II 

108TH CONGRESS 

2D SESSION S. 2311 

To provide for various energy efficiency programs and tax incentives, and 

for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 8, 2004 

Ms. SNOWE (for herself, Mrs. FEINSTEIN, Mr. BINGAMAN, and Ms. CANTWELL) introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To provide for various energy efficiency programs and tax 

incentives, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Efficient Energy Through Certified Technologies and 

6 Electricity Reliability (EFFECTER) Act of 2004’’. 

7 (b) TABLE OF CONTENTS.—The table of contents of 

8 this Act is as follows: 

Sec. 1. Short title; table of contents. 

TITLE I—TAX INCENTIVES 
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Sec. 101. Energy efficient commercial buildings deduction. 

Sec. 102. Credit for construction of new energy efficient homes. 

Sec. 103. Incentive for certain energy efficient property used in business. 

Sec. 104. Credit for certain nonbusiness energy property. 

Sec. 105. Energy credit for combined heat and power system property. 

Sec. 106. Credit for energy efficient appliances. 

TITLE II—ENERGY EFFICIENT PRODUCTS 

Sec. 201. Energy conservation standards for additional products. 

Sec. 202. Energy labeling. 

TITLE III—ENERGY EFFICIENCY FEDERAL PROGRAMS 

Sec. 301. Procurement of energy efficient products. 

Sec. 302. Energy savings performance contracts. 

Sec. 303. Federal building performance standards. 

TITLE IV—PUBLIC HOUSING 

Sec. 401. Public Housing Capital Fund. 

Sec. 402. Grants for energy-conserving improvements for assisted housing. 

Sec. 403. Energy-efficient appliances. 

Sec. 404. Energy efficiency standards. 

TITLE V—RELIABILITY STANDARDS 

Sec. 501. Electric reliability standards. 

1 TITLE I—TAX INCENTIVES 

2 SEC. 101. ENERGY EFFICIENT COMMERCIAL BUILDINGS DE3 DUCTION. 

4 (a) IN GENERAL.—Part VI of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to 

6 itemized deductions for individuals and corporations) is 

7 amended by inserting after section 179A the following new 

8 section: 

9 ‘‘SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS 

10 DEDUCTION. 

11 ‘‘(a) IN GENERAL.—There shall be allowed as a de12 duction an amount equal to the cost of energy efficient 
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1 commercial building property placed in service during the 

2 taxable year. 

3 ‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The de4 duction under subsection (a) with respect to any building 

5 for the taxable year and all prior taxable years shall not 

6 exceed an amount equal to the product of— 

7 ‘‘(1) $2.25, and 

8 ‘‘(2) the square footage of the building. 

9 ‘‘(c) DEFINITIONS.—For purposes of this section— 

10 ‘‘(1) ENERGY EFFICIENT COMMERCIAL BUILD11 ING PROPERTY.—The term ‘energy efficient commer12 cial building property’ means property— 

13 ‘‘(A) which is installed on or in any build14 ing located in the United States, 

15 ‘‘(B) which is installed as part of— 

16 ‘‘(i) the lighting systems, 

17 ‘‘(ii) the heating, cooling, ventilation, 

18 and hot water systems, or 

19 ‘‘(iii) the building envelope, and 

20 ‘‘(C) which is certified in accordance with 

21 subsection (d)(4) as being installed as part of 

22 a plan designed to reduce the total annual en23 ergy and power costs with respect to the light24 ing systems, heating, cooling, ventilation, and 

25 hot water systems of the building by 50 percent 
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1 or more in comparison to a reference building 

2 which meets the minimum requirements of 

3 Standard 90.1–2001 using methods of calcula4 tion under subsection (d)(2). 

5 A building described in subparagraph (A) may in6 clude any residential rental property, including any 

7 low-rise multifamily structure or single family hous8 ing property which is not within the scope of Stand9 ard 90.1–2001. 

10 ‘‘(2) STANDARD 90.1–2001.—The term ‘Stand11 ard 90.1–2001’ means Standard 90.1–2001 of the 

12 American Society of Heating, Refrigerating, and Air 

13 Conditioning Engineers and the Illuminating Engi14 neering Society of North America (as in effect on 

15 April 2, 2003). 

16 ‘‘(d) SPECIAL RULES.— 

17 ‘‘(1) PARTIAL ALLOWANCE.— 

18 ‘‘(A) IN GENERAL.—Except as provided in 

19 subsection (f), if— 

20 ‘‘(i) the requirement of subsection 

21 (c)(1)(C) is not met, but 

22 ‘‘(ii) there is a certification in accord23 ance with subsection (d)(4) that any sys24 tem referred to in subsection (c)(1)(B) sat25 isfies the energy-savings targets estab-
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1 lished by the Secretary under subpara2 graph (B) with respect to such system, 

3 then the requirement of subsection (c)(1)(C) 

4 shall be treated as met with respect to such sys5 tem, and the deduction under subsection (a) 

6 shall be allowed with respect to energy efficient 

7 commercial building property installed as part 

8 of such system and as part of a plan to meet 

9 such targets, except that subsection (b) shall be 

10 applied to such property by substituting ‘$.75’ 

11 for ‘$2.25’. 

12 ‘‘(B) REGULATIONS.—The Secretary, after 

13 consultation with the Secretary of Energy, shall 

14 establish a target for each system described in 

15 subsection (c)(1)(B) which, if such targets were 

16 met for all such systems, the building would 

17 meet the requirements of subsection (c)(1)(C). 

18 ‘‘(2) METHODS OF CALCULATION.—The Sec19 retary, after consultation with the Secretary of En20 ergy, shall promulgate regulations which describe in 

21 detail methods for calculating and verifying energy 

22 and power consumption and cost, based on the pro23 visions of the 2005 California Nonresidential Alter24 native Calculation Method Approval Manual or, in 

25 the case of residential property, the 2005 California 
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1 Residential Alternative Calculation Method Approval 

2 Manual. These regulations shall meet the following 

3 requirements: 

4 ‘‘(A) In calculating tradeoffs and energy 

5 performance, the regulations shall prescribe the 

6 costs per unit of energy and power, such as kil7 owatt hour, kilowatt, gallon of fuel oil, and 

8 cubic foot or Btu of natural gas, which may be 

9 dependent on time of usage. If a State has de10 veloped annual energy usage and cost reduction 

11 procedures based on time of usage costs for use 

12 in the performance standards of the State’s 

13 building energy code before the effective date of 

14 this section, the State may use those annual en15 ergy usage and cost reduction procedures in 

16 lieu of those adopted by the Secretary. 

17 ‘‘(B) The calculation methods under this 

18 paragraph need not comply fully with section 

19 11 of Standard 90.1–2001. 

20 ‘‘(C) The calculation methods shall be fuel 

21 neutral, such that the same energy efficiency 

22 features shall qualify a building for the deduc23 tion under this section regardless of whether 

24 the heating source is a gas or oil furnace or an 

25 electric heat pump. The reference building for 
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1 a proposed design which employs electric resist2 ance heating shall be modeled as using a heat 

3 pump. 

4 ‘‘(D) The calculation methods shall provide 

5 appropriate calculated energy savings for design 

6 methods and technologies not otherwise credited 

7 in either Standard 90.1–2001 or in the 2005 

8 California Nonresidential Alternative Calcula9 tion Method Approval Manual, including the 

10 following: 

11 ‘‘(i) Natural ventilation. 

12 ‘‘(ii) Evaporative cooling. 

13 ‘‘(iii) Automatic lighting controls such 

14 as occupancy sensors, photocells, and time15 clocks. 

16 ‘‘(iv) Daylighting. 

17 ‘‘(v) Designs utilizing semi-condi18 tioned spaces which maintain adequate 

19 comfort conditions without air conditioning 

20 or without heating. 

21 ‘‘(vi) Improved fan system efficiency, 

22 including reductions in static pressure. 

23 ‘‘(vii) Advanced unloading mecha24 nisms for mechanical cooling, such as mul25 tiple or variable speed compressors. 
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1 ‘‘(viii) The calculation methods may 

2 take into account the extent of commis3 sioning in the building, and allow the tax4 payer to take into account measured per5 formance which exceeds typical perform6 ance. 

7 ‘‘(ix) On-site generation of electricity, 

8 including combined heat and power sys9 tems, fuel cells, and renewable energy gen10 eration such as solar energy. 

11 ‘‘(x) Wiring with lower energy losses 

12 than wiring satisfying Standard 90.1–2001 

13 requirements for building power distribu14 tion systems. 

15 ‘‘(3) COMPUTER SOFTWARE.— 

16 ‘‘(A) IN GENERAL.—Any calculation under 

17 paragraph (2) shall be prepared by qualified 

18 computer software. 

19 ‘‘(B) QUALIFIED COMPUTER SOFTWARE.— 

20 For purposes of this paragraph, the term 

21 ‘qualified computer software’ means software— 

22 ‘‘(i) for which the software designer 

23 has certified that the software meets all 

24 procedures and detailed methods for calcu-
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1 lating energy and power consumption and 

2 costs as required by the Secretary, 

3 ‘‘(ii) which provides such forms as re4 quired to be filed by the Secretary in con5 nection with energy efficiency of property 

6 and the deduction allowed under this sec7 tion, and 

8 ‘‘(iii) which provides a notice form 

9 which documents the energy efficiency fea10 tures of the building and its projected an11 nual energy costs. 

12 ‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC

13 PROPERTY.—In the case of energy efficient commer14 cial building property installed on or in public prop15 erty, the Secretary shall promulgate a regulation to 

16 allow the allocation of the deduction to the person 

17 primarily responsible for designing the property in 

18 lieu of the public entity which is the owner of such 

19 property. Such person shall be treated as the tax20 payer for purposes of this section. 

21 ‘‘(5) NOTICE TO OWNER.—Each certification 

22 required under this section shall include an expla23 nation to the building owner regarding the energy 

24 efficiency features of the building and its projected 
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1 annual energy costs as provided in the notice under 

2 paragraph (3)(B)(iii). 

3 ‘‘(6) CERTIFICATION.— 

4 ‘‘(A) IN GENERAL.—The Secretary shall 

5 prescribe the manner and method for the mak6 ing of certifications under this section. 

7 ‘‘(B) PROCEDURES.—The Secretary shall 

8 include as part of the certification process pro9 cedures for inspection and testing by qualified 

10 individuals described in subparagraph (C) to 

11 ensure compliance of buildings with energy-sav12 ings plans and targets. Such procedures shall 

13 be comparable, given the difference between 

14 commercial and residential buildings, to the re15 quirements in the Mortgage Industry National 

16 Accreditation Procedures for Home Energy 

17 Rating Systems. 

18 ‘‘(C) QUALIFIED INDIVIDUALS.—Individ19 uals qualified to determine compliance shall be 

20 only those individuals who are recognized by an 

21 organization certified by the Secretary for such 

22 purposes. 

23 ‘‘(e) BASIS REDUCTION.—For purposes of this sub24 title, if a deduction is allowed under this section with re25 spect to any energy efficient commercial building property, 
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1 the basis of such property shall be reduced by the amount 

2 of the deduction so allowed. 

3 ‘‘(f) INTERIM RULES FOR LIGHTING SYSTEMS.— 

4 Until such time as the Secretary issues final regulations 

5 under subsection (d)(1)(B) with respect to property which 

6 is part of a lighting system— 

7 ‘‘(1) IN GENERAL.—The lighting system target 

8 under subsection (d)(1)(A)(ii) shall be a reduction in 

9 lighting power density of 25 percent (50 percent in 

10 the case of a warehouse) of the minimum require11 ments in Table 9.3.1.1 or Table 9.3.1.2 (not includ12 ing additional interior lighting power allowances) of 

13 Standard 90.1–2001. 

14 ‘‘(2) REDUCTION IN DEDUCTION IF REDUCTION

15 LESS THAN 40 PERCENT.— 

16 ‘‘(A) IN GENERAL.—If, with respect to the 

17 lighting system of any building other than a 

18 warehouse, the reduction in lighting power den19 sity of the lighting system is not at least 40 

20 percent, only the applicable percentage of the 

21 amount of deduction otherwise allowable under 

22 this section with respect to such property shall 

23 be allowed. 

24 ‘‘(B) APPLICABLE PERCENTAGE.—For 

25 purposes of subparagraph (A), the applicable 
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1 percentage is the number of percentage points 

2 (not greater than 100) equal to the sum of— 

3 ‘‘(i) 50, and 

4 ‘‘(ii) the amount which bears the same 

5 ratio to 50 as the excess of the reduction 

6 of lighting power density of the lighting 

7 system over 25 percentage points bears to 

8 15. 

9 ‘‘(C) EXCEPTIONS.—This subsection shall 

10 not apply to any system— 

11 ‘‘(i) the controls and circuiting of 

12 which do not comply fully with the manda13 tory and prescriptive requirements of 

14 Standard 90.1–2001 and which do not in15 clude provision for bilevel switching in all 

16 occupancies except hotel and motel guest 

17 rooms, store rooms, restrooms, and public 

18 lobbies, or 

19 ‘‘(ii) which does not meet the min20 imum requirements for calculated lighting 

21 levels as set forth in the Illuminating Engi22 neering Society of North America Lighting 

23 Handbook, Performance and Application, 

24 Ninth Edition, 2000. 
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1 ‘‘(g) REGULATIONS.—The Secretary shall promul2 gate such regulations as necessary— 

3 ‘‘(1) to take into account new technologies re4 garding energy efficiency and renewable energy for 

5 purposes of determining energy efficiency and sav6 ings under this section, and 

7 ‘‘(2) to provide for a recapture of the deduction 

8 allowed under this section if the plan described in 

9 subsection (c)(1)(C) or (d)(1)(A) is not fully imple10 mented. 

11 ‘‘(h) TERMINATION.—This section shall not apply 

12 with respect to property placed in service after December 

13 31, 2009.’’. 

14 (b) CONFORMING AMENDMENTS.— 

15 (1) Section 1016(a) of the Internal Revenue 

16 Code of 1986 is amended by striking ‘‘and’’ at the 

17 end of paragraph (27), by striking the period at the 

18 end of paragraph (28) and inserting ‘‘, and’’, and by 

19 adding at the end the following new paragraph: 

20 ‘‘(29) to the extent provided in section 

21 179B(e).’’. 

22 (2) Section 1245(a) of such Code is amended 

23 by inserting ‘‘179B,’’ after ‘‘179A,’’ both places it 

24 appears in paragraphs (2)(C) and (3)(C). 
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1 (3) Section 1250(b)(3) of such Code is amend2 ed by inserting before the period at the end of the 

3 first sentence ‘‘or by section 179B’’. 

4 (4) Section 263(a)(1) of such Code is amended 

5 by striking ‘‘or’’ at the end of subparagraph (G), by 

6 striking the period at the end of subparagraph (H) 

7 and inserting ‘‘, or’’, and by inserting after subpara8 graph (H) the following new subparagraph: 

9 ‘‘(I) expenditures for which a deduction is 

10 allowed under section 179B.’’. 

11 (5) Section 312(k)(3)(B) of such Code is 

12 amended by striking ‘‘or 179A’’ each place it ap13 pears in the heading and text and inserting ‘‘, 179A, 

14 or 179B’’. 

15 (c) CLERICAL AMENDMENT.—The table of sections 

16 for part VI of subchapter B of chapter 1 of the Internal 

17 Revenue Code of 1986 is amended by inserting after sec18 tion 179A the following new item: 

‘‘Sec. 179B. Energy efficient commercial buildings deduction.’’. 

19 (d) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to property placed in service after 

21 the date of the enactment of this Act in taxable years end22 ing after such date. 
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1 SEC. 102. CREDIT FOR CONSTRUCTION OF NEW ENERGY EF2 FICIENT HOMES. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business related credits) is amended by 

6 adding at the end the following new section: 

7 ‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT. 

8 ‘‘(a) IN GENERAL.—For purposes of section 38, in 

9 the case of an eligible contractor with respect to a quali10 fied new energy efficient home, the credit determined 

11 under this section for the taxable year with respect to such 

12 home is an amount equal to the aggregate adjusted bases 

13 of all energy efficient property installed in such home dur14 ing construction of such home. 

15 ‘‘(b) LIMITATIONS.— 

16 ‘‘(1) MAXIMUM CREDIT.— 

17 ‘‘(A) IN GENERAL.—The credit allowed by 

18 this section with respect to a dwelling unit shall 

19 not exceed— 

20 ‘‘(i) in the case of a dwelling unit de21 scribed in clause (i) or (iii) of subsection 

22 (c)(3)(C), $1,000, and 

23 ‘‘(ii) in the case of a dwelling unit de24 scribed in subsection (c)(3)(C)(ii), $2,000. 

