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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 2311 Introduced in Senate (IS)]

  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.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Efficient Energy 
Through Certified Technologies and Electricity Reliability (EFFECTER) 
Act of 2004''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
                        TITLE I--TAX INCENTIVES

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.

                        TITLE I--TAX INCENTIVES

SEC. 101. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to itemized deductions for 
individuals and corporations) is amended by inserting after section 
179A the following new section:

``SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

    ``(a) In General.--There shall be allowed as a deduction an amount 
equal to the cost of energy efficient commercial building property 
placed in service during the taxable year.
    ``(b) Maximum Amount of Deduction.--The deduction under subsection 
(a) with respect to any building for the taxable year and all prior 
taxable years shall not exceed an amount equal to the product of--
            ``(1) $2.25, and
            ``(2) the square footage of the building.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Energy efficient commercial building property.--The 
        term `energy efficient commercial building property' means 
        property--
                    ``(A) which is installed on or in any building 
                located in the United States,
                    ``(B) which is installed as part of--
                            ``(i) the lighting systems,
                            ``(ii) the heating, cooling, ventilation, 
                        and hot water systems, or
                            ``(iii) the building envelope, and
                    ``(C) which is certified in accordance with 
                subsection (d)(4) as being installed as part of a plan 
                designed to reduce the total annual energy and power 
                costs with respect to the lighting systems, heating, 
                cooling, ventilation, and hot water systems of the 
                building by 50 percent or more in comparison to a 
                reference building which meets the minimum requirements 
                of Standard 90.1-2001 using methods of calculation 
                under subsection (d)(2).
        A building described in subparagraph (A) may include any 
        residential rental property, including any low-rise multifamily 
        structure or single family housing property which is not within 
        the scope of Standard 90.1-2001.
            ``(2) Standard 90.1-2001.--The term `Standard 90.1-2001' 
        means Standard 90.1-2001 of the American Society of Heating, 
        Refrigerating, and Air Conditioning Engineers and the 
        Illuminating Engineering Society of North America (as in effect 
        on April 2, 2003).
    ``(d) Special Rules.--
            ``(1) Partial allowance.--
                    ``(A) In general.--Except as provided in subsection 
                (f), if--
                            ``(i) the requirement of subsection 
                        (c)(1)(C) is not met, but
                            ``(ii) there is a certification in 
                        accordance with subsection (d)(4) that any 
                        system referred to in subsection (c)(1)(B) 
                        satisfies the energy-savings targets 
                        established by the Secretary under subparagraph 
                        (B) with respect to such system,
                then the requirement of subsection (c)(1)(C) shall be 
                treated as met with respect to such system, and the 
                deduction under subsection (a) shall be allowed with 
                respect to energy efficient commercial building 
                property installed as part of such system and as part 
                of a plan to meet such targets, except that subsection 
                (b) shall be applied to such property by substituting 
                `$.75' for `$2.25'.
                    ``(B) Regulations.--The Secretary, after 
                consultation with the Secretary of Energy, shall 
                establish a target for each system described in 
                subsection (c)(1)(B) which, if such targets were met 
                for all such systems, the building would meet the 
                requirements of subsection (c)(1)(C).
            ``(2) Methods of calculation.--The Secretary, after 
        consultation with the Secretary of Energy, shall promulgate 
        regulations which describe in detail methods for calculating 
        and verifying energy and power consumption and cost, based on 
        the provisions of the 2005 California Nonresidential 
        Alternative Calculation Method Approval Manual or, in the case 
        of residential property, the 2005 California Residential 
        Alternative Calculation Method Approval Manual. These 
regulations shall meet the following requirements:
                    ``(A) In calculating tradeoffs and energy 
                performance, the regulations shall prescribe the costs 
                per unit of energy and power, such as kilowatt hour, 
                kilowatt, gallon of fuel oil, and cubic foot or Btu of 
                natural gas, which may be dependent on time of usage. 
                If a State has developed annual energy usage and cost 
                reduction procedures based on time of usage costs for 
                use in the performance standards of the State's 
                building energy code before the effective date of this 
                section, the State may use those annual energy usage 
                and cost reduction procedures in lieu of those adopted 
                by the Secretary.
                    ``(B) The calculation methods under this paragraph 
                need not comply fully with section 11 of Standard 90.1-
                2001.
                    ``(C) The calculation methods shall be fuel 
                neutral, such that the same energy efficiency features 
                shall qualify a building for the deduction under this 
                section regardless of whether the heating source is a 
                gas or oil furnace or an electric heat pump. The 
                reference building for a proposed design which employs 
                electric resistance heating shall be modeled as using a 
                heat pump.
                    ``(D) The calculation methods shall provide 
                appropriate calculated energy savings for design 
                methods and technologies not otherwise credited in 
                either Standard 90.1-2001 or in the 2005 California 
                Nonresidential Alternative Calculation Method Approval 
                Manual, including the following:
                            ``(i) Natural ventilation.
                            ``(ii) Evaporative cooling.
                            ``(iii) Automatic lighting controls such as 
                        occupancy sensors, photocells, and timeclocks.
                            ``(iv) Daylighting.
                            ``(v) Designs utilizing semi-conditioned 
                        spaces which maintain adequate comfort 
                        conditions without air conditioning or without 
                        heating.
                            ``(vi) Improved fan system efficiency, 
                        including reductions in static pressure.
                            ``(vii) Advanced unloading mechanisms for 
                        mechanical cooling, such as multiple or 
                        variable speed compressors.
                            ``(viii) The calculation methods may take 
                        into account the extent of commissioning in the 
                        building, and allow the taxpayer to take into 
                        account measured performance which exceeds 
                        typical performance.
                            ``(ix) On-site generation of electricity, 
                        including combined heat and power systems, fuel 
                        cells, and renewable energy generation such as 
                        solar energy.
                            ``(x) Wiring with lower energy losses than 
                        wiring satisfying Standard 90.1-2001 
                        requirements for building power distribution 
                        systems.
            ``(3) Computer software.--
                    ``(A) In general.--Any calculation under paragraph 
                (2) shall be prepared by qualified computer software.
                    ``(B) Qualified computer software.--For purposes of 
                this paragraph, the term `qualified computer software' 
                means software--
                            ``(i) for which the software designer has 
                        certified that the software meets all 
                        procedures and detailed methods for calculating 
                        energy and power consumption and costs as 
                        required by the Secretary,
                            ``(ii) which provides such forms as 
                        required to be filed by the Secretary in 
                        connection with energy efficiency of property 
                        and the deduction allowed under this section, 
                        and
                            ``(iii) which provides a notice form which 
                        documents the energy efficiency features of the 
                        building and its projected annual energy costs.
            ``(4) Allocation of deduction for public property.--In the 
        case of energy efficient commercial building property installed 
        on or in public property, the Secretary shall promulgate a 
        regulation to allow the allocation of the deduction to the 
        person primarily responsible for designing the property in lieu 
        of the public entity which is the owner of such property. Such 
        person shall be treated as the taxpayer for purposes of this 
        section.
            ``(5) Notice to owner.--Each certification required under 
        this section shall include an explanation to the building owner 
        regarding the energy efficiency features of the building and 
        its projected annual energy costs as provided in the notice 
        under paragraph (3)(B)(iii).
            ``(6) Certification.--
                    ``(A) In general.--The Secretary shall prescribe 
                the manner and method for the making of certifications 
                under this section.
                    ``(B) Procedures.--The Secretary shall include as 
                part of the certification process procedures for 
                inspection and testing by qualified individuals 
                described in subparagraph (C) to ensure compliance of 
                buildings with energy-savings plans and targets. Such 
                procedures shall be comparable, given the difference 
                between commercial and residential buildings, to the 
                requirements in the Mortgage Industry National 
                Accreditation Procedures for Home Energy Rating 
                Systems.
                    ``(C) Qualified individuals.--Individuals qualified 
                to determine compliance shall be only those individuals 
                who are recognized by an organization certified by the 
                Secretary for such purposes.
    ``(e) Basis Reduction.--For purposes of this subtitle, if a 
deduction is allowed under this section with respect to any energy 
efficient commercial building property, the basis of such property 
shall be reduced by the amount of the deduction so allowed.
    ``(f) Interim Rules for Lighting Systems.--Until such time as the 
Secretary issues final regulations under subsection (d)(1)(B) with 
respect to property which is part of a lighting system--
            ``(1) In general.--The lighting system target under 
        subsection (d)(1)(A)(ii) shall be a reduction in lighting power 
        density of 25 percent (50 percent in the case of a warehouse) 
        of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 
        (not including additional interior lighting power allowances) 
        of Standard 90.1-2001.
            ``(2) Reduction in deduction if reduction less than 40 
        percent.--
                    ``(A) In general.--If, with respect to the lighting 
                system of any building other than a warehouse, the 
                reduction in lighting power density of the lighting 
                system is not at least 40 percent, only the applicable 
                percentage of the amount of deduction otherwise 
                allowable under this section with respect to such 
                property shall be allowed.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage is the 
                number of percentage points (not greater than 100) 
                equal to the sum of--
                            ``(i) 50, and
                            ``(ii) the amount which bears the same 
                        ratio to 50 as the excess of the reduction of 
                        lighting power density of the lighting system 
                        over 25 percentage points bears to 15.
                    ``(C) Exceptions.--This subsection shall not apply 
                to any system--
                            ``(i) the controls and circuiting of which 
                        do not comply fully with the mandatory and 
                        prescriptive requirements of Standard 90.1-2001 
                        and which do not include provision for bilevel 
                        switching in all occupancies except hotel and 
                        motel guest rooms, store rooms, restrooms, and 
                        public lobbies, or
                            ``(ii) which does not meet the minimum 
                        requirements for calculated lighting levels as 
                        set forth in the Illuminating Engineering 
                        Society of North America Lighting Handbook, 
                        Performance and Application, Ninth Edition, 
                        2000.
    ``(g) Regulations.--The Secretary shall promulgate such regulations 
as necessary--
            ``(1) to take into account new technologies regarding 
        energy efficiency and renewable energy for purposes of 
        determining energy efficiency and savings under this section, 
        and
            ``(2) to provide for a recapture of the deduction allowed 
        under this section if the plan described in subsection 
        (c)(1)(C) or (d)(1)(A) is not fully implemented.
    ``(h) Termination.--This section shall not apply with respect to 
property placed in service after December 31, 2009.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) of the Internal Revenue Code of 1986 is 
        amended by striking ``and'' at the end of paragraph (27), by 
        striking the period at the end of paragraph (28) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(29) to the extent provided in section 179B(e).''.
            (2) Section 1245(a) of such Code is amended by inserting 
        ``179B,'' after ``179A,'' both places it appears in paragraphs 
        (2)(C) and (3)(C).
            (3) Section 1250(b)(3) of such Code is amended by inserting 
        before the period at the end of the first sentence ``or by 
        section 179B''.
            (4) Section 263(a)(1) of such Code is amended by striking 
        ``or'' at the end of subparagraph (G), by striking the period 
        at the end of subparagraph (H) and inserting ``, or'', and by 
        inserting after subparagraph (H) the following new 
        subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 179B.''.
            (5) Section 312(k)(3)(B) of such Code is amended by 
        striking ``or 179A'' each place it appears in the heading and 
        text and inserting ``, 179A, or 179B''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after section 179A the following new item:

                              ``Sec. 179B. Energy efficient commercial 
                                        buildings deduction.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act in taxable years ending after such date.

