--The 
                        reduction in alternative minimum 
                        taxable income by reason of clause (i) 
                        for any taxable year shall not exceed 
                        40 percent (30 percent in case of 
                        taxable years beginning in 1993) of the 
                        alternative minimum taxable income for 
                        such year determined without regard to 
                        clause (i) and the alternative tax net 
                        operating loss deduction under section 
                        56(a)(4). The preceding sentence shall 
                        not apply to taxable years beginning 
                        after December 31, 2001, and before 
                        January 1, 2005.

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART IV--EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS

           *       *       *       *       *       *       *


                   Subpart A--Private Activity Bonds

        Sec. 141.  Private activity bond; qualified bond
     * * * * * * *
        Sec. 141A.  Treatment of government-owned electric output 
                  facilities.

           *       *       *       *       *       *       *


SEC. 141. PRIVATE ACTIVITY BOND; QUALIFIED BOND.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Private Loan Financing Test.--
          (1) * * *
          (2) Exception for tax assessment, etc., loans.--For 
        purposes of paragraph (1), a loan is described in this 
        paragraph if such loan--
                  (A) enables the borrower to finance any 
                governmental tax or assessment of general 
                application for a specific essential 
                governmental function, [or]
                  (B) is a nonpurpose investment (within the 
                meaning of section 148(f)(6)(A))[.], or
                  (C) arises from a transaction described in 
                section 148(b)(4).
  (d) Certain issues used to acquire nongovernmental output 
property treated as private activity bonds
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules.--In the case of a bond which is a 
        private activity bond solely by reason of this 
        subsection (except in the case of an electric output 
        facility that is a distribution facility)--
                  (A) subsections (c) and (d) of section 147 
                (relating to limitations on acquisition of land 
                and existing property) shall not apply, and
                  (B) paragraph (8) of section 142(a) shall be 
                applied as if it did not contain ``local''.

           *       *       *       *       *       *       *


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
                                  (III) 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.

           *       *       *       *       *       *       *


Subpart B--Requirements Applicable to All State and Local Bonds

           *       *       *       *       *       *       *


SEC. 148. ARBITRAGE.

  (a) * * *
  (b) Higher Yielding Investments.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *


     PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

        Sec. 161. Allowance of deductions.
     * * * * * * *
        Sec. 179B. Energy property deduction.
        Sec. 179C. Deduction for qualified energy management devices and 
                  retrofitted meters.
     * * * * * * *

SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Classification of Property.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Classification of certain property.--
                  (A) 3-year property.--The term ``3-year 
                property'' includes--
                          (i) any race horse which is more than 
                        2 years old at the time it is placed in 
                        service,
                          (ii) any horse other than a race 
                        horse which is more than 12 years old 
                        at the time it is placed in service, 
                        [and]
                          (iii) any qualified rent-to-own 
                        property[.], and
                          (iv) any qualified energy management 
                        device.

           *       *       *       *       *       *       *

                  (C) 7-year property.--The term ``7-year 
                property'' includes--
                          (i) any railroad track, [and]
                          (ii) any natural gas gathering line,
                          (iii) any property used for the 
                        distillation, fractionation, and 
                        catalytic cracking of crude petroleum 
                        into gasoline and its other components, 
                        and
                          [(ii)] (iv) any property which--
                                  (I) does not have a class 
                                life, and
                                  (II) is not otherwise 
                                classified under paragraph (2) 
                                or this paragraph.
                  (D) 10-year property.--The term ``10-year 
                property'' includes--
                          (i) any single purpose agricultural 
                        or horticultural structure (within the 
                        meaning of subsection (i)(13)), [and]
                          (ii) any tree or vine bearing fruit 
                        or nuts[.], and
                          (iii) any natural gas distribution 
                        line.

