I 

108TH CONGRESS 

2D SESSION H. R. 4206

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

for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 22, 2004

Mr. CUNNINGHAM (for himself, Mr. MARKEY, Mr. MATSUI, and Mr. LEWIS

of California) introduced the following bill; which was referred to the 

Committee on Energy and Commerce, and in addition to the Committees 

on Ways and Means, and Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such 

provisions as fall within the jurisdiction of the committee concerned 

A BILL

To provide for various energy efficiency programs and tax 

incentives, and for other purposes.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

5 ‘‘Efficient Energy Through Certified Technologies and 

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

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

8 this Act is as follows:
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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.

1 TITLE I—TAX INCENTIVES 

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

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

6 itemized deductions for individuals and corporations) is 

7 amended by inserting after section 179A the following new 

8 section: 
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1 ‘‘SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS 

2 DEDUCTION. 

3 ‘‘(a) IN GENERAL.—There shall be allowed as a de4 duction an amount equal to the cost of energy efficient 

5 commercial building property placed in service during the 

6 taxable year. 

7 ‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The de8 duction under subsection (a) with respect to any building 

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

10 exceed an amount equal to the product of—

11 ‘‘(1) $2.25, and 

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

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

14 ‘‘(1) ENERGY EFFICIENT COMMERCIAL BUILD15 ING PROPERTY.—The term ‘energy efficient commer16 cial building property’ means property—

17 ‘‘(A) which is installed on or in any build18 ing located in the United States, 

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

20 ‘‘(i) the lighting systems, 

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

22 and hot water systems, or 

23 ‘‘(iii) the building envelope, and 

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

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

26 a plan designed to reduce the total annual en-
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1 ergy and power costs with respect to the light2 ing systems, heating, cooling, ventilation, and 

3 hot water systems of the building by 50 percent 

4 or more in comparison to a reference building 

5 which meets the minimum requirements of 

6 Standard 90.1–2001 using methods of calcula7 tion under subsection (d)(2). 

8 A building described in subparagraph (A) may in9 clude any residential rental property, including any 

10 low-rise multifamily structure or single family hous11 ing property which is not within the scope of Stand12 ard 90.1–2001. 

13 ‘‘(2) STANDARD 90.1–2001.—The term ‘Stand14 ard 90.1–2001’ means Standard 90.1–2001 of the 

15 American Society of Heating, Refrigerating, and Air 

16 Conditioning Engineers and the Illuminating Engi17 neering Society of North America (as in effect on 

18 April 2, 2003). 

19 ‘‘(d) SPECIAL RULES.—

20 ‘‘(1) PARTIAL ALLOWANCE.—

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

22 subsection (f), if—

23 ‘‘(i) the requirement of subsection 

24 (c)(1)(C) is not met, but
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1 ‘‘(ii) there is a certification in accord2 ance with subsection (d)(4) that any sys3 tem referred to in subsection (c)(1)(B) sat4 isfies the energy-savings targets estab5 lished by the Secretary under subpara6 graph (B) with respect to such system, 

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

8 shall be treated as met with respect to such sys9 tem, and the deduction under subsection (a) 

10 shall be allowed with respect to energy efficient 

11 commercial building property installed as part 

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

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

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

15 for ‘$2.25’. 

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

17 consultation with the Secretary of Energy, shall 

18 establish a target for each system described in 

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

20 met for all such systems, the building would 

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

22 ‘‘(2) METHODS OF CALCULATION.—The Sec23 retary, after consultation with the Secretary of En24 ergy, shall promulgate regulations which describe in 

25 detail methods for calculating and verifying energy 
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1 and power consumption and cost, based on the pro2 visions of the 2005 California Nonresidential Alter3 native Calculation Method Approval Manual or, in 

4 the case of residential property, the 2005 California 

5 Residential Alternative Calculation Method Approval 

6 Manual. These regulations shall meet the following 

7 requirements: 

8 ‘‘(A) In calculating tradeoffs and energy 

9 performance, the regulations shall prescribe the 

10 costs per unit of energy and power, such as kil11 owatt hour, kilowatt, gallon of fuel oil, and 

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

13 dependent on time of usage. If a State has de14 veloped annual energy usage and cost reduction 

15 procedures based on time of usage costs for use 

16 in the performance standards of the State’s 

17 building energy code before the effective date of 

18 this section, the State may use those annual en19 ergy usage and cost reduction procedures in 

20 lieu of those adopted by the Secretary. 

21 ‘‘(B) The calculation methods under this 

22 paragraph need not comply fully with section 

23 11 of Standard 90.1–2001. 

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

25 neutral, such that the same energy efficiency 
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1 features shall qualify a building for the deduc2 tion under this section regardless of whether 

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

4 electric heat pump. The reference building for 

5 a proposed design which employs electric resist6 ance heating shall be modeled as using a heat 

7 pump. 

8 ‘‘(D) The calculation methods shall provide 

9 appropriate calculated energy savings for design 

10 methods and technologies not otherwise credited 

11 in either Standard 90.1–2001 or in the 2005 

12 California Nonresidential Alternative Calcula13 tion Method Approval Manual, including the 

14 following: 

15 ‘‘(i) Natural ventilation. 

16 ‘‘(ii) Evaporative cooling. 

17 ‘‘(iii) Automatic lighting controls such 

18 as occupancy sensors, photocells, and time19 clocks. 

20 ‘‘(iv) Daylighting. 

21 ‘‘(v) Designs utilizing semi-condi22 tioned spaces which maintain adequate 

23 comfort conditions without air conditioning 

24 or without heating. 
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1 ‘‘(vi) Improved fan system efficiency, 

2 including reductions in static pressure. 

3 ‘‘(vii) Advanced unloading mecha4 nisms for mechanical cooling, such as mul5 tiple or variable speed compressors. 

6 ‘‘(viii) The calculation methods may 

7 take into account the extent of commis8 sioning in the building, and allow the tax9 payer to take into account measured per10 formance which exceeds typical perform11 ance. 

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

13 including combined heat and power sys14 tems, fuel cells, and renewable energy gen15 eration such as solar energy. 

16 ‘‘(x) Wiring with lower energy losses 

17 than wiring satisfying Standard 90.1–2001 

18 requirements for building power distribu19 tion systems. 