SEC. 102. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOMES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

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

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor with respect to a qualified new energy efficient 
home, the credit determined under this section for the taxable year 
with respect to such home is an amount equal to the aggregate adjusted 
bases of all energy efficient property installed in such home during 
construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a dwelling unit shall not 
                exceed--
                            ``(i) in the case of a dwelling unit 
                        described in clause (i) or (iii) of subsection 
                        (c)(3)(C), $1,000, and
                            ``(ii) in the case of a dwelling unit 
                        described in subsection (c)(3)(C)(ii), $2,000.
                    ``(B) Prior credit amounts on same dwelling unit 
                taken into account.--If a credit was allowed under 
subsection (a) with respect to a dwelling unit in 1 or more prior 
taxable years, the amount of the credit otherwise allowable for the 
taxable year with respect to such dwelling unit shall be reduced by the 
sum of the credits allowed under subsection (a) with respect to the 
dwelling unit for all prior taxable years.
            ``(2) Coordination with certain credits.--For purposes of 
        this section--
                    ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to 
                qualified rehabilitation expenditures (as defined in 
                section 47(c)(2)) or to the energy percentage of energy 
                property (as determined under section 48(a)), and
                    ``(B) expenditures taken into account under section 
                47 or 48(a) shall not be taken into account under this 
                section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible contractor.--The term `eligible contractor' 
        means--
                    ``(A) the person who constructed the qualified new 
                energy efficient home, or
                    ``(B) in the case of a qualified new energy 
                efficient home which is a manufactured home, the 
                manufactured home producer of such home.
        If more than 1 person is described in subparagraph (A) or (B) 
        with respect to any qualified new energy efficient home, such 
        term means the person designated as such by the owner of such 
        home.
            ``(2) Energy efficient property.--The term `energy 
        efficient property' means any energy efficient building 
        envelope component, and any energy efficient heating or cooling 
        equipment or system, which can, individually or in combination 
        with other components, result in a dwelling unit meeting the 
        requirements of this section.
            ``(3) Qualified new energy efficient home.--The term 
        `qualified new energy efficient home' means a dwelling unit--
                    ``(A) located in the United States,
                    ``(B) the construction of which is substantially 
                completed after December 31, 2003, and
                    ``(C) which is--
                            ``(i) certified to have a level of annual 
                        heating and cooling energy consumption which is 
                        at least 30 percent below the annual level of 
                        heating and cooling energy consumption of a 
                        comparable dwelling unit constructed in 
                        accordance with the standards of chapter 4 of 
                        the 2003 International Energy Conservation 
                        Code, as such Code (including supplements) is 
                        in effect on the date of the enactment of this 
                        section, and for which the heating and cooling 
                        equipment efficiencies correspond to the 
                        minimum allowed under the regulations 
                        established by the Department of Energy 
                        pursuant to the National Appliance Energy 
                        Conservation Act of 1987 and in effect at the 
                        time of construction, and to have building 
                        envelope component improvements account for at 
                        least \1/3\ of such 30 percent,
                            ``(ii) certified to have a level of annual 
                        heating and cooling energy consumption which is 
                        at least 50 percent below such annual level and 
                        to have building envelope component 
                        improvements account for at least \1/5\ of such 
                        50 percent, or
                            ``(iii) a manufactured home which--
                                    ``(I) conforms to Federal 
                                Manufactured Home Construction and 
                                Safety Standards (section 3280 of title 
                                24, Code of Federal Regulations), and
                                    ``(II) meets the applicable 
                                standards required by the Administrator 
                                of the Environmental Protection Agency 
                                under the Energy Star Labeled Homes 
                                program.
            ``(4) Construction.--The term `construction' includes 
        substantial reconstruction and rehabilitation.
            ``(5) Acquire.--The term `acquire' includes purchase and, 
        in the case of reconstruction and rehabilitation, such term 
        includes a binding written contract for such reconstruction or 
        rehabilitation.
            ``(6) Building envelope component.--The term `building 
        envelope component' means--
                    ``(A) any insulation material or system which is 
                specifically and primarily designed to reduce the heat 
                loss or gain of a dwelling unit when installed in or on 
                such dwelling unit,
                    ``(B) exterior windows (including skylights),
                    ``(C) exterior doors, and
                    ``(D) any metal roof installed on a dwelling unit, 
                but only if such roof has appropriate pigmented 
                coatings which--
                            ``(i) are specifically and primarily 
                        designed to reduce the heat gain of such 
                        dwelling unit, and
                            ``(ii) meet the Energy Star program 
                        requirements.
    ``(d) Certification.--
            ``(1) Method of certification.--A certification described 
        in subsection (c)(3)(C) shall be determined in accordance with 
        guidance prescribed by the Secretary, after consultation with 
        the Secretary of Energy. Such guidance shall specify procedures 
        and methods for calculating energy and cost savings.
            ``(2) Form.--A certification described in subsection 
        (c)(3)(C) shall be made in writing--
                    ``(A) in a manner which specifies in readily 
                verifiable fashion the energy efficient building 
                envelope components and energy efficient heating or 
                cooling equipment installed and their respective rated 
                energy efficiency performance, and
                    ``(B) in the case of a qualified new energy 
                efficient home which is a manufactured home, 
                accompanied by such documentation as required by the 
                Administrator of the Environmental Protection Agency 
                under the Energy Star Labeled Homes program.
    ``(e) Basis Adjustment.--For purposes of this subtitle, if a credit 
is determined under this section for any expenditure with respect to 
any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so determined.
    ``(f) Application of Section.--Subsection (a) shall apply to 
qualified new energy efficient homes acquired during the period 
beginning on January 1, 2004, and ending on December 31, 2006.''.
    (b) Credit Made Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 (relating to current year business 
credit) is amended by striking ``plus'' at the end of paragraph (14), 
by striking the period at the end of paragraph (15) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(16) the new energy efficient home credit determined 
        under section 45G(a).''.
    (c) Basis Adjustment.--Subsection (a) of section 1016 of the 
Internal Revenue Code of 1986, as amended by section 101, is amended by 
striking ``and'' at the end of paragraph (28), by striking the period 
at the end of paragraph (29) and inserting ``, and'', and by adding at 
the end the following new paragraph:
            ``(30) to the extent provided in section 45G(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 45G.''.
    (d) Limitation on Carryback.--Section 39(d) of the Internal Revenue 
Code of 1986 (relating to transition rules) is amended by adding at the 
end the following new paragraph:
            ``(11) No carryback of new energy efficient home credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the new 
        energy efficient home credit determined under section 45G(a) 
        may be carried to a taxable year beginning before January 1, 
        2004.''.
    (e) Deduction for Certain Unused Business Credits.--Section 196(c) 
of the Internal Revenue Code of 1986 (defining qualified business 
credits) is amended by striking ``and'' at the end of paragraph (10), 
by striking the period at the end of paragraph (11) and inserting ``, 
and'', and by adding after paragraph (11) the following new paragraph:
            ``(12) the new energy efficient home credit determined 
        under section 45G(a).''.
    (f) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

                              ``Sec. 45G. New energy efficient home 
                                        credit.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2003.

SEC. 103. INCENTIVE FOR CERTAIN ENERGY EFFICIENT PROPERTY USED IN 
              BUSINESS.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 199. ENERGY PROPERTY DEDUCTION.

    ``(a) In General.--There shall be allowed as a deduction for the 
taxable year an amount equal to the sum of--
            ``(1) the amount determined under subsection (b) for each 
        energy property of the taxpayer placed in service during such 
        taxable year, and
            ``(2) the energy efficient residential rental building 
        property deduction determined under subsection (e).
    ``(b) Amount for Energy Property.--
            ``(1) In general.--The amount determined under this 
        subsection for the taxable year for each item of energy 
        property shall equal the amount specified 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       $150.
 or a Tier 1 natural gas, propane,
 or oil water heater.
Tier 2 energy-efficient building        $900.
 property.
Tier 1 energy-efficient building        $450.
 property (other than an advanced
 main air circulating fan or a
 natural gas, propane, or oil
 water heater).
------------------------------------------------------------------------