           *       *       *       *       *       *       *

  (g) Alternative Depreciation System for Certain Property.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rules for determining class life.--
                  (A) * * *
                  (B) Special rule for certain property 
                assigned to classes.--For purposes of paragraph 
                (2), in the case of property described in any 
                of the following subparagraphs of subsection 
                (e)(3), the class life shall be determined as 
                follows:

        If property is described                               The class
          in subparagraph:                                    life is:  

          (A)(iii)................................................   4  
          (B)(ii).................................................   5  
          (B)(iii)................................................  9.5 
          (C)(i)..................................................  10  
          (C)(ii).................................................  10  
          (C)(iii)................................................  10  
          (D)(i)..................................................  15  
          (D)(ii).................................................  20  
          (D)(iii)................................................  20  
          (E)(i)..................................................  24  
          (E)(ii).................................................  24  
          (E)(iii)................................................  20  

  (i) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (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.
          (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.
  (j) Property on Indian Reservations.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Termination.--This subsection shall not apply to 
        property placed in service after December 31, 2003. 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)).

           *       *       *       *       *       *       *


SEC. 172. NET OPERATING LOSS DEDUCTION.

  (a) * * *
  (b) Net Operating Carrybacks and Carryovers.--
          (1) Years to which loss may be carried.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (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.

           *       *       *       *       *       *       *

  (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).
  [(j)] (k) Cross References.--

          (1) * * *
     * * * * * * *

SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

  (a) * * *
  (b) Limitations.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

SEC. 179A. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING 
                    PROPERTY.

  (a) * * *
  (b) Limitations.--
          (1) Qualified clean-fuel vehicle property.--
                  (A) * * *
                  (B) Phaseout.--In the case of any qualified 
                clean-fuel vehicle property placed in service 
                after December 31, 2001, the limit otherwise 
                applicable under subparagraph (A) shall be 
                reduced by--
                          (i) 25 percent in the case of 
                        property placed in service in calendar 
                        year [2002] 2005,
                          (ii) 50 percent in the case of 
                        property placed in service in calendar 
                        year [2003] 2006, and
                          (iii) 75 percent in the case of 
                        property placed in service in calendar 
                        year [2004] 2007.
  (c) Qualified Clean-Fuel Vehicle Property Defined.--For 
purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for qualified battery electric 
        vehicles.--The term ``qualified clean-fuel vehicle 
        property'' does not include any qualified battery 
        electric vehicle (as defined in section 30(c)).

           *       *       *       *       *       *       *

  (f) Termination.--This section shall not apply to any 
property placed in service after December 31, [2004] 2007.

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.

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.

           *       *       *       *       *       *       *


SEC. 196. DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Qualified Business Credits.--For purposes of this 
section, the term ``qualified business credits'' means--
          (1) * * *

           *       *       *       *       *       *       *

          (9) the new markets tax credit determined under 
        section 45D(a), [and]
          (10) the small employer pension plan startup cost 
        credit determined under section 45E(a)[.], and
          (11) the new energy efficient home credit determined 
        under section 45H.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTABLE

           *       *       *       *       *       *       *


SEC. 263. CAPITAL EXPENDITURES.

  (a) General Rule.--No deduction shall be allowed for--
          (1) Any amount paid out for new buildings or for 
        permanent improvements or betterments made to increase 
        the value of any property or estate. This paragraph 
        shall not apply to--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) expenditures for which a deduction is 
                allowed under section 179; [or]
                  (H) expenditures for which a deduction is 
                allowed under section 179A[.],
                  (I) expenditures for which a deduction is 
                allowed under section 179B, or
                  (J) expenditures for which a deduction is 
                allowed under section 179C.

           *       *       *       *       *       *       *

  (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.
  (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.

SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF CERTAIN 
                    EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) General Exceptions.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Certain development and other costs of oil and 
        gas wells or other mineral property.--This section 
        shall not apply to any cost allowable as a deduction 
        under section 263(c), 263(i), 263(j), 263(k), 
        291(b)(2), 616, or 617.

           *       *       *       *       *       *       *


SEC. 280C. CERTAIN EXPENSES FOR WHICH CREDITS ARE ALLOWABLE.

  (a) * * *

           *       *       *       *       *       *       *

  (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.
  (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).