20 ‘‘(3) COMPUTER SOFTWARE.—

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

22 paragraph (2) shall be prepared by qualified 

23 computer software. 
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1 ‘‘(B) QUALIFIED COMPUTER SOFTWARE.—

2 For purposes of this paragraph, the term 

3 ‘qualified computer software’ means software—

4 ‘‘(i) for which the software designer 

5 has certified that the software meets all 

6 procedures and detailed methods for calcu7 lating energy and power consumption and 

8 costs as required by the Secretary, 

9 ‘‘(ii) which provides such forms as re10 quired to be filed by the Secretary in con11 nection with energy efficiency of property 

12 and the deduction allowed under this sec13 tion, and 

14 ‘‘(iii) which provides a notice form 

15 which documents the energy efficiency fea16 tures of the building and its projected an17 nual energy costs. 

18 ‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC

19 PROPERTY.—In the case of energy efficient commer20 cial building property installed on or in public prop21 erty, the Secretary shall promulgate a regulation to 

22 allow the allocation of the deduction to the person 

23 primarily responsible for designing the property in 

24 lieu of the public entity which is the owner of such
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1 property. Such person shall be treated as the tax2 payer for purposes of this section. 

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

4 required under this section shall include an expla5 nation to the building owner regarding the energy 

6 efficiency features of the building and its projected 

7 annual energy costs as provided in the notice under 

8 paragraph (3)(B)(iii). 

9 ‘‘(6) CERTIFICATION.—

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

11 prescribe the manner and method for the mak12 ing of certifications under this section. 

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

14 include as part of the certification process pro15 cedures for inspection and testing by qualified 

16 individuals described in subparagraph (C) to 

17 ensure compliance of buildings with energy-sav18 ings plans and targets. Such procedures shall 

19 be comparable, given the difference between 

20 commercial and residential buildings, to the re21 quirements in the Mortgage Industry National 

22 Accreditation Procedures for Home Energy 

23 Rating Systems. 

24 ‘‘(C) QUALIFIED INDIVIDUALS.—Individ25 uals qualified to determine compliance shall be 
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1 only those individuals who are recognized by an 

2 organization certified by the Secretary for such 

3 purposes. 

4 ‘‘(e) BASIS REDUCTION.—For purposes of this sub5 title, if a deduction is allowed under this section with re6 spect to any energy efficient commercial building property, 

7 the basis of such property shall be reduced by the amount 

8 of the deduction so allowed. 

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

10 Until such time as the Secretary issues final regulations 

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

12 is part of a lighting system— 

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

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

15 lighting power density of 25 percent (50 percent in 

16 the case of a warehouse) of the minimum require17 ments in Table 9.3.1.1 or Table 9.3.1.2 (not includ18 ing additional interior lighting power allowances) of 

19 Standard 90.1–2001. 

20 ‘‘(2) REDUCTION IN DEDUCTION IF REDUCTION

21 LESS THAN 40 PERCENT.—

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

23 lighting system of any building other than a 

24 warehouse, the reduction in lighting power den25 sity of the lighting system is not at least 40 
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1 percent, only the applicable percentage of the 

2 amount of deduction otherwise allowable under 

3 this section with respect to such property shall 

4 be allowed. 

5 ‘‘(B) APPLICABLE PERCENTAGE.—For 

6 purposes of subparagraph (A), the applicable 

7 percentage is the number of percentage points 

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

9 ‘‘(i) 50, and 

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

11 ratio to 50 as the excess of the reduction 

12 of lighting power density of the lighting 

13 system over 25 percentage points bears to 

14 15. 

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

16 not apply to any system—

17 ‘‘(i) the controls and circuiting of 

18 which do not comply fully with the manda19 tory and prescriptive requirements of 

20 Standard 90.1–2001 and which do not in21 clude provision for bilevel switching in all 

22 occupancies except hotel and motel guest 

23 rooms, store rooms, restrooms, and public 

24 lobbies, or 
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1 ‘‘(ii) which does not meet the min2 imum requirements for calculated lighting 

3 levels as set forth in the Illuminating Engi4 neering Society of North America Lighting 

5 Handbook, Performance and Application, 

6 Ninth Edition, 2000. 

7 ‘‘(g) REGULATIONS.—The Secretary shall promul8 gate such regulations as necessary—

9 ‘‘(1) to take into account new technologies re10 garding energy efficiency and renewable energy for 

11 purposes of determining energy efficiency and sav12 ings under this section, and 

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

14 allowed under this section if the plan described in 

15 subsection (c)(1)(C) or (d)(1)(A) is not fully imple16 mented. 

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

18 with respect to property placed in service after December 

19 31, 2009.’’. 

20 (b) CONFORMING AMENDMENTS.—

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

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

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

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

25 adding at the end the following new paragraph: 
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1 ‘‘(29) to the extent provided in section 

2 179B(e).’’. 

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

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

5 appears in paragraphs (2)(C) and (3)(C). 

6 (3) Section 1250(b)(3) of such Code is amend7 ed by inserting before the period at the end of the 

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

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

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

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

12 and inserting ‘‘, or’’, and by inserting after subpara13 graph (H) the following new subparagraph: 

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

15 allowed under section 179B.’’. 

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

17 amended by striking ‘‘or 179A’’ each place it ap18 pears in the heading and text and inserting ‘‘, 179A, 

19 or 179B’’. 

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

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

22 Revenue Code of 1986 is amended by inserting after sec23 tion 179A the following new item:

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

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

25 this section shall apply to property placed in service after
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1 the date of the enactment of this Act in taxable years end2 ing after such date. 

3 SEC. 102. CREDIT FOR CONSTRUCTION OF NEW ENERGY EF4 FICIENT HOMES. 

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of 

7 1986 (relating to business related credits) is amended by 

8 adding at the end the following new section: 

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

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

11 the case of an eligible contractor with respect to a quali12 fied new energy efficient home, the credit determined 

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

14 home is an amount equal to the aggregate adjusted bases 

15 of all energy efficient property installed in such home dur16 ing construction of such home. 

17 ‘‘(b) LIMITATIONS.—

18 ‘‘(1) MAXIMUM CREDIT.—

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

20 this section with respect to a dwelling unit shall 

21 not exceed—

22 ‘‘(i) in the case of a dwelling unit de23 scribed in clause (i) or (iii) of subsection 

24 (c)(3)(C), $1,000, and 
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1 ‘‘(ii) in the case of a dwelling unit de2 scribed in subsection (c)(3)(C)(ii), $2,000.

3 ‘‘(B) PRIOR CREDIT AMOUNTS ON SAME

4 DWELLING UNIT TAKEN INTO ACCOUNT.—If a 

5 credit was allowed under subsection (a) with re6 spect to a dwelling unit in 1 or more prior tax7 able years, the amount of the credit otherwise 

8 allowable for the taxable year with respect to 

9 such dwelling unit shall be reduced by the sum 

10 of the credits allowed under subsection (a) with 

11 respect to the dwelling unit for all prior taxable 

12 years. 