            ``(2) Elected solar hot water property.--In the case of 
        elected solar hot water property, the taxpayer may elect to 
        substitute `$21 per annual Therm of natural gas savings' for 
        `$1.00 per each kwh/year of savings' in the table contained in 
        paragraph (1).
    ``(c) Energy Property Defined.--
            ``(1) In general.--For purposes of this part, the term 
        `energy property' means any property--
                    ``(A) which is--
                            ``(i) solar energy property,
                            ``(ii) Tier 2 energy-efficient building 
                        property, or
                            ``(iii) Tier 1 energy-efficient building 
                        property,
                    ``(B)(i) the construction, reconstruction, or 
                erection of which is completed by the taxpayer, or
                    ``(ii) which is acquired by the taxpayer if the 
                original use of such property commences with the 
                taxpayer,
                    ``(C) with respect to which depreciation (or 
                amortization in lieu of depreciation) is allowable, and
                    ``(D) which meets the performance and quality 
                standards, and the certification requirements (if any), 
                which--
                            ``(i) have been prescribed by the Secretary 
                        by regulations (after consultation with the 
                        Secretary of Energy or the Administrator of the 
                        Environmental Protection Agency, as 
                        appropriate),
                            ``(ii) in the case of the energy efficiency 
                        ratio (EER) for central air conditioners and 
                        electric heat pumps--
                                    ``(I) require measurements to be 
                                based on published data which is tested 
                                by manufacturers at 95 degrees 
                                Fahrenheit, and
                                    ``(II) do not require ratings to be 
                                based on certified data of the Air 
                                Conditioning and Refrigeration 
                                Institute,
                            ``(iii) in the case of geothermal heat 
                        pumps--
                                    ``(I) shall be based on testing 
                                under the conditions of ARI/ISO 
                                Standard 13256-1 for Water Source Heat 
                                Pumps or ARI 870 for Direct Expansion 
                                GeoExchange Heat Pumps (DX), as 
                                appropriate, and
                                    ``(II) shall include evidence that 
                                water heating services have been 
                                provided through a desuperheater or 
                                integrated water heating system 
                                connected to the storage water heater 
                                tank, and
                            ``(iv) are in effect at the time of the 
                        acquisition of the property.
            ``(2) Solar energy property.--In the case of--
                    ``(A) elected solar hot water property, the 
                regulations under paragraph (1)(D) shall be based on 
                the OG-300 Standard for the Annual Performance of OG-
300 Certified Systems of the Solar Rating and Certification 
Corporation, and
                    ``(B) photovoltaics, such regulations shall be 
                based on the ASTM Standard E 1036 and E 1036M-96 
                Standard Test Method for Electric Performance of 
                Nonconcentrator Terrestrial Photovoltaic Modules and 
                Arrays Using Reference Cells,
        to the extent the Secretary determines such standards carry out 
        the purposes of this section.
            ``(3) Exception.--Such term shall not include any property 
        which is public utility property (as defined in section 
        46(f)(5) as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1990).
    ``(d) Definitions Relating to Types of Energy Property.--For 
purposes of this section--
            ``(1) Solar energy property.--
                    ``(A) In general.--The term `solar energy property' 
                means equipment which uses solar energy--
                            ``(i) to generate electricity, or
                            ``(ii) to provide hot water for use in a 
                        structure.
                    ``(B) Elected solar hot water property.--
                            ``(i) In general.--The term `elected solar 
                        hot water property' means property which is 
                        solar energy property by reason of subparagraph 
                        (A)(ii) and for which an election under this 
                        subparagraph is in effect.
                            ``(ii) Election.--For purposes of clause 
                        (i), a taxpayer may elect to treat property 
                        described in clause (i) as elected solar hot 
                        water property.
                    ``(C) Photovoltaic property.--The term 
                `photovoltaic property' means solar energy property 
                which uses a solar photovoltaic process to generate 
                electricity.
                    ``(D) Swimming pools, etc., used as storage 
                medium.--The term `solar energy property' shall not 
                include a swimming pool, hot tub, or any other energy 
                storage medium which has a function other than the 
                function of such storage.
                    ``(E) Solar panels.--No solar panel or other 
                property installed as a roof (or portion thereof) shall 
                fail to be treated as solar energy property solely 
                because it constitutes a structural component of the 
                structure on which it is installed.
            ``(2) Tier 2 energy-efficient building property.--The term 
        `Tier 2 energy-efficient building property' means--
                    ``(A) an electric heat pump water heater which 
                yields an energy factor of at least 2.0 in the standard 
                Department of Energy test procedure,
                    ``(B) an electric heat pump which has a heating 
                seasonal performance factor (HSPF) of at least 9, a 
                seasonal energy efficiency ratio (SEER) of at least 15, 
                and an energy efficiency ratio (EER) of at least 12.5,
                    ``(C) a geothermal heat pump which--
                            ``(i) in the case of a closed loop product, 
                        has an energy efficiency ratio (EER) of at 
                        least 14.1 and a heating coefficient of 
                        performance (COP) of at least 3.3,
                            ``(ii) in the case of an open loop product, 
                        has an energy efficiency ratio (EER) of at 
                        least 16.2 and a heating coefficient of 
                        performance (COP) of at least 3.6, and
                            ``(iii) in the case of a direct expansion 
                        (DX) product, has an energy efficiency ratio 
                        (EER) of at least 15 and a heating coefficient 
                        of performance (COP) of at least 3.5,
                    ``(D) a central air conditioner which has a 
                seasonal energy efficiency ratio (SEER) of at least 15 
                and an energy efficiency ratio (EER) of at least 12.5, 
                and
                    ``(E) a natural gas, propane, or oil water heater 
                which has an energy factor of at least 0.80.
            ``(3) Tier 1 energy-efficient building property.--The term 
        `Tier 1 energy-efficient building property' means--
                    ``(A) an electric heat pump which has a heating 
                system performance factor (HSPF) of at least 7.5, a 
                cooling seasonal energy efficiency ratio (SEER) of at 
                least 13.5, and an energy efficiency ratio (EER) of at 
                least 11.5,
                    ``(B) a central air conditioner which has a cooling 
                seasonal energy efficiency ratio (SEER) of at least 
                13.5 and an energy efficiency ratio (EER) of at least 
                11.5,
                    ``(C) a natural gas, propane, or oil water heater 
                which has an energy factor of at least 0.65, and
                    ``(D) an oil, natural gas, or propane furnace or 
                hot water boiler which achieves at least 95 percent 
                annual fuel utilization efficiency (AFUE).
            ``(4) Advanced main air circulating fan.--The term 
        `advanced main air circulating fan' means a fan used in a 
        natural gas, propane, or oil furnace originally placed in 
        service by the taxpayer during the taxable year, including a 
        fan which uses a brushless permanent magnet motor or another 
        type of motor which achieves similar or higher efficiency at 
        full and half speed, as determined by the Secretary.
    ``(e) Energy Efficient Residential Rental Building Property 
Deduction.--
            ``(1) Deduction allowed.--For purposes of subsection (a)--
                    ``(A) In general.--The energy efficient residential 
                rental building property deduction determined under 
                this subsection is an amount equal to energy efficient 
                residential rental building property expenditures made 
                by a taxpayer for the taxable year.
                    ``(B) Maximum amount of deduction.--The amount of 
                energy efficient residential rental building property 
                expenditures taken into account under subparagraph (A) 
                with respect to each dwelling unit shall not exceed--
                            ``(i) $6,000 in the case of a percentage 
                        reduction of 50 percent as determined under 
                        paragraph (2)(B), and
                            ``(ii) $12,000 times the percentage 
                        reduction in the case of a percentage reduction 
                        of less than 50 percent as determined under 
                        paragraph (2)(B).
                    ``(C) Year deduction allowed.--The deduction under 
                subparagraph (A) shall be allowed in the taxable year 
                in which the construction, reconstruction, erection, or 
                rehabilitation of the property is completed.
            ``(2) Energy efficient residential rental building property 
        expenditures.--For purposes of this subsection--
                    ``(A) In general.--The term `energy efficient 
                residential rental building property expenditures' 
                means an amount paid or incurred in connection with 
construction, reconstruction, erection, or rehabilitation of energy 
efficient residential rental building property--
                            ``(i) for which depreciation is allowable 
                        under section 167,
                            ``(ii) which is located in the United 
                        States, and
                            ``(iii) the construction, reconstruction, 
                        erection, or rehabilitation of which is 
                        completed by the taxpayer.
                Such term includes expenditures for labor costs 
                properly allocable to the onsite preparation, assembly, 
                or original installation of the property.
                    ``(B) Energy efficient residential rental building 
                property.--
                            ``(i) In general.--The term `energy 
                        efficient residential rental building property' 
                        means any property which reduces total annual 
                        energy and power costs with respect to heating 
                        and cooling of the building by a percentage 
                        certified according to clause (ii).
                            ``(ii) Procedures.--
                                    ``(I) In general.--For purposes of 
                                clause (i), energy usage and costs 
                                shall be demonstrated by performance-
                                based compliance.
                                    ``(II) Performance-based 
                                compliance.--Performance-based 
                                compliance shall be demonstrated by 
                                calculating the percent energy cost 
                                savings for heating and cooling, as 
                                applicable, with respect to a dwelling 
                                unit when compared to the original 
                                condition of the dwelling unit.
                                    ``(III) Computer software.--
                                Computer software shall be used in 
                                support of performance-based compliance 
                                under subclause (II) and such software 
                                shall meet all of the procedures and 
                                methods for calculating energy savings 
                                reductions which are promulgated by the 
                                Secretary of Energy. Such regulations 
                                on the specifications for software and 
                                verification protocols shall be based 
                                on the 2005 California Residential 
                                Alternative Calculation Method Approval 
                                Manual.
                                    ``(IV) Calculation requirements.--
                                In calculating tradeoffs and energy 
                                performance, the regulations prescribed 
                                under this clause shall prescribe for 
                                the taxable year the costs per unit of 
                                energy and power, such as kilowatt 
                                hour, kilowatt, gallon of fuel oil, and 
                                cubic foot or Btu of natural gas, which 
                                may be dependent on time of usage. 
                                Where a State has developed annual 
                                energy usage and cost reduction 
                                procedures based on time of usage costs 
                                for use in the performance standards of 
                                the State's building energy code prior 
                                to the effective date of this section, 
                                the State may use those annual energy 
                                usage and cost reduction procedures in 
                                lieu of those adopted by the Secretary.
                                    ``(V) Approval of software 
                                submissions.--The Secretary shall 
                                approve software submissions which 
                                comply with the requirements of 
                                subclause (III).
                                    ``(VI) Procedures for inspection 
                                and testing of homes.--The Secretary 
                                shall ensure that procedures for the 
                                inspection and testing for compliance 
                                comply with the calculation 
                                requirements under subclause (IV) of 
                                this clause and clause (iv).
                            ``(iii) Determinations of compliance.--A 
                        determination of compliance with respect to 
                        energy efficient residential rental building 
                        property made for the purposes of this 
                        subparagraph shall be filed with the Secretary 
                        not later than 1 year after the date of such 
                        determination and shall include the TIN of the 
                        certifier, the address of the building in 
                        compliance, and the identity of the person for 
                        whom such determination was performed. 
                        Determinations of compliance filed with the 
                        Secretary shall be available for inspection by 
                        the Secretary of Energy.
                            ``(iv) Compliance.--
                                    ``(I) In general.--The Secretary, 
                                after consultation with the Secretary 
                                of Energy, shall establish requirements 
                                for certification and compliance 
                                procedures after examining the 
                                requirements for energy consultants and 
                                home energy ratings providers specified 
                                by the Mortgage Industry National Home 
                                Energy Rating Standards.
                                    ``(II) Individuals qualified to 
                                determine compliance.--The 
                                determination of compliance may be 
                                provided by a local building regulatory 
                                authority, a utility, a manufactured 
                                home production inspection primary 
                                inspection agency (IPIA), or an 
                                accredited home energy rating system 
                                provider. All providers shall be 
                                accredited, or otherwise authorized to 
                                use approved energy performance 
                                measurement methods, by the Residential 
                                Energy Services Network (RESNET).
                    ``(C) Allocation of deduction for public 
                property.--In the case of energy efficient residential 
                rental building property which is public property, the 
                Secretary shall promulgate a regulation to allow the 
                allocation of the deduction to the person primarily 
                responsible for designing the improvements to the 
                property in lieu of the public entity which is the 
                owner of such property. Such person shall be treated as 
                the taxpayer for purposes of this subsection.
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Basis reduction.--For purposes of this subtitle, if a 
        deduction is allowed under this section with respect to any 
        property, the basis of such property shall be reduced by the 
        amount of the deduction so allowed.
            ``(2) Double benefit.--Property which would, but for this 
        paragraph, be eligible for deduction under more than one 
        provision of this section shall be eligible only under one such 
        provision, the provision specified by the taxpayer.
    ``(g) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(h) Termination.--This section shall not apply with respect to--
            ``(1) any energy property placed in service after December 
        31, 2008 (December 31, 2005, in the case of Tier 1 energy-
        efficient building property), and
            ``(2) any energy efficient residential rental building 
        property expenditures in connection with property--
                    ``(A) placed in service after December 31, 2007, or
                    ``(B) the construction, reconstruction, erection, 
                or rehabilitation of which is not completed on or 
                before December 31, 2007.''.
    (b) Conforming Amendments.--
            (1) Section 48(a)(3)(A) of the Internal Revenue Code of 
        1986 is amended to read as follows:
                    ``(A) which is equipment used to produce, 
                distribute, or use energy derived from a geothermal 
                deposit (within the meaning of section 613(e)(2)), but 
                only, in the case of electricity generated by 
                geothermal power, up to (but not including) the 
                electrical transmission stage,''.
            (2) Subparagraph (B) of section 168(e)(3) of such Code is 
        amended--
                    (A) in clause (vi)(I)--
                            (i) by striking ``section 48(a)(3)'' and 
                        inserting ``section 199(d)(1)'', and
                            (ii) by striking ``clause (i)'' and 
                        inserting ``such subparagraph (A)'', and
                    (B) in the last sentence, by striking ``section 
                48(a)(3)'' and inserting ``section 199(c)(3)''.
            (3) Section 1016(a) of such Code, as amended by section 
        102, is amended by striking ``and'' at the end of paragraph 
        (29), by striking the period at the end of paragraph (30) and 
        inserting ``, and'', and by inserting the following new 
        paragraph:
            ``(31) for amounts allowed as a deduction under section 
        199(a).''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new item:

                              ``Sec. 199. Energy property deduction.''.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated to the Department of Energy out of amounts not already 
appropriated such sums as necessary to carry out this section.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 104. CREDIT FOR CERTAIN NONBUSINESS ENERGY PROPERTY.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25B the 
following new section:

``SEC. 25C. NONBUSINESS ENERGY PROPERTY.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an individual, there 
        shall be allowed as a credit against the tax imposed by this 
        chapter for the taxable year an amount equal to the sum of--
                    ``(A) the amount determined under subsection (b) 
                for each qualified energy property of the taxpayer 
                placed in service during such taxable year, and
                    ``(B) so much of the credit amount specified in 
                paragraph (2) which does not exceed the expenditures 
                made by the taxpayer in connection with the 
                construction, reconstruction, erection, or 
                rehabilitation of a dwelling unit of the taxpayer which 
                results in the unit being a highly energy-efficient 
                principal residence.
        For purposes of subparagraph (B), the expenditures may include 
        labor costs properly allocable to the onsite preparation, 
        assembly, or original installation of such property.
            ``(2) Credit amount.--The credit amount with respect to a 
        highly energy-efficient principal residence is--
                    ``(A) $2,000 in the case of a percentage reduction 
                of 50 percent as determined under subsection 
                (c)(6)(A)(iii), and
                    ``(B) $4,000 times the percentage reduction in the 
                case of a percentage reduction of less than 50 percent 
                as determined under subsection (c)(6)(A)(iii).
    ``(b) Amount for Qualified Energy Property.--
            ``(1) Residential energy property expenditures.--Except as 
        provided in paragraph (2), the amount determined under this 
        subsection for the taxable year for each item of qualified 
        energy property shall equal the amount of residential energy 
        property expenditures made by the taxpayer with respect to such 
        property during such taxable year.
            ``(2) Solar hot water property; photovoltaic property.--
                    ``(A) In general.--In the case of solar hot water 
                property and photovoltaic property, the amount 
                determined under this subsection for the taxable year 
                shall equal the amount specified for such property in 
                the following table:
      

------------------------------------------------------------------------
     Description of property:               Allowable amount is:
------------------------------------------------------------------------
Elected solar hot water property..      35 cents per each kwh/year of
                                     savings.
Photovoltaic property.............      $1.50 per peak watt.
------------------------------------------------------------------------

                    ``(B) Elected solar hot water property.--In the 
                case of elected solar hot water property (as defined in 
                section 199(d)(1)(B)), the taxpayer may elect to 
                substitute `$7 per annual Therm of natural gas savings' 
                for `35 cents per each kwh/year of savings' in the 
                table contained in subparagraph (A).
            ``(3) Maximum amount.--In the case of property described in 
        the following table, the amount of expenditures taken into 
        account under paragraph (1) and the amount determined under 
        paragraph (2) for the taxable year for each item of qualified 
        energy property with respect to a dwelling unit shall not 
        exceed the amount specified for such property in such table:

      

------------------------------------------------------------------------
  ``Description of property item:    Maximum allowable credit amount is:
------------------------------------------------------------------------
Tier 2 energy-efficient building         $300.
 property.
Advanced main air circulating fan         $50.
 or a Tier 1 natural gas, propane,
 or oil water heater.
Tier 1 energy-efficient building         $150.
 property (other than an advanced
 main air circulating fan or a
 natural gas, propane, or oil
 water heater).
Solar hot water property..........      $1,000.
Photovoltaic property.............      $6,000.
------------------------------------------------------------------------