           *       *       *       *       *       *       *


Subchapter C--Corporate Distributions and Adjustments

           *       *       *       *       *       *       *


PART I--DISTRIBUTIONS BY CORPORATIONS

           *       *       *       *       *       *       *


Subpart B--Effects on Corporation

           *       *       *       *       *       *       *


SEC. 312. EFFECT ON EARNINGS AND PROFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Effect of Depreciation on Earnings and Profits.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for tangible property.--
                  (A) * * *
                  (B) Treatment of amounts deductible under 
                section 179 [or 179a], 179a, 179b, or 179c.--
                For purposes of computing the earnings and 
                profits of a corporation, any amount deductible 
                under section 179 [or 179A], 179A, 179B, or 
                179C shall be allowed as a deduction ratably 
                over the period of 5 taxable years (beginning 
                with the taxable year for which such amount is 
                deductible under section 179 [or 179A], 179A, 
                179B, or 179C, as the case may be).

           *       *       *       *       *       *       *


PART III--CORPORATE ORGANIZATIONS AND REORGANIZATIONS

           *       *       *       *       *       *       *


Subpart B--Effects on Shareholders and Security Holders

           *       *       *       *       *       *       *


SEC. 355. DISTRIBUTION OF STOCK AND SECURITIES OF A CONTROLLED 
                    CORPORATION.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Recognition of Gain on Certain Distributions of Stock or 
Securities in Connection with Acquisitions.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rules relating to acquisitions.--
                  (A) Certain acquisitions not taken into 
                account.--Except as provided in regulations, 
                the following acquisitions shall not be taken 
                into account in applying paragraph (2)(A)(ii):
                          (i) The acquisition of stock in any 
                        controlled corporation by the 
                        distributing corporation.

           *       *       *       *       *       *       *

                          (v) The acquisition of stock in any 
                        controlled corporation in a qualifying 
                        electric transmission transaction (as 
                        defined in section 1033(k)).

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *


SEC. 468A. SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS.

  (a) * * *
  [(b) Limitation on Amounts Paid into Fund.--The amount which 
a taxpayer may pay into the Fund for any taxable year shall not 
exceed the lesser of--
          [(1) the amount of nuclear decommissioning costs 
        allocable to the Fund which is included in the 
        taxpayer's cost of service for ratemaking purposes for 
        such taxable year, or
          [(2) the ruling amount applicable to such taxable 
        year.]
  (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.
  (c) Income and Deductions of the Taxpayer.--
          (1) * * *
          [(2) Deduction when economic performance occurs.--In 
        addition to any deduction under subsection (a), there 
        shall be allowable as a deduction for any taxable year 
        the amount of the nuclear decommissioning costs with 
        respect to which economic performance (within the 
        meaning of section 461(h)(2)) occurs during such 
        taxable year.]
          (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.
  (d) Ruling Amount.--For purposes of this section--
          (1) * * *
          (2) Ruling amount.--The term ``ruling amount'' means, 
        with respect to any taxable year, the amount which the 
        Secretary determines under paragraph (1) to be 
        necessary to--
                  [(A) fund that portion of the nuclear 
                decommissioning costs of the taxpayer with 
                respect to the nuclear power plant which bears 
                the same ratio to the total nuclear 
                decommissioning costs with respect to such 
                nuclear power plant as the period for which the 
                Fund is in effect bears to the estimated useful 
                life of such nuclear power plant, and]
                  (A) fund the total nuclear decommissioning 
                costs with respect to such powerplant over the 
                estimated useful life of such powerplant, and

           *       *       *       *       *       *       *

  (e) Nuclear Decommissioning Reserve Fund.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.
  (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.
  [(f)] (g) Nuclear Power Plant.--For purposes of this section, 
the term ``nuclear power plant'' includes any unit thereof.
  [(g)] (h) Time When Payments Deemed Made.--For purposes of 
this section, a taxpayer shall be deemed to have made a payment 
to the Fund on the last day of a taxable year if such payment 
is made on account of such taxable year and is made within 2-1/
2 months after the close of such taxable year.