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

14 For purposes of this section—

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

16 in subsection (a) shall be reduced by that por17 tion of the basis of any property which is attrib18 utable to qualified rehabilitation expenditures 

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

20 percentage of energy property (as determined 

21 under section 48(a)), and 

22 ‘‘(B) expenditures taken into account 

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

24 into account under this section. 

25 ‘‘(c) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi2 ble contractor’ means—

3 ‘‘(A) the person who constructed the quali4 fied new energy efficient home, or 

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

6 efficient home which is a manufactured home, 

7 the manufactured home producer of such home. 

8 If more than 1 person is described in subparagraph 

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

10 efficient home, such term means the person des11 ignated as such by the owner of such home. 

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

13 term ‘energy efficient property’ means any energy 

14 efficient building envelope component, and any en15 ergy efficient heating or cooling equipment or sys16 tem, which can, individually or in combination with 

17 other components, result in a dwelling unit meeting 

18 the requirements of this section. 

19 ‘‘(3) QUALIFIED NEW ENERGY EFFICIENT

20 HOME.—The term ‘qualified new energy efficient 

21 home’ means a dwelling unit—

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

23 ‘‘(B) the construction of which is substan24 tially completed after December 31, 2003, and 

25 ‘‘(C) which is—
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1 ‘‘(i) certified to have a level of annual 

2 heating and cooling energy consumption 

3 which is at least 30 percent below the an4 nual level of heating and cooling energy 

5 consumption of a comparable dwelling unit 

6 constructed in accordance with the stand7 ards of chapter 4 of the 2003 International 

8 Energy Conservation Code, as such Code 

9 (including supplements) is in effect on the 

10 date of the enactment of this section, and 

11 for which the heating and cooling equip12 ment efficiencies correspond to the min13 imum allowed under the regulations estab14 lished by the Department of Energy pursu15 ant to the National Appliance Energy Con16 servation Act of 1987 and in effect at the 

17 time of construction, and to have building 

18 envelope component improvements account 

for at least 1 19 ⁄3 of such 30 percent, 

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

21 heating and cooling energy consumption 

22 which is at least 50 percent below such an23 nual level and to have building envelope 

24 component improvements account for at 

least 1 25 ⁄5 of such 50 percent, or 
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1 ‘‘(iii) a manufactured home which—

2 ‘‘(I) conforms to Federal Manu3 factured Home Construction and 

4 Safety Standards (section 3280 of 

5 title 24, Code of Federal Regulations), 

6 and 

7 ‘‘(II) meets the applicable stand8 ards required by the Administrator of 

9 the Environmental Protection Agency 

10 under the Energy Star Labeled 

11 Homes program. 

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

13 includes substantial reconstruction and rehabilita14 tion. 

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

16 purchase and, in the case of reconstruction and re17 habilitation, such term includes a binding written 

18 contract for such reconstruction or rehabilitation. 

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

20 term ‘building envelope component’ means—

21 ‘‘(A) any insulation material or system 

22 which is specifically and primarily designed to 

23 reduce the heat loss or gain of a dwelling unit 

24 when installed in or on such dwelling unit,
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1 ‘‘(B) exterior windows (including sky2 lights), 

3 ‘‘(C) exterior doors, and 

4 ‘‘(D) any metal roof installed on a dwelling 

5 unit, but only if such roof has appropriate pig6 mented coatings which—

7 ‘‘(i) are specifically and primarily de8 signed to reduce the heat gain of such 

9 dwelling unit, and 

10 ‘‘(ii) meet the Energy Star program 

11 requirements. 

12 ‘‘(d) CERTIFICATION.—

13 ‘‘(1) METHOD OF CERTIFICATION.—A certifi14 cation described in subsection (c)(3)(C) shall be de15 termined in accordance with guidance prescribed by 

16 the Secretary, after consultation with the Secretary 

17 of Energy. Such guidance shall specify procedures 

18 and methods for calculating energy and cost savings. 

19 ‘‘(2) FORM.—A certification described in sub20 section (c)(3)(C) shall be made in writing—

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

22 verifiable fashion the energy efficient building 

23 envelope components and energy efficient heat24 ing or cooling equipment installed and their re-
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1 spective rated energy efficiency performance, 

2 and 

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

4 efficient home which is a manufactured home, 

5 accompanied by such documentation as required 

6 by the Administrator of the Environmental Pro7 tection Agency under the Energy Star Labeled 

8 Homes program. 

9 ‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub10 title, if a credit is determined under this section for any 

11 expenditure with respect to any property, the increase in 

12 the basis of such property which would (but for this sub13 section) result from such expenditure shall be reduced by 

14 the amount of the credit so determined. 

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

16 apply to qualified new energy efficient homes acquired 

17 during the period beginning on January 1, 2004, and end18 ing on December 31, 2006.’’. 

19 (b) CREDIT MADE PART OF GENERAL BUSINESS

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

21 1986 (relating to current year business credit) is amended 

22 by striking ‘‘plus’’ at the end of paragraph (14), by strik23 ing the period at the end of paragraph (15) and inserting 

24 ‘‘, plus’’, and by adding at the end the following new para25 graph: 
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1 ‘‘(16) the new energy efficient home credit de2 termined under section 45G(a).’’. 

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

4 1016 of the Internal Revenue Code of 1986, as amended 

5 by section 101, is amended by striking ‘‘and’’ at the end 

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

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

8 the end the following new paragraph: 

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

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

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

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

13 the Internal Revenue Code of 1986 (relating to transition 

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

15 paragraph: 

16 ‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI17 CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—

18 No portion of the unused business credit for any 

19 taxable year which is attributable to the new energy 

20 efficient home credit determined under section 

21 45G(a) may be carried to a taxable year beginning 

22 before January 1, 2004.’’. 

23 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

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

25 of 1986 (defining qualified business credits) is amended 
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1 by striking ‘‘and’’ at the end of paragraph (10), by strik2 ing the period at the end of paragraph (11) and inserting 

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

4 new paragraph: 

5 ‘‘(12) the new energy efficient home credit de6 termined under section 45G(a).’’. 

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

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

9 of the Internal Revenue Code of 1986 is amended by add10 ing at the end the following new item:

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

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

12 this section shall apply to taxable years ending after De13 cember 31, 2003. 

14 SEC. 103. INCENTIVE FOR CERTAIN ENERGY EFFICIENT 

15 PROPERTY USED IN BUSINESS. 

16 (a) IN GENERAL.—Part VI of subchapter B of chap17 ter 1 of the Internal Revenue Code of 1986 is amended 

18 by adding at the end the following new section: 

19 ‘‘SEC. 199. ENERGY PROPERTY DEDUCTION. 