    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Residential energy property expenditures.--The term 
        `residential energy property expenditures' means expenditures 
        made by the taxpayer for qualified energy property installed on 
        or in connection with a dwelling unit which--
                    ``(A) is located in the United States, and
                    ``(B) is used as a principal residence.
        Such term includes expenditures for labor costs properly 
        allocable to the onsite preparation, assembly, or original 
        installation of the property.
            ``(2) Qualified energy property.--
                    ``(A) In general.--The term `qualified energy 
                property' means--
                            ``(i) energy-efficient building property,
                            ``(ii) solar hot water property, and
                            ``(iii) photovoltaic property.
                    ``(B) Swimming pool, etc., used as storage medium; 
                solar panels.--For purposes of this paragraph, the 
                provisions of subparagraphs (D) and (E) section 
                199(d)(1) shall apply.
                    ``(C) Required standards.--Property described under 
                subparagraph (A) shall meet the performance and quality 
                standards and certification standards of paragraphs 
                (1)(D) and (2) of section 199(c).
            ``(3) Energy-efficient building property.--The term 
        `energy-efficient building property' has the same meaning given 
        the terms `Tier 2 energy-efficient property', `Tier 1 energy-
        efficient property', and `advanced main air circulating fan' in 
        paragraphs (2), (3), and (4) of section 199(d), respectively.
            ``(4) Solar hot water property.--The term `solar hot water 
        property' means property which, when installed in connection 
        with a structure, uses solar energy for the purpose of 
        providing hot water for use within such structure and the 
        performance of which is determined in accordance with section 
        199(c)(2)(A).
            ``(5) Photovoltaic property.--The term `photovoltaic 
        property' has the same meaning given such term in section 
        199(d)(1)(C).
            ``(6) Highly energy-efficient principal residence.--
                    ``(A) In general.--Property is a highly energy-
                efficient principal residence if--
                            ``(i) such property is located in the 
                        United States,
                            ``(ii) the property is used as a principal 
                        residence, and
                            ``(iii) the projected heating and cooling 
                        energy usage of such property, measured in 
                        terms of average annual energy cost to 
                        taxpayer, is reduced by a percentage certified 
                        according to subparagraph (C) in comparison to 
                        the energy cost of such property if 
                        expenditures made by the taxpayer with respect 
                        to energy efficient improvements to such 
                        property were not made.
                    ``(B) Principal residence.--
                            ``(i) In general.--The term `principal 
                        residence' has the same meaning as when used in 
                        section 121, except that--
                                    ``(I) no ownership requirement 
                                shall be imposed, and
                                    ``(II) the period for which a 
                                building is treated as used as a 
                                principal residence shall also include 
                                the 60-day period ending on the 1st day 
                                on which it would (but for this 
                                subparagraph) first be treated as used 
                                as a principal residence.
                            ``(ii) Manufactured housing.--The term 
                        `residence' shall include a dwelling unit which 
                        is a manufactured home conforming to Federal 
                        Manufactured Home Construction and Safety 
                        Standards (24 C.F.R. 3280).
                    ``(C) Certification procedures.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(iii), energy <plus-minus>usage 
                        shall be demonstrated by performance-based 
                        compliance.
                            ``(ii) Performance-based compliance.--
                        Performance-based compliance shall be 
                        demonstrated if the percent energy cost savings 
                        for heating and cooling is met with respect to 
                        a dwelling unit when compared to the original 
                        condition of the dwelling unit.
                            ``(iii) Computer software.--Computer 
                        software shall be used in support of 
                        performance-based compliance under clause (ii) 
                        and such software shall meet all of the 
                        procedures and methods for calculating energy 
                        savings reductions which are promulgated by the 
                        Secretary of Energy. Such regulations on the 
                        specifications for software and verification 
                        protocols shall be based on the 2005 California 
                        Residential Alternative Calculation Method 
                        Approval Manual.
                            ``(iv) Calculation requirements.--In 
                        calculating tradeoffs and energy performance, 
                        the regulations shall prescribe the costs per 
                        unit of energy and power, such as kilowatt 
                        hour, kilowatt, gallon of fuel oil, and cubic 
                        foot or Btu of natural gas, which may be 
                        dependent on time of usage. If a State has 
                        developed annual energy usage and cost 
                        reduction procedures based on time of usage 
                        costs for use in the performance standards of 
                        the State's building energy code before the 
                        effective date of this section, the State may 
                        use those annual energy usage and cost 
                        reduction procedures in lieu of those adopted 
                        by the Secretary.
                            ``(v) Approval of software submissions.--
                        The Secretary shall approve software 
                        submissions which comply with the calculation 
                        requirements of clause (iii).
                            ``(vi) Procedures for inspection and 
                        testing of dwelling units.--The Secretary shall 
                        ensure that procedures for the inspection and 
                        testing for compliance comply with the 
                        calculation requirements under clause (iii) and 
                        subsection (d)(2).
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Determinations of compliance.--A determination of 
        compliance made for the purposes of this section shall be filed 
        with the Secretary within 1 year of the date of such 
        determination and shall include the TIN of the certifier, the 
        address of the building in compliance, and the identity of the 
        person for whom such determination was performed. 
        Determinations of compliance filed with the Secretary shall be 
        available for inspection by the Secretary of Energy.
            ``(2) Compliance.--
                    ``(A) In general.--The Secretary, after 
                consultation with the Secretary of Energy 
shall establish requirements for certification and compliance 
procedures after examining the requirements for energy consultants and 
home energy ratings providers specified by the Mortgage Industry 
National Home Energy Rating Standards.
                    ``(B) Individuals qualified to determine 
                compliance.--The determination of compliance may be 
                provided by a local building regulatory authority, a 
                utility, a manufactured home production inspection 
                primary inspection agency (IPIA), or an accredited home 
                energy rating system provider. All providers shall be 
                accredited, or otherwise authorized to use approved 
                energy performance measurement methods, by the 
                Residential Energy Services Network (RESNET).
            ``(3) Dollar amounts in case of joint occupancy.--In the 
        case of any dwelling unit which if jointly occupied and used 
        during any calendar year as a principal residence by 2 or more 
        individuals the following rules shall apply:
                    ``(A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures made during 
                such calendar year by any of such individuals with 
                respect to such dwelling unit shall be determined by 
                treating all of such individuals as 1 taxpayer whose 
                taxable year is such calendar year.
                    ``(B) There shall be allowable with respect to such 
                expenditures to each of such individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount determined under subparagraph (A) 
                as the amount of such expenditures made by such 
                individual during such calendar year bears to the 
                aggregate of such expenditures made by all of such 
                individuals during such calendar year.
            ``(4) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having made his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation and such 
        credit shall be allocated pro rata to such individual.
            ``(5) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having made his 
                proportionate share of any expenditures of such 
                association and any credit shall be allocated 
                appropriately.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as principal residences.
            ``(6) Joint ownership of energy items.--
                    ``(A) In general.--Any expenditure otherwise 
                qualifying as an expenditure under this section shall 
                not be treated as failing to so qualify merely because 
                such expenditure was made with respect to 2 or more 
                dwelling units.
                    ``(B) Limits applied separately.--In the case of 
                any expenditure described in subparagraph (A), the 
                amount of the credit allowable under subsection (a) 
                shall (subject to paragraph (1)) be computed separately 
                with respect to the amount of the expenditure made for 
                each dwelling unit.
            ``(7) Allocation in certain cases.--If less than 80 percent 
        of the use of an item is for nonbusiness purposes, only that 
        portion of the expenditures for such item which is properly 
        allocable to use for nonbusiness purposes shall be taken into 
        account.
            ``(8) Coordination with other credits.--Property which 
        would, but for this paragraph, be eligible for credit under 
        more than one provision of this section shall be eligible only 
        under one such provision, the provision specified by the 
        taxpayer.
            ``(9) Year credit allowed.--The credit under subsection 
        (a)(2) shall be allowed in the taxable year in which the 
        percentage reduction with respect to the principal residence is 
        certified.
            ``(10) When expenditure made; amount of expenditure.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an expenditure with respect to an 
                item shall be treated as made when the original 
                installation of the item is completed.
                    ``(B) Expenditures part of building construction.--
                In the case of an expenditure in connection with the 
                construction of a structure, such expenditure shall be 
                treated as made when the original use of the 
                constructed structure by the taxpayer begins.
            ``(11) Property financed by subsidized energy financing.--
                    ``(A) Reduction of expenditures.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), for purposes of determining 
                        the amount of expenditures made by any 
                        individual with respect to any dwelling unit, 
                        there shall not be taken into account 
                        expenditures which are made from subsidized 
                        energy financing.
                            ``(ii) Subsidized energy financing.--For 
                        purposes of clause (i), the term `subsidized 
                        energy financing' has the same meaning given 
                        such term in section 48(a)(4)(C).
                    ``(B) Dollar limits reduced.--The dollar amounts in 
                the table contained in subsection (b)(3) with respect 
                to each property purchased for such dwelling unit for 
                any taxable year of such taxpayer shall be reduced 
                proportionately by an amount equal to the sum of--
                            ``(i) the amount of the expenditures made 
                        by the taxpayer during such taxable year with 
                        respect to such dwelling unit and not taken 
                        into account by reason of subparagraph (A), and
                            ``(ii) the amount of any Federal, State, or 
                        local grant received by the taxpayer during 
                        such taxable year which is used to make 
                        residential energy property expenditures with 
                        respect to the dwelling unit and is not 
                        included in the gross income of such taxpayer.
                    ``(C) Exception for state programs.--Subparagraphs 
                (A) and (B) shall not apply to expenditures made with 
                respect to property for which the taxpayer has received 
                a loan, State tax credit, or grant under any State 
                energy program.
    ``(e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(f) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(g) Termination.--This section shall not apply with respect to 
any energy property placed in service after December 31, 2008 (December 
31, 2005, in the case of Tier 1 energy-efficient building property).''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 of the Internal Revenue 
        Code of 1986 as amended by section 103, is amended by striking 
        ``and'' at the end of paragraph (30), by striking the period at 
        the end of paragraph (31) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(32) to the extent provided in section 25C(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25C.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 25B the following new item:

                              ``Sec. 25C. Nonbusiness energy 
                                        property.''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to expenditures 
        made after December 31, 2003.
            (2) Energy efficient building property used in a principal 
        residence.--In the case of energy efficient building property, 
        as defined in section 25B(c) of the Internal Revenue Code of 
        1986, as added by subsection (a), the amendments made by this 
        section shall apply to expenditures made after March 31, 2003.

SEC. 105. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

    (a) In General.--Section 48(a)(3)(A) of the Internal Revenue Code 
of 1986 (defining energy property) is amended by striking ``or'' at the 
end of clause (i), by adding ``or'' at the end of clause (ii), and by 
inserting after clause (ii) the following new clause:
                            ``(iii) combined heat and power system 
                        property,''.
    (b) Combined Heat and Power System Property.--Section 48 of the 
Internal Revenue Code of 1986 (relating to energy credit; reforestation 
credit) is amended by adding at the end the following new subsection:
    ``(c) Combined Heat and Power System Property.--For purposes of 
subsection (a)(3)(A)(iii)--
            ``(1) Combined heat and power system property.--The term 
        `combined heat and power system property' means property 
        comprising a system--
                    ``(A) which uses the same energy source for the 
                simultaneous or sequential generation of electrical 
                power, mechanical shaft power, or both, in combination 
                with the generation of steam or other forms of useful 
                thermal energy (including heating and cooling 
                applications),
                    ``(B) which has an electrical capacity of not more 
                than 15 megawatts or a mechanical energy capacity of 
                not more than 2,000 horsepower or an equivalent 
                combination of electrical and mechanical energy 
                capacities,
                    ``(C) which produces--
                            ``(i) at least 20 percent of its total 
                        useful energy in the form of thermal energy 
                        which is not used to produce electrical or 
                        mechanical power (or combination thereof), and
                            ``(ii) at least 20 percent of its total 
                        useful energy in the form of electrical or 
                        mechanical power (or combination thereof),
                    ``(D) the energy efficiency percentage of which 
                exceeds 60 percent, and
                    ``(E) which is placed in service before January 1, 
                2007.
            ``(2) Special rules.--
                    ``(A) Energy efficiency percentage.--For purposes 
                of this subsection, the energy efficiency percentage of 
                a system is the fraction--
                            ``(i) the numerator of which is the total 
                        useful electrical, thermal, and mechanical 
                        power produced by the system at normal 
                        operating rates, and expected to be consumed in 
                        its normal application, and
                            ``(ii) the denominator of which is the 
                        lower heating value of the fuel sources for the 
                        system.
                    ``(B) Determinations made on btu basis.--The energy 
                efficiency percentage and the percentages under 
                paragraph (1)(C) shall be determined on a Btu basis.
                    ``(C) Input and output property not included.--The 
                term `combined heat and power system property' does not 
                include property used to transport the energy source to 
                the facility or to distribute energy produced by the 
                facility.
                    ``(D) Public utility property.--
                            ``(i) Accounting rule for public utility 
                        property.--If the combined heat and power 
                        system property is public utility property (as 
                        defined in section 168(i)(10)), the taxpayer 
                        may only claim the credit under subsection (a) 
                        if, with respect to such property, the taxpayer 
                        uses a normalization method of accounting.
                            ``(ii) Certain exception not to apply.--The 
                        matter in subsection (a)(3) which follows 
                        subparagraph (D) thereof shall not apply to 
                        combined heat and power system property.
            ``(3) Systems using bagasse.--If a system is designed to 
        use bagasse for at least 90 percent of the energy source--
                    ``(A) paragraph (1)(D) shall not apply, but
                    ``(B) the amount of credit determined under 
                subsection (a) with respect to such system shall not 
                exceed the amount which bears the same ratio to such 
                amount of credit (determined without regard to this 
                paragraph) as the energy efficiency percentage of such 
                system bears to 60 percent.''.
    (c) Effective Date.--The amendments made by this subsection shall 
apply to periods after December 31, 2003, in taxable years ending after 
such date, under rules similar to the rules of section 48(m) of the 
Internal Revenue Code of 1986 (as in effect on the day before the date 
of the enactment of the Revenue Reconciliation Act of 1990).