25 ‘‘(B) PRIOR CREDIT AMOUNTS ON SAME

26 DWELLING UNIT TAKEN INTO ACCOUNT.—If a 
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1 credit was allowed under subsection (a) with re2 spect to a dwelling unit in 1 or more prior tax3 able years, the amount of the credit otherwise 

4 allowable for the taxable year with respect to 

5 such dwelling unit shall be reduced by the sum 

6 of the credits allowed under subsection (a) with 

7 respect to the dwelling unit for all prior taxable 

8 years. 

9 ‘‘(2) COORDINATION WITH CERTAIN CREDITS.— 

10 For purposes of this section— 

11 ‘‘(A) the basis of any property referred to 

12 in subsection (a) shall be reduced by that por13 tion of the basis of any property which is attrib14 utable to qualified rehabilitation expenditures 

15 (as defined in section 47(c)(2)) or to the energy 

16 percentage of energy property (as determined 

17 under section 48(a)), and 

18 ‘‘(B) expenditures taken into account 

19 under section 47 or 48(a) shall not be taken 

20 into account under this section. 

21 ‘‘(c) DEFINITIONS.—For purposes of this section— 

22 ‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi23 ble contractor’ means— 

24 ‘‘(A) the person who constructed the quali25 fied new energy efficient home, or 
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1 ‘‘(B) in the case of a qualified new energy 

2 efficient home which is a manufactured home, 

3 the manufactured home producer of such home. 

4 If more than 1 person is described in subparagraph 

5 (A) or (B) with respect to any qualified new energy 

6 efficient home, such term means the person des7 ignated as such by the owner of such home. 

8 ‘‘(2) ENERGY EFFICIENT PROPERTY.—The 

9 term ‘energy efficient property’ means any energy 

10 efficient building envelope component, and any en11 ergy efficient heating or cooling equipment or sys12 tem, which can, individually or in combination with 

13 other components, result in a dwelling unit meeting 

14 the requirements of this section. 

15 ‘‘(3) QUALIFIED NEW ENERGY EFFICIENT

16 HOME.—The term ‘qualified new energy efficient 

17 home’ means a dwelling unit— 

18 ‘‘(A) located in the United States, 

19 ‘‘(B) the construction of which is substan20 tially completed after December 31, 2003, and 

21 ‘‘(C) which is— 

22 ‘‘(i) certified to have a level of annual 

23 heating and cooling energy consumption 

24 which is at least 30 percent below the an25 nual level of heating and cooling energy 
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1 consumption of a comparable dwelling unit 

2 constructed in accordance with the stand3 ards of chapter 4 of the 2003 International 

4 Energy Conservation Code, as such Code 

5 (including supplements) is in effect on the 

6 date of the enactment of this section, and 

7 for which the heating and cooling equip8 ment efficiencies correspond to the min9 imum allowed under the regulations estab10 lished by the Department of Energy pursu11 ant to the National Appliance Energy Con12 servation Act of 1987 and in effect at the 

13 time of construction, and to have building 

14 envelope component improvements account 

for at least 1 15 ⁄3 of such 30 percent, 

16 ‘‘(ii) certified to have a level of annual 

17 heating and cooling energy consumption 

18 which is at least 50 percent below such an19 nual level and to have building envelope 

20 component improvements account for at 

least 1 21 ⁄5 of such 50 percent, or 

22 ‘‘(iii) a manufactured home which— 

23 ‘‘(I) conforms to Federal Manu24 factured Home Construction and 

25 Safety Standards (section 3280 of 
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1 title 24, Code of Federal Regulations), 

2 and 

3 ‘‘(II) meets the applicable stand4 ards required by the Administrator of 

5 the Environmental Protection Agency 

6 under the Energy Star Labeled 

7 Homes program. 

8 ‘‘(4) CONSTRUCTION.—The term ‘construction’ 

9 includes substantial reconstruction and rehabilita10 tion. 

11 ‘‘(5) ACQUIRE.—The term ‘acquire’ includes 

12 purchase and, in the case of reconstruction and re13 habilitation, such term includes a binding written 

14 contract for such reconstruction or rehabilitation. 

15 ‘‘(6) BUILDING ENVELOPE COMPONENT.—The 

16 term ‘building envelope component’ means— 

17 ‘‘(A) any insulation material or system 

18 which is specifically and primarily designed to 

19 reduce the heat loss or gain of a dwelling unit 

20 when installed in or on such dwelling unit, 

21 ‘‘(B) exterior windows (including sky22 lights), 

23 ‘‘(C) exterior doors, and 
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1 ‘‘(D) any metal roof installed on a dwelling 

2 unit, but only if such roof has appropriate pig3 mented coatings which— 

4 ‘‘(i) are specifically and primarily de5 signed to reduce the heat gain of such 

6 dwelling unit, and 

7 ‘‘(ii) meet the Energy Star program 

8 requirements. 

9 ‘‘(d) CERTIFICATION.— 

10 ‘‘(1) METHOD OF CERTIFICATION.—A certifi11 cation described in subsection (c)(3)(C) shall be de12 termined in accordance with guidance prescribed by 

13 the Secretary, after consultation with the Secretary 

14 of Energy. Such guidance shall specify procedures 

15 and methods for calculating energy and cost savings. 

16 ‘‘(2) FORM.—A certification described in sub17 section (c)(3)(C) shall be made in writing— 

18 ‘‘(A) in a manner which specifies in readily 

19 verifiable fashion the energy efficient building 

20 envelope components and energy efficient heat21 ing or cooling equipment installed and their re22 spective rated energy efficiency performance, 

23 and 

24 ‘‘(B) in the case of a qualified new energy 

25 efficient home which is a manufactured home, 
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1 accompanied by such documentation as required 

2 by the Administrator of the Environmental Pro3 tection Agency under the Energy Star Labeled 

4 Homes program. 

5 ‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub6 title, if a credit is determined under this section for any 

7 expenditure with respect to any property, the increase in 

8 the basis of such property which would (but for this sub9 section) result from such expenditure shall be reduced by 

10 the amount of the credit so determined. 

11 ‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 

12 apply to qualified new energy efficient homes acquired 

13 during the period beginning on January 1, 2004, and end14 ing on December 31, 2006.’’. 

15 (b) CREDIT MADE PART OF GENERAL BUSINESS

16 CREDIT.—Section 38(b) of the Internal Revenue Code of 

17 1986 (relating to current year business credit) is amended 

18 by striking ‘‘plus’’ at the end of paragraph (14), by strik19 ing the period at the end of paragraph (15) and inserting 

20 ‘‘, plus’’, and by adding at the end the following new para21 graph: 

22 ‘‘(16) the new energy efficient home credit de23 termined under section 45G(a).’’. 

24 (c) BASIS ADJUSTMENT.—Subsection (a) of section 

25 1016 of the Internal Revenue Code of 1986, as amended 
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1 by section 101, is amended by striking ‘‘and’’ at the end 

2 of paragraph (28), by striking the period at the end of 

3 paragraph (29) and inserting ‘‘, and’’, and by adding at 

4 the end the following new paragraph: 

5 ‘‘(30) to the extent provided in section 45G(e), 

6 in the case of amounts with respect to which a credit 

7 has been allowed under section 45G.’’. 

8 (d) LIMITATION ON CARRYBACK.—Section 39(d) of 

9 the Internal Revenue Code of 1986 (relating to transition 

10 rules) is amended by adding at the end the following new 

11 paragraph: 

12 ‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI13 CIENT HOME CREDIT BEFORE EFFECTIVE DATE.— 

14 No portion of the unused business credit for any 

15 taxable year which is attributable to the new energy 

16 efficient home credit determined under section 

17 45G(a) may be carried to a taxable year beginning 

18 before January 1, 2004.’’. 

19 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

20 CREDITS.—Section 196(c) of the Internal Revenue Code 

21 of 1986 (defining qualified business credits) is amended 

22 by striking ‘‘and’’ at the end of paragraph (10), by strik23 ing the period at the end of paragraph (11) and inserting 

24 ‘‘, and’’, and by adding after paragraph (11) the following 

25 new paragraph: 
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1 ‘‘(12) the new energy efficient home credit de2 termined under section 45G(a).’’. 

3 (f) CLERICAL AMENDMENT.—The table of sections 

4 for subpart D of part IV of subchapter A of chapter 1 

5 of the Internal Revenue Code of 1986 is amended by add6 ing at the end the following new item: 

‘‘Sec. 45G. New energy efficient home credit.’’. 

7 (g) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years ending after De9 cember 31, 2003. 

10 SEC. 103. INCENTIVE FOR CERTAIN ENERGY EFFICIENT 

11 PROPERTY USED IN BUSINESS. 

12 (a) IN GENERAL.—Part VI of subchapter B of chap13 ter 1 of the Internal Revenue Code of 1986 is amended 

14 by adding at the end the following new section: 

15 ‘‘SEC. 199. ENERGY PROPERTY DEDUCTION. 

16 ‘‘(a) IN GENERAL.—There shall be allowed as a de17 duction for the taxable year an amount equal to the sum 

18 of— 

19 ‘‘(1) the amount determined under subsection 

20 (b) for each energy property of the taxpayer placed 

21 in service during such taxable year, and 

22 ‘‘(2) the energy efficient residential rental 

23 building property deduction determined under sub24 section (e). 

25 ‘‘(b) AMOUNT FOR ENERGY PROPERTY.— 
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1 ‘‘(1) IN GENERAL.—The amount determined 

2 under this subsection for the taxable year for each 

3 item of energy property shall equal the amount spec4 ified for such property in the following table: 

Description of property: Allowable amount is: 

Elected solar hot water property..................................... $1.00 per each 

kwh/year of savings. 

Photovoltaic property....................................................... $4.50 per peak 

watt. 

Advanced main air circulating fan or a Tier 1 natural 

gas, propane, or oil water heater.

$150. 

Tier 2 energy-efficient building property ......................... $900. 

Tier 1 energy-efficient building property (other than an 

advanced main air circulating fan or a natural gas, 

propane, or oil water heater).

$450. 

5 ‘‘(2) ELECTED SOLAR HOT WATER PROP6 ERTY.—In the case of elected solar hot water prop7 erty, the taxpayer may elect to substitute ‘$21 per 

8 annual Therm of natural gas savings’ for ‘$1.00 per 

9 each kwh/year of savings’ in the table contained in 

10 paragraph (1). 

11 ‘‘(c) ENERGY PROPERTY DEFINED.— 

12 ‘‘(1) IN GENERAL.—For purposes of this part, 

13 the term ‘energy property’ means any property— 

14 ‘‘(A) which is— 

15 ‘‘(i) solar energy property, 

16 ‘‘(ii) Tier 2 energy-efficient building 

17 property, or 

18 ‘‘(iii) Tier 1 energy-efficient building 

19 property, 
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1 ‘‘(B)(i) the construction, reconstruction, or 

2 erection of which is completed by the taxpayer, 

3 or 

4 ‘‘(ii) which is acquired by the taxpayer if 

5 the original use of such property commences 

6 with the taxpayer, 

7 ‘‘(C) with respect to which depreciation (or 

8 amortization in lieu of depreciation) is allow9 able, and 

10 ‘‘(D) which meets the performance and 

11 quality standards, and the certification require12 ments (if any), which— 

13 ‘‘(i) have been prescribed by the Sec14 retary by regulations (after consultation 

15 with the Secretary of Energy or the Ad16 ministrator of the Environmental Protec17 tion Agency, as appropriate), 

18 ‘‘(ii) in the case of the energy effi19 ciency ratio (EER) for central air condi20 tioners and electric heat pumps— 

21 ‘‘(I) require measurements to be 

22 based on published data which is test23 ed by manufacturers at 95 degrees 

24 Fahrenheit, and 
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1 ‘‘(II) do not require ratings to be 

2 based on certified data of the Air 

3 Conditioning and Refrigeration Insti4 tute, 

5 ‘‘(iii) in the case of geothermal heat 

6 pumps— 

7 ‘‘(I) shall be based on testing 

8 under the conditions of ARI/ISO 

9 Standard 13256–1 for Water Source 

10 Heat Pumps or ARI 870 for Direct 

11 Expansion GeoExchange Heat Pumps 

12 (DX), as appropriate, and 

13 ‘‘(II) shall include evidence that 

14 water heating services have been pro15 vided through a desuperheater or inte16 grated water heating system con17 nected to the storage water heater 

18 tank, and 

19 ‘‘(iv) are in effect at the time of the 

20 acquisition of the property. 

21 ‘‘(2) SOLAR ENERGY PROPERTY.—In the case 

22 of— 

23 ‘‘(A) elected solar hot water property, the 

24 regulations under paragraph (1)(D) shall be 

25 based on the OG–300 Standard for the Annual 
27 

•S 2311 IS 

1 Performance of OG–300 Certified Systems of 

2 the Solar Rating and Certification Corporation, 

3 and 

4 ‘‘(B) photovoltaics, such regulations shall 

5 be based on the ASTM Standard E 1036 and 

6 E 1036M–96 Standard Test Method for Elec7 tric Performance of Nonconcentrator Terres8 trial Photovoltaic Modules and Arrays Using 

9 Reference Cells, 

10 to the extent the Secretary determines such stand11 ards carry out the purposes of this section. 

12 ‘‘(3) EXCEPTION.—Such term shall not include 

13 any property which is public utility property (as de14 fined in section 46(f)(5) as in effect on the day be15 fore the date of the enactment of the Revenue Rec16 onciliation Act of 1990). 

17 ‘‘(d) DEFINITIONS RELATING TO TYPES OF ENERGY

18 PROPERTY.—For purposes of this section— 

19 ‘‘(1) SOLAR ENERGY PROPERTY.— 

20 ‘‘(A) IN GENERAL.—The term ‘solar en21 ergy property’ means equipment which uses 

22 solar energy— 

23 ‘‘(i) to generate electricity, or 

24 ‘‘(ii) to provide hot water for use in a 

25 structure. 
28 

•S 2311 IS 

1 ‘‘(B) ELECTED SOLAR HOT WATER PROP2 ERTY.— 

3 ‘‘(i) IN GENERAL.—The term ‘elected 

4 solar hot water property’ means property 

5 which is solar energy property by reason of 

6 subparagraph (A)(ii) and for which an 

7 election under this subparagraph is in ef8 fect. 

9 ‘‘(ii) ELECTION.—For purposes of 

10 clause (i), a taxpayer may elect to treat 

11 property described in clause (i) as elected 

12 solar hot water property. 

13 ‘‘(C) PHOTOVOLTAIC PROPERTY.—The 

14 term ‘photovoltaic property’ means solar energy 

15 property which uses a solar photovoltaic process 

16 to generate electricity. 

17 ‘‘(D) SWIMMING POOLS, ETC., USED AS

18 STORAGE MEDIUM.—The term ‘solar energy 

19 property’ shall not include a swimming pool, 

20 hot tub, or any other energy storage medium 

21 which has a function other than the function of 

22 such storage. 

23 ‘‘(E) SOLAR PANELS.—No solar panel or 

24 other property installed as a roof (or portion 

25 thereof) shall fail to be treated as solar energy 
29 

•S 2311 IS 

1 property solely because it constitutes a struc2 tural component of the structure on which it is 

3 installed. 

4 ‘‘(2) TIER 2 ENERGY-EFFICIENT BUILDING

5 PROPERTY.—The term ‘Tier 2 energy-efficient build6 ing property’ means— 

7 ‘‘(A) an electric heat pump water heater 

8 which yields an energy factor of at least 2.0 in 

9 the standard Department of Energy test proce10 dure, 

11 ‘‘(B) an electric heat pump which has a 

12 heating seasonal performance factor (HSPF) of 

13 at least 9, a seasonal energy efficiency ratio 

14 (SEER) of at least 15, and an energy efficiency 

15 ratio (EER) of at least 12.5, 

16 ‘‘(C) a geothermal heat pump which— 

17 ‘‘(i) in the case of a closed loop prod18 uct, has an energy efficiency ratio (EER) 

19 of at least 14.1 and a heating coefficient of 

20 performance (COP) of at least 3.3, 

21 ‘‘(ii) in the case of an open loop prod22 uct, has an energy efficiency ratio (EER) 

23 of at least 16.2 and a heating coefficient of 

24 performance (COP) of at least 3.6, and 
30 

•S 2311 IS 

1 ‘‘(iii) in the case of a direct expansion 

2 (DX) product, has an energy efficiency 

3 ratio (EER) of at least 15 and a heating 

4 coefficient of performance (COP) of at 

5 least 3.5, 

6 ‘‘(D) a central air conditioner which has a 

7 seasonal energy efficiency ratio (SEER) of at 

8 least 15 and an energy efficiency ratio (EER) 

9 of at least 12.5, and 

10 ‘‘(E) a natural gas, propane, or oil water 

11 heater which has an energy factor of at least 

12 0.80. 