20 ‘‘(a) IN GENERAL.—There shall be allowed as a de21 duction for the taxable year an amount equal to the sum 

22 of—

23 ‘‘(1) the amount determined under subsection 

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

25 in service during such taxable year, and 
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1 ‘‘(2) the energy efficient residential rental 

2 building property deduction determined under sub3 section (e). 

4 ‘‘(b) AMOUNT FOR ENERGY PROPERTY.—

5 ‘‘(1) IN GENERAL.—The amount determined 

6 under this subsection for the taxable year for each 

7 item of energy property shall equal the amount spec8 ified for such property in the following table: 

Description of property: Allowable amount is: 

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

kwh/year of savings. 

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

watt. 

Advanced main air circulating fan or a Tier 1 natural 

gas, propane, or oil water heater.

$150. 

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

Tier 1 energy-efficient building property (other than an 

advanced main air circulating fan or a natural gas, 

propane, or oil water heater).

$450. 

9 ‘‘(2) ELECTED SOLAR HOT WATER PROP10 ERTY.—In the case of elected solar hot water prop11 erty, the taxpayer may elect to substitute ‘$21 per 

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

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

14 paragraph (1). 

15 ‘‘(c) ENERGY PROPERTY DEFINED.—

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

17 the term ‘energy property’ means any property—

18 ‘‘(A) which is—

19 ‘‘(i) solar energy property,
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1 ‘‘(ii) Tier 2 energy-efficient building 

2 property, or 

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

4 property, 

5 ‘‘(B)(i) the construction, reconstruction, or 

6 erection of which is completed by the taxpayer, 

7 or 

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

9 the original use of such property commences 

10 with the taxpayer, 

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

12 amortization in lieu of depreciation) is allow13 able, and 

14 ‘‘(D) which meets the performance and 

15 quality standards, and the certification require16 ments (if any), which—

17 ‘‘(i) have been prescribed by the Sec18 retary by regulations (after consultation 

19 with the Secretary of Energy or the Ad20 ministrator of the Environmental Protec21 tion Agency, as appropriate), 

22 ‘‘(ii) in the case of the energy effi23 ciency ratio (EER) for central air condi24 tioners and electric heat pumps—
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1 ‘‘(I) require measurements to be 

2 based on published data which is test3 ed by manufacturers at 95 degrees 

4 Fahrenheit, and 

5 ‘‘(II) do not require ratings to be 

6 based on certified data of the Air 

7 Conditioning and Refrigeration Insti8 tute, 

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

10 pumps—

11 ‘‘(I) shall be based on testing 

12 under the conditions of ARI/ISO 

13 Standard 13256–1 for Water Source 

14 Heat Pumps or ARI 870 for Direct 

15 Expansion GeoExchange Heat Pumps 

16 (DX), as appropriate, and 

17 ‘‘(II) shall include evidence that 

18 water heating services have been pro19 vided through a desuperheater or inte20 grated water heating system con21 nected to the storage water heater 

22 tank, and 

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

24 acquisition of the property. 
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1 ‘‘(2) SOLAR ENERGY PROPERTY.—In the case 

2 of—

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

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

5 based on the OG–300 Standard for the Annual 

6 Performance of OG–300 Certified Systems of 

7 the Solar Rating and Certification Corporation, 

8 and 

9 ‘‘(B) photovoltaics, such regulations shall 

10 be based on the ASTM Standard E 1036 and 

11 E 1036M–96 Standard Test Method for Elec12 tric Performance of Nonconcentrator Terres13 trial Photovoltaic Modules and Arrays Using 

14 Reference Cells, 

15 to the extent the Secretary determines such stand16 ards carry out the purposes of this section.

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

18 any property which is public utility property (as de19 fined in section 46(f)(5) as in effect on the day be20 fore the date of the enactment of the Revenue Rec21 onciliation Act of 1990). 

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

23 PROPERTY.—For purposes of this section—

24 ‘‘(1) SOLAR ENERGY PROPERTY.—
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1 ‘‘(A) IN GENERAL.—The term ‘solar en2 ergy property’ means equipment which uses 

3 solar energy—

4 ‘‘(i) to generate electricity, or 

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

6 structure. 

7 ‘‘(B) ELECTED SOLAR HOT WATER PROP8 ERTY.—

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

10 solar hot water property’ means property 

11 which is solar energy property by reason of 

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

13 election under this subparagraph is in ef14 fect. 

15 ‘‘(ii) ELECTION.—For purposes of 

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

17 property described in clause (i) as elected 

18 solar hot water property. 

19 ‘‘(C) PHOTOVOLTAIC PROPERTY.—The 

20 term ‘photovoltaic property’ means solar energy 

21 property which uses a solar photovoltaic process 

22 to generate electricity. 

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

24 STORAGE MEDIUM.—The term ‘solar energy 

25 property’ shall not include a swimming pool, 
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1 hot tub, or any other energy storage medium 

2 which has a function other than the function of 

3 such storage. 

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

5 other property installed as a roof (or portion 

6 thereof) shall fail to be treated as solar energy 

7 property solely because it constitutes a struc8 tural component of the structure on which it is 

9 installed. 

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

11 PROPERTY.—The term ‘Tier 2 energy-efficient build12 ing property’ means—

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

14 which yields an energy factor of at least 2.0 in 

15 the standard Department of Energy test proce16 dure, 

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

18 heating seasonal performance factor (HSPF) of 

19 at least 9, a seasonal energy efficiency ratio 

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

21 ratio (EER) of at least 12.5, 

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

23 ‘‘(i) in the case of a closed loop prod24 uct, has an energy efficiency ratio (EER) 
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1 of at least 14.1 and a heating coefficient 

2 of performance (COP) of at least 3.3, 

3 ‘‘(ii) in the case of an open loop prod4 uct, has an energy efficiency ratio (EER) 

5 of at least 16.2 and a heating coefficient of 

6 performance (COP) of at least 3.6, and 

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

8 (DX) product, has an energy efficiency 

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

10 coefficient of performance (COP) of at 

11 least 3.5, 

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

13 seasonal energy efficiency ratio (SEER) of at 

14 least 15 and an energy efficiency ratio (EER) 

15 of at least 12.5, and 

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

17 heater which has an energy factor of at least 

18 0.80. 