           *       *       *       *       *       *       *


Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


PART I--GENERAL RULE

           *       *       *       *       *       *       *


SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1) * * *

           *       *       *       *       *       *       *

          (12)(A) * * *

           *       *       *       *       *       *       *

                  (C) In the case of a mutual or cooperative 
                electric company, subparagraph (A) shall be 
                applied without taking into account any income 
                received or accrued--
                          (i) from qualified pole rentals, [or]
                          (ii) from the prepayment of a loan 
                        under section 306A, 306B, or 311 of the 
                        Rural Electrification Act of 1936 (as 
                        in effect on January 1, 1987)[.],
                          (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.

           *       *       *       *       *       *       *

                  (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.
                  (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).

           *       *       *       *       *       *       *


PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS

           *       *       *       *       *       *       *


SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

  (a) * * *
  (b) Modifications.--The modifications referred to in 
subsection (a) are the following:
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *


Subchapter I--Natural Resources

           *       *       *       *       *       *       *


PART I--DEDUCTIONS

           *       *       *       *       *       *       *


SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS 
                    WELLS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Exemption for Independent Producers and Royalty Owners.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Oil and natural gas produced from marginal 
        properties.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) Temporary suspension of taxable income 
                limit with respect to marginal production.--The 
                second sentence of subsection (a) of section 
                613 shall not apply to so much of the allowance 
                for depletion as is determined under 
                subparagraph (A) for any taxable year beginning 
                after December 31, 1997, and before January 1, 
                [2002] 2007.

           *       *       *       *       *       *       *

  (d) Limitations on Application of Subsection (c).--
          (1) * * *

           *       *       *       *       *       *       *

          [(4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, 
        subsection (c) shall not apply to such taxpayer if on 
        any day during the taxable year the refinery runs of 
        the taxpayer and such person exceed 50,000 barrels.]
          (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.

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *


 Subchapter N--Tax Based on Income from Sources Within or Without the 
United States

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *


Subpart A--Foreign Tax Credit

           *       *       *       *       *       *       *


SEC. 904. LIMITATION ON CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Coordination with Nonrefundable Personal Credits.--In the 
case of an individual, for purposes of subsection (a), the tax 
against which the credit is taken is such tax reduced by the 
sum of the credits allowable under subpart A of part IV of 
subchapter A of this chapter (other than sections 23, 24, [and 
25B] 25B, 25C, 25D, and 25E). This subsection shall not apply 
to taxable years beginning during 2000 or 2001.

           *       *       *       *       *       *       *


Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *


PART II--BASIS RULES OF GENERAL APPLICATION

           *       *       *       *       *       *       *


SEC. 1016. ADJUSTMENTS TO BASIS.

  (a) General Rule.--Proper adjustment in respect of the 
property shall in all cases be made--
          (1) * * *

           *       *       *       *       *       *       *

          (27) in the case of a residence with respect to which 
        a credit was allowed under section 1400C, to the extent 
        provided in section 1400C(h), [and]
          (28) in the case of a facility with respect to which 
        a credit was allowed under section 45F, to the extent 
        provided in section 45F(f )(1)[.],
          (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,
          (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,
          (31) to the extent provided in section 30B(g)(5),
          (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,
          (33) to the extent provided in section 179B(g),
          (34) to the extent provided in section 179C(e)(1), 
        and
          (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).

           *       *       *       *       *       *       *


PART III--COMMON NONTAXABLE EXCHANGES

           *       *       *       *       *       *       *


SEC. 1033. INVOLUNTARY CONVERSIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (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.
  [(k)] (l) Cross References.--

          (1) * * *

           *       *       *       *       *       *       *


Subchapter P--Capital Gains and Losses

           *       *       *       *       *       *       *


PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES

           *       *       *       *       *       *       *


SEC. 1245. GAIN FROM DISPOSITIONS OF CERTAIN DEPRECIABLE PROPERTY.