13 ‘‘(3) TIER 1 ENERGY-EFFICIENT BUILDING

14 PROPERTY.—The term ‘Tier 1 energy-efficient build15 ing property’ means— 

16 ‘‘(A) an electric heat pump which has a 

17 heating system performance factor (HSPF) of 

18 at least 7.5, a cooling seasonal energy efficiency 

19 ratio (SEER) of at least 13.5, and an energy 

20 efficiency ratio (EER) of at least 11.5, 

21 ‘‘(B) a central air conditioner which has a 

22 cooling seasonal energy efficiency ratio (SEER) 

23 of at least 13.5 and an energy efficiency ratio 

24 (EER) of at least 11.5, 
31 

•S 2311 IS 

1 ‘‘(C) a natural gas, propane, or oil water 

2 heater which has an energy factor of at least 

3 0.65, and 

4 ‘‘(D) an oil, natural gas, or propane fur5 nace or hot water boiler which achieves at least 

6 95 percent annual fuel utilization efficiency 

7 (AFUE). 

8 ‘‘(4) ADVANCED MAIN AIR CIRCULATING FAN.— 

9 The term ‘advanced main air circulating fan’ means 

10 a fan used in a natural gas, propane, or oil furnace 

11 originally placed in service by the taxpayer during 

12 the taxable year, including a fan which uses a 

13 brushless permanent magnet motor or another type 

14 of motor which achieves similar or higher efficiency 

15 at full and half speed, as determined by the Sec16 retary. 

17 ‘‘(e) ENERGY EFFICIENT RESIDENTIAL RENTAL

18 BUILDING PROPERTY DEDUCTION.— 

19 ‘‘(1) DEDUCTION ALLOWED.—For purposes of 

20 subsection (a)— 

21 ‘‘(A) IN GENERAL.—The energy efficient 

22 residential rental building property deduction 

23 determined under this subsection is an amount 

24 equal to energy efficient residential rental build-
32 

•S 2311 IS 

1 ing property expenditures made by a taxpayer 

2 for the taxable year. 

3 ‘‘(B) MAXIMUM AMOUNT OF DEDUC4 TION.—The amount of energy efficient residen5 tial rental building property expenditures taken 

6 into account under subparagraph (A) with re7 spect to each dwelling unit shall not exceed— 

8 ‘‘(i) $6,000 in the case of a percent9 age reduction of 50 percent as determined 

10 under paragraph (2)(B), and 

11 ‘‘(ii) $12,000 times the percentage re12 duction in the case of a percentage reduc13 tion of less than 50 percent as determined 

14 under paragraph (2)(B). 

15 ‘‘(C) YEAR DEDUCTION ALLOWED.—The 

16 deduction under subparagraph (A) shall be al17 lowed in the taxable year in which the construc18 tion, reconstruction, erection, or rehabilitation 

19 of the property is completed. 

20 ‘‘(2) ENERGY EFFICIENT RESIDENTIAL RENTAL

21 BUILDING PROPERTY EXPENDITURES.—For pur22 poses of this subsection— 

23 ‘‘(A) IN GENERAL.—The term ‘energy effi24 cient residential rental building property ex25 penditures’ means an amount paid or incurred 
33 

•S 2311 IS 

1 in connection with construction, reconstruction, 

2 erection, or rehabilitation of energy efficient res3 idential rental building property— 

4 ‘‘(i) for which depreciation is allow5 able under section 167, 

6 ‘‘(ii) which is located in the United 

7 States, and 

8 ‘‘(iii) the construction, reconstruction, 

9 erection, or rehabilitation of which is com10 pleted by the taxpayer. 

11 Such term includes expenditures for labor costs 

12 properly allocable to the onsite preparation, as13 sembly, or original installation of the property. 

14 ‘‘(B) ENERGY EFFICIENT RESIDENTIAL

15 RENTAL BUILDING PROPERTY.— 

16 ‘‘(i) IN GENERAL.—The term ‘energy 

17 efficient residential rental building prop18 erty’ means any property which reduces 

19 total annual energy and power costs with 

20 respect to heating and cooling of the build21 ing by a percentage certified according to 

22 clause (ii). 

23 ‘‘(ii) PROCEDURES.— 

24 ‘‘(I) IN GENERAL.—For purposes 

25 of clause (i), energy usage and costs 
34 

•S 2311 IS 

1 shall be demonstrated by perform2 ance-based compliance. 

3 ‘‘(II) PERFORMANCE-BASED COM4 PLIANCE.—Performance-based compli5 ance shall be demonstrated by calcu6 lating the percent energy cost savings 

7 for heating and cooling, as applicable, 

8 with respect to a dwelling unit when 

9 compared to the original condition of 

10 the dwelling unit. 

11 ‘‘(III) COMPUTER SOFTWARE.— 

12 Computer software shall be used in 

13 support of performance-based compli14 ance under subclause (II) and such 

15 software shall meet all of the proce16 dures and methods for calculating en17 ergy savings reductions which are pro18 mulgated by the Secretary of Energy. 

19 Such regulations on the specifications 

20 for software and verification protocols 

21 shall be based on the 2005 California 

22 Residential Alternative Calculation 

23 Method Approval Manual. 

24 ‘‘(IV) CALCULATION REQUIRE25 MENTS.—In calculating tradeoffs and 
35 

•S 2311 IS 

1 energy performance, the regulations 

2 prescribed under this clause shall pre3 scribe for the taxable year the costs 

4 per unit of energy and power, such as 

5 kilowatt hour, kilowatt, gallon of fuel 

6 oil, and cubic foot or Btu of natural 

7 gas, which may be dependent on time 

8 of usage. Where a State has developed 

9 annual energy usage and cost reduc10 tion procedures based on time of 

11 usage costs for use in the performance 

12 standards of the State’s building en13 ergy code prior to the effective date of 

14 this section, the State may use those 

15 annual energy usage and cost reduc16 tion procedures in lieu of those adopt17 ed by the Secretary. 

18 ‘‘(V) APPROVAL OF SOFTWARE

19 SUBMISSIONS.—The Secretary shall 

20 approve software submissions which 

21 comply with the requirements of sub22 clause (III). 

23 ‘‘(VI) PROCEDURES FOR INSPEC24 TION AND TESTING OF HOMES.—The 

25 Secretary shall ensure that procedures 
36 

•S 2311 IS 

1 for the inspection and testing for com2 pliance comply with the calculation re3 quirements under subclause (IV) of 

4 this clause and clause (iv). 

5 ‘‘(iii) DETERMINATIONS OF COMPLI6 ANCE.—A determination of compliance 

7 with respect to energy efficient residential 

8 rental building property made for the pur9 poses of this subparagraph shall be filed 

10 with the Secretary not later than 1 year 

11 after the date of such determination and 

12 shall include the TIN of the certifier, the 

13 address of the building in compliance, and 

14 the identity of the person for whom such 

15 determination was performed. Determina16 tions of compliance filed with the Secretary 

17 shall be available for inspection by the Sec18 retary of Energy. 

19 ‘‘(iv) COMPLIANCE.— 

20 ‘‘(I) IN GENERAL.—The Sec21 retary, after consultation with the 

22 Secretary of Energy, shall establish 

23 requirements for certification and 

24 compliance procedures after exam25 ining the requirements for energy con-
37 

•S 2311 IS 

1 sultants and home energy ratings pro2 viders specified by the Mortgage In3 dustry National Home Energy Rating 

4 Standards. 

5 ‘‘(II) INDIVIDUALS QUALIFIED

6 TO DETERMINE COMPLIANCE.—The 

7 determination of compliance may be 

8 provided by a local building regulatory 

9 authority, a utility, a manufactured 

10 home production inspection primary 

11 inspection agency (IPIA), or an ac12 credited home energy rating system 

13 provider. All providers shall be accred14 ited, or otherwise authorized to use 

15 approved energy performance meas16 urement methods, by the Residential 

17 Energy Services Network (RESNET). 

18 ‘‘(C) ALLOCATION OF DEDUCTION FOR

19 PUBLIC PROPERTY.—In the case of energy effi20 cient residential rental building property which 

21 is public property, the Secretary shall promul22 gate a regulation to allow the allocation of the 

23 deduction to the person primarily responsible 

24 for designing the improvements to the property 

25 in lieu of the public entity which is the owner 
38 

•S 2311 IS 

1 of such property. Such person shall be treated 

2 as the taxpayer for purposes of this subsection. 

3 ‘‘(f) SPECIAL RULES.—For purposes of this sec4 tion— 

5 ‘‘(1) BASIS REDUCTION.—For purposes of this 

6 subtitle, if a deduction is allowed under this section 

7 with respect to any property, the basis of such prop8 erty shall be reduced by the amount of the deduction 

9 so allowed. 

10 ‘‘(2) DOUBLE BENEFIT.—Property which 

11 would, but for this paragraph, be eligible for deduc12 tion under more than one provision of this section 

13 shall be eligible only under one such provision, the 

14 provision specified by the taxpayer. 

15 ‘‘(g) REGULATIONS.—The Secretary shall promul16 gate such regulations as necessary to take into account 

17 new technologies regarding energy efficiency and renew18 able energy for purposes of determining energy efficiency 

19 and savings under this section. 

20 ‘‘(h) TERMINATION.—This section shall not apply 

21 with respect to— 

22 ‘‘(1) any energy property placed in service after 

23 December 31, 2008 (December 31, 2005, in the case 

24 of Tier 1 energy-efficient building property), and 
39 

•S 2311 IS 

1 ‘‘(2) any energy efficient residential rental 

2 building property expenditures in connection with 

3 property— 

4 ‘‘(A) placed in service after December 31, 

5 2007, or 

6 ‘‘(B) the construction, reconstruction, erec7 tion, or rehabilitation of which is not completed 

8 on or before December 31, 2007.’’. 

9 (b) CONFORMING AMENDMENTS.— 

10 (1) Section 48(a)(3)(A) of the Internal Revenue 

11 Code of 1986 is amended to read as follows: 

12 ‘‘(A) which is equipment used to produce, 

13 distribute, or use energy derived from a geo14 thermal deposit (within the meaning of section 

15 613(e)(2)), but only, in the case of electricity 

16 generated by geothermal power, up to (but not 

17 including) the electrical transmission stage,’’. 

18 (2) Subparagraph (B) of section 168(e)(3) of 

19 such Code is amended— 

20 (A) in clause (vi)(I)— 

21 (i) by striking ‘‘section 48(a)(3)’’ and 

22 inserting ‘‘section 199(d)(1)’’, and 

23 (ii) by striking ‘‘clause (i)’’ and in24 serting ‘‘such subparagraph (A)’’, and 
40 

•S 2311 IS 

1 (B) in the last sentence, by striking ‘‘sec2 tion 48(a)(3)’’ and inserting ‘‘section 

3 199(c)(3)’’. 

4 (3) Section 1016(a) of such Code, as amended 

5 by section 102, is amended by striking ‘‘and’’ at the 

6 end of paragraph (29), by striking the period at the 

7 end of paragraph (30) and inserting ‘‘, and’’, and by 

8 inserting the following new paragraph: 

9 ‘‘(31) for amounts allowed as a deduction under 

10 section 199(a).’’. 

11 (c) CLERICAL AMENDMENT.—The table of sections 

12 for part VI of subchapter B of chapter 1 of the Internal 

13 Revenue Code of 1986 is amended by adding at the end 

14 the following new item: 

‘‘Sec. 199. Energy property deduction.’’. 

15 (d) AUTHORIZATION OF APPROPRIATIONS.—There 

16 are authorized to be appropriated to the Department of 

17 Energy out of amounts not already appropriated such 

18 sums as necessary to carry out this section. 

19 (e) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2003. 

22 SEC. 104. CREDIT FOR CERTAIN NONBUSINESS ENERGY 

23 PROPERTY. 

24 (a) IN GENERAL.—Subpart A of part IV of sub25 chapter A of chapter 1 of the Internal Revenue Code of 
41 

•S 2311 IS 

1 1986 (relating to nonrefundable personal credits) is 

2 amended by inserting after section 25B the following new 

3 section: 

4 ‘‘SEC. 25C. NONBUSINESS ENERGY PROPERTY. 

5 ‘‘(a) ALLOWANCE OF CREDIT.— 

6 ‘‘(1) IN GENERAL.—In the case of an indi7 vidual, there shall be allowed as a credit against the 

8 tax imposed by this chapter for the taxable year an 

9 amount equal to the sum of— 

10 ‘‘(A) the amount determined under sub11 section (b) for each qualified energy property of 

12 the taxpayer placed in service during such tax13 able year, and 

14 ‘‘(B) so much of the credit amount speci15 fied in paragraph (2) which does not exceed the 

16 expenditures made by the taxpayer in connec17 tion with the construction, reconstruction, erec18 tion, or rehabilitation of a dwelling unit of the 

19 taxpayer which results in the unit being a high20 ly energy-efficient principal residence. 

21 For purposes of subparagraph (B), the expenditures 

22 may include labor costs properly allocable to the on23 site preparation, assembly, or original installation of 

24 such property. 
42 

•S 2311 IS 

1 ‘‘(2) CREDIT AMOUNT.—The credit amount 

2 with respect to a highly energy-efficient principal 

3 residence is— 

4 ‘‘(A) $2,000 in the case of a percentage re5 duction of 50 percent as determined under sub6 section (c)(6)(A)(iii), and 

7 ‘‘(B) $4,000 times the percentage reduc8 tion in the case of a percentage reduction of 

9 less than 50 percent as determined under sub10 section (c)(6)(A)(iii). 

11 ‘‘(b) AMOUNT FOR QUALIFIED ENERGY PROP12 ERTY.— 

13 ‘‘(1) RESIDENTIAL ENERGY PROPERTY EX14 PENDITURES.—Except as provided in paragraph (2), 

15 the amount determined under this subsection for the 

16 taxable year for each item of qualified energy prop17 erty shall equal the amount of residential energy 

18 property expenditures made by the taxpayer with re19 spect to such property during such taxable year. 

20 ‘‘(2) SOLAR HOT WATER PROPERTY; PHOTO21 VOLTAIC PROPERTY.— 

22 ‘‘(A) IN GENERAL.—In the case of solar 

23 hot water property and photovoltaic property, 

24 the amount determined under this subsection 

25 for the taxable year shall equal the amount 
43 

•S 2311 IS 

1 specified for such property in the following 

2 table: 

Description of property: Allowable amount is: 

Elected solar hot water property..................................... 35¢ per each 

kwh/year of savings. 

Photovoltaic property....................................................... $1.50 per peak 

watt. 

3 ‘‘(B) ELECTED SOLAR HOT WATER PROP4 ERTY.—In the case of elected solar hot water 

5 property (as defined in section 199(d)(1)(B)), 

6 the taxpayer may elect to substitute ‘$7 per an7 nual Therm of natural gas savings’ for ‘35¢ per 

8 each kwh/year of savings’ in the table contained 

9 in subparagraph (A). 

10 ‘‘(3) MAXIMUM AMOUNT.—In the case of prop11 erty described in the following table, the amount of 

12 expenditures taken into account under paragraph 

13 (1) and the amount determined under paragraph (2) 

14 for the taxable year for each item of qualified energy 

15 property with respect to a dwelling unit shall not ex16 ceed the amount specified for such property in such 

17 table: 

‘‘Description of property item: Maximum allowable 

credit amount is: 

Tier 2 energy-efficient building property ......................... $300. 

Advanced main air circulating fan or a Tier 1 natural 

gas, propane, or oil water heater.

$50. 

Tier 1 energy-efficient building property (other than an 

advanced main air circulating fan or a natural gas, 

propane, or oil water heater).

$150. 
44 

•S 2311 IS 

‘‘Description of property item: Maximum allowable 

credit amount is: 

Solar hot water property................................................. $1,000. 

Photovoltaic property....................................................... $6,000. 

1 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section— 

3 ‘‘(1) RESIDENTIAL ENERGY PROPERTY EX4 PENDITURES.—The term ‘residential energy prop5 erty expenditures’ means expenditures made by the 

6 taxpayer for qualified energy property installed on or 

7 in connection with a dwelling unit which— 

8 ‘‘(A) is located in the United States, and 

9 ‘‘(B) is used as a principal residence. 

10 Such term includes expenditures for labor costs 

11 properly allocable to the onsite preparation, assem12 bly, or original installation of the property. 