SEC. 106. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business-related 
credits), as amended by section 102, is amended by adding at the end 
the following new section:

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

    ``(a) Allowance of Credit.--For purposes of section 38, the energy 
efficient appliance credit determined under this section for the 
taxable year is an amount equal to the sum of--
            ``(1) the tier I appliance amount, and
            ``(2) the tier II appliance amount,
with respect to qualified energy efficient appliances produced by the 
taxpayer during the calendar year ending with or within the taxable 
year.
    ``(b) Appliance Amounts.--For purposes of subsection (a)--
            ``(1) Tier i appliance amount.--The tier I appliance amount 
        is equal to--
                    ``(A) $100, multiplied by
                    ``(B) an amount (rounded to the nearest whole 
                number) equal to the applicable percentage of the 
                eligible production.
            ``(2) Tier ii appliance amount.--The tier II appliance 
        amount is equal to $150, multiplied by an amount equal to the 
        eligible production reduced by the amount determined under 
        paragraph (1)(B).
            ``(3) Applicable percentage.--The applicable percentage is 
        the percentage determined by dividing the tier I appliances 
        produced by the taxpayer during the calendar year by the sum of 
        the tier I and tier II appliances so produced.
            ``(4) Eligible production.--The eligible production of 
        qualified energy efficient appliances by the taxpayer for any 
        calendar year is the excess of--
                    ``(A) the number of such appliances which are 
                produced by the taxpayer during such calendar year, 
                over
                    ``(B) 110 percent of the average annual number of 
                such appliances which were produced by the taxpayer (or 
                any predecessor) during the preceding 3-calendar year 
                period.
    ``(c) Qualified Energy Efficient Appliance.--For purposes of this 
section--
            ``(1) In general.--The term `qualified energy efficient 
        appliance' means any tier I appliance or tier II appliance 
        which is produced in the United States.
            ``(2) Tier i appliance.--The term `tier I appliance' 
        means--
                    ``(A) a clothes washer which is produced with at 
                least a 1.50 MEF, and
                    ``(B) a refrigerator which consumes at least 15 
                percent (20 percent in the case of a refrigerator 
                produced after 2006) less kilowatt hours per year than 
                the energy conservation standards for refrigerators 
                promulgated by the Department of Energy and effective 
                on July 1, 2001.
            ``(3) Tier ii appliance.--The term `tier II appliance' 
        means a refrigerator produced before 2007 which consumes at 
        least 20 percent less kilowatt hours per year than the energy 
        conservation standards described in paragraph (2)(B).
            ``(4) Clothes washer.--The term `clothes washer' means a 
        residential clothes washer, including a residential style coin 
        operated washer.
            ``(5) Refrigerator.--The term `refrigerator' means an 
        automatic defrost refrigerator-freezer which has an internal 
        volume of at least 16.5 cubic feet.
            ``(6) MEF.--The term `MEF' means Modified Energy Factor (as 
        determined by the Secretary of Energy).
            ``(7) Produced.--The term `produced' includes manufactured.
    ``(d) Limitation on Maximum Credit.--
            ``(1) In general.--The amount of credit allowed under 
        subsection (a) with respect to a taxpayer for any taxable year 
        shall not exceed $60,000,000, reduced by the amount of the 
        credit allowed under subsection (a) to the taxpayer (or any 
        predecessor) for any prior taxable year.
            ``(2) Limitation based on gross receipts.--The credit 
        allowed under subsection (a) with respect to a taxpayer for the 
        taxable year shall not exceed an amount equal to 2 percent of 
        the average annual gross receipts of the taxpayer for the 3 
        taxable years preceding the taxable year for which the credit 
        is determined.
            ``(3) Gross receipts.--For purposes of this subsection, the 
        rules of paragraphs (2) and (3) of section 448(c) shall apply.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) In general.--Rules similar to the rules of 
        subsections (c), (d), and (e) of section 52 shall apply.
            ``(2) Controlled groups.--
                    ``(A) In general.--All persons treated as a single 
                employer under subsection (a) or (b) of section 52 or 
                subsection (m) or (o) of section 414 shall be treated 
                as a single manufacturer.
                    ``(B) Inclusion of foreign corporations.--For 
                purposes of subparagraph (A), in applying subsections 
                (a) and (b) of section 52 to this section, section 1563 
                shall be applied without regard to subsection (b)(2)(C) 
                thereof.
    ``(f) Verification.--The taxpayer shall submit such information or 
certification as the Secretary, after consultation with the Secretary 
of Energy, determines necessary to claim the credit amount under 
subsection (a).
    ``(g) Termination.--This section shall not apply with respect to 
appliances produced after December 31, 2007.''.
    (b) Credit Made Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 (relating to current year business 
credit), as amended by section 102, is amended by striking ``plus'' at 
the end of paragraph (15), by striking the period at the end of 
paragraph (16) and inserting ``, plus'', and by adding at the end the 
following new paragraph:
            ``(17) the energy efficient appliance credit determined 
        under section 45H(a).''.
    (c) Limitation on Carryback.--Section 39(d) of the Internal Revenue 
Code of 1986 (relating to transition rules), as amended by section 102, 
is amended by adding at the end the following new paragraph:
            ``(12) No carryback of energy efficient appliance credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the energy 
        efficient appliance credit determined under section 45H(a) may 
        be carried to a taxable year ending before January 1, 2004.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986, as amended by section 102, is amended by adding at the end the 
following new item:

                              ``Sec. 45H. Energy efficient appliance 
                                        credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to appliances produced after December 31, 2003, in taxable years 
ending after such date.

                  TITLE II--ENERGY EFFICIENT PRODUCTS

SEC. 201. ENERGY CONSERVATION STANDARDS FOR ADDITIONAL PRODUCTS.