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

20 PROPERTY.—The term ‘Tier 1 energy-efficient build21 ing property’ means—

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

23 heating system performance factor (HSPF) of 

24 at least 7.5, a cooling seasonal energy efficiency 
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1 ratio (SEER) of at least 13.5, and an energy 

2 efficiency ratio (EER) of at least 11.5, 

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

4 cooling seasonal energy efficiency ratio (SEER) 

5 of at least 13.5 and an energy efficiency ratio 

6 (EER) of at least 11.5, 

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

8 heater which has an energy factor of at least 

9 0.65, and 

10 ‘‘(D) an oil, natural gas, or propane fur11 nace or hot water boiler which achieves at least 

12 95 percent annual fuel utilization efficiency 

13 (AFUE). 

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

15 The term ‘advanced main air circulating fan’ means 

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

17 originally placed in service by the taxpayer during 

18 the taxable year, including a fan which uses a 

19 brushless permanent magnet motor or another type 

20 of motor which achieves similar or higher efficiency 

21 at full and half speed, as determined by the Sec22 retary. 

23 ‘‘(e) ENERGY EFFICIENT RESIDENTIAL RENTAL

24 BUILDING PROPERTY DEDUCTION.—
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1 ‘‘(1) DEDUCTION ALLOWED.—For purposes of 

2 subsection (a)—

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

4 residential rental building property deduction 

5 determined under this subsection is an amount 

6 equal to energy efficient residential rental build7 ing property expenditures made by a taxpayer 

8 for the taxable year. 

9 ‘‘(B) MAXIMUM AMOUNT OF DEDUC10 TION.—The amount of energy efficient residen11 tial rental building property expenditures taken 

12 into account under subparagraph (A) with re13 spect to each dwelling unit shall not exceed—

14 ‘‘(i) $6,000 in the case of a percent15 age reduction of 50 percent as determined 

16 under paragraph (2)(B), and 

17 ‘‘(ii) $12,000 times the percentage re18 duction in the case of a percentage reduc19 tion of less than 50 percent as determined 

20 under paragraph (2)(B). 

21 ‘‘(C) YEAR DEDUCTION ALLOWED.—The 

22 deduction under subparagraph (A) shall be al23 lowed in the taxable year in which the construc24 tion, reconstruction, erection, or rehabilitation 

25 of the property is completed. 
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1 ‘‘(2) ENERGY EFFICIENT RESIDENTIAL RENTAL

2 BUILDING PROPERTY EXPENDITURES.—For pur3 poses of this subsection—

4 ‘‘(A) IN GENERAL.—The term ‘energy effi5 cient residential rental building property ex6 penditures’ means an amount paid or incurred 

7 in connection with construction, reconstruction, 

8 erection, or rehabilitation of energy efficient 

9 residential rental building property—

10 ‘‘(i) for which depreciation is allow11 able under section 167, 

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

13 States, and 

14 ‘‘(iii) the construction, reconstruction, 

15 erection, or rehabilitation of which is com16 pleted by the taxpayer. 

17 Such term includes expenditures for labor costs 

18 properly allocable to the onsite preparation, as19 sembly, or original installation of the property. 

20 ‘‘(B) ENERGY EFFICIENT RESIDENTIAL

21 RENTAL BUILDING PROPERTY.—

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

23 efficient residential rental building prop24 erty’ means any property which reduces 

25 total annual energy and power costs with 
34

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1 respect to heating and cooling of the build2 ing by a percentage certified according to 

3 clause (ii). 

4 ‘‘(ii) PROCEDURES.—

5 ‘‘(I) IN GENERAL.—For purposes 

6 of clause (i), energy usage and costs 

7 shall be demonstrated by perform8 ance-based compliance. 

9 ‘‘(II) PERFORMANCE-BASED COM10 PLIANCE.—Performance-based compli11 ance shall be demonstrated by calcu12 lating the percent energy cost savings 

13 for heating and cooling, as applicable, 

14 with respect to a dwelling unit when 

15 compared to the original condition of 

16 the dwelling unit. 

17 ‘‘(III) COMPUTER SOFTWARE.—

18 Computer software shall be used in 

19 support of performance-based compli20 ance under subclause (II) and such 

21 software shall meet all of the proce22 dures and methods for calculating en23 ergy savings reductions which are pro24 mulgated by the Secretary of Energy. 

25 Such regulations on the specifications
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1 for software and verification protocols 

2 shall be based on the 2005 California 

3 Residential Alternative Calculation 

4 Method Approval Manual.

5 ‘‘(IV) CALCULATION REQUIRE6 MENTS.—In calculating tradeoffs and 

7 energy performance, the regulations 

8 prescribed under this clause shall pre9 scribe for the taxable year the costs 

10 per unit of energy and power, such as 

11 kilowatt hour, kilowatt, gallon of fuel 

12 oil, and cubic foot or Btu of natural 

13 gas, which may be dependent on time 

14 of usage. Where a State has developed 

15 annual energy usage and cost reduc16 tion procedures based on time of 

17 usage costs for use in the performance 

18 standards of the State’s building en19 ergy code prior to the effective date of 

20 this section, the State may use those 

21 annual energy usage and cost reduc22 tion procedures in lieu of those adopt23 ed by the Secretary. 

24 ‘‘(V) APPROVAL OF SOFTWARE

25 SUBMISSIONS.—The Secretary shall 
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•HR 4206 IH 

1 approve software submissions which 

2 comply with the requirements of sub3 clause (III). 

4 ‘‘(VI) PROCEDURES FOR INSPEC5 TION AND TESTING OF HOMES.—The 

6 Secretary shall ensure that procedures 

7 for the inspection and testing for com8 pliance comply with the calculation re9 quirements under subclause (IV) of 

10 this clause and clause (iv). 

11 ‘‘(iii) DETERMINATIONS OF COMPLI12 ANCE.—A determination of compliance 

13 with respect to energy efficient residential 

14 rental building property made for the pur15 poses of this subparagraph shall be filed 

16 with the Secretary not later than 1 year 

17 after the date of such determination and 

18 shall include the TIN of the certifier, the 

19 address of the building in compliance, and 

20 the identity of the person for whom such 

21 determination was performed. Determina22 tions of compliance filed with the Secretary 

23 shall be available for inspection by the Sec24 retary of Energy. 

25 ‘‘(iv) COMPLIANCE.—
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1 ‘‘(I) IN GENERAL.—The Sec2 retary, after consultation with the 

3 Secretary of Energy, shall establish 

4 requirements for certification and 

5 compliance procedures after exam6 ining the requirements for energy con7 sultants and home energy ratings pro8 viders specified by the Mortgage In9 dustry National Home Energy Rating 

10 Standards. 

11 ‘‘(II) INDIVIDUALS QUALIFIED

12 TO DETERMINE COMPLIANCE.—The 

13 determination of compliance may be 

14 provided by a local building regulatory 

15 authority, a utility, a manufactured 

16 home production inspection primary 

17 inspection agency (IPIA), or an ac18 credited home energy rating system 

19 provider. All providers shall be accred20 ited, or otherwise authorized to use 

21 approved energy performance meas22 urement methods, by the Residential 

23 Energy Services Network (RESNET). 

24 ‘‘(C) ALLOCATION OF DEDUCTION FOR

25 PUBLIC PROPERTY.—In the case of energy effi-
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1 cient residential rental building property which 

2 is public property, the Secretary shall promul3 gate a regulation to allow the allocation of the 

4 deduction to the person primarily responsible 

5 for designing the improvements to the property 

6 in lieu of the public entity which is the owner 

7 of such property. Such person shall be treated 

8 as the taxpayer for purposes of this subsection. 