13 ‘‘(2) QUALIFIED ENERGY PROPERTY.— 

14 ‘‘(A) IN GENERAL.—The term ‘qualified 

15 energy property’ means— 

16 ‘‘(i) energy-efficient building property, 

17 ‘‘(ii) solar hot water property, and 

18 ‘‘(iii) photovoltaic property. 

19 ‘‘(B) SWIMMING POOL, ETC., USED AS

20 STORAGE MEDIUM; SOLAR PANELS.—For pur21 poses of this paragraph, the provisions of sub22 paragraphs (D) and (E) section 199(d)(1) shall 

23 apply. 
45 

•S 2311 IS 

1 ‘‘(C) REQUIRED STANDARDS.—Property 

2 described under subparagraph (A) shall meet 

3 the performance and quality standards and cer4 tification standards of paragraphs (1)(D) and 

5 (2) of section 199(c). 

6 ‘‘(3) ENERGY-EFFICIENT BUILDING PROP7 ERTY.—The term ‘energy-efficient building property’ 

8 has the same meaning given the terms ‘Tier 2 en9 ergy-efficient property’, ‘Tier 1 energy-efficient 

10 property’, and ‘advanced main air circulating fan’ in 

11 paragraphs (2), (3), and (4) of section 199(d), re12 spectively. 

13 ‘‘(4) SOLAR HOT WATER PROPERTY.—The term 

14 ‘solar hot water property’ means property which, 

15 when installed in connection with a structure, uses 

16 solar energy for the purpose of providing hot water 

17 for use within such structure and the performance 

18 of which is determined in accordance with section 

19 199(c)(2)(A). 

20 ‘‘(5) PHOTOVOLTAIC PROPERTY.—The term 

21 ‘photovoltaic property’ has the same meaning given 

22 such term in section 199(d)(1)(C). 

23 ‘‘(6) HIGHLY ENERGY-EFFICIENT PRINCIPAL

24 RESIDENCE.— 
46 

•S 2311 IS 

1 ‘‘(A) IN GENERAL.—Property is a highly 

2 energy-efficient principal residence if— 

3 ‘‘(i) such property is located in the 

4 United States, 

5 ‘‘(ii) the property is used as a prin6 cipal residence, and 

7 ‘‘(iii) the projected heating and cool8 ing energy usage of such property, meas9 ured in terms of average annual energy 

10 cost to taxpayer, is reduced by a percent11 age certified according to subparagraph 

12 (C) in comparison to the energy cost of 

13 such property if expenditures made by the 

14 taxpayer with respect to energy efficient 

15 improvements to such property were not 

16 made. 

17 ‘‘(B) PRINCIPAL RESIDENCE.— 

18 ‘‘(i) IN GENERAL.—The term ‘prin19 cipal residence’ has the same meaning as 

20 when used in section 121, except that— 

21 ‘‘(I) no ownership requirement 

22 shall be imposed, and 

23 ‘‘(II) the period for which a 

24 building is treated as used as a prin25 cipal residence shall also include the 
47 

•S 2311 IS 

1 60-day period ending on the 1st day 

2 on which it would (but for this sub3 paragraph) first be treated as used as 

4 a principal residence. 

5 ‘‘(ii) MANUFACTURED HOUSING.—The 

6 term ‘residence’ shall include a dwelling 

7 unit which is a manufactured home con8 forming to Federal Manufactured Home 

9 Construction and Safety Standards (24 

10 C.F.R. 3280). 

11 ‘‘(C) CERTIFICATION PROCEDURES.— 

12 ‘‘(i) IN GENERAL.—For purposes of 

13 subparagraph (A)(iii), energy usage shall 

14 be demonstrated by performance-based 

15 compliance. 

16 ‘‘(ii) PERFORMANCE-BASED COMPLI17 ANCE.—Performance-based compliance 

18 shall be demonstrated if the percent energy 

19 cost savings for heating and cooling is met 

20 with respect to a dwelling unit when com21 pared to the original condition of the dwell22 ing unit. 

23 ‘‘(iii) COMPUTER SOFTWARE.—Com24 puter software shall be used in support of 

25 performance-based compliance under 
48 

•S 2311 IS 

1 clause (ii) and such software shall meet all 

2 of the procedures and methods for calcu3 lating energy savings reductions which are 

4 promulgated by the Secretary of Energy. 

5 Such regulations on the specifications for 

6 software and verification protocols shall be 

7 based on the 2005 California Residential 

8 Alternative Calculation Method Approval 

9 Manual. 

10 ‘‘(iv) CALCULATION REQUIRE11 MENTS.—In calculating tradeoffs and en12 ergy performance, the regulations shall 

13 prescribe the costs per unit of energy and 

14 power, such as kilowatt hour, kilowatt, gal15 lon of fuel oil, and cubic foot or Btu of 

16 natural gas, which may be dependent on 

17 time of usage. If a State has developed an18 nual energy usage and cost reduction pro19 cedures based on time of usage costs for 

20 use in the performance standards of the 

21 State’s building energy code before the ef22 fective date of this section, the State may 

23 use those annual energy usage and cost re24 duction procedures in lieu of those adopted 

25 by the Secretary. 
49 

•S 2311 IS 

1 ‘‘(v) APPROVAL OF SOFTWARE SUB2 MISSIONS.—The Secretary shall approve 

3 software submissions which comply with 

4 the calculation requirements of clause (iii). 

5 ‘‘(vi) PROCEDURES FOR INSPECTION

6 AND TESTING OF DWELLING UNITS.—The 

7 Secretary shall ensure that procedures for 

8 the inspection and testing for compliance 

9 comply with the calculation requirements 

10 under clause (iii) and subsection (d)(2). 

11 ‘‘(d) SPECIAL RULES.—For purposes of this sec12 tion— 

13 ‘‘(1) DETERMINATIONS OF COMPLIANCE.—A 

14 determination of compliance made for the purposes 

15 of this section shall be filed with the Secretary with16 in 1 year of the date of such determination and shall 

17 include the TIN of the certifier, the address of the 

18 building in compliance, and the identity of the per19 son for whom such determination was performed. 

20 Determinations of compliance filed with the Sec21 retary shall be available for inspection by the Sec22 retary of Energy. 

23 ‘‘(2) COMPLIANCE.— 

24 ‘‘(A) IN GENERAL.—The Secretary, after 

25 consultation with the Secretary of Energy shall 
50 

•S 2311 IS 

1 establish requirements for certification and com2 pliance procedures after examining the require3 ments for energy consultants and home energy 

4 ratings providers specified by the Mortgage In5 dustry National Home Energy Rating Stand6 ards. 

7 ‘‘(B) INDIVIDUALS QUALIFIED TO DETER8 MINE COMPLIANCE.—The determination of 

9 compliance may be provided by a local building 

10 regulatory authority, a utility, a manufactured 

11 home production inspection primary inspection 

12 agency (IPIA), or an accredited home energy 

13 rating system provider. All providers shall be 

14 accredited, or otherwise authorized to use ap15 proved energy performance measurement meth16 ods, by the Residential Energy Services Net17 work (RESNET). 

18 ‘‘(3) DOLLAR AMOUNTS IN CASE OF JOINT OC19 CUPANCY.—In the case of any dwelling unit which if 

20 jointly occupied and used during any calendar year 

21 as a principal residence by 2 or more individuals the 

22 following rules shall apply: 

23 ‘‘(A) The amount of the credit allowable 

24 under subsection (a) by reason of expenditures 

25 made during such calendar year by any of such 
51 

•S 2311 IS 

1 individuals with respect to such dwelling unit 

2 shall be determined by treating all of such indi3 viduals as 1 taxpayer whose taxable year is 

4 such calendar year. 

5 ‘‘(B) There shall be allowable with respect 

6 to such expenditures to each of such individ7 uals, a credit under subsection (a) for the tax8 able year in which such calendar year ends in 

9 an amount which bears the same ratio to the 

10 amount determined under subparagraph (A) as 

11 the amount of such expenditures made by such 

12 individual during such calendar year bears to 

13 the aggregate of such expenditures made by all 

14 of such individuals during such calendar year. 

15 ‘‘(4) TENANT-STOCKHOLDER IN COOPERATIVE

16 HOUSING CORPORATION.—In the case of an indi17 vidual who is a tenant-stockholder (as defined in sec18 tion 216) in a cooperative housing corporation (as 

19 defined in such section), such individual shall be 

20 treated as having made his tenant-stockholder’s pro21 portionate share (as defined in section 216(b)(3)) of 

22 any expenditures of such corporation and such credit 

23 shall be allocated pro rata to such individual. 

24 ‘‘(5) CONDOMINIUMS.— 
52 

•S 2311 IS 

1 ‘‘(A) IN GENERAL.—In the case of an indi2 vidual who is a member of a condominium man3 agement association with respect to a condo4 minium which he owns, such individual shall be 

5 treated as having made his proportionate share 

6 of any expenditures of such association and any 

7 credit shall be allocated appropriately. 

8 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO9 CIATION.—For purposes of this paragraph, the 

10 term ‘condominium management association’ 

11 means an organization which meets the require12 ments of paragraph (1) of section 528(c) (other 

13 than subparagraph (E) thereof) with respect to 

14 a condominium project substantially all of the 

15 units of which are used as principal residences. 

16 ‘‘(6) JOINT OWNERSHIP OF ENERGY ITEMS.— 

17 ‘‘(A) IN GENERAL.—Any expenditure oth18 erwise qualifying as an expenditure under this 

19 section shall not be treated as failing to so 

20 qualify merely because such expenditure was 

21 made with respect to 2 or more dwelling units. 

22 ‘‘(B) LIMITS APPLIED SEPARATELY.—In 

23 the case of any expenditure described in sub24 paragraph (A), the amount of the credit allow25 able under subsection (a) shall (subject to para-
53 

•S 2311 IS 

1 graph (1)) be computed separately with respect 

2 to the amount of the expenditure made for each 

3 dwelling unit. 

4 ‘‘(7) ALLOCATION IN CERTAIN CASES.—If less 

5 than 80 percent of the use of an item is for nonbusi6 ness purposes, only that portion of the expenditures 

7 for such item which is properly allocable to use for 

8 nonbusiness purposes shall be taken into account. 

9 ‘‘(8) COORDINATION WITH OTHER CREDITS.— 

10 Property which would, but for this paragraph, be eli11 gible for credit under more than one provision of 

12 this section shall be eligible only under one such pro13 vision, the provision specified by the taxpayer. 

14 ‘‘(9) YEAR CREDIT ALLOWED.—The credit 

15 under subsection (a)(2) shall be allowed in the tax16 able year in which the percentage reduction with re17 spect to the principal residence is certified. 

18 ‘‘(10) WHEN EXPENDITURE MADE; AMOUNT OF

19 EXPENDITURE.— 

20 ‘‘(A) IN GENERAL.—Except as provided in 

21 subparagraph (B), an expenditure with respect 

22 to an item shall be treated as made when the 

23 original installation of the item is completed. 

24 ‘‘(B) EXPENDITURES PART OF BUILDING

25 CONSTRUCTION.—In the case of an expenditure 
54 

•S 2311 IS 

1 in connection with the construction of a struc2 ture, such expenditure shall be treated as made 

3 when the original use of the constructed struc4 ture by the taxpayer begins. 

5 ‘‘(11) PROPERTY FINANCED BY SUBSIDIZED

6 ENERGY FINANCING.— 

7 ‘‘(A) REDUCTION OF EXPENDITURES.— 

8 ‘‘(i) IN GENERAL.—Except as pro9 vided in subparagraph (C), for purposes of 

10 determining the amount of expenditures 

11 made by any individual with respect to any 

12 dwelling unit, there shall not be taken into 

13 account expenditures which are made from 

14 subsidized energy financing. 

15 ‘‘(ii) SUBSIDIZED ENERGY FINANC16 ING.—For purposes of clause (i), the term 

17 ‘subsidized energy financing’ has the same 

18 meaning given such term in section 

19 48(a)(4)(C). 

20 ‘‘(B) DOLLAR LIMITS REDUCED.—The dol21 lar amounts in the table contained in subsection 

22 (b)(3) with respect to each property purchased 

23 for such dwelling unit for any taxable year of 

24 such taxpayer shall be reduced proportionately 

25 by an amount equal to the sum of— 
55 

•S 2311 IS 

1 ‘‘(i) the amount of the expenditures 

2 made by the taxpayer during such taxable 

3 year with respect to such dwelling unit and 

4 not taken into account by reason of sub5 paragraph (A), and 

6 ‘‘(ii) the amount of any Federal, 

7 State, or local grant received by the tax8 payer during such taxable year which is 

9 used to make residential energy property 

10 expenditures with respect to the dwelling 

11 unit and is not included in the gross in12 come of such taxpayer. 

13 ‘‘(C) EXCEPTION FOR STATE PROGRAMS.— 

14 Subparagraphs (A) and (B) shall not apply to 

15 expenditures made with respect to property for 

16 which the taxpayer has received a loan, State 

17 tax credit, or grant under any State energy pro18 gram. 

19 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 

20 subtitle, if a credit is allowed under this section for any 

21 expenditure with respect to any property, the increase in 

22 the basis of such property which would (but for this sub23 section) result from such expenditure shall be reduced by 

24 the amount of the credit so allowed. 
56 

•S 2311 IS 

1 ‘‘(f) REGULATIONS.—The Secretary shall promulgate 

2 such regulations as necessary to take into account new 

3 technologies regarding energy efficiency and renewable en4 ergy for purposes of determining energy efficiency and 

5 savings under this section. 

6 ‘‘(g) TERMINATION.—This section shall not apply 

7 with respect to any energy property placed in service after 

8 December 31, 2008 (December 31, 2005, in the case of 

9 Tier 1 energy-efficient building property).’’. 

10 (b) CONFORMING AMENDMENTS.— 

11 (1) Subsection (a) of section 1016 of the Inter12 nal Revenue Code of 1986 as amended by section 

13 103, is amended by striking ‘‘and’’ at the end of 

14 paragraph (30), by striking the period at the end of 

15 paragraph (31) and inserting ‘‘, and’’, and by add16 ing at the end the following new paragraph: 

17 ‘‘(32) to the extent provided in section 25C(e), 

18 in the case of amounts with respect to which a credit 

19 has been allowed under section 25C.’’. 

20 (2) The table of sections for subpart A of part 

21 IV of subchapter A of chapter 1 of such Code is 

22 amended by inserting after the item relating to sec23 tion 25B the following new item: 

‘‘Sec. 25C. Nonbusiness energy property.’’. 

24 (c) EFFECTIVE DATES.— 
57 

•S 2311 IS 

1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section 

3 shall apply to expenditures made after December 31, 

4 2003. 

5 (2) ENERGY EFFICIENT BUILDING PROPERTY

6 USED IN A PRINCIPAL RESIDENCE.—In the case of 

7 energy efficient building property, as defined in sec8 tion 25B(c) of the Internal Revenue Code of 1986, 

9 as added by subsection (a), the amendments made 

10 by this section shall apply to expenditures made 

11 after March 31, 2003. 

12 SEC. 105. ENERGY CREDIT FOR COMBINED HEAT AND 

13 POWER SYSTEM PROPERTY. 

14 (a) IN GENERAL.—Section 48(a)(3)(A) of the Inter15 nal Revenue Code of 1986 (defining energy property) is 

16 amended by striking ‘‘or’’ at the end of clause (i), by add17 ing ‘‘or’’ at the end of clause (ii), and by inserting after 

18 clause (ii) the following new clause: 

19 ‘‘(iii) combined heat and power system 

20 property,’’. 

21 (b) COMBINED HEAT AND POWER SYSTEM PROP22 ERTY.—Section 48 of the Internal Revenue Code of 1986 

23 (relating to energy credit; reforestation credit) is amended 

24 by adding at the end the following new subsection: 
58 

•S 2311 IS 

1 ‘‘(c) COMBINED HEAT AND POWER SYSTEM PROP2 ERTY.—For purposes of subsection (a)(3)(A)(iii)— 

3 ‘‘(1) COMBINED HEAT AND POWER SYSTEM

4 PROPERTY.—The term ‘combined heat and power 

5 system property’ means property comprising a sys6 tem— 

7 ‘‘(A) which uses the same energy source 

8 for the simultaneous or sequential generation of 

9 electrical power, mechanical shaft power, or 

10 both, in combination with the generation of 

11 steam or other forms of useful thermal energy 

12 (including heating and cooling applications), 

13 ‘‘(B) which has an electrical capacity of 

14 not more than 15 megawatts or a mechanical 

15 energy capacity of not more than 2,000 horse16 power or an equivalent combination of electrical 

17 and mechanical energy capacities, 

18 ‘‘(C) which produces— 

19 ‘‘(i) at least 20 percent of its total 

20 useful energy in the form of thermal en21 ergy which is not used to produce electrical 

22 or mechanical power (or combination 

23 thereof), and 
59 

•S 2311 IS 

1 ‘‘(ii) at least 20 percent of its total 

2 useful energy in the form of electrical or 

3 mechanical power (or combination thereof), 

4 ‘‘(D) the energy efficiency percentage of 

5 which exceeds 60 percent, and 

6 ‘‘(E) which is placed in service before Jan7 uary 1, 2007. 