    (a) Definitions.--Section 321 of the Energy Policy and Conservation 
Act (42 U.S.C. 6291) is amended--
            (1) in paragraph (30)(S), by striking the period and adding 
        at the end the following: ``but does not include any lamp 
        specifically designed to be used for special purpose 
        applications and that is unlikely to be used in general purpose 
        applications such as those described in subparagraph (D), and 
        also does not include any lamp not described in subparagraph 
        (D) that is excluded by the Secretary, by rule, because the 
        lamp is designed for special applications and is unlikely to be 
        used in general purpose applications.''; and
            (2) by adding at the end the following:
            ``(32) The term `battery charger' means a device that 
        charges batteries for consumer products and includes battery 
        chargers embedded in other consumer products.
            ``(33) The term `ceiling fan' means a nonportable device 
        that is suspended from a ceiling for circulating air through 
        the rotation of fan blades.
            ``(34) The term `ceiling fan light kit' means equipment 
        designed to provide light from a ceiling fan that can be--
                    ``(A) integral, such that the equipment is attached 
                to the ceiling fan prior to the time of retail sale; or
                    ``(B) attachable, such that at the time of retail 
                sale the equipment is not physically attached to the 
                ceiling fan, but may be included inside the ceiling fan 
                package at the time of sale or sold separately for 
                subsequent attachment to the fan.
            ``(35) The term `commercial refrigerators, freezers, and 
        refrigerator-freezers' means refrigerators, freezers, or 
        refrigerator-freezers that--
                    ``(A) are not consumer products regulated under 
                this Act; and
                    ``(B) incorporate most components involved in the 
                vapor-compression cycle and the refrigerated 
                compartment in a single package.
            ``(36) The term `external power supply' means an external 
        power supply circuit that is used to convert household electric 
        current into either DC current or lower-voltage AC current to 
        operate a consumer product.
            ``(37) The term `illuminated exit sign' means a sign that--
                    ``(A) is designed to be permanently fixed in place 
                to identify an exit; and
                    ``(B) consists of an electrically powered integral 
                light source that illuminates the legend `EXIT' and any 
                directional indicators and provides contrast between 
                the legend, any directional indicators, and the 
                background.
            ``(38)(A) Except as provided in subparagraph (B), the term 
        `distribution transformer' means a transformer that--
                    ``(i) has an input voltage of 34.5 kilovolts or 
                less;
                    ``(ii) has an output voltage of 600 volts or less; 
                and
                    ``(iii) is rated for operation at a frequency of 60 
                Hertz.
            ``(B) The term `distribution transformer' does not 
        include--
                    ``(i) transformers with multiple voltage taps, with 
                the highest voltage tap equaling at least 20 percent 
                more than the lowest voltage tap;
                    ``(ii) transformers, such as those commonly known 
                as drive transformers, rectifier transformers, auto-
                transformers, Uninterruptible Power System 
                transformers, impedance transformers, harmonic 
                transformers, regulating transformers, sealed and 
                nonventilating transformers, machine tool transformers, 
                welding transformers, grounding transformers, or 
                testing transformers, that are designed to be used in a 
                special purpose application and are unlikely to be used 
                in general purpose applications; or
                    ``(iii) any transformer not listed in clause (ii) 
                that is excluded by the Secretary by rule because--
                            ``(I) the transformer is designed for a 
                        special application;
                            ``(II) the transformer is unlikely to be 
                        used in general purpose applications; and
                            ``(III) the application of standards to the 
                        transformer would not result in significant 
                        energy savings.
            ``(39) The term `low-voltage dry-type distribution 
        transformer' means a distribution transformer that--
                    ``(A) has an input voltage of 600 volts or less;
                    ``(B) is air-cooled; and
                    ``(C) does not use oil as a coolant.
            ``(40) The term `standby mode' means the lowest power 
        consumption mode that--
                    ``(A) cannot be switched off or influenced by the 
                user; and
                    ``(B) may persist for an indefinite time when an 
                appliance is connected to the main electricity supply 
                and used in accordance with the manufacturer's 
                instructions,
        as defined on an individual product basis by the Secretary.
            ``(41) The term `torchiere' means a portable electric lamp 
        with a reflector bowl that directs light upward so as to give 
        indirect illumination.
            ``(42) The term `traffic signal module' means a standard 8-
        inch (200mm) or 12-inch (300mm) traffic signal indication, 
        consisting of a light source, a lens, and all other parts 
        necessary for operation, that communicates movement messages to 
        drivers through red, amber, and green colors.
            ``(43) The term `transformer' means a device consisting of 
        2 or more coils of insulated wire that transfers alternating 
        current by electromagnetic induction from 1 coil to another to 
        change the original voltage or current value.
            ``(44) The term `unit heater' means a self-contained fan-
        type heater designed to be installed within the heated space, 
        except that such term does not include a warm air furnace.''.
    (b) Test Procedures.--Section 323 of the Energy Policy and 
Conservation Act (42 U.S.C. 6293) is amended--
            (1) in subsection (b), by adding at the end the following:
            ``(9) Test procedures for illuminated exit signs shall be 
        based on the test method used under Version 2.0 of the Energy 
        Star program of the Environmental Protection Agency for 
        illuminated exit signs.
            ``(10) Test procedures for distribution transformers and 
        low voltage dry-type distribution transformers shall be based 
        on the `Standard Test Method for Measuring the Energy 
        Consumption of Distribution Transformers' prescribed by the 
        National Electrical Manufacturers Association (NEMA TP 2-1998). 
        The Secretary may review and revise this test procedure. For 
        purposes of section 346(a), this test procedure shall be deemed 
        to be testing requirements prescribed by the Secretary under 
        section 346(a)(1) for distribution transformers for which the 
        Secretary makes a determination that energy conservation 
        standards would be technologically feasible and economically 
        justified, and would result in significant energy savings.
            ``(11) Test procedures for traffic signal modules shall be 
        based on the test method used under the Energy Star program of 
        the Environmental Protection Agency for traffic signal modules, 
        as in effect on the date of enactment of this paragraph.
            ``(12) Test procedures for medium base compact fluorescent 
        lamps shall be based on the test methods used under the October 
        30, 2003, version of the Energy Star program of the 
        Environmental Protection Agency and Department of Energy for 
        compact fluorescent lamps. Covered products shall meet all test 
        requirements for regulated parameters in section 325(bb). 
        However, covered products may be marketed prior to completion 
        of lamp life and lumen maintenance at 40 percent of rated life 
        testing provided manufacturers document engineering predictions 
        and analysis that support expected attainment of lumen 
        maintenance at 40 percent rated life and lamp life time.
            ``(13) Air movement test procedures for ceiling fans shall 
        be based on the test procedure contained in the Energy Star 
        Program Requirements for Residential Ceiling Fans (Version 2.0) 
        developed by the Environmental Protection Agency, unless 
        pursuant to this section, the Secretary promulgates regulations 
        establishing an alternative test procedure.''; and
            (2) by adding at the end the following:
    ``(f) Additional Consumer and Commercial Products.--
            ``(1) In general.--Not later than 2 years after the date of 
        enactment of this subsection, the Secretary shall prescribe 
        testing requirements for refrigerated bottled or canned 
        beverage vending machines, and commercial refrigerators, 
        freezers, and refrigerator-freezers.
            ``(2) Basis.--The testing requirements shall be based on 
        existing test procedures used in industry, to the extent 
        practicable.''.
    (c) New Standards.--Section 325 of the Energy Policy and 
Conservation Act (42 U.S.C. 6295) is amended by adding at the end the 
following:
    ``(u) Battery Charger and External Power Supply Electric Energy 
Consumption.--
            ``(1) Initial rulemaking.--(A) The Secretary shall, within 
        18 months after the date of enactment of this subsection, 
        prescribe by notice and comment, definitions and test 
        procedures for the power use of battery chargers and external 
        power supplies. In establishing these test procedures, the 
        Secretary shall consider, among other factors, existing 
        definitions and test procedures used for measuring energy 
        consumption in standby mode and other modes and assess the 
        current and projected future market for battery chargers and 
        external power supplies. This assessment shall include 
        estimates of the significance of potential energy savings from 
        technical improvements to these products and suggested product 
        classes for standards. Prior to the end of this time period, 
        the Secretary shall hold a scoping workshop to discuss and 
        receive comments on plans for developing energy conservation 
        standards for energy use for these products.
            ``(B) The Secretary shall, within 3 years after the date of 
        enactment of this subsection, issue a final rule that 
        determines whether energy conservation standards shall be 
        issued for battery chargers and external power supplies or 
        classes thereof. For each product class, any such standards 
        shall be set at the lowest level of energy use that--
                    ``(i) meets the criteria and procedures of 
                subsections (o), (p), (q), (r), (s), and (t); and
                    ``(ii) will result in significant overall annual 
                energy savings, considering both standby mode and other 
                operating modes.
            ``(2) Review of standby energy use in covered products.--In 
        determining pursuant to section 323 whether test procedures and 
        energy conservation standards pursuant to this section should 
        be revised, the Secretary shall consider, for covered products 
        that are major sources of standby mode energy consumption, 
        whether to incorporate standby mode into such test procedures 
        and energy conservation standards, taking into account, among 
        other relevant factors, standby mode power consumption compared 
        to overall product energy consumption.
            ``(3) Rulemaking.--The Secretary shall not propose a 
        standard under this section unless the Secretary has issued 
        applicable test procedures for each product pursuant to section 
        323.
            ``(4) Effective date.--Any standard issued under this 
        subsection shall be applicable to products manufactured or 
        imported 3 years after the date of issuance.
            ``(5) Voluntary programs.--The Secretary and the 
        Administrator shall collaborate and develop programs, including 
        programs pursuant to section 324A (relating to Energy Star 
        Programs) and other voluntary industry agreements or codes of 
        conduct, that are designed to reduce standby mode energy use.
    ``(v) Vending Machines, and Commercial Refrigerators, Freezers, and 
Refrigerator-Freezers.--
            ``(1) In general.--Not later than 3 years after the date on 
        which testing requirements are prescribed by the Secretary 
        pursuant to section 323(f), the Secretary shall prescribe, by 
        rule, energy conservation standards for refrigerated bottled 
or canned beverage vending machines, and commercial refrigerators, 
freezers, and refrigerator-freezers.
            ``(2) Criteria and procedures.--In establishing standards 
        under this subsection, the Secretary shall use the criteria and 
        procedures contained in subsections (o) and (p).
            ``(3) Applicability.--Any standard prescribed under this 
        subsection shall apply to products manufactured 3 years after 
        the date of publication of a final rule establishing the 
        standard.
    ``(w) Illuminated Exit Signs.--Illuminated exit signs manufactured 
on or after January 1, 2005, shall meet the Version 2.0 Energy Star 
Program performance requirements for illuminated exit signs prescribed 
by the Environmental Protection Agency.
    ``(x) Torchieres.--Torchieres manufactured on or after January 1, 
2005--
            ``(1) shall consume not more than 190 watts of power; and
            ``(2) shall not be capable of operating with lamps that 
        total more than 190 watts.
    ``(y) Low Voltage Dry-Type Distribution Transformers.--The 
efficiency of low voltage dry-type distribution transformers 
manufactured on or after January 1, 2005, shall be the Class I 
Efficiency Levels for distribution transformers specified in Table 4-2 
of the `Guide for Determining Energy Efficiency for Distribution 
Transformers' published by the National Electrical Manufacturers 
Association (NEMA TP-1-2002).
    ``(z) Traffic Signal Modules.--Traffic signal modules manufactured 
on or after January 1, 2006, shall meet the performance requirements 
used under the Energy Star program of the Environmental Protection 
Agency for traffic signals, as in effect on the date of enactment of 
this subsection, and shall be installed with compatible, electrically 
connected signal control interface devices and conflict monitoring 
systems.
    ``(aa) Unit Heaters.--Unit heaters manufactured on or after the 
date that is 3 years after the date of enactment of this subsection 
shall be equipped with an intermittent ignition device and shall have 
either power venting or an automatic flue damper.
    ``(bb) Medium Base Compact Fluorescent Lamps.--Bare lamp and 
covered lamp (no reflector) medium base compact fluorescent lamps 
manufactured on or after January 1, 2005, shall meet the following 
requirements prescribed by the August 9, 2001, version of the Energy 
Star Program Requirements for Compact Fluorescent Lamps, Energy Star 
Eligibility Criteria, Energy-Efficiency Specification issued by the 
Environmental Protection Agency and Department of Energy: minimum 
initial efficacy; lumen maintenance at 1000 hours; lumen maintenance at 
40 percent of rated life; rapid cycle stress test; and lamp life. The 
Secretary may, by rule, establish requirements for color quality (CRI); 
power factor; operating frequency; and maximum allowable start time 
based on the requirements prescribed by the October 30, 2003, version 
of the Energy Star Program Requirements for Compact Fluorescent Lamps. 
The Secretary may, by rule, revise these requirements or establish 
other requirements considering energy savings, cost effectiveness, and 
consumer satisfaction.
    ``(cc) Ceiling Fans and Ceiling Fan Light Kits.--
            ``(1) Ceiling fans.--All ceiling fans manufactured on or 
        after January 1, 2007, shall have--
                    ``(A) lighting controls separate from fan speed 
                controls;
                    ``(B) adjustable speed controls (either more than 1 
                speed or variable speeds); and
                    ``(C) the capability of reversible fan action, 
                except (as determined by the Secretary by regulation)--
                            ``(i) for fans sold for industrial 
                        applications;
                            ``(ii) for fans sold for outdoor 
                        applications; and
                            ``(iii) where safety standards would be 
                        violated by the use of the reversible mode.
            ``(2) Ceiling fan light kits.--Ceiling fan light kits 
        manufactured on or after January 1, 2007, shall--
                    ``(A) meet the Energy Star Program Requirements for 
                Residential Light Fixtures (Version 3.1) issued by the 
                Environmental Protection Agency and be packaged with 
                lamps to fill all sockets;
                    ``(B) be packaged with screw-based compact 
                fluorescent lamps to fill all sockets, with such lamps 
                meeting the Energy Star Program Requirements for 
                Compact Fluorescent Lamps (Version 3.0) issued by the 
                Department of Energy; or
                    ``(C) use and be packaged with light sources, other 
                than compact fluorescent lamps, that meet the minimum 
                efficacy requirements (as measured in lumens per watt) 
                of the Energy Star Program Requirements for Compact 
                Fluorescent Lamps (Version 3.0) issued by the 
                Department of Energy.
            ``(3) Energy efficiency standards for ceiling fans.--
                    ``(A) In general.--Notwithstanding any provision of 
                this Act, the Secretary may consider, and prescribe, if 
                the requirements of subsections (o) and (p) are met, 
                energy efficiency or energy use standards (based on 
                cubic feet per minute per watt or watts) for 
                electricity used by ceiling fans to circulate air in a 
                room.
                    ``(B) Exemptions or different standards.--In 
                prescribing the standards, the Secretary shall 
                consider--
                            ``(i) exempting or setting different 
                        standards for certain product classes for which 
                        the primary standards are not technically 
                        feasible or economically justified; and
                            ``(ii) establishing separate exempted 
                        product classes for highly decorative fans for 
                        which air movement performance is a secondary 
                        design feature.
                    ``(C) Effective date.--Any air movement standard 
                prescribed under this subsection shall apply to 
                products manufactured on or after the date that is 3 
                years after publication of a final rule establishing 
                the standard.
    ``(dd) Effective Date.--Section 327 shall apply--
            ``(1) to products for which standards are to be established 
        under subsections (u) and (v) on the date on which a final rule 
        is issued by the Department of Energy, except that any State or 
        local standards prescribed or enacted for any such product 
        prior to the date on which such final rule is issued shall not 
        be preempted until the standard established under subsection 
        (u) or (v) for that product takes effect; and
            ``(2) to products for which standards are established under 
        subsections (w) through (bb) on the date of enactment of those 
        subsections, except that any State or local standards 
        prescribed or enacted prior to the date of enactment of those 
        subsections shall not be preempted until the standards 
        established under subsections (w) through (bb) take effect.''.
    (d) Residential Furnace Fans.--Section 325(f)(3) of the Energy 
Policy and Conservation Act (42 U.S.C. 6295(f)(3)) is amended by adding 
the following new subparagraph at the end:
    ``(D) Notwithstanding any provision of this Act, the Secretary may 
consider, and prescribe, if the requirements of subsection (o) of this 
section are met, energy efficiency or energy use standards for 
electricity used for purposes of circulating air through duct work.''.

SEC. 202. ENERGY LABELING.

    (a) Rulemaking on Effectiveness of Consumer Product Labeling.--
Section 324(a)(2) of the Energy Policy and Conservation Act (42 U.S.C. 
6294(a)(2)) is amended by adding at the end the following:
    ``(F) During the period beginning not later than 90 days after the 
date of enactment of this subparagraph and ending not later than 2 
years after the date of enactment of this subparagraph, the Commission 
shall initiate a rulemaking to consider--
            ``(i) the effectiveness of the current consumer products 
        labeling program in assisting consumers in making purchasing 
        decisions and improving energy efficiency; and
            ``(ii) changes to the labeling rules that would improve the 
        effectiveness of consumer product labels.''.
    (b) Rulemaking on Labeling for Additional Products.--Section 324(a) 
of the Energy Policy and Conservation Act (42 U.S.C. 6294(a)) is 
amended by adding at the end the following:
    ``(5)(A) The Secretary or the Commission, as appropriate, may, for 
covered products referred to in subsections (u) through (aa) of section 
325, prescribe, by rule, pursuant to this section, labeling 
requirements for the products, after a test procedure has been 
established pursuant to section 323.
    ``(B) In the case of products to which TP 1 standards under section 
325(y) apply, labeling requirements shall be based on the `Standard for 
the Labeling of Distribution Transformer Efficiency' prescribed by the 
National Electrical Manufacturers Association (NEMA TP 3) as in effect 
on the date of enactment of this paragraph.
    ``(6)(A) Not later than July 1, 2005, the Commission shall 
prescribe by rule, pursuant to this section, labeling requirements for 
the electricity used by ceiling fans to circulate air in a room.
    ``(B) Except as provided in subparagaph (C), the requirements shall 
be based on the test procedure and labeling requirements contained in 
the Energy Star Program Requirements for Residential Ceiling Fans 
(Version 2.0) issued by the Environmental Protection Agency.
    ``(C) The Commission shall not promulgate rules covering third 
party testing and other nonlabeling requirements unless the Commission 
determines the requirements are necessary to achieve compliance.
    ``(D) The rule shall apply to products manufactured after the 
latter of--
            ``(i) January 1, 2007; or
            ``(ii) the date that is 60 days after the date the final 
        rule is promulgated.''.

             TITLE III--ENERGY EFFICIENCY FEDERAL PROGRAMS

SEC. 301. PROCUREMENT OF ENERGY EFFICIENT PRODUCTS.

    (a) Requirements.--Part 3 of title V of the National Energy 
Conservation Policy Act (42 U.S.C. 8251 et seq.) is amended by adding 
at the end the following:

``SEC. 552. FEDERAL PROCUREMENT OF ENERGY EFFICIENT PRODUCTS.