  (a) General Rule.--
          (1) * * *
          (2) Recomputed basis.--For purposes of this section--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Certain deductions treated as 
                amortization.--Any deduction allowable under 
                section 179, 179A, 179B, 179C, 190, or 193 
                shall be treated as if it were a deduction 
                allowable for amortization.
          (3) Section 1245 property.--For purposes of this 
        section, the term ``section 1245 property'' means any 
        property which is or has been property of a character 
        subject to the allowance for depreciation provided in 
        section 167 and is either--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) so much of any real property (other than 
                any property described in subparagraph (B)) 
                which has an adjusted basis in which there are 
                reflected adjustments for amortization under 
                section 169,179, 179A, 179B, 179C, 185, 188 (as 
                in effect before its repeal by the Revenue 
                Reconciliation Act of 1990), 190, 193, or 194,

           *       *       *       *       *       *       *

  (b) Exceptions and Limitations.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.

           *       *       *       *       *       *       *


SEC. 1250. GAIN FROM DISPOSITIONS OF CERTAIN DEPRECIABLE REALTY.

  (a) * * *
  (b) Additional Depreciation Defined.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Depreciation adjustments.--The term 
        ``depreciation adjustments'' means, in respect of any 
        property, all adjustments attributable to periods after 
        December 31, 1963, reflected in the adjusted basis of 
        such property on account of deductions (whether in 
        respect of the same or other property) allowed or 
        allowable to the taxpayer or to any other person for 
        exhaustion, wear and tear, obsolescence, or 
        amortization (other than amortization under section 168 
        (as in effect before its repeal by the Tax Reform Act 
        of 1976), 169, 185 (as in effect before its repeal by 
        the Tax Reform Act of 1986), 188 (as in effect before 
        its repeal by the Revenue Reconciliation Act of 1990), 
        190, or 193) or by section 179B. For purposes of the 
        preceding sentence, if the taxpayer can establish by 
        adequate records or other sufficient evidence that the 
        amount allowed as a deduction for any period was less 
        than the amount allowable, the amount taken into 
        account for such period shall be the amount allowed.

           *       *       *       *       *       *       *


Subchapter W--District of Columbia Enterprise Zone

           *       *       *       *       *       *       *


SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) 
for such taxable year reduced by the sum of the credits 
allowable under subpart A of part IV of subchapter A (other 
than this section and sections 23, 24, [and 25B] 25B, 25C, 25D, 
and 25E), such excess shall be carried to the succeeding 
taxable year and added to the credit allowable under subsection 
(a) for such taxable year.

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 31--RETAIL EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter B--Special Fuels

           *       *       *       *       *       *       *


SEC. 4041. IMPOSITION OF TAX.

  (a) Diesel Fuel and Special Motor Fuels.--
          (1) Tax on diesel fuel in certain cases.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Rate of tax.--
                          (i) * * *
                          (ii) Rate of tax on trains.--In the 
                        case of any sale for use, or use, of 
                        diesel fuel in a train, the rate of tax 
                        imposed by this paragraph shall be--
                                  [(I) 6.8 cents per gallon 
                                after September 30, 1993, and 
                                before October 1, 1995
                                  [(II) 5.55 cents per gallon 
                                after September 30, 1995, and 
                                before November 1, 1998, and
                                  [(III) 4.3 cents per gallon 
                                after October 31, 1998.]
                                  (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.

           *       *       *       *       *       *       *

  (d) Additional Taxes to Fund Leaking Underground Storage Tank 
Trust Fund.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.
          [(3)] (4) Termination.-- * * *
                  (A) * * *

           *       *       *       *       *       *       *


SEC. 4042. TAX ON FUEL USED IN COMMERCIAL TRANSPORTATION ON INLAND 
                    WATERWAYS.

  (a) * * *
  (b) Amount of Tax.--
          (1) * * *
          (2) Rates.--For purposes of paragraph (1)--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) The deficit reduction rate is 4.3 cents 
                per gallon.]
                  (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.

           *       *       *       *       *       *       *


CHAPTER 32--MANUFACTURERS EXCISES TAXES

           *       *       *       *       *       *       *


Subchapter A--Automotive and Related Items

           *       *       *       *       *       *       *


PART III--PETROLEUM PRODUCTS

           *       *       *       *       *       *       *


Subpart A--Gasoline

           *       *       *       *       *       *       *


SEC. 4081. IMPOSITION OF TAX.