8 ‘‘(2) SPECIAL RULES.— 

9 ‘‘(A) ENERGY EFFICIENCY PERCENT10 AGE.—For purposes of this subsection, the en11 ergy efficiency percentage of a system is the 

12 fraction— 

13 ‘‘(i) the numerator of which is the 

14 total useful electrical, thermal, and me15 chanical power produced by the system at 

16 normal operating rates, and expected to be 

17 consumed in its normal application, and 

18 ‘‘(ii) the denominator of which is the 

19 lower heating value of the fuel sources for 

20 the system. 

21 ‘‘(B) DETERMINATIONS MADE ON BTU

22 BASIS.—The energy efficiency percentage and 

23 the percentages under paragraph (1)(C) shall 

24 be determined on a Btu basis. 
60 

•S 2311 IS 

1 ‘‘(C) INPUT AND OUTPUT PROPERTY NOT

2 INCLUDED.—The term ‘combined heat and 

3 power system property’ does not include prop4 erty used to transport the energy source to the 

5 facility or to distribute energy produced by the 

6 facility. 

7 ‘‘(D) PUBLIC UTILITY PROPERTY.— 

8 ‘‘(i) ACCOUNTING RULE FOR PUBLIC

9 UTILITY PROPERTY.—If the combined heat 

10 and power system property is public utility 

11 property (as defined in section 168(i)(10)), 

12 the taxpayer may only claim the credit 

13 under subsection (a) if, with respect to 

14 such property, the taxpayer uses a normal15 ization method of accounting. 

16 ‘‘(ii) CERTAIN EXCEPTION NOT TO

17 APPLY.—The matter in subsection (a)(3) 

18 which follows subparagraph (D) thereof 

19 shall not apply to combined heat and 

20 power system property. 

21 ‘‘(3) SYSTEMS USING BAGASSE.—If a system is 

22 designed to use bagasse for at least 90 percent of 

23 the energy source— 

24 ‘‘(A) paragraph (1)(D) shall not apply, but 
61 

•S 2311 IS 

1 ‘‘(B) the amount of credit determined 

2 under subsection (a) with respect to such sys3 tem shall not exceed the amount which bears 

4 the same ratio to such amount of credit (deter5 mined without regard to this paragraph) as the 

6 energy efficiency percentage of such system 

7 bears to 60 percent.’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this subsection shall apply to periods after December 31, 

10 2003, in taxable years ending after such date, under rules 

11 similar to the rules of section 48(m) of the Internal Rev12 enue Code of 1986 (as in effect on the day before the date 

13 of the enactment of the Revenue Reconciliation Act of 

14 1990). 

15 SEC. 106. CREDIT FOR ENERGY EFFICIENT APPLIANCES. 

16 (a) IN GENERAL.—Subpart D of part IV of sub17 chapter A of chapter 1 of the Internal Revenue Code of 

18 1986 (relating to business-related credits), as amended by 

19 section 102, is amended by adding at the end the following 

20 new section: 

21 ‘‘SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT. 

22 ‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec23 tion 38, the energy efficient appliance credit determined 

24 under this section for the taxable year is an amount equal 

25 to the sum of— 
62 

•S 2311 IS 

1 ‘‘(1) the tier I appliance amount, and 

2 ‘‘(2) the tier II appliance amount, 

3 with respect to qualified energy efficient appliances pro4 duced by the taxpayer during the calendar year ending 

5 with or within the taxable year. 

6 ‘‘(b) APPLIANCE AMOUNTS.—For purposes of sub7 section (a)— 

8 ‘‘(1) TIER I APPLIANCE AMOUNT.—The tier I 

9 appliance amount is equal to— 

10 ‘‘(A) $100, multiplied by 

11 ‘‘(B) an amount (rounded to the nearest 

12 whole number) equal to the applicable percent13 age of the eligible production. 

14 ‘‘(2) TIER II APPLIANCE AMOUNT.—The tier II 

15 appliance amount is equal to $150, multiplied by an 

16 amount equal to the eligible production reduced by 

17 the amount determined under paragraph (1)(B). 

18 ‘‘(3) APPLICABLE PERCENTAGE.—The applica19 ble percentage is the percentage determined by di20 viding the tier I appliances produced by the taxpayer 

21 during the calendar year by the sum of the tier I 

22 and tier II appliances so produced. 

23 ‘‘(4) ELIGIBLE PRODUCTION.—The eligible pro24 duction of qualified energy efficient appliances by 

25 the taxpayer for any calendar year is the excess of— 
63 

•S 2311 IS 

1 ‘‘(A) the number of such appliances which 

2 are produced by the taxpayer during such cal3 endar year, over 

4 ‘‘(B) 110 percent of the average annual 

5 number of such appliances which were produced 

6 by the taxpayer (or any predecessor) during the 

7 preceding 3-calendar year period. 

8 ‘‘(c) QUALIFIED ENERGY EFFICIENT APPLIANCE.— 

9 For purposes of this section— 

10 ‘‘(1) IN GENERAL.—The term ‘qualified energy 

11 efficient appliance’ means any tier I appliance or tier 

12 II appliance which is produced in the United States. 

13 ‘‘(2) TIER I APPLIANCE.—The term ‘tier I ap14 pliance’ means— 

15 ‘‘(A) a clothes washer which is produced 

16 with at least a 1.50 MEF, and 

17 ‘‘(B) a refrigerator which consumes at 

18 least 15 percent (20 percent in the case of a re19 frigerator produced after 2006) less kilowatt 

20 hours per year than the energy conservation 

21 standards for refrigerators promulgated by the 

22 Department of Energy and effective on July 1, 

23 2001. 

24 ‘‘(3) TIER II APPLIANCE.—The term ‘tier II ap25 pliance’ means a refrigerator produced before 2007 
64 

•S 2311 IS 

1 which consumes at least 20 percent less kilowatt 

2 hours per year than the energy conservation stand3 ards described in paragraph (2)(B). 

4 ‘‘(4) CLOTHES WASHER.—The term ‘clothes 

5 washer’ means a residential clothes washer, includ6 ing a residential style coin operated washer. 

7 ‘‘(5) REFRIGERATOR.—The term ‘refrigerator’ 

8 means an automatic defrost refrigerator-freezer 

9 which has an internal volume of at least 16.5 cubic 

10 feet. 

11 ‘‘(6) MEF.—The term ‘MEF’ means Modified 

12 Energy Factor (as determined by the Secretary of 

13 Energy). 

14 ‘‘(7) PRODUCED.—The term ‘produced’ in15 cludes manufactured. 

16 ‘‘(d) LIMITATION ON MAXIMUM CREDIT.— 

17 ‘‘(1) IN GENERAL.—The amount of credit al18 lowed under subsection (a) with respect to a tax19 payer for any taxable year shall not exceed 

20 $60,000,000, reduced by the amount of the credit 

21 allowed under subsection (a) to the taxpayer (or any 

22 predecessor) for any prior taxable year. 

23 ‘‘(2) LIMITATION BASED ON GROSS RE24 CEIPTS.—The credit allowed under subsection (a) 

25 with respect to a taxpayer for the taxable year shall 
65 

•S 2311 IS 

1 not exceed an amount equal to 2 percent of the aver2 age annual gross receipts of the taxpayer for the 3 

3 taxable years preceding the taxable year for which 

4 the credit is determined. 

5 ‘‘(3) GROSS RECEIPTS.—For purposes of this 

6 subsection, the rules of paragraphs (2) and (3) of 

7 section 448(c) shall apply. 

8 ‘‘(e) SPECIAL RULES.—For purposes of this sec9 tion— 

10 ‘‘(1) IN GENERAL.—Rules similar to the rules 

11 of subsections (c), (d), and (e) of section 52 shall 

12 apply. 

13 ‘‘(2) CONTROLLED GROUPS.— 

14 ‘‘(A) IN GENERAL.—All persons treated as 

15 a single employer under subsection (a) or (b) of 

16 section 52 or subsection (m) or (o) of section 

17 414 shall be treated as a single manufacturer. 

18 ‘‘(B) INCLUSION OF FOREIGN CORPORA19 TIONS.—For purposes of subparagraph (A), in 

20 applying subsections (a) and (b) of section 52 

21 to this section, section 1563 shall be applied 

22 without regard to subsection (b)(2)(C) thereof. 

23 ‘‘(f) VERIFICATION.—The taxpayer shall submit such 

24 information or certification as the Secretary, after con-
66 

•S 2311 IS 

1 sultation with the Secretary of Energy, determines nec2 essary to claim the credit amount under subsection (a). 

3 ‘‘(g) TERMINATION.—This section shall not apply 

4 with respect to appliances produced after December 31, 

5 2007.’’. 

6 (b) CREDIT MADE PART OF GENERAL BUSINESS

7 CREDIT.—Section 38(b) of the Internal Revenue Code of 

8 1986 (relating to current year business credit), as amend9 ed by section 102, is amended by striking ‘‘plus’’ at the 

10 end of paragraph (15), by striking the period at the end 

11 of paragraph (16) and inserting ‘‘, plus’’, and by adding 

12 at the end the following new paragraph: 

13 ‘‘(17) the energy efficient appliance credit de14 termined under section 45H(a).’’. 

15 (c) LIMITATION ON CARRYBACK.—Section 39(d) of 

16 the Internal Revenue Code of 1986 (relating to transition 

17 rules), as amended by section 102, is amended by adding 

18 at the end the following new paragraph: 

19 ‘‘(12) NO CARRYBACK OF ENERGY EFFICIENT

20 APPLIANCE CREDIT BEFORE EFFECTIVE DATE.—No 

21 portion of the unused business credit for any taxable 

22 year which is attributable to the energy efficient ap23 pliance credit determined under section 45H(a) may 

24 be carried to a taxable year ending before January 

25 1, 2004.’’. 
67 

•S 2311 IS 

1 (d) CLERICAL AMENDMENT.—The table of sections 

2 for subpart D of part IV of subchapter A of chapter 1 

3 of the Internal Revenue Code of 1986, as amended by sec4 tion 102, is amended by adding at the end the following 

5 new item: 

‘‘Sec. 45H. Energy efficient appliance credit.’’. 

6 (e) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to appliances produced after De8 cember 31, 2003, in taxable years ending after such date. 

9 TITLE II—ENERGY EFFICIENT 

10 PRODUCTS 

11 SEC. 201. ENERGY CONSERVATION STANDARDS FOR ADDI12 TIONAL PRODUCTS. 

13 (a) DEFINITIONS.—Section 321 of the Energy Policy 

14 and Conservation Act (42 U.S.C. 6291) is amended— 

15 (1) in paragraph (30)(S), by striking the period 

16 and adding at the end the following: ‘‘but does not 

17 include any lamp specifically designed to be used for 

18 special purpose applications and that is unlikely to 

19 be used in general purpose applications such as 

20 those described in subparagraph (D), and also does 

21 not include any lamp not described in subparagraph 

22 (D) that is excluded by the Secretary, by rule, be23 cause the lamp is designed for special applications 

24 and is unlikely to be used in general purpose appli25 cations.’’; and 
68 

•S 2311 IS 

1 (2) by adding at the end the following: 

2 ‘‘(32) The term ‘battery charger’ means a de3 vice that charges batteries for consumer products 

4 and includes battery chargers embedded in other 

5 consumer products. 

6 ‘‘(33) The term ‘ceiling fan’ means a nonport7 able device that is suspended from a ceiling for cir8 culating air through the rotation of fan blades. 

9 ‘‘(34) The term ‘ceiling fan light kit’ means 

10 equipment designed to provide light from a ceiling 

11 fan that can be— 

12 ‘‘(A) integral, such that the equipment is 

13 attached to the ceiling fan prior to the time of 

14 retail sale; or 

15 ‘‘(B) attachable, such that at the time of 

16 retail sale the equipment is not physically at17 tached to the ceiling fan, but may be included 

18 inside the ceiling fan package at the time of 

19 sale or sold separately for subsequent attach20 ment to the fan. 

21 ‘‘(35) The term ‘commercial refrigerators, 

22 freezers, and refrigerator-freezers’ means refrig23 erators, freezers, or refrigerator-freezers that— 

24 ‘‘(A) are not consumer products regulated 

25 under this Act; and 
69 

•S 2311 IS 

1 ‘‘(B) incorporate most components involved 

2 in the vapor-compression cycle and the refrig3 erated compartment in a single package. 

4 ‘‘(36) The term ‘external power supply’ means 

5 an external power supply circuit that is used to con6 vert household electric current into either DC cur7 rent or lower-voltage AC current to operate a con8 sumer product. 

9 ‘‘(37) The term ‘illuminated exit sign’ means a 

10 sign that— 

11 ‘‘(A) is designed to be permanently fixed in 

12 place to identify an exit; and 

13 ‘‘(B) consists of an electrically powered in14 tegral light source that illuminates the legend 

15 ‘EXIT’ and any directional indicators and pro16 vides contrast between the legend, any direc17 tional indicators, and the background. 

18 ‘‘(38)(A) Except as provided in subparagraph 

19 (B), the term ‘distribution transformer’ means a 

20 transformer that— 

21 ‘‘(i) has an input voltage of 34.5 kilovolts 

22 or less; 

23 ‘‘(ii) has an output voltage of 600 volts or 

24 less; and 
70 

•S 2311 IS 

1 ‘‘(iii) is rated for operation at a frequency 

2 of 60 Hertz. 

3 ‘‘(B) The term ‘distribution transformer’ does 

4 not include— 

5 ‘‘(i) transformers with multiple voltage 

6 taps, with the highest voltage tap equaling at 

7 least 20 percent more than the lowest voltage 

8 tap; 

9 ‘‘(ii) transformers, such as those commonly 

10 known as drive transformers, rectifier trans11 formers, auto-transformers, Uninterruptible 

12 Power System transformers, impedance trans13 formers, harmonic transformers, regulating 

14 transformers, sealed and nonventilating trans15 formers, machine tool transformers, welding 

16 transformers, grounding transformers, or test17 ing transformers, that are designed to be used 

18 in a special purpose application and are unlikely 

19 to be used in general purpose applications; or 

20 ‘‘(iii) any transformer not listed in clause 

21 (ii) that is excluded by the Secretary by rule be22 cause— 

23 ‘‘(I) the transformer is designed for a 

24 special application; 
71 

•S 2311 IS 

1 ‘‘(II) the transformer is unlikely to be 

2 used in general purpose applications; and 

3 ‘‘(III) the application of standards to 

4 the transformer would not result in signifi5 cant energy savings. 

6 ‘‘(39) The term ‘low-voltage dry-type distribu7 tion transformer’ means a distribution transformer 

8 that— 

9 ‘‘(A) has an input voltage of 600 volts or 

10 less; 

11 ‘‘(B) is air-cooled; and 

12 ‘‘(C) does not use oil as a coolant. 

13 ‘‘(40) The term ‘standby mode’ means the low14 est power consumption mode that— 

15 ‘‘(A) cannot be switched off or influenced 

16 by the user; and 

17 ‘‘(B) may persist for an indefinite time 

18 when an appliance is connected to the main 

19 electricity supply and used in accordance with 

20 the manufacturer’s instructions, 

21 as defined on an individual product basis by the Sec22 retary. 

23 ‘‘(41) The term ‘torchiere’ means a portable 

24 electric lamp with a reflector bowl that directs light 

25 upward so as to give indirect illumination. 
72 

•S 2311 IS 

1 ‘‘(42) The term ‘traffic signal module’ means a 

2 standard 8-inch (200mm) or 12-inch (300mm) traf3 fic signal indication, consisting of a light source, a 

4 lens, and all other parts necessary for operation, 

5 that communicates movement messages to drivers 

6 through red, amber, and green colors. 

7 ‘‘(43) The term ‘transformer’ means a device 

8 consisting of 2 or more coils of insulated wire that 

9 transfers alternating current by electromagnetic in10 duction from 1 coil to another to change the original 

11 voltage or current value. 

12 ‘‘(44) The term ‘unit heater’ means a self-con13 tained fan-type heater designed to be installed with14 in the heated space, except that such term does not 

15 include a warm air furnace.’’. 