9 ‘‘(f) SPECIAL RULES.—For purposes of this sec10 tion—

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

12 subtitle, if a deduction is allowed under this section 

13 with respect to any property, the basis of such prop14 erty shall be reduced by the amount of the deduction 

15 so allowed. 

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

17 would, but for this paragraph, be eligible for deduc18 tion under more than one provision of this section 

19 shall be eligible only under one such provision, the 

20 provision specified by the taxpayer. 

21 ‘‘(g) REGULATIONS.—The Secretary shall promul22 gate such regulations as necessary to take into account 

23 new technologies regarding energy efficiency and renew24 able energy for purposes of determining energy efficiency 

25 and savings under this section. 
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1 ‘‘(h) TERMINATION.—This section shall not apply 

2 with respect to—

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

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

5 of Tier 1 energy-efficient building property), and

6 ‘‘(2) any energy efficient residential rental 

7 building property expenditures in connection with 

8 property—

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

10 2007, or 

11 ‘‘(B) the construction, reconstruction, erec12 tion, or rehabilitation of which is not completed 

13 on or before December 31, 2007.’’. 

14 (b) CONFORMING AMENDMENTS.—

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

16 Code of 1986 is amended to read as follows: 

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

18 distribute, or use energy derived from a geo19 thermal deposit (within the meaning of section 

20 613(e)(2)), but only, in the case of electricity 

21 generated by geothermal power, up to (but not 

22 including) the electrical transmission stage,’’. 

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

24 such Code is amended—

25 (A) in clause (vi)(I)—
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1 (i) by striking ‘‘section 48(a)(3)’’ and 

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

3 (ii) by striking ‘‘clause (i)’’ and in4 serting ‘‘such subparagraph (A)’’, and 

5 (B) in the last sentence, by striking ‘‘sec6 tion 48(a)(3)’’ and inserting ‘‘section 

7 199(c)(3)’’. 

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

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

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

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

12 inserting the following new paragraph: 

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

14 section 199(a).’’. 

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

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

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

18 the following new item:

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

19 (d) AUTHORIZATION OF APPROPRIATIONS.—There 

20 are authorized to be appropriated to the Department of 

21 Energy out of amounts not already appropriated such 

22 sums as necessary to carry out this section. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2003. 
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1 SEC. 104. CREDIT FOR CERTAIN NONBUSINESS ENERGY 

2 PROPERTY. 

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

5 1986 (relating to nonrefundable personal credits) is 

6 amended by inserting after section 25B the following new 

7 section: 

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

9 ‘‘(a) ALLOWANCE OF CREDIT.—

10 ‘‘(1) IN GENERAL.—In the case of an indi11 vidual, there shall be allowed as a credit against the 

12 tax imposed by this chapter for the taxable year an 

13 amount equal to the sum of—

14 ‘‘(A) the amount determined under sub15 section (b) for each qualified energy property of 

16 the taxpayer placed in service during such tax17 able year, and 

18 ‘‘(B) so much of the credit amount speci19 fied in paragraph (2) which does not exceed the 

20 expenditures made by the taxpayer in connec21 tion with the construction, reconstruction, erec22 tion, or rehabilitation of a dwelling unit of the 

23 taxpayer which results in the unit being a high24 ly energy-efficient principal residence. 

25 For purposes of subparagraph (B), the expenditures 

26 may include labor costs properly allocable to the on-
42

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1 site preparation, assembly, or original installation of 

2 such property. 

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

4 with respect to a highly energy-efficient principal 

5 residence is—

6 ‘‘(A) $2,000 in the case of a percentage re7 duction of 50 percent as determined under sub8 section (c)(6)(A)(iii), and 

9 ‘‘(B) $4,000 times the percentage reduc10 tion in the case of a percentage reduction of 

11 less than 50 percent as determined under sub12 section (c)(6)(A)(iii). 

13 ‘‘(b) AMOUNT FOR QUALIFIED ENERGY PROP14 ERTY.—

15 ‘‘(1) RESIDENTIAL ENERGY PROPERTY EX16 PENDITURES.—Except as provided in paragraph (2), 

17 the amount determined under this subsection for the 

18 taxable year for each item of qualified energy prop19 erty shall equal the amount of residential energy 

20 property expenditures made by the taxpayer with re21 spect to such property during such taxable year. 

22 ‘‘(2) SOLAR HOT WATER PROPERTY; PHOTO23 VOLTAIC PROPERTY.—

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

25 hot water property and photovoltaic property,
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1 the amount determined under this subsection 

2 for the taxable year shall equal the amount 

3 specified for such property in the following 

4 table: 

Description of property: Allowable amount is: 

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

kwh/year of savings. 

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

watt. 

5 ‘‘(B) ELECTED SOLAR HOT WATER PROP6 ERTY.—In the case of elected solar hot water 

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

8 the taxpayer may elect to substitute ‘$7 per an9 nual Therm of natural gas savings’ for ‘35¢ per 

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

11 in subparagraph (A). 

12 ‘‘(3) MAXIMUM AMOUNT.—In the case of prop13 erty described in the following table, the amount of 

14 expenditures taken into account under paragraph 

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

16 for the taxable year for each item of qualified energy 

17 property with respect to a dwelling unit shall not ex18 ceed the amount specified for such property in such 

19 table:

‘‘Description of property item: Maximum allowable 

credit amount is: 

Tier 2 energy-efficient building property ......................... $300. 
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‘‘Description of property item: Maximum allowable 

credit amount is: 

Advanced main air circulating fan or a Tier 1 natural 

gas, propane, or oil water heater.

$50. 

Tier 1 energy-efficient building property (other than an 

advanced main air circulating fan or a natural gas, 

propane, or oil water heater).

$150. 

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

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

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

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

6 taxpayer for qualified energy property installed on or 

7 in connection with a dwelling unit which—

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

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

10 Such term includes expenditures for labor costs 

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

13 ‘‘(2) QUALIFIED ENERGY PROPERTY.—

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

15 energy property’ means—

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

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

18 ‘‘(iii) photovoltaic property. 