    ``(a) Definitions.--In this section:
            ``(1) Energy star product.--The term `Energy Star product' 
        means a product that is rated for energy efficiency under an 
        Energy Star program.
            ``(2) Energy star program.--The term `Energy Star program' 
        means the program established by section 324A of the Energy 
        Policy and Conservation Act.
            ``(3) Executive agency.--The term `executive agency' has 
        the meaning given the term in section 4 of the Office of 
        Federal Procurement Policy Act (41 U.S.C. 403).
            ``(4) FEMP designated product.--The term `FEMP designated 
        product' means a product that is designated under the Federal 
        Energy Management Program of the Department of Energy as being 
        among the highest 25 percent of equivalent products for energy 
        efficiency.
    ``(b) Procurement of Energy Efficient Products.--
            ``(1) Requirement.--To meet the requirements of an 
        executive agency for an energy consuming product, the head of 
        the executive agency shall, except as provided in paragraph 
        (2), procure--
                    ``(A) an Energy Star product; or
                    ``(B) a FEMP designated product.
            ``(2) Exceptions.--The head of an executive agency is not 
        required to procure an Energy Star product or FEMP designated 
        product under paragraph (1) if the head of the executive agency 
        finds in writing that--
                    ``(A) an Energy Star product or FEMP designated 
                product is not cost-effective over the life of the 
                product taking energy cost savings into account; or
                    ``(B) no Energy Star product or FEMP designated 
                product is reasonably available that meets the 
                functional requirements of the executive agency.
            ``(3) Procurement planning.--The head of an executive 
        agency shall incorporate into the specifications for all 
        procurements involving energy consuming products and systems, 
        including guide specifications, project specifications, and 
        construction, renovation, and services contracts that include 
        provision of energy consuming products and systems, and into 
        the factors for the evaluation of offers received for the 
        procurement, criteria for energy efficiency that are consistent 
        with the criteria used for rating Energy Star products and for 
        rating FEMP designated products.
    ``(c) Listing of Energy Efficient Products in Federal Catalogs.--
Energy Star products and FEMP designated products shall be clearly 
identified and prominently displayed in any inventory or listing of 
products by the General Services Administration or the Defense 
Logistics Agency. The General Services Administration or the Defense 
Logistics Agency shall supply only Energy Star products or FEMP 
designated products for all product categories covered by the Energy 
Star program or the Federal Energy Management Program, except in cases 
where the agency ordering a product specifies in writing that no Energy 
Star product or FEMP designated product is available to meet the 
buyer's functional requirements, or that no Energy Star product or FEMP 
designated product is cost-effective for the intended application over 
the life of the product, taking energy cost savings into account.
    ``(d) Specific Products.--(1) In the case of electric motors of 1 
to 500 horsepower, agencies shall select only premium efficient motors 
that meet a standard designated by the Secretary. The Secretary shall 
designate such a standard not later than 120 days after the date of the 
enactment of this section, after considering the recommendations of 
associated electric motor manufacturers and energy efficiency groups.
    ``(2) All Federal agencies are encouraged to take actions to 
maximize the efficiency of air conditioning and refrigeration 
equipment, including appropriate cleaning and maintenance, including 
the use of any system treatment or additive that will reduce the 
electricity consumed by air conditioning and refrigeration equipment. 
Any such treatment or additive must be--
            ``(A) determined by the Secretary to be effective in 
        increasing the efficiency of air conditioning and refrigeration 
        equipment without having an adverse impact on air conditioning 
        performance (including cooling capacity) or equipment useful 
        life;
            ``(B) determined by the Administrator of the Environmental 
        Protection Agency to be environmentally safe; and
            ``(C) shown to increase seasonal energy efficiency ratio 
        (SEER) or energy efficiency ratio (EER) when tested by the 
        National Institute of Standards and Technology according to 
        Department of Energy test procedures without causing any 
        adverse impact on the system, system components, the 
        refrigerant or lubricant, or other materials in the system.
Results of testing described in subparagraph (C) shall be published in 
the Federal Register for public review and comment. For purposes of 
this section, a hardware device or primary refrigerant shall not be 
considered an additive.
    ``(e) Regulations.--Not later than 180 days after the date of the 
enactment of this section, the Secretary shall issue guidelines to 
carry out this section.''.
    (b) Conforming Amendment.--The table of contents of the National 
Energy Conservation Policy Act is amended by inserting after the item 
relating to section 551 the following new item:

``Sec. 552. Federal procurement of energy efficient products.''.

SEC. 302. ENERGY SAVINGS PERFORMANCE CONTRACTS.

    (a) Permanent Extension.--Effective September 30, 2003, section 
801(c) of the National Energy Conservation Policy Act (42 U.S.C. 
8287(c)) is repealed.
    (b) Payment of Costs.--Section 802 of the National Energy 
Conservation Policy Act (42 U.S.C. 8287a) is amended by inserting ``, 
water, or wastewater treatment'' after ``payment of energy''.
    (c) Energy Savings.--Section 804(2) of the National Energy 
Conservation Policy Act (42 U.S.C. 8287c(2)) is amended to read as 
follows:
            ``(2) The term `energy savings' means a reduction in the 
        cost of energy, water, or wastewater treatment, from a base 
        cost established through a methodology set forth in the 
        contract, used in an existing federally owned building or 
        buildings or other federally owned facilities as a result of--
                    ``(A) the lease or purchase of operating equipment, 
                improvements, altered operation and maintenance, or 
                technical services;
                    ``(B) the increased efficient use of existing 
                energy sources by cogeneration or heat recovery, 
                excluding any cogeneration process for other than a 
                federally owned building or buildings or other 
                federally owned facilities; or
                    ``(C) the increased efficient use of existing water 
                sources in either interior or exterior applications.''.
    (d) Energy Savings Contract.--Section 804(3) of the National Energy 
Conservation Policy Act (42 U.S.C. 8287c(3)) is amended to read as 
follows:
            ``(3) The terms `energy savings contract' and `energy 
        savings performance contract' mean a contract that provides for 
        the performance of services for the design, acquisition, 
        installation, testing, and, where appropriate, operation, 
        maintenance, and repair, of an identified energy or water 
        conservation measure or series of measures at 1 or more 
        locations. Such contracts shall, with respect to an agency 
        facility that is a public building (as such term is defined in 
        section 3301 of title 40, United States Code), be in compliance 
        with the prospectus requirements and procedures of section 3307 
        of title 40, United States Code.''.
    (e) Energy or Water Conservation Measure.--Section 804(4) of the 
National Energy Conservation Policy Act (42 U.S.C. 8287c(4)) is amended 
to read as follows:
            ``(4) The term `energy or water conservation measure' 
        means--
                    ``(A) an energy conservation measure, as defined in 
                section 551; or
                    ``(B) a water conservation measure that improves 
                the efficiency of water use, is life-cycle cost-
                effective, and involves water conservation, water 
                recycling or reuse, more efficient treatment of 
                wastewater or stormwater, improvements in operation or 
                maintenance efficiencies, retrofit activities, or other 
                related activities, not at a Federal hydroelectric 
                facility.''.
    (f) Review.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary of Energy shall complete a review 
of the Energy Savings Performance Contract program to identify 
statutory, regulatory, and administrative obstacles that prevent 
Federal agencies from fully utilizing the program. In addition, this 
review shall identify all areas for increasing program flexibility and 
effectiveness, including audit and measurement verification 
requirements, accounting for energy use in determining savings, 
contracting requirements, including the identification of additional 
qualified contractors, and energy efficiency services covered. The 
Secretary shall report these findings to Congress and shall implement 
identified administrative and regulatory changes to increase program 
flexibility and effectiveness to the extent that such changes are 
consistent with statutory authority.
    (g) Extension of Authority.--Any energy savings performance 
contract entered into under section 801 of the National Energy 
Conservation Policy Act (42 U.S.C. 8287) after October 1, 2003, and 
before the date of enactment of this Act, shall be deemed to have been 
entered into pursuant to such section 801 as amended by subsection (a) 
of this section.

SEC. 303. FEDERAL BUILDING PERFORMANCE STANDARDS.

    Section 305(a) of the Energy Conservation and Production Act (42 
U.S.C. 6834(a)) is amended--
            (1) in paragraph (2)(A), by striking ``CABO Model Energy 
        Code, 1992'' and inserting ``the 2003 International Energy 
        Conservation Code''; and
            (2) by adding at the end the following:
    ``(3) Revised federal building energy efficiency performance 
standards.--
            ``(A) In general.--Not later than 1 year after the date of 
        enactment of this paragraph, the Secretary of Energy shall 
        establish, by rule, revised Federal building energy efficiency 
        performance standards that require that--
                    ``(i) if life-cycle cost-effective, for new Federal 
                buildings--
                            ``(I) such buildings be designed so as to 
                        achieve energy consumption levels at least 30 
                        percent below those of the version current as 
                        of the date of enactment of this paragraph of 
                        the ASHRAE Standard or the International Energy 
                        Conservation Code, as appropriate; and
                            ``(II) sustainable design principles are 
                        applied to the siting, design, and construction 
                        of all new and replacement buildings; and
                    ``(ii) where water is used to achieve energy 
                efficiency, water conservation technologies shall be 
                applied to the extent they are life-cycle cost 
                effective.
            ``(B) Additional revisions.--Not later than 1 year after 
        the date of approval of each subsequent revision of the ASHRAE 
        Standard or the International Energy Conservation Code, as 
        appropriate, the Secretary of Energy shall determine, based on 
        the cost-effectiveness of the requirements under the 
        amendments, whether the revised standards established under 
        this paragraph should be updated to reflect the amendments.
            ``(C) Statement on compliance of new buildings.--In the 
        budget request of the Federal agency for each fiscal year and 
        each report submitted by the Federal agency under section 
        548(a) of the National Energy Conservation Policy Act (42 
        U.S.C. 8258(a)), the head of each Federal agency shall 
        include--
                    ``(i) a list of all new Federal buildings owned, 
                operated, or controlled by the Federal agency; and
                    ``(ii) a statement concerning whether the Federal 
                buildings meet or exceed the revised standards 
                established under this paragraph.''.

                        TITLE IV--PUBLIC HOUSING

SEC. 401. PUBLIC HOUSING CAPITAL FUND.

    Section 9 of the United States Housing Act of 1937 (42 U.S.C. 
1437g) is amended--
            (1) in subsection (d)(1)--
                    (A) in subparagraph (I), by striking ``and'' at the 
                end;
                    (B) in subparagraph (J), by striking the period at 
                the end and inserting a semicolon; and
                    (C) by adding at the end the following new 
                subparagraphs:
                    ``(K) improvement of energy and water-use 
                efficiency by installing fixtures and fittings that 
                conform to the American Society of Mechanical 
                Engineers/American National Standards Institute 
                standards A112.19.2-1998 and A112.18.1-2000, or any 
                revision thereto, applicable at the time of 
                installation, and by increasing energy efficiency and 
                water conservation by such other means as the Secretary 
                determines are appropriate; and
                    ``(L) integrated utility management and capital 
                planning to maximize energy conservation and efficiency 
                measures.''; and
            (2) in subsection (e)(2)(C)--
                    (A) by striking ``The'' and inserting the 
                following:
                            ``(i) In general.--The''; and
                    (B) by adding at the end the following:
                            ``(ii) Third party contracts.--Contracts 
                        described in clause (i) may include contracts 
                        for equipment conversions to less costly 
                        utility sources, projects with resident-paid 
                        utilities, and adjustments to frozen base year 
                        consumption, including systems repaired to meet 
                        applicable building and safety codes and 
                        adjustments for occupancy rates increased by 
                        rehabilitation.
                            ``(iii) Term of contract.--The total term 
                        of a contract described in clause (i) shall not 
                        exceed 20 years to allow longer payback periods 
                        for retrofits, including windows, heating 
                        system replacements, wall insulation, site-
                        based generation, advanced energy savings 
                        technologies, including renewable energy 
                        generation, and other such retrofits.''.

SEC. 402. GRANTS FOR ENERGY-CONSERVING IMPROVEMENTS FOR ASSISTED 
              HOUSING.

    Section 251(b)(1) of the National Energy Conservation Policy Act 
(42 U.S.C. 8231(1)) is amended--
            (1) by striking ``financed with loans'' and inserting 
        ``assisted'';
            (2) by inserting after ``1959,'' the following: ``which are 
        eligible multifamily housing projects (as such term is defined 
        in section 512 of the Multifamily Assisted Housing Reform and 
        Affordability Act of 1997 (42 U.S.C. 1437f note)) and are 
        subject to mortgage restructuring and rental assistance 
sufficiency plans under such Act,''; and
            (3) by inserting after the period at the end of the first 
        sentence the following new sentence: ``Such improvements may 
        also include the installation of energy and water conserving 
        fixtures and fittings that conform to the American Society of 
        Mechanical Engineers/American National Standards Institute 
        standards A112.19.2-1998 and A112.18.1-2000, or any revision 
        thereto, applicable at the time of installation.''.

SEC. 403. ENERGY-EFFICIENT APPLIANCES.

    In purchasing appliances, a public housing agency shall purchase 
energy-efficient appliances that are Energy Star products or FEMP-
designated products, as such terms are defined in section 553 of the 
National Energy Conservation Policy Act (as amended by this title), 
unless the purchase of energy-efficient appliances is not cost-
effective to the agency.

SEC. 404. ENERGY EFFICIENCY STANDARDS.

    Section 109 of the Cranston-Gonzalez National Affordable Housing 
Act (42 U.S.C. 12709) is amended--
            (1) in subsection (a)--
                    (A) in paragraph (1)--
                            (i) by striking ``1 year after the date of 
                        the enactment of the Energy Policy Act of 
                        1992'' and inserting ``September 30, 2004'';
                            (ii) in subparagraph (A), by striking 
                        ``and'' at the end;
                            (iii) in subparagraph (B), by striking the 
                        period at the end and inserting ``; and''; and
                            (iv) by adding at the end the following:
                    ``(C) rehabilitation and new construction of public 
                and assisted housing funded by HOPE VI revitalization 
                grants under section 24 of the United States Housing 
                Act of 1937 (42 U.S.C. 1437v), where such standards are 
                determined to be cost effective by the Secretary of 
                Housing and Urban Development.''; and
                    (B) in paragraph (2), by striking ``Council of 
                American'' and all that follows through ``90.1-1989')'' 
                and inserting ``2003 International Energy Conservation 
                Code'';
            (2) in subsection (b)--
                    (A) by striking ``within 1 year after the date of 
                the enactment of the Energy Policy Act of 1992'' and 
                inserting ``by September 30, 2004''; and
                    (B) by striking ``CABO'' and all that follows 
                through ``1989'' and inserting ``the 2003 International 
                Energy Conservation Code''; and
            (3) in subsection (c)--
                    (A) in the heading, by striking ``Model Energy 
                Code'' and inserting ``The International Energy 
                Conservation Code''; and
                    (B) by striking ``CABO'' and all that follows 
                through ``1989'' and inserting ``the 2003 International 
                Energy Conservation Code''.