16 (b) TEST PROCEDURES.—Section 323 of the Energy 

17 Policy and Conservation Act (42 U.S.C. 6293) is amend18 ed— 

19 (1) in subsection (b), by adding at the end the 

20 following: 

21 ‘‘(9) Test procedures for illuminated exit signs 

22 shall be based on the test method used under 

23 Version 2.0 of the Energy Star program of the Envi24 ronmental Protection Agency for illuminated exit 

25 signs. 
73 

•S 2311 IS 

1 ‘‘(10) Test procedures for distribution trans2 formers and low voltage dry-type distribution trans3 formers shall be based on the ‘Standard Test Meth4 od for Measuring the Energy Consumption of Dis5 tribution Transformers’ prescribed by the National 

6 Electrical Manufacturers Association (NEMA TP 2– 

7 1998). The Secretary may review and revise this test 

8 procedure. For purposes of section 346(a), this test 

9 procedure shall be deemed to be testing require10 ments prescribed by the Secretary under section 

11 346(a)(1) for distribution transformers for which the 

12 Secretary makes a determination that energy con13 servation standards would be technologically feasible 

14 and economically justified, and would result in sig15 nificant energy savings. 

16 ‘‘(11) Test procedures for traffic signal modules 

17 shall be based on the test method used under the 

18 Energy Star program of the Environmental Protec19 tion Agency for traffic signal modules, as in effect 

20 on the date of enactment of this paragraph. 

21 ‘‘(12) Test procedures for medium base com22 pact fluorescent lamps shall be based on the test 

23 methods used under the October 30, 2003, version 

24 of the Energy Star program of the Environmental 

25 Protection Agency and Department of Energy for 
74 

•S 2311 IS 

1 compact fluorescent lamps. Covered products shall 

2 meet all test requirements for regulated parameters 

3 in section 325(bb). However, covered products may 

4 be marketed prior to completion of lamp life and 

5 lumen maintenance at 40 percent of rated life test6 ing provided manufacturers document engineering 

7 predictions and analysis that support expected at8 tainment of lumen maintenance at 40 percent rated 

9 life and lamp life time. 

10 ‘‘(13) Air movement test procedures for ceiling 

11 fans shall be based on the test procedure contained 

12 in the Energy Star Program Requirements for Resi13 dential Ceiling Fans (Version 2.0) developed by the 

14 Environmental Protection Agency, unless pursuant 

15 to this section, the Secretary promulgates regula16 tions establishing an alternative test procedure.’’; 

17 and 

18 (2) by adding at the end the following: 

19 ‘‘(f) ADDITIONAL CONSUMER AND COMMERCIAL

20 PRODUCTS.— 

21 ‘‘(1) IN GENERAL.—Not later than 2 years 

22 after the date of enactment of this subsection, the 

23 Secretary shall prescribe testing requirements for re24 frigerated bottled or canned beverage vending ma-
75 

•S 2311 IS 

1 chines, and commercial refrigerators, freezers, and 

2 refrigerator-freezers. 

3 ‘‘(2) BASIS.—The testing requirements shall be 

4 based on existing test procedures used in industry, 

5 to the extent practicable.’’. 

6 (c) NEW STANDARDS.—Section 325 of the Energy 

7 Policy and Conservation Act (42 U.S.C. 6295) is amended 

8 by adding at the end the following: 

9 ‘‘(u) BATTERY CHARGER AND EXTERNAL POWER

10 SUPPLY ELECTRIC ENERGY CONSUMPTION.— 

11 ‘‘(1) INITIAL RULEMAKING.—(A) The Secretary 

12 shall, within 18 months after the date of enactment 

13 of this subsection, prescribe by notice and comment, 

14 definitions and test procedures for the power use of 

15 battery chargers and external power supplies. In es16 tablishing these test procedures, the Secretary shall 

17 consider, among other factors, existing definitions 

18 and test procedures used for measuring energy con19 sumption in standby mode and other modes and as20 sess the current and projected future market for 

21 battery chargers and external power supplies. This 

22 assessment shall include estimates of the significance 

23 of potential energy savings from technical improve24 ments to these products and suggested product 

25 classes for standards. Prior to the end of this time 
76 

•S 2311 IS 

1 period, the Secretary shall hold a scoping workshop 

2 to discuss and receive comments on plans for devel3 oping energy conservation standards for energy use 

4 for these products. 

5 ‘‘(B) The Secretary shall, within 3 years after 

6 the date of enactment of this subsection, issue a 

7 final rule that determines whether energy conserva8 tion standards shall be issued for battery chargers 

9 and external power supplies or classes thereof. For 

10 each product class, any such standards shall be set 

11 at the lowest level of energy use that— 

12 ‘‘(i) meets the criteria and procedures of 

13 subsections (o), (p), (q), (r), (s), and (t); and 

14 ‘‘(ii) will result in significant overall an15 nual energy savings, considering both standby 

16 mode and other operating modes. 

17 ‘‘(2) REVIEW OF STANDBY ENERGY USE IN

18 COVERED PRODUCTS.—In determining pursuant to 

19 section 323 whether test procedures and energy con20 servation standards pursuant to this section should 

21 be revised, the Secretary shall consider, for covered 

22 products that are major sources of standby mode en23 ergy consumption, whether to incorporate standby 

24 mode into such test procedures and energy conserva25 tion standards, taking into account, among other 
77 

•S 2311 IS 

1 relevant factors, standby mode power consumption 

2 compared to overall product energy consumption. 

3 ‘‘(3) RULEMAKING.—The Secretary shall not 

4 propose a standard under this section unless the 

5 Secretary has issued applicable test procedures for 

6 each product pursuant to section 323. 

7 ‘‘(4) EFFECTIVE DATE.—Any standard issued 

8 under this subsection shall be applicable to products 

9 manufactured or imported 3 years after the date of 

10 issuance. 

11 ‘‘(5) VOLUNTARY PROGRAMS.—The Secretary 

12 and the Administrator shall collaborate and develop 

13 programs, including programs pursuant to section 

14 324A (relating to Energy Star Programs) and other 

15 voluntary industry agreements or codes of conduct, 

16 that are designed to reduce standby mode energy 

17 use. 

18 ‘‘(v) VENDING MACHINES, AND COMMERCIAL RE19 FRIGERATORS, FREEZERS, AND REFRIGERATOR-FREEZ20 ERS.— 

21 ‘‘(1) IN GENERAL.—Not later than 3 years 

22 after the date on which testing requirements are 

23 prescribed by the Secretary pursuant to section 

24 323(f), the Secretary shall prescribe, by rule, energy 

25 conservation standards for refrigerated bottled or 
78 

•S 2311 IS 

1 canned beverage vending machines, and commercial 

2 refrigerators, freezers, and refrigerator-freezers. 

3 ‘‘(2) CRITERIA AND PROCEDURES.—In estab4 lishing standards under this subsection, the Sec5 retary shall use the criteria and procedures con6 tained in subsections (o) and (p). 

7 ‘‘(3) APPLICABILITY.—Any standard prescribed 

8 under this subsection shall apply to products manu9 factured 3 years after the date of publication of a 

10 final rule establishing the standard. 

11 ‘‘(w) ILLUMINATED EXIT SIGNS.—Illuminated exit 

12 signs manufactured on or after January 1, 2005, shall 

13 meet the Version 2.0 Energy Star Program performance 

14 requirements for illuminated exit signs prescribed by the 

15 Environmental Protection Agency. 

16 ‘‘(x) TORCHIERES.—Torchieres manufactured on or 

17 after January 1, 2005— 

18 ‘‘(1) shall consume not more than 190 watts of 

19 power; and 

20 ‘‘(2) shall not be capable of operating with 

21 lamps that total more than 190 watts. 

22 ‘‘(y) LOW VOLTAGE DRY-TYPE DISTRIBUTION

23 TRANSFORMERS.—The efficiency of low voltage dry-type 

24 distribution transformers manufactured on or after Janu25 ary 1, 2005, shall be the Class I Efficiency Levels for dis-
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1 tribution transformers specified in Table 4–2 of the ‘Guide 

2 for Determining Energy Efficiency for Distribution Trans3 formers’ published by the National Electrical Manufactur4 ers Association (NEMA TP–1–2002). 

5 ‘‘(z) TRAFFIC SIGNAL MODULES.—Traffic signal 

6 modules manufactured on or after January 1, 2006, shall 

7 meet the performance requirements used under the En8 ergy Star program of the Environmental Protection Agen9 cy for traffic signals, as in effect on the date of enactment 

10 of this subsection, and shall be installed with compatible, 

11 electrically connected signal control interface devices and 

12 conflict monitoring systems. 

13 ‘‘(aa) UNIT HEATERS.—Unit heaters manufactured 

14 on or after the date that is 3 years after the date of enact15 ment of this subsection shall be equipped with an intermit16 tent ignition device and shall have either power venting 

17 or an automatic flue damper. 

18 ‘‘(bb) MEDIUM BASE COMPACT FLUORESCENT

19 LAMPS.—Bare lamp and covered lamp (no reflector) me20 dium base compact fluorescent lamps manufactured on or 

21 after January 1, 2005, shall meet the following require22 ments prescribed by the August 9, 2001, version of the 

23 Energy Star Program Requirements for Compact Fluores24 cent Lamps, Energy Star Eligibility Criteria, Energy-Effi25 ciency Specification issued by the Environmental Protec-
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1 tion Agency and Department of Energy: minimum initial 

2 efficacy; lumen maintenance at 1000 hours; lumen mainte3 nance at 40 percent of rated life; rapid cycle stress test; 

4 and lamp life. The Secretary may, by rule, establish re5 quirements for color quality (CRI); power factor; oper6 ating frequency; and maximum allowable start time based 

7 on the requirements prescribed by the October 30, 2003, 

8 version of the Energy Star Program Requirements for 

9 Compact Fluorescent Lamps. The Secretary may, by rule, 

10 revise these requirements or establish other requirements 

11 considering energy savings, cost effectiveness, and con12 sumer satisfaction. 

13 ‘‘(cc) CEILING FANS AND CEILING FAN LIGHT

14 KITS.— 

15 ‘‘(1) CEILING FANS.—All ceiling fans manufac16 tured on or after January 1, 2007, shall have— 

17 ‘‘(A) lighting controls separate from fan 

18 speed controls; 

19 ‘‘(B) adjustable speed controls (either 

20 more than 1 speed or variable speeds); and 

21 ‘‘(C) the capability of reversible fan action, 

22 except (as determined by the Secretary by regu23 lation)— 

24 ‘‘(i) for fans sold for industrial appli25 cations; 
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1 ‘‘(ii) for fans sold for outdoor applica2 tions; and 

3 ‘‘(iii) where safety standards would be 

4 violated by the use of the reversible mode. 

5 ‘‘(2) CEILING FAN LIGHT KITS.—Ceiling fan 

6 light kits manufactured on or after January 1, 

7 2007, shall— 

8 ‘‘(A) meet the Energy Star Program Re9 quirements for Residential Light Fixtures 

10 (Version 3.1) issued by the Environmental Pro11 tection Agency and be packaged with lamps to 

12 fill all sockets; 

13 ‘‘(B) be packaged with screw-based com14 pact fluorescent lamps to fill all sockets, with 

15 such lamps meeting the Energy Star Program 

16 Requirements for Compact Fluorescent Lamps 

17 (Version 3.0) issued by the Department of En18 ergy; or 

19 ‘‘(C) use and be packaged with light 

20 sources, other than compact fluorescent lamps, 

21 that meet the minimum efficacy requirements 

22 (as measured in lumens per watt) of the Energy 

23 Star Program Requirements for Compact Fluo24 rescent Lamps (Version 3.0) issued by the De25 partment of Energy. 
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1 ‘‘(3) ENERGY EFFICIENCY STANDARDS FOR

2 CEILING FANS.— 

3 ‘‘(A) IN GENERAL.—Notwithstanding any 

4 provision of this Act, the Secretary may con5 sider, and prescribe, if the requirements of sub6 sections (o) and (p) are met, energy efficiency 

7 or energy use standards (based on cubic feet 

8 per minute per watt or watts) for electricity 

9 used by ceiling fans to circulate air in a room. 

10 ‘‘(B) EXEMPTIONS OR DIFFERENT STAND11 ARDS.—In prescribing the standards, the Sec12 retary shall consider— 

13 ‘‘(i) exempting or setting different 

14 standards for certain product classes for 

15 which the primary standards are not tech16 nically feasible or economically justified; 

17 and 

18 ‘‘(ii) establishing separate exempted 

19 product classes for highly decorative fans 

20 for which air movement performance is a 

21 secondary design feature. 

22 ‘‘(C) EFFECTIVE DATE.—Any air move23 ment standard prescribed under this subsection 

24 shall apply to products manufactured on or 
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•S 2311 IS 

1 after the date that is 3 years after publication 

2 of a final rule establishing the standard. 

3 ‘‘(dd) EFFECTIVE DATE.—Section 327 shall apply— 

4 ‘‘(1) to products for which standards are to be 

5 established under subsections (u) and (v) on the 

6 date on which a final rule is issued by the Depart7 ment of Energy, except that any State or local 

8 standards prescribed or enacted for any such prod9 uct prior to the date on which such final rule is 

10 issued shall not be preempted until the standard es11 tablished under subsection (u) or (v) for that prod12 uct takes effect; and 

13 ‘‘(2) to products for which standards are estab14 lished under subsections (w) through (bb) on the 

15 date of enactment of those subsections, except that 

16 any State or local standards prescribed or enacted 

17 prior to the date of enactment of those subsections 

18 shall not be preempted until the standards estab19 lished under subsections (w) through (bb) take ef20 fect.’’. 

21 (d) RESIDENTIAL FURNACE FANS.—Section 

22 325(f)(3) of the Energy Policy and Conservation Act (42 

23 U.S.C. 6295(f)(3)) is amended by adding the following 

24 new subparagraph at the end: 
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1 ‘‘(D) Notwithstanding any provision of this Act, the 

2 Secretary may consider, and prescribe, if the requirements 

3 of subsection (o) of this section are met, energy efficiency 

4 or energy use standards for electricity used for purposes 

5 of circulating air through duct work.’’. 

6 SEC. 202. ENERGY LABELING. 

7 (a) RULEMAKING ON EFFECTIVENESS OF CONSUMER

8 PRODUCT LABELING.—Section 324(a)(2) of the Energy 

9 Policy and Conservation Act (42 U.S.C. 6294(a)(2)) is 

10 amended by adding at the end the following: 

11 ‘‘(F) During the period beginning not later than 90 

12 days after the date of enactment of this subparagraph and 

13 ending not later than 2 years after the date of enactment 

14 of this subparagraph, the Commission shall initiate a rule15 making to consider— 

16 ‘‘(i) the effectiveness of the current consumer 

17 products labeling program in assisting consumers in 

18 making purchasing decisions and improving energy 

19 efficiency; and 

20 ‘‘(ii) changes to the labeling rules that would 

21 improve the effectiveness of consumer product la22 bels.’’. 

23 (b) RULEMAKING ON LABELING FOR ADDITIONAL

24 PRODUCTS.—Section 324(a) of the Energy Policy and 
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1 Conservation Act (42 U.S.C. 6294(a)) is amended by add2 ing at the end the following: 

3 ‘‘(5)(A) The Secretary or the Commission, as appro4 priate, may, for covered products referred to in sub5 sections (u) through (aa) of section 325, prescribe, by rule, 

6 pursuant to this section, labeling requirements for the 

7 products, after a test procedure has been established pur8 suant to section 323. 

9 ‘‘(B) In the case of products to which TP 1 standards 

10 under section 325(y) apply, labeling requirements shall be 

11 based on the ‘Standard for the Labeling of Distribution 

12 Transformer Efficiency’ prescribed by the National Elec13 trical Manufacturers Association (NEMA TP 3) as in ef14 fect on the date of enactment of this paragraph. 

15 ‘‘(6)(A) Not later than July 1, 2005, the Commission 

16 shall prescribe by rule, pursuant to this section, labeling 

17 requirements for the electricity used by ceiling fans to cir18 culate air in a room. 

19 ‘‘(B) Except as provided in subparagaph (C), the re20 quirements shall be based on the test procedure and label21 ing requirements contained in the Energy Star Program 

22 Requirements for Residential Ceiling Fans (Version 2.0) 

23 issued by the Environmental Protection Agency. 

24 ‘‘(C) The Commission shall not promulgate rules cov25 ering third party testing and other nonlabeling require-
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1 ments unless the Commission determines the requirements 

2 are necessary to achieve compliance. 

3 ‘‘(D) The rule shall apply to products manufactured 

4 after the latter of— 

5 ‘‘(i) January 1, 2007; or 

6 ‘‘(ii) the date that is 60 days after the date the 

7 final rule is promulgated.’’. 