19 ‘‘(B) SWIMMING POOL, ETC., USED AS

20 STORAGE MEDIUM; SOLAR PANELS.—For pur-
45

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1 poses of this paragraph, the provisions of sub2 paragraphs (D) and (E) section 199(d)(1) shall 

3 apply.

4 ‘‘(C) REQUIRED STANDARDS.—Property 

5 described under subparagraph (A) shall meet 

6 the performance and quality standards and cer7 tification standards of paragraphs (1)(D) and 

8 (2) of section 199(c). 

9 ‘‘(3) ENERGY-EFFICIENT BUILDING PROP10 ERTY.—The term ‘energy-efficient building property’ 

11 has the same meaning given the terms ‘Tier 2 en12 ergy-efficient property’, ‘Tier 1 energy-efficient 

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

14 paragraphs (2), (3), and (4) of section 199(d), re15 spectively. 

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

17 ‘solar hot water property’ means property which, 

18 when installed in connection with a structure, uses 

19 solar energy for the purpose of providing hot water 

20 for use within such structure and the performance 

21 of which is determined in accordance with section 

22 199(c)(2)(A).

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

24 ‘photovoltaic property’ has the same meaning given 

25 such term in section 199(d)(1)(C). 
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1 ‘‘(6) HIGHLY ENERGY-EFFICIENT PRINCIPAL

2 RESIDENCE.—

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

4 energy-efficient principal residence if—

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

6 United States, 

7 ‘‘(ii) the property is used as a prin8 cipal residence, and 

9 ‘‘(iii) the projected heating and cool10 ing energy usage of such property, meas11 ured in terms of average annual energy 

12 cost to taxpayer, is reduced by a percent13 age certified according to subparagraph 

14 (C) in comparison to the energy cost of 

15 such property if expenditures made by the 

16 taxpayer with respect to energy efficient 

17 improvements to such property were not 

18 made. 

19 ‘‘(B) PRINCIPAL RESIDENCE.—

20 ‘‘(i) IN GENERAL.—The term ‘prin21 cipal residence’ has the same meaning as 

22 when used in section 121, except that—

23 ‘‘(I) no ownership requirement 

24 shall be imposed, and 
47

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1 ‘‘(II) the period for which a 

2 building is treated as used as a prin3 cipal residence shall also include the 

4 60-day period ending on the 1st day 

5 on which it would (but for this sub6 paragraph) first be treated as used as 

7 a principal residence.

8 ‘‘(ii) MANUFACTURED HOUSING.—The 

9 term ‘residence’ shall include a dwelling 

10 unit which is a manufactured home con11 forming to Federal Manufactured Home 

12 Construction and Safety Standards (24 

13 C.F.R. 3280). 

14 ‘‘(C) CERTIFICATION PROCEDURES.—

15 ‘‘(i) IN GENERAL.—For purposes of 

16 subparagraph (A)(iii), energy ±usage shall 

17 be demonstrated by performance-based 

18 compliance. 

19 ‘‘(ii) PERFORMANCE-BASED COMPLI20 ANCE.—Performance-based compliance 

21 shall be demonstrated if the percent energy 

22 cost savings for heating and cooling is met 

23 with respect to a dwelling unit when com24 pared to the original condition of the dwell25 ing unit.
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1 ‘‘(iii) COMPUTER SOFTWARE.—Com2 puter software shall be used in support of 

3 performance-based compliance under 

4 clause (ii) and such software shall meet all 

5 of the procedures and methods for calcu6 lating energy savings reductions which are 

7 promulgated by the Secretary of Energy. 

8 Such regulations on the specifications for 

9 software and verification protocols shall be 

10 based on the 2005 California Residential 

11 Alternative Calculation Method Approval 

12 Manual. 

13 ‘‘(iv) CALCULATION REQUIRE14 MENTS.—In calculating tradeoffs and en15 ergy performance, the regulations shall 

16 prescribe the costs per unit of energy and 

17 power, such as kilowatt hour, kilowatt, gal18 lon of fuel oil, and cubic foot or Btu of 

19 natural gas, which may be dependent on 

20 time of usage. If a State has developed an21 nual energy usage and cost reduction pro22 cedures based on time of usage costs for 

23 use in the performance standards of the 

24 State’s building energy code before the ef25 fective date of this section, the State may 
49

•HR 4206 IH 

1 use those annual energy usage and cost re2 duction procedures in lieu of those adopted 

3 by the Secretary. 

4 ‘‘(v) APPROVAL OF SOFTWARE SUB5 MISSIONS.—The Secretary shall approve 

6 software submissions which comply with 

7 the calculation requirements of clause (iii). 

8 ‘‘(vi) PROCEDURES FOR INSPECTION

9 AND TESTING OF DWELLING UNITS.—The 

10 Secretary shall ensure that procedures for 

11 the inspection and testing for compliance 

12 comply with the calculation requirements 

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

14 ‘‘(d) SPECIAL RULES.—For purposes of this sec15 tion—

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

17 determination of compliance made for the purposes 

18 of this section shall be filed with the Secretary with19 in 1 year of the date of such determination and shall 

20 include the TIN of the certifier, the address of the 

21 building in compliance, and the identity of the per22 son for whom such determination was performed. 

23 Determinations of compliance filed with the Sec24 retary shall be available for inspection by the Sec25 retary of Energy. 
50

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1 ‘‘(2) COMPLIANCE.—

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

3 consultation with the Secretary of Energy shall 

4 establish requirements for certification and 

5 compliance procedures after examining the re6 quirements for energy consultants and home en7 ergy ratings providers specified by the Mort8 gage Industry National Home Energy Rating 

9 Standards. 

10 ‘‘(B) INDIVIDUALS QUALIFIED TO DETER11 MINE COMPLIANCE.—The determination of 

12 compliance may be provided by a local building 

13 regulatory authority, a utility, a manufactured 

14 home production inspection primary inspection 

15 agency (IPIA), or an accredited home energy 

16 rating system provider. All providers shall be 

17 accredited, or otherwise authorized to use ap18 proved energy performance measurement meth19 ods, by the Residential Energy Services Net20 work (RESNET). 

21 ‘‘(3) DOLLAR AMOUNTS IN CASE OF JOINT OC22 CUPANCY.—In the case of any dwelling unit which if 

23 jointly occupied and used during any calendar year 

24 as a principal residence by 2 or more individuals the 

25 following rules shall apply: 
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•HR 4206 IH 

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

2 under subsection (a) by reason of expenditures 

3 made during such calendar year by any of such 

4 individuals with respect to such dwelling unit 

5 shall be determined by treating all of such indi6 viduals as 1 taxpayer whose taxable year is 

7 such calendar year. 