  (a) Tax Imposed.--
          (1) * * *
          (2) Rates of tax.--
                  (A) In general.--The rate of the tax imposed 
                by this section is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) in the case of diesel fuel or 
                        kerosene, 24.3 cents per gallon (19.7 
                        cents per gallon in the case of a 
                        diesel-water fuel emulsion at least 14 
                        percent of which is water).

           *       *       *       *       *       *       *


SEC. 4082. EXEMPTIONS FOR DIESEL FUEL AND KEROSENE.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Cross Reference.--

          For tax on train and certain bus uses of fuel purchased tax-
        free, see section [4041(a)(1)] subsections (a)(1) and (d)(3) of 
        section 4041.

           *       *       *       *       *       *       *


Subpart C--Special Provisions Applicable to Petroleum Products

           *       *       *       *       *       *       *


SEC. 4101. REGISTRATION AND BOND.

  (a) * * *

           *       *       *       *       *       *       *

  [(e) Certain Approved Terminals of Registered Persons 
Required to Offer Dyed Diesel Fuel and Kerosene for Nontaxable 
Purposes.--
          [(1) In general.--A terminal for kerosene or diesel 
        fuel may not be an approved facility for storage of 
        non-tax-paid diesel fuel or kerosene under this section 
        unless the operator of such terminal offers such fuel 
        in a dyed form for removal for nontaxable use in 
        accordance with section 4082(a).
          [(2) Exception.--Paragraph (1) shall not apply to any 
        terminal exclusively providing aviation-grade kerosene 
        by pipeline to an airport.]

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *


SEC. 6421. GASOLINE USED FOR CERTAIN NONHIGHWAY PURPOSES, USED BY LOCAL 
                    TRANSIT SYSTEMS, OR SOLD FOR CERTAIN EXEMPT 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Exempt Sales; Other Payments or Refunds Available.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Gasoline used in trains.--In the case of gasoline 
        used as a fuel in a train, this section shall not apply 
        with respect to--
                  (A) the Leaking Underground Storage Tank 
                Trust Fund financing rate under section 4081, 
                and
                  [(B) so much of the rate specified in section 
                4081(a)(2)(A) as does not exceed--
                          [(i) 6.8 cents per gallon after 
                        September 30, 1993, and before October 
                        1, 1995,
                          [(ii) 5.55 cents per gallon after 
                        September 30, 1995, and before November 
                        1, 1998, and
                          [(iii) 4.3 cents per gallon after 
                        October 31, 1998.]
                  (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).

           *       *       *       *       *       *       *


SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (l) Nontaxable Uses of Diesel Fuel, Kerosene, and Aviation 
Fuel.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Refund of certain taxes on fuel used in diesel-
        powered trains.--For purposes of this subsection, the 
        term ``nontaxable use'' includes fuel used in a diesel-
        powered train. The preceding sentence shall not apply 
        with respect to--
                  (A) the Leaking Underground Storage Tank 
                Trust Fund financing rate under sections 4041 
                and 4081, and
                  [(B) so much of the rate specified in section 
                4081(a)(2)(A) as does not exceed--
                          [(i) 6.8 cents per gallon after 
                        September 30, 1993, and before October 
                        1, 1995,
                          [(ii) 5.55 cents per gallon after 
                        September 30, 1995, and before November 
                        1, 1998, and
                          [(iii) 4.3 cents per gallon after 
                        October 31, 1998.]
                  (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).
        The preceding sentence shall not apply in the case of 
        fuel sold for exclusive use by a State or any political 
        subdivision thereof.
  (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).
  [(m)] (n) Regulations.--The Secretary may by regulations 
prescribe the conditions, not inconsistent with the provisions 
of this section, under which payments may be made under this 
section.
  [(n)] (o) Payments for Taxes Imposed by Section 4041(d).--For 
purposes of subsections (a), (b), and (c), the taxes imposed by 
section 4041(d) shall be treated as imposed by section 4041(a).
  [(o)] (p) Gasohol Used in Noncommercial Aviation.--Except as 
provided in subsection (k), if--
          (1) * * *

           *       *       *       *       *       *       *

  [(p)] (q) Cross References.--

          (1) * * *
     * * * * * * *

CHAPTER 66--LIMITATIONS

           *       *       *       *       *       *       *


Subchapter A--Limitations on Assessment and Collection

           *       *       *       *       *       *       *


SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Deficiencies Attributable to Election of Certain 
Credits.--The period for assessing a deficiency attributable to 
any election under section 30(d)(4), 30B(g)(10), 40(f), 43, 
45B, 45C(d)(4), or 51(j) (or any revocation thereof) shall not 
expire before the date 1 year after the date on which the 
Secretary is notified of such election (or revocation).