8 TITLE III—ENERGY EFFICIENCY 

9 FEDERAL PROGRAMS 

10 SEC. 301. PROCUREMENT OF ENERGY EFFICIENT PROD11 UCTS. 

12 (a) REQUIREMENTS.—Part 3 of title V of the Na13 tional Energy Conservation Policy Act (42 U.S.C. 8251 

14 et seq.) is amended by adding at the end the following: 

15 ‘‘SEC. 552. FEDERAL PROCUREMENT OF ENERGY EFFI16 CIENT PRODUCTS. 

17 ‘‘(a) DEFINITIONS.—In this section: 

18 ‘‘(1) ENERGY STAR PRODUCT.—The term ‘En19 ergy Star product’ means a product that is rated for 

20 energy efficiency under an Energy Star program. 

21 ‘‘(2) ENERGY STAR PROGRAM.—The term ‘En22 ergy Star program’ means the program established 

23 by section 324A of the Energy Policy and Conserva24 tion Act. 
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1 ‘‘(3) EXECUTIVE AGENCY.—The term ‘executive 

2 agency’ has the meaning given the term in section 

3 4 of the Office of Federal Procurement Policy Act 

4 (41 U.S.C. 403). 

5 ‘‘(4) FEMP DESIGNATED PRODUCT.—The term 

6 ‘FEMP designated product’ means a product that is 

7 designated under the Federal Energy Management 

8 Program of the Department of Energy as being 

9 among the highest 25 percent of equivalent products 

10 for energy efficiency. 

11 ‘‘(b) PROCUREMENT OF ENERGY EFFICIENT PROD12 UCTS.— 

13 ‘‘(1) REQUIREMENT.—To meet the require14 ments of an executive agency for an energy con15 suming product, the head of the executive agency 

16 shall, except as provided in paragraph (2), procure— 

17 ‘‘(A) an Energy Star product; or 

18 ‘‘(B) a FEMP designated product. 

19 ‘‘(2) EXCEPTIONS.—The head of an executive 

20 agency is not required to procure an Energy Star 

21 product or FEMP designated product under para22 graph (1) if the head of the executive agency finds 

23 in writing that— 

24 ‘‘(A) an Energy Star product or FEMP 

25 designated product is not cost-effective over the 
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1 life of the product taking energy cost savings 

2 into account; or 

3 ‘‘(B) no Energy Star product or FEMP 

4 designated product is reasonably available that 

5 meets the functional requirements of the execu6 tive agency. 

7 ‘‘(3) PROCUREMENT PLANNING.—The head of 

8 an executive agency shall incorporate into the speci9 fications for all procurements involving energy con10 suming products and systems, including guide speci11 fications, project specifications, and construction, 

12 renovation, and services contracts that include provi13 sion of energy consuming products and systems, and 

14 into the factors for the evaluation of offers received 

15 for the procurement, criteria for energy efficiency 

16 that are consistent with the criteria used for rating 

17 Energy Star products and for rating FEMP des18 ignated products. 

19 ‘‘(c) LISTING OF ENERGY EFFICIENT PRODUCTS IN

20 FEDERAL CATALOGS.—Energy Star products and FEMP 

21 designated products shall be clearly identified and promi22 nently displayed in any inventory or listing of products 

23 by the General Services Administration or the Defense Lo24 gistics Agency. The General Services Administration or 

25 the Defense Logistics Agency shall supply only Energy 
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1 Star products or FEMP designated products for all prod2 uct categories covered by the Energy Star program or the 

3 Federal Energy Management Program, except in cases 

4 where the agency ordering a product specifies in writing 

5 that no Energy Star product or FEMP designated product 

6 is available to meet the buyer’s functional requirements, 

7 or that no Energy Star product or FEMP designated 

8 product is cost-effective for the intended application over 

9 the life of the product, taking energy cost savings into ac10 count. 

11 ‘‘(d) SPECIFIC PRODUCTS.—(1) In the case of elec12 tric motors of 1 to 500 horsepower, agencies shall select 

13 only premium efficient motors that meet a standard des14 ignated by the Secretary. The Secretary shall designate 

15 such a standard not later than 120 days after the date 

16 of the enactment of this section, after considering the rec17 ommendations of associated electric motor manufacturers 

18 and energy efficiency groups. 

19 ‘‘(2) All Federal agencies are encouraged to take ac20 tions to maximize the efficiency of air conditioning and 

21 refrigeration equipment, including appropriate cleaning 

22 and maintenance, including the use of any system treat23 ment or additive that will reduce the electricity consumed 

24 by air conditioning and refrigeration equipment. Any such 

25 treatment or additive must be— 
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1 ‘‘(A) determined by the Secretary to be effective 

2 in increasing the efficiency of air conditioning and 

3 refrigeration equipment without having an adverse 

4 impact on air conditioning performance (including 

5 cooling capacity) or equipment useful life; 

6 ‘‘(B) determined by the Administrator of the 

7 Environmental Protection Agency to be environ8 mentally safe; and 

9 ‘‘(C) shown to increase seasonal energy effi10 ciency ratio (SEER) or energy efficiency ratio 

11 (EER) when tested by the National Institute of 

12 Standards and Technology according to Department 

13 of Energy test procedures without causing any ad14 verse impact on the system, system components, the 

15 refrigerant or lubricant, or other materials in the 

16 system. 

17 Results of testing described in subparagraph (C) shall be 

18 published in the Federal Register for public review and 

19 comment. For purposes of this section, a hardware device 

20 or primary refrigerant shall not be considered an additive. 

21 ‘‘(e) REGULATIONS.—Not later than 180 days after 

22 the date of the enactment of this section, the Secretary 

23 shall issue guidelines to carry out this section.’’. 

24 (b) CONFORMING AMENDMENT.—The table of con25 tents of the National Energy Conservation Policy Act is 
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1 amended by inserting after the item relating to section 

2 551 the following new item: 

‘‘Sec. 552. Federal procurement of energy efficient products.’’. 

3 SEC. 302. ENERGY SAVINGS PERFORMANCE CONTRACTS. 

4 (a) PERMANENT EXTENSION.—Effective September 

5 30, 2003, section 801(c) of the National Energy Conserva6 tion Policy Act (42 U.S.C. 8287(c)) is repealed. 

7 (b) PAYMENT OF COSTS.—Section 802 of the Na8 tional Energy Conservation Policy Act (42 U.S.C. 8287a) 

9 is amended by inserting ‘‘, water, or wastewater treat10 ment’’ after ‘‘payment of energy’’. 

11 (c) ENERGY SAVINGS.—Section 804(2) of the Na12 tional Energy Conservation Policy Act (42 U.S.C. 

13 8287c(2)) is amended to read as follows: 

14 ‘‘(2) The term ‘energy savings’ means a reduc15 tion in the cost of energy, water, or wastewater 

16 treatment, from a base cost established through a 

17 methodology set forth in the contract, used in an ex18 isting federally owned building or buildings or other 

19 federally owned facilities as a result of— 

20 ‘‘(A) the lease or purchase of operating 

21 equipment, improvements, altered operation and 

22 maintenance, or technical services; 

23 ‘‘(B) the increased efficient use of existing 

24 energy sources by cogeneration or heat recov25 ery, excluding any cogeneration process for 
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1 other than a federally owned building or build2 ings or other federally owned facilities; or 

3 ‘‘(C) the increased efficient use of existing 

4 water sources in either interior or exterior ap5 plications.’’. 

6 (d) ENERGY SAVINGS CONTRACT.—Section 804(3) of 

7 the National Energy Conservation Policy Act (42 U.S.C. 

8 8287c(3)) is amended to read as follows: 

9 ‘‘(3) The terms ‘energy savings contract’ and 

10 ‘energy savings performance contract’ mean a con11 tract that provides for the performance of services 

12 for the design, acquisition, installation, testing, and, 

13 where appropriate, operation, maintenance, and re14 pair, of an identified energy or water conservation 

15 measure or series of measures at 1 or more loca16 tions. Such contracts shall, with respect to an agen17 cy facility that is a public building (as such term is 

18 defined in section 3301 of title 40, United States 

19 Code), be in compliance with the prospectus require20 ments and procedures of section 3307 of title 40, 

21 United States Code.’’. 

22 (e) ENERGY OR WATER CONSERVATION MEASURE.— 

23 Section 804(4) of the National Energy Conservation Pol24 icy Act (42 U.S.C. 8287c(4)) is amended to read as fol25 lows: 
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1 ‘‘(4) The term ‘energy or water conservation 

2 measure’ means— 

3 ‘‘(A) an energy conservation measure, as 

4 defined in section 551; or 

5 ‘‘(B) a water conservation measure that 

6 improves the efficiency of water use, is life-cycle 

7 cost-effective, and involves water conservation, 

8 water recycling or reuse, more efficient treat9 ment of wastewater or stormwater, improve10 ments in operation or maintenance efficiencies, 

11 retrofit activities, or other related activities, not 

12 at a Federal hydroelectric facility.’’. 

13 (f) REVIEW.—Not later than 180 days after the date 

14 of the enactment of this Act, the Secretary of Energy shall 

15 complete a review of the Energy Savings Performance 

16 Contract program to identify statutory, regulatory, and 

17 administrative obstacles that prevent Federal agencies 

18 from fully utilizing the program. In addition, this review 

19 shall identify all areas for increasing program flexibility 

20 and effectiveness, including audit and measurement 

21 verification requirements, accounting for energy use in de22 termining savings, contracting requirements, including the 

23 identification of additional qualified contractors, and en24 ergy efficiency services covered. The Secretary shall report 

25 these findings to Congress and shall implement identified 
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•S 2311 IS 

1 administrative and regulatory changes to increase pro2 gram flexibility and effectiveness to the extent that such 

3 changes are consistent with statutory authority. 

4 (g) EXTENSION OF AUTHORITY.—Any energy sav5 ings performance contract entered into under section 801 

6 of the National Energy Conservation Policy Act (42 

7 U.S.C. 8287) after October 1, 2003, and before the date 

8 of enactment of this Act, shall be deemed to have been 

9 entered into pursuant to such section 801 as amended by 

10 subsection (a) of this section. 

11 SEC. 303. FEDERAL BUILDING PERFORMANCE STANDARDS. 

12 Section 305(a) of the Energy Conservation and Pro13 duction Act (42 U.S.C. 6834(a)) is amended— 

14 (1) in paragraph (2)(A), by striking ‘‘CABO 

15 Model Energy Code, 1992’’ and inserting ‘‘the 2003 

16 International Energy Conservation Code’’; and 

17 (2) by adding at the end the following: 

18 ‘‘(3) REVISED FEDERAL BUILDING ENERGY EFFI19 CIENCY PERFORMANCE STANDARDS.— 

20 ‘‘(A) IN GENERAL.—Not later than 1 year after 

21 the date of enactment of this paragraph, the Sec22 retary of Energy shall establish, by rule, revised 

23 Federal building energy efficiency performance 

24 standards that require that— 
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1 ‘‘(i) if life-cycle cost-effective, for new Fed2 eral buildings— 

3 ‘‘(I) such buildings be designed so as 

4 to achieve energy consumption levels at 

5 least 30 percent below those of the version 

6 current as of the date of enactment of this 

7 paragraph of the ASHRAE Standard or 

8 the International Energy Conservation 

9 Code, as appropriate; and 

10 ‘‘(II) sustainable design principles are 

11 applied to the siting, design, and construc12 tion of all new and replacement buildings; 

13 and 

14 ‘‘(ii) where water is used to achieve energy 

15 efficiency, water conservation technologies shall 

16 be applied to the extent they are life-cycle cost 

17 effective. 

18 ‘‘(B) ADDITIONAL REVISIONS.—Not later than 

19 1 year after the date of approval of each subsequent 

20 revision of the ASHRAE Standard or the Inter21 national Energy Conservation Code, as appropriate, 

22 the Secretary of Energy shall determine, based on 

23 the cost-effectiveness of the requirements under the 

24 amendments, whether the revised standards estab-
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•S 2311 IS 

1 lished under this paragraph should be updated to re2 flect the amendments. 

3 ‘‘(C) STATEMENT ON COMPLIANCE OF NEW

4 BUILDINGS.—In the budget request of the Federal 

5 agency for each fiscal year and each report sub6 mitted by the Federal agency under section 548(a) 

7 of the National Energy Conservation Policy Act (42 

8 U.S.C. 8258(a)), the head of each Federal agency 

9 shall include— 

10 ‘‘(i) a list of all new Federal buildings 

11 owned, operated, or controlled by the Federal 

12 agency; and 

13 ‘‘(ii) a statement concerning whether the 

14 Federal buildings meet or exceed the revised 

15 standards established under this paragraph.’’. 

16 TITLE IV—PUBLIC HOUSING 

17 SEC. 401. PUBLIC HOUSING CAPITAL FUND. 

18 Section 9 of the United States Housing Act of 1937 

19 (42 U.S.C. 1437g) is amended— 

20 (1) in subsection (d)(1)— 

21 (A) in subparagraph (I), by striking ‘‘and’’ 

22 at the end; 

23 (B) in subparagraph (J), by striking the 

24 period at the end and inserting a semicolon; 

25 and 
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1 (C) by adding at the end the following new 

2 subparagraphs: 

3 ‘‘(K) improvement of energy and water-use 

4 efficiency by installing fixtures and fittings that 

5 conform to the American Society of Mechanical 

6 Engineers/American National Standards Insti7 tute standards A112.19.2–1998 and 

8 A112.18.1–2000, or any revision thereto, appli9 cable at the time of installation, and by increas10 ing energy efficiency and water conservation by 

11 such other means as the Secretary determines 

12 are appropriate; and 

13 ‘‘(L) integrated utility management and 

14 capital planning to maximize energy conserva15 tion and efficiency measures.’’; and 

16 (2) in subsection (e)(2)(C)— 

17 (A) by striking ‘‘The’’ and inserting the 

18 following: 

19 ‘‘(i) IN GENERAL.—The’’; and 

20 (B) by adding at the end the following: 

21 ‘‘(ii) THIRD PARTY CONTRACTS.— 

22 Contracts described in clause (i) may in23 clude contracts for equipment conversions 

24 to less costly utility sources, projects with 

25 resident-paid utilities, and adjustments to 
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1 frozen base year consumption, including 

2 systems repaired to meet applicable build3 ing and safety codes and adjustments for 

4 occupancy rates increased by rehabilita5 tion. 

6 ‘‘(iii) TERM OF CONTRACT.—The total 

7 term of a contract described in clause (i) 

8 shall not exceed 20 years to allow longer 

9 payback periods for retrofits, including 

10 windows, heating system replacements, 

11 wall insulation, site-based generation, ad12 vanced energy savings technologies, includ13 ing renewable energy generation, and other 

14 such retrofits.’’. 

15 SEC. 402. GRANTS FOR ENERGY-CONSERVING IMPROVE16 MENTS FOR ASSISTED HOUSING. 

17 Section 251(b)(1) of the National Energy Conserva18 tion Policy Act (42 U.S.C. 8231(1)) is amended— 

19 (1) by striking ‘‘financed with loans’’ and in20 serting ‘‘assisted’’; 

21 (2) by inserting after ‘‘1959,’’ the following: 

22 ‘‘which are eligible multifamily housing projects (as 

23 such term is defined in section 512 of the Multi24 family Assisted Housing Reform and Affordability 

25 Act of 1997 (42 U.S.C. 1437f note)) and are subject 
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1 to mortgage restructuring and rental assistance suffi2 ciency plans under such Act,’’; and 

3 (3) by inserting after the period at the end of 

4 the first sentence the following new sentence: ‘‘Such 

5 improvements may also include the installation of 

6 energy and water conserving fixtures and fittings 

7 that conform to the American Society of Mechanical 

8 Engineers/American National Standards Institute 

9 standards A112.19.2–1998 and A112.18.1–2000, or 

10 any revision thereto, applicable at the time of instal11 lation.’’. 

12 SEC. 403. ENERGY-EFFICIENT APPLIANCES. 

13 In purchasing appliances, a public housing agency 

14 shall purchase energy-efficient appliances that are Energy 

15 Star products or FEMP-designated products, as such 

16 terms are defined in section 553 of the National Energy 

17 Conservation Policy Act (as amended by this title), unless 

18 the purchase of energy-efficient appliances is not cost-ef19 fective to the agency. 