                     TITLE V--RELIABILITY STANDARDS

SEC. 501. ELECTRIC RELIABILITY STANDARDS.

    (a) In General.--Part II of the Federal Power Act (16 U.S.C 824 et 
seq.) is amended by adding at the end the following:

``SEC. 215. ELECTRIC RELIABILITY.

    ``(a) Definitions.--For purposes of this section:
            ``(1) The term `bulk-power system' means--
                    ``(A) facilities and control systems necessary for 
                operating an interconnected electric energy 
                transmission network (or any portion thereof); and
                    ``(B) electric energy from generation facilities 
                needed to maintain transmission system reliability.
        The term does not include facilities used in the local 
        distribution of electric energy.
            ``(2) The terms `Electric Reliability Organization' and 
        `ERO' mean the organization certified by the Commission under 
        subsection (c) the purpose of which is to establish and enforce 
        reliability standards for the bulk-power system, subject to 
        Commission review.
            ``(3) The term `reliability standard' means a requirement, 
        approved by the Commission under this section, to provide for 
        reliable operation of the bulk-power system. The term includes 
        requirements for the operation of existing bulk-power system 
        facilities and the design of planned additions or modifications 
        to such facilities to the extent necessary to provide for 
        reliable operation of the bulk-power system, but the term does 
        not include any requirement to enlarge such facilities or to 
        construct new transmission capacity or generation capacity.
            ``(4) The term `reliable operation' means operating the 
        elements of the bulk-power system within equipment and electric 
        system thermal, voltage, and stability limits so that 
        instability, uncontrolled separation, or cascading failures of 
        such system will not occur as a result of a sudden disturbance 
        or unanticipated failure of system elements.
            ``(5) The term `Interconnection' means a geographic area in 
        which the operation of bulk-power system components is 
        synchronized such that the failure of 1 or more of such 
        components may adversely affect the ability of the operators of 
        other components within the system to maintain reliable 
        operation of the facilities within their control.
            ``(6) The term `transmission organization' means a Regional 
        Transmission Organization, Independent System Operator, 
        independent transmission provider, or other transmission 
        organization finally approved by the Commission for the 
        operation of transmission facilities.
            ``(7) The term `regional entity' means an entity having 
        enforcement authority pursuant to subsection (e)(4).
    ``(b) Jurisdiction and Applicability.--(1) The Commission shall 
have jurisdiction, within the United States, over the ERO certified by 
the Commission under subsection (c), any regional entities, and all 
users, owners and operators of the bulk-power system, including but not 
limited to the entities described in section 201(f), for purposes of 
approving reliability standards established under this section and 
enforcing compliance with this section. All users, owners and operators 
of the bulk-power system shall comply with reliability standards that 
take effect under this section.
    ``(2) The Commission shall issue a final rule to implement the 
requirements of this section not later than 180 days after the date of 
enactment of this section.
    ``(c) Certification.--Following the issuance of a Commission rule 
under subsection (b)(2), any person may submit an application to the 
Commission for certification as the Electric Reliability Organization. 
The Commission may certify 1 such ERO if the Commission determines that 
such ERO--
            ``(1) has the ability to develop and enforce, subject to 
        subsection (e)(2), reliability standards that provide for an 
        adequate level of reliability of the bulk-power system; and
            ``(2) has established rules that--
                    ``(A) assure its independence of the users and 
                owners and operators of the bulk-power system, while 
                assuring fair stakeholder representation in the 
                selection of its directors and balanced decisionmaking 
                in any ERO committee or subordinate organizational 
                structure;
                    ``(B) allocate equitably reasonable dues, fees, and 
                other charges among end users for all activities under 
                this section;
                    ``(C) provide fair and impartial procedures for 
                enforcement of reliability standards through the 
                imposition of penalties in accordance with subsection 
                (e) (including limitations on activities, functions, or 
                operations, or other appropriate sanctions);
                    ``(D) provide for reasonable notice and opportunity 
                for public comment, due process, openness, and balance 
                of interests in developing reliability standards and 
                otherwise exercising its duties; and
                    ``(E) provide for taking, after certification, 
                appropriate steps to gain recognition in Canada and 
                Mexico.
    ``(d) Reliability Standards.--(1) The Electric Reliability 
Organization shall file each reliability standard or modification to a 
reliability standard that it proposes to be made effective under this 
section with the Commission.
    ``(2) The Commission may approve, by rule or order, a proposed 
reliability standard or modification to a reliability standard if it 
determines that the standard is just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. The 
Commission shall give due weight to the technical expertise of the 
Electric Reliability Organization with respect to the content of a 
proposed standard or modification to a reliability standard and to the 
technical expertise of a regional entity organized on an 
Interconnection-wide basis with respect to a reliability standard to be 
applicable within that Interconnection, but shall not defer with 
respect to the effect of a standard on competition. A proposed standard 
or modification shall take effect upon approval by the Commission.
    ``(3) The Electric Reliability Organization shall rebuttably 
presume that a proposal from a regional entity organized on an 
Interconnection-wide basis for a reliability standard or modification 
to a reliability standard to be applicable on an Interconnection-wide 
basis is just, reasonable, and not unduly discriminatory or 
preferential, and in the public interest.
    ``(4) The Commission shall remand to the Electric Reliability 
Organization for further consideration a proposed reliability standard 
or a modification to a reliability standard that the Commission 
disapproves in whole or in part.
    ``(5) The Commission, upon its own motion or upon complaint, may 
order the Electric Reliability Organization to submit to the Commission 
a proposed reliability standard or a modification to a reliability 
standard that addresses a specific matter if the Commission considers 
such a new or modified reliability standard appropriate to carry out 
this section.
    ``(6) The final rule adopted under subsection (b)(2) shall include 
fair processes for the identification and timely resolution of any 
conflict between a reliability standard and any function, rule, order, 
tariff, rate schedule, or agreement accepted, approved, or ordered by 
the Commission applicable to a transmission organization. Such 
transmission organization shall continue to comply with such function, 
rule, order, tariff, rate schedule or agreement accepted approved, or 
ordered by the Commission until--
            ``(A) the Commission finds a conflict exists between a 
        reliability standard and any such provision;
            ``(B) the Commission orders a change to such provision 
        pursuant to section 206 of this part; and
            ``(C) the ordered change becomes effective under this part.
If the Commission determines that a reliability standard needs to be 
changed as a result of such a conflict, it shall order the ERO to 
develop and file with the Commission a modified reliability standard 
under paragraph (4) or (5) of this subsection.
    ``(e) Enforcement.--(1) The ERO may impose, subject to paragraph 
(2), a penalty on a user or owner or operator of the bulk-power system 
for a violation of a reliability standard approved by the Commission 
under subsection (d) if the ERO, after notice and an opportunity for a 
hearing--
            ``(A) finds that the user or owner or operator has violated 
        a reliability standard approved by the Commission under 
        subsection (d); and
            ``(B) files notice and the record of the proceeding with 
        the Commission.
    ``(2) A penalty imposed under paragraph (1) may take effect not 
earlier than the 31st day after the ERO files with the Commission 
notice of the penalty and the record of proceedings. Such penalty shall 
be subject to review by the Commission, on its own motion or upon 
application by the user, owner or operator that is the subject of the 
penalty filed within 30 days after the date such notice is filed with 
the Commission. Application to the Commission for review, or the 
initiation of review by the Commission on its own motion, shall not 
operate as a stay of such penalty unless the Commission otherwise 
orders upon its own motion or upon application by the user, owner or 
operator that is the subject of such penalty. In any proceeding to 
review a penalty imposed under paragraph (1), the Commission, after 
notice and opportunity for hearing (which hearing may consist solely of 
the record before the ERO and opportunity for the presentation of 
supporting reasons to affirm, modify, or set aside the penalty), shall 
by order affirm, set aside, reinstate, or modify the penalty, and, if 
appropriate, remand to the ERO for further proceedings. The Commission 
shall implement expedited procedures for such hearings.
    ``(3) On its own motion or upon complaint, the Commission may order 
compliance with a reliability standard and may impose a penalty against 
a user or owner or operator of the bulk-power system if the Commission 
finds, after notice and opportunity for a hearing, that the user or 
owner or operator of the bulk-power system has engaged or is about to 
engage in any acts or practices that constitute or will constitute a 
violation of a reliability standard.
    ``(4) The Commission shall issue regulations authorizing the ERO to 
enter into an agreement to delegate authority to a regional entity for 
the purpose of proposing reliability standards to the ERO and enforcing 
reliability standards under paragraph (1) if--
            ``(A) the regional entity is governed by--
                    ``(i) an independent board;
                    ``(ii) a balanced stakeholder board; or
                    ``(iii) a combination independent and balanced 
                stakeholder board;
            ``(B) the regional entity otherwise satisfies the 
        provisions of subsection (c)(1) and (2); and
            ``(C) the agreement promotes effective and efficient 
        administration of bulk-power system reliability.
The Commission may modify such delegation. The ERO and the Commission 
shall rebuttably presume that a proposal for delegation to a regional 
entity organized on an Interconnection-wide basis promotes effective 
and efficient administration of bulk-power system reliability and 
should be approved. Such regulation may provide that the Commission may 
assign the ERO's authority to enforce reliability standards under 
paragraph (1) directly to a regional entity consistent with the 
requirements of this paragraph.
    ``(5) The Commission may take such action as is necessary or 
appropriate against the ERO or a regional entity to ensure compliance 
with a reliability standard or any Commission order affecting the ERO 
or a regional entity.
    ``(6) Any penalty imposed under this section shall bear a 
reasonable relation to the seriousness of the violation and shall take 
into consideration the efforts of such user, owner, or operator to 
remedy the violation in a timely manner.
    ``(f) Changes in Electric Reliability Organization Rules.--The 
Electric Reliability Organization shall file with the Commission for 
approval any proposed rule or proposed rule change, accompanied by an 
explanation of its basis and purpose. The Commission, upon its own 
motion or complaint, may propose a change to the rules of the ERO. A 
proposed rule or proposed rule change shall take effect upon a finding 
by the Commission, after notice and opportunity for comment, that the 
change is just, reasonable, not unduly discriminatory or preferential, 
is in the public interest, and satisfies the requirements of subsection 
(c).
    ``(g) Reliability Reports.--The ERO shall conduct periodic 
assessments of the reliability and adequacy of the bulk-power system in 
North America.
    ``(h) Coordination With Canada and Mexico.--The President is urged 
to negotiate international agreements with the governments of Canada 
and Mexico to provide for effective compliance with reliability 
standards and the effectiveness of the ERO in the United States and 
Canada or Mexico.
    ``(i) Savings Provisions.--(1) The ERO shall have authority to 
develop and enforce compliance with reliability standards for only the 
bulk-power system.
    ``(2) This section does not authorize the ERO or the Commission to 
order the construction of additional generation or transmission 
capacity or to set and enforce compliance with standards for adequacy 
or safety of electric facilities or services.
    ``(3) Nothing in this section shall be construed to preempt any 
authority of any State to take action to ensure the safety, adequacy, 
and reliability of electric service within that State, as long as such 
action is not inconsistent with any reliability standard.
    ``(4) Within 90 days of the application of the Electric Reliability 
Organization or other affected party, and after notice and opportunity 
for comment, the Commission shall issue a final order determining 
whether a State action is inconsistent with a reliability standard, 
taking into consideration any recommendation of the ERO.
    ``(5) The Commission, after consultation with the ERO and the State 
taking action, may stay the effectiveness of any State action, pending 
the Commission's issuance of a final order.
    ``(j) Regional Advisory Bodies.--The Commission shall establish a 
regional advisory body on the petition of at least \2/3\ of the States 
within a region that have more than \1/2\ of their electric load served 
within the region. A regional advisory body shall be composed of 1 
member from each participating State in the region, appointed by the 
Governor of each State, and may include representatives of agencies, 
States, and provinces outside the United States. A regional advisory 
body may provide advice to the Electric Reliability Organization, a 
regional entity, or the Commission regarding the governance of an 
existing or proposed regional entity within the same region, whether a 
standard proposed to apply within the region is just, reasonable, not 
unduly discriminatory or preferential, and in the public interest, 
whether fees proposed to be assessed within the region are just, 
reasonable, not unduly discriminatory or preferential, and in the 
public interest and any other responsibilities requested by the 
Commission. The Commission may give deference to the advice of any such 
regional advisory body if that body is organized on an Interconnection-
wide basis.
    ``(k) Alaska and Hawaii.--The provisions of this section do not 
apply to Alaska or Hawaii.''.
    (b) Status of ERO.--The Electric Reliability Organization certified 
by the Federal Energy Regulatory Commission under section 215(c) of the 
Federal Power Act and any regional entity delegated enforcement 
authority pursuant to section 215(e)(4) of that Act are not 
departments, agencies, or instrumentalities of the United States 
Government.
                                 <all>
```