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    We regret that earlier this year the Congressional 
Republican Leadership and the Bush Administration decided to 
enact a large tax reduction that did not reserve resources for 
other priorities. As a result of that decision, we believe that 
there is a substantial certainty that the tax reductions 
contained in the Committee bill will be funded, at least in 
part, by raiding the Medicare and possibly the Social Security 
trust funds. Therefore, we must oppose the Committee bill.
    Whenever Democrats ask how a bill is going to be paid for, 
we are told that there is a slush fund in the Fiscal Year 2002 
budget resolution that is available on a first-come, first-
served basis. Speed, not serious legislative proposals, seems 
to govern the priorities! Which of the following priorities 
will not be funded if the Republican members of this Committee 
succeed in their current strategy of being first in line?
     $300 billion for a Medicare prescription drug 
benefit.
     $134 billion that Secretary of Defense Rumsfeld 
states is necessary just to maintain our current level of 
defense.
     $200-300 billion for Defense modernization.
     $73 billion for agriculture.
     $6 billion for higher veterans benefits.
     $14 billion reduction in SEC fees.
     $50 billion for promised health insurance.
     $82 billion to fully fund the new education bill.
     $122 billion to extend expiring tax benefits.
     $119 billion for President Bush's remaining tax 
cuts (e.g., health insurance, long-term care, housing).
     $200-400 billion to address the AMT issue.
     $138 billion to end tax-cut sunsets in the last 
bill.
     $13 billion for the charitable tax incentives just 
passed by the House.
    Historically, the Committees of the House have performed a 
vital function in the legislative process. It has been their 
role to analyze legislative proposals and to set priorities. In 
the case of this legislation, this Committee has abdicated its 
assigned role. The bill reported by the Committee is little 
more than a large number of introduced bills, stapled together. 
There was little attempt to analyze the effectiveness of the 
stapled provisions nor to set priorities.
    It is worth pointing out that the Cheney energy task force 
presumably engaged in an analysis of the effectiveness of 
various energy tax proposals. Very few of the provisions in the 
Committee bill were recommended by the Cheney energy task 
force.
    We also would like to comment on the role that the Treasury 
Department played in the markup of this legislation. In the 
past, the Treasury Department representatives have been quite 
frank in expressing their concerns during the Committee 
markups, particularly when the proposal being analyzed was not 
recommended by the Administration. Their role often created no 
friends because it involved explaining the problems that could 
occur from Members' proposals. However, they played an 
important role in assuring that the Committee was aware of the 
consequences of the legislation. For whatever reason, in this 
Committee debate the Treasury representative refused to comment 
on any policy issues inherent in this bill.
    Finally, we would like to comment on complexity. The markup 
of this bill occurred a day after the Oversight and Select 
Revenue Measure Subcommittees held a hearing on tax 
simplification.Clearly the message of that hearing was ignored. 
The Committee bill is extraordinarily complex. Its complexity is not 
limited to business taxpayers as suggested during the markup. Even 
individuals deciding what car to buy could be faced with tax rules so 
complicated that the Joint Committee staff declined to explain them.
    If the Republican Members of the Committee were serious 
about tax simplification, they would reverse many of the 
provisions just enacted in the Bush tax cut. They would address 
the extraordinary complexity of the alternative minimum tax. 
They would not be considering additional legislation, that 
would create further complexities. Apparently, simplification 
has little constituency among the Republican members.
    Republicans have a puzzling approach to the alternative 
minimum tax (AMT). Republicans on this Committee, and in the 
House, voted out a $1.35 trillion tax cut that pushes up the 
number of individuals affected by the AMT to 35.5 million in 
2010--nearly one-third of those who will owe positive income 
tax. Republicans were willing to effectively take away the 
deduction for state/local taxes and the personal exemptions 
from these taxpayers and to deny them all or a portion of the 
cuts in the regular income tax. Yet in the ``energy'' tax bill, 
new business preferences are extended to the AMT. Why were so 
many individuals left unprotected in the $1.35 trillion tax 
cut, while the AMT was turned off for the few in this 
``energy'' tax bill.
                                   Charles B. Rangel.
                                   Earl Pomeroy.
                                   William J. Coyne.
                                   Ben Cardin.
                                   Michael R. McNulty.
                                   Jim McDermott.
                                   Xavier Becerra.
                                   John Lewis.
                                   Jerry Kleczka.
                                   Sander Levin.
                                   Robert T. Matsui.
                                   Lloyd Doggett.
                                   Karen L. Thurman.
                                   Pete Stark.
                                   John Tanner.