20 SEC. 404. ENERGY EFFICIENCY STANDARDS. 

21 Section 109 of the Cranston-Gonzalez National Af22 fordable Housing Act (42 U.S.C. 12709) is amended— 

23 (1) in subsection (a)— 

24 (A) in paragraph (1)— 
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1 (i) by striking ‘‘1 year after the date 

2 of the enactment of the Energy Policy Act 

3 of 1992’’ and inserting ‘‘September 30, 

4 2004’’; 

5 (ii) in subparagraph (A), by striking 

6 ‘‘and’’ at the end; 

7 (iii) in subparagraph (B), by striking 

8 the period at the end and inserting ‘‘; 

9 and’’; and 

10 (iv) by adding at the end the fol11 lowing: 

12 ‘‘(C) rehabilitation and new construction of 

13 public and assisted housing funded by HOPE 

14 VI revitalization grants under section 24 of the 

15 United States Housing Act of 1937 (42 U.S.C. 

16 1437v), where such standards are determined 

17 to be cost effective by the Secretary of Housing 

18 and Urban Development.’’; and 

19 (B) in paragraph (2), by striking ‘‘Council 

20 of American’’ and all that follows through 

21 ‘‘90.1–1989’)’’ and inserting ‘‘2003 Inter22 national Energy Conservation Code’’; 

23 (2) in subsection (b)— 

24 (A) by striking ‘‘within 1 year after the 

25 date of the enactment of the Energy Policy Act 
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1 of 1992’’ and inserting ‘‘by September 30, 

2 2004’’; and 

3 (B) by striking ‘‘CABO’’ and all that fol4 lows through ‘‘1989’’ and inserting ‘‘the 2003 

5 International Energy Conservation Code’’; and 

6 (3) in subsection (c)— 

7 (A) in the heading, by striking ‘‘MODEL

8 ENERGY CODE’’ and inserting ‘‘THE INTER9 NATIONAL ENERGY CONSERVATION CODE’’; 

10 and 

11 (B) by striking ‘‘CABO’’ and all that fol12 lows through ‘‘1989’’ and inserting ‘‘the 2003 

13 International Energy Conservation Code’’. 

14 TITLE V—RELIABILITY 

15 STANDARDS 

16 SEC. 501. ELECTRIC RELIABILITY STANDARDS. 

17 (a) IN GENERAL.—Part II of the Federal Power Act 

18 (16 U.S.C 824 et seq.) is amended by adding at the end 

19 the following: 

20 ‘‘SEC. 215. ELECTRIC RELIABILITY. 

21 ‘‘(a) DEFINITIONS.—For purposes of this section: 

22 ‘‘(1) The term ‘bulk-power system’ means— 

23 ‘‘(A) facilities and control systems nec24 essary for operating an interconnected electric 
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1 energy transmission network (or any portion 

2 thereof); and 

3 ‘‘(B) electric energy from generation facili4 ties needed to maintain transmission system re5 liability. 

6 The term does not include facilities used in the local 

7 distribution of electric energy. 

8 ‘‘(2) The terms ‘Electric Reliability Organiza9 tion’ and ‘ERO’ mean the organization certified by 

10 the Commission under subsection (c) the purpose of 

11 which is to establish and enforce reliability stand12 ards for the bulk-power system, subject to Commis13 sion review. 

14 ‘‘(3) The term ‘reliability standard’ means a re15 quirement, approved by the Commission under this 

16 section, to provide for reliable operation of the bulk17 power system. The term includes requirements for 

18 the operation of existing bulk-power system facilities 

19 and the design of planned additions or modifications 

20 to such facilities to the extent necessary to provide 

21 for reliable operation of the bulk-power system, but 

22 the term does not include any requirement to en23 large such facilities or to construct new transmission 

24 capacity or generation capacity. 
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1 ‘‘(4) The term ‘reliable operation’ means oper2 ating the elements of the bulk-power system within 

3 equipment and electric system thermal, voltage, and 

4 stability limits so that instability, uncontrolled sepa5 ration, or cascading failures of such system will not 

6 occur as a result of a sudden disturbance or unan7 ticipated failure of system elements. 

8 ‘‘(5) The term ‘Interconnection’ means a geo9 graphic area in which the operation of bulk-power 

10 system components is synchronized such that the 

11 failure of 1 or more of such components may ad12 versely affect the ability of the operators of other 

13 components within the system to maintain reliable 

14 operation of the facilities within their control. 

15 ‘‘(6) The term ‘transmission organization’ 

16 means a Regional Transmission Organization, Inde17 pendent System Operator, independent transmission 

18 provider, or other transmission organization finally 

19 approved by the Commission for the operation of 

20 transmission facilities. 

21 ‘‘(7) The term ‘regional entity’ means an entity 

22 having enforcement authority pursuant to subsection 

23 (e)(4). 

24 ‘‘(b) JURISDICTION AND APPLICABILITY.—(1) The 

25 Commission shall have jurisdiction, within the United 
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1 States, over the ERO certified by the Commission under 

2 subsection (c), any regional entities, and all users, owners 

3 and operators of the bulk-power system, including but not 

4 limited to the entities described in section 201(f), for pur5 poses of approving reliability standards established under 

6 this section and enforcing compliance with this section. All 

7 users, owners and operators of the bulk-power system 

8 shall comply with reliability standards that take effect 

9 under this section. 

10 ‘‘(2) The Commission shall issue a final rule to imple11 ment the requirements of this section not later than 180 

12 days after the date of enactment of this section. 

13 ‘‘(c) CERTIFICATION.—Following the issuance of a 

14 Commission rule under subsection (b)(2), any person may 

15 submit an application to the Commission for certification 

16 as the Electric Reliability Organization. The Commission 

17 may certify 1 such ERO if the Commission determines 

18 that such ERO— 

19 ‘‘(1) has the ability to develop and enforce, sub20 ject to subsection (e)(2), reliability standards that 

21 provide for an adequate level of reliability of the 

22 bulk-power system; and 

23 ‘‘(2) has established rules that— 

24 ‘‘(A) assure its independence of the users 

25 and owners and operators of the bulk-power 
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1 system, while assuring fair stakeholder rep2 resentation in the selection of its directors and 

3 balanced decisionmaking in any ERO com4 mittee or subordinate organizational structure; 

5 ‘‘(B) allocate equitably reasonable dues, 

6 fees, and other charges among end users for all 

7 activities under this section; 

8 ‘‘(C) provide fair and impartial procedures 

9 for enforcement of reliability standards through 

10 the imposition of penalties in accordance with 

11 subsection (e) (including limitations on activi12 ties, functions, or operations, or other appro13 priate sanctions); 

14 ‘‘(D) provide for reasonable notice and op15 portunity for public comment, due process, 

16 openness, and balance of interests in developing 

17 reliability standards and otherwise exercising its 

18 duties; and 

19 ‘‘(E) provide for taking, after certification, 

20 appropriate steps to gain recognition in Canada 

21 and Mexico. 

22 ‘‘(d) RELIABILITY STANDARDS.—(1) The Electric 

23 Reliability Organization shall file each reliability standard 

24 or modification to a reliability standard that it proposes 
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1 to be made effective under this section with the Commis2 sion. 

3 ‘‘(2) The Commission may approve, by rule or order, 

4 a proposed reliability standard or modification to a reli5 ability standard if it determines that the standard is just, 

6 reasonable, not unduly discriminatory or preferential, and 

7 in the public interest. The Commission shall give due 

8 weight to the technical expertise of the Electric Reliability 

9 Organization with respect to the content of a proposed 

10 standard or modification to a reliability standard and to 

11 the technical expertise of a regional entity organized on 

12 an Interconnection-wide basis with respect to a reliability 

13 standard to be applicable within that Interconnection, but 

14 shall not defer with respect to the effect of a standard 

15 on competition. A proposed standard or modification shall 

16 take effect upon approval by the Commission. 

17 ‘‘(3) The Electric Reliability Organization shall 

18 rebuttably presume that a proposal from a regional entity 

19 organized on an Interconnection-wide basis for a reliability 

20 standard or modification to a reliability standard to be ap21 plicable on an Interconnection-wide basis is just, reason22 able, and not unduly discriminatory or preferential, and 

23 in the public interest. 

24 ‘‘(4) The Commission shall remand to the Electric 

25 Reliability Organization for further consideration a pro-
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1 posed reliability standard or a modification to a reliability 

2 standard that the Commission disapproves in whole or in 

3 part. 

4 ‘‘(5) The Commission, upon its own motion or upon 

5 complaint, may order the Electric Reliability Organization 

6 to submit to the Commission a proposed reliability stand7 ard or a modification to a reliability standard that ad8 dresses a specific matter if the Commission considers such 

9 a new or modified reliability standard appropriate to carry 

10 out this section. 

11 ‘‘(6) The final rule adopted under subsection (b)(2) 

12 shall include fair processes for the identification and time13 ly resolution of any conflict between a reliability standard 

14 and any function, rule, order, tariff, rate schedule, or 

15 agreement accepted, approved, or ordered by the Commis16 sion applicable to a transmission organization. Such trans17 mission organization shall continue to comply with such 

18 function, rule, order, tariff, rate schedule or agreement ac19 cepted approved, or ordered by the Commission until— 

20 ‘‘(A) the Commission finds a conflict exists be21 tween a reliability standard and any such provision; 

22 ‘‘(B) the Commission orders a change to such 

23 provision pursuant to section 206 of this part; and 

24 ‘‘(C) the ordered change becomes effective 

25 under this part. 
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1 If the Commission determines that a reliability standard 

2 needs to be changed as a result of such a conflict, it shall 

3 order the ERO to develop and file with the Commission 

4 a modified reliability standard under paragraph (4) or (5) 

5 of this subsection. 

6 ‘‘(e) ENFORCEMENT.—(1) The ERO may impose, 

7 subject to paragraph (2), a penalty on a user or owner 

8 or operator of the bulk-power system for a violation of a 

9 reliability standard approved by the Commission under 

10 subsection (d) if the ERO, after notice and an opportunity 

11 for a hearing— 

12 ‘‘(A) finds that the user or owner or operator 

13 has violated a reliability standard approved by the 

14 Commission under subsection (d); and 

15 ‘‘(B) files notice and the record of the pro16 ceeding with the Commission. 

17 ‘‘(2) A penalty imposed under paragraph (1) may 

18 take effect not earlier than the 31st day after the ERO 

19 files with the Commission notice of the penalty and the 

20 record of proceedings. Such penalty shall be subject to re21 view by the Commission, on its own motion or upon appli22 cation by the user, owner or operator that is the subject 

23 of the penalty filed within 30 days after the date such 

24 notice is filed with the Commission. Application to the 

25 Commission for review, or the initiation of review by the 
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1 Commission on its own motion, shall not operate as a stay 

2 of such penalty unless the Commission otherwise orders 

3 upon its own motion or upon application by the user, 

4 owner or operator that is the subject of such penalty. In 

5 any proceeding to review a penalty imposed under para6 graph (1), the Commission, after notice and opportunity 

7 for hearing (which hearing may consist solely of the record 

8 before the ERO and opportunity for the presentation of 

9 supporting reasons to affirm, modify, or set aside the pen10 alty), shall by order affirm, set aside, reinstate, or modify 

11 the penalty, and, if appropriate, remand to the ERO for 

12 further proceedings. The Commission shall implement ex13 pedited procedures for such hearings. 

14 ‘‘(3) On its own motion or upon complaint, the Com15 mission may order compliance with a reliability standard 

16 and may impose a penalty against a user or owner or oper17 ator of the bulk-power system if the Commission finds, 

18 after notice and opportunity for a hearing, that the user 

19 or owner or operator of the bulk-power system has en20 gaged or is about to engage in any acts or practices that 

21 constitute or will constitute a violation of a reliability 

22 standard. 

23 ‘‘(4) The Commission shall issue regulations author24 izing the ERO to enter into an agreement to delegate au25 thority to a regional entity for the purpose of proposing 
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1 reliability standards to the ERO and enforcing reliability 

2 standards under paragraph (1) if— 

3 ‘‘(A) the regional entity is governed by— 

4 ‘‘(i) an independent board; 

5 ‘‘(ii) a balanced stakeholder board; or 

6 ‘‘(iii) a combination independent and bal7 anced stakeholder board; 

8 ‘‘(B) the regional entity otherwise satisfies the 

9 provisions of subsection (c)(1) and (2); and 

10 ‘‘(C) the agreement promotes effective and effi11 cient administration of bulk-power system reliability. 

12 The Commission may modify such delegation. The ERO 

13 and the Commission shall rebuttably presume that a pro14 posal for delegation to a regional entity organized on an 

15 Interconnection-wide basis promotes effective and efficient 

16 administration of bulk-power system reliability and should 

17 be approved. Such regulation may provide that the Com18 mission may assign the ERO’s authority to enforce reli19 ability standards under paragraph (1) directly to a re20 gional entity consistent with the requirements of this para21 graph. 

22 ‘‘(5) The Commission may take such action as is nec23 essary or appropriate against the ERO or a regional entity 

24 to ensure compliance with a reliability standard or any 

25 Commission order affecting the ERO or a regional entity. 
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1 ‘‘(6) Any penalty imposed under this section shall 

2 bear a reasonable relation to the seriousness of the viola3 tion and shall take into consideration the efforts of such 

4 user, owner, or operator to remedy the violation in a time5 ly manner. 

6 ‘‘(f) CHANGES IN ELECTRIC RELIABILITY ORGANIZA7 TION RULES.—The Electric Reliability Organization shall 

8 file with the Commission for approval any proposed rule 

9 or proposed rule change, accompanied by an explanation 

10 of its basis and purpose. The Commission, upon its own 

11 motion or complaint, may propose a change to the rules 

12 of the ERO. A proposed rule or proposed rule change shall 

13 take effect upon a finding by the Commission, after notice 

14 and opportunity for comment, that the change is just, rea15 sonable, not unduly discriminatory or preferential, is in 

16 the public interest, and satisfies the requirements of sub17 section (c). 

18 ‘‘(g) RELIABILITY REPORTS.—The ERO shall con19 duct periodic assessments of the reliability and adequacy 

20 of the bulk-power system in North America. 

21 ‘‘(h) COORDINATION WITH CANADA AND MEXICO.— 

22 The President is urged to negotiate international agree23 ments with the governments of Canada and Mexico to pro24 vide for effective compliance with reliability standards and 
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1 the effectiveness of the ERO in the United States and 

2 Canada or Mexico. 

3 ‘‘(i) SAVINGS PROVISIONS.—(1) The ERO shall have 

4 authority to develop and enforce compliance with reli5 ability standards for only the bulk-power system. 

6 ‘‘(2) This section does not authorize the ERO or the 

7 Commission to order the construction of additional gen8 eration or transmission capacity or to set and enforce com9 pliance with standards for adequacy or safety of electric 

10 facilities or services. 

11 ‘‘(3) Nothing in this section shall be construed to pre12 empt any authority of any State to take action to ensure 

13 the safety, adequacy, and reliability of electric service 

14 within that State, as long as such action is not incon15 sistent with any reliability standard. 

16 ‘‘(4) Within 90 days of the application of the Electric 

17 Reliability Organization or other affected party, and after 

18 notice and opportunity for comment, the Commission shall 

19 issue a final order determining whether a State action is 

20 inconsistent with a reliability standard, taking into consid21 eration any recommendation of the ERO. 

22 ‘‘(5) The Commission, after consultation with the 

23 ERO and the State taking action, may stay the effective24 ness of any State action, pending the Commission’s 

25 issuance of a final order. 
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1 ‘‘(j) REGIONAL ADVISORY BODIES.—The Commis2 sion shall establish a regional advisory body on the petition 

of at least 2 3 ⁄3 of the States within a region that have more 

than 1 4 ⁄2 of their electric load served within the region. A 

5 regional advisory body shall be composed of 1 member 

6 from each participating State in the region, appointed by 

7 the Governor of each State, and may include representa8 tives of agencies, States, and provinces outside the United 

9 States. A regional advisory body may provide advice to the 

10 Electric Reliability Organization, a regional entity, or the 

11 Commission regarding the governance of an existing or 

12 proposed regional entity within the same region, whether 

13 a standard proposed to apply within the region is just, 

14 reasonable, not unduly discriminatory or preferential, and 

15 in the public interest, whether fees proposed to be assessed 

16 within the region are just, reasonable, not unduly discrimi17 natory or preferential, and in the public interest and any 

18 other responsibilities requested by the Commission. The 

19 Commission may give deference to the advice of any such 

20 regional advisory body if that body is organized on an 

21 Interconnection-wide basis. 

22 ‘‘(k) ALASKA AND HAWAII.—The provisions of this 

23 section do not apply to Alaska or Hawaii.’’. 

24 (b) STATUS OF ERO.—The Electric Reliability Orga25 nization certified by the Federal Energy Regulatory Com-
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1 mission under section 215(c) of the Federal Power Act 

2 and any regional entity delegated enforcement authority 

3 pursuant to section 215(e)(4) of that Act are not depart4 ments, agencies, or instrumentalities of the United States 

5 Government. 

Æ