           VIII. ADDITIONAL VIEWS OF CONGRESSMAN EARL POMEROY

Parity for rural electric cooperatives
    Given the growing demand for energy across the country, 
increasing attention is being focused on alternative sources of 
energy production, particularly renewable energy resources. In 
an effort to help stabilize volatile energy prices and enhance 
energy security, Congress has made tax incentives for wind and 
other renewable energy resources a priority. With coal 
generation providing 50 percent of our nation's electricity, a 
similar emphasis should be placed on clean coal technology to 
help reduce emissions from coal-fired utility plants.
    In my state of North Dakota, both wind and coal are vital 
energy resources. North Dakota ranks first in wind energy 
production potential and has significant lignite coal reserves. 
Expanding the use of renewable technologies such as wind as 
well as enhancing existing resource use such as coal with new 
technologies will both be integral to our nation's long-term 
energy policy.
    By including the maximum number of market participants in 
generation of renewable and clean energy production, we best 
equip ourselves to meet these goals. Unfortunately, the bill 
reported out of Committee leaves out an important segment of 
energy suppliers--public power suppliers and rural electric 
cooperatives, which serve 25 percent of the nation's power 
consumers. I urge modification of this legislation on the floor 
to provide equitable incentives for rural electric cooperatives 
and public power suppliers that currently are overlooked by 
this bill.
Importance of off-peak vs. peak electric costs
    Growing demand for electricity in this country can be 
easily seen in the overloaded power grids that are struggling 
to meet demand during peak hours. Rolling brownouts and 
blackouts have become commonplace in California as a direct 
result of demand exceeding electrical supply during peak hours.
    In addition to shortfalls in supply, the cost of 
electricity--to both the consumer and provider utilities--can 
cost as much as ten times more during peak hours (6 am-10 am 
and 5 pm-9 pm). ``Super peaks'' during extreme hot and cold 
weather can drive these costs even higher.
    Given the potential cost savings of greater utilization of 
off-peak electricity, energy tax incentive legislation should 
seek to encourage technologies that take advantage of this 
opportunity. At least 12 utilities in 17 states offer pilot 
programs with time-of-day pricing for electricity, providing 
significant savings through off-peak rates.
    A company in North Dakota has developed a technology that 
takes advantage of this pricing phenomenon. The Steffes 
Corporation currently markets Electric Thermal Storage heating 
equipment (ETS), that when combined with a heat pump, operates 
during off-peak electric rate periods to convert electricity 
into heat. The ETS unit then stores that heat in specially 
designed ceramic bricks, and then uses the heat during peak 
hours to heat air from the heat pump more efficiently and less 
expensively.
    Peak and off-peak pricing distinctions are common in many 
industries, including public transportation fares, long-
distance telephone rates, and cellular telephone rates. I 
strongly encourage my colleagues to support innovative 
technologies such as ETS that take advantage of off-peak 
electricity rates that can ultimately reduce the strain on the 
nation's power grids while simultaneously saving money for 
consumers.
                                                      Earl Pomeroy.

                                
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