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

9 to such expenditures to each of such individ10 uals, a credit under subsection (a) for the tax11 able year in which such calendar year ends in 

12 an amount which bears the same ratio to the 

13 amount determined under subparagraph (A) as 

14 the amount of such expenditures made by such 

15 individual during such calendar year bears to 

16 the aggregate of such expenditures made by all 

17 of such individuals during such calendar year. 

18 ‘‘(4) TENANT-STOCKHOLDER IN COOPERATIVE

19 HOUSING CORPORATION.—In the case of an indi20 vidual who is a tenant-stockholder (as defined in sec21 tion 216) in a cooperative housing corporation (as 

22 defined in such section), such individual shall be 

23 treated as having made his tenant-stockholder’s pro24 portionate share (as defined in section 216(b)(3)) of 
52

•HR 4206 IH 

1 any expenditures of such corporation and such credit 

2 shall be allocated pro rata to such individual. 

3 ‘‘(5) CONDOMINIUMS.—

4 ‘‘(A) IN GENERAL.—In the case of an indi5 vidual who is a member of a condominium man6 agement association with respect to a condo7 minium which he owns, such individual shall be 

8 treated as having made his proportionate share 

9 of any expenditures of such association and any 

10 credit shall be allocated appropriately. 

11 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO12 CIATION.—For purposes of this paragraph, the 

13 term ‘condominium management association’ 

14 means an organization which meets the require15 ments of paragraph (1) of section 528(c) (other 

16 than subparagraph (E) thereof) with respect to 

17 a condominium project substantially all of the 

18 units of which are used as principal residences. 

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

20 ‘‘(A) IN GENERAL.—Any expenditure oth21 erwise qualifying as an expenditure under this 

22 section shall not be treated as failing to so 

23 qualify merely because such expenditure was 

24 made with respect to 2 or more dwelling units.
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1 ‘‘(B) LIMITS APPLIED SEPARATELY.—In 

2 the case of any expenditure described in sub3 paragraph (A), the amount of the credit allow4 able under subsection (a) shall (subject to para5 graph (1)) be computed separately with respect 

6 to the amount of the expenditure made for each 

7 dwelling unit. 

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

9 than 80 percent of the use of an item is for nonbusi10 ness purposes, only that portion of the expenditures 

11 for such item which is properly allocable to use for 

12 nonbusiness purposes shall be taken into account. 

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

14 Property which would, but for this paragraph, be eli15 gible for credit under more than one provision of 

16 this section shall be eligible only under one such pro17 vision, the provision specified by the taxpayer. 

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

19 under subsection (a)(2) shall be allowed in the tax20 able year in which the percentage reduction with re21 spect to the principal residence is certified.

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

23 EXPENDITURE.—

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

25 subparagraph (B), an expenditure with respect 
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1 to an item shall be treated as made when the 

2 original installation of the item is completed. 

3 ‘‘(B) EXPENDITURES PART OF BUILDING

4 CONSTRUCTION.—In the case of an expenditure 

5 in connection with the construction of a struc6 ture, such expenditure shall be treated as made 

7 when the original use of the constructed struc8 ture by the taxpayer begins. 

9 ‘‘(11) PROPERTY FINANCED BY SUBSIDIZED

10 ENERGY FINANCING.—

11 ‘‘(A) REDUCTION OF EXPENDITURES.—

12 ‘‘(i) IN GENERAL.—Except as pro13 vided in subparagraph (C), for purposes of 

14 determining the amount of expenditures 

15 made by any individual with respect to any 

16 dwelling unit, there shall not be taken into 

17 account expenditures which are made from 

18 subsidized energy financing. 

19 ‘‘(ii) SUBSIDIZED ENERGY FINANC20 ING.—For purposes of clause (i), the term 

21 ‘subsidized energy financing’ has the same 

22 meaning given such term in section 

23 48(a)(4)(C). 

24 ‘‘(B) DOLLAR LIMITS REDUCED.—The dol25 lar amounts in the table contained in subsection 
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1 (b)(3) with respect to each property purchased 

2 for such dwelling unit for any taxable year of 

3 such taxpayer shall be reduced proportionately 

4 by an amount equal to the sum of—

5 ‘‘(i) the amount of the expenditures 

6 made by the taxpayer during such taxable 

7 year with respect to such dwelling unit and 

8 not taken into account by reason of sub9 paragraph (A), and 

10 ‘‘(ii) the amount of any Federal, 

11 State, or local grant received by the tax12 payer during such taxable year which is 

13 used to make residential energy property 

14 expenditures with respect to the dwelling 

15 unit and is not included in the gross in16 come of such taxpayer. 

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

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

19 expenditures made with respect to property for 

20 which the taxpayer has received a loan, State 

21 tax credit, or grant under any State energy pro22 gram. 

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

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

25 expenditure with respect to any property, the increase in 
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1 the basis of such property which would (but for this sub2 section) result from such expenditure shall be reduced by 

3 the amount of the credit so allowed.

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

5 such regulations as necessary to take into account new 

6 technologies regarding energy efficiency and renewable en7 ergy for purposes of determining energy efficiency and 

8 savings under this section. 

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

10 with respect to any energy property placed in service after 

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

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

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subsection (a) of section 1016 of the Inter15 nal Revenue Code of 1986 as amended by section 

16 103, is amended by striking ‘‘and’’ at the end of 

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

18 paragraph (31) and inserting ‘‘, and’’, and by add19 ing at the end the following new paragraph: 

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

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

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

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

24 IV of subchapter A of chapter 1 of such Code is 
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1 amended by inserting after the item relating to sec2 tion 25B the following new item:

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

3 (c) EFFECTIVE DATES.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section 

6 shall apply to expenditures made after December 31, 

7 2003. 

8 (2) ENERGY EFFICIENT BUILDING PROPERTY

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

10 energy efficient building property, as defined in sec11 tion 25B(c) of the Internal Revenue Code of 1986, 

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

13 by this section shall apply to expenditures made 

14 after March 31, 2003. 

15 SEC. 105. ENERGY CREDIT FOR COMBINED HEAT AND 

16 POWER SYSTEM PROPERTY. 

17 (a) IN GENERAL.—Section 48(a)(3)(A) of the Inter18 nal Revenue Code of 1986 (defining energy property) is 

19 amended by striking ‘‘or’’ at the end of clause (i), by add20 ing ‘‘or’’ at the end of clause (ii), and by inserting after 

21 clause (ii) the following new clause: 

22 ‘‘(iii) combined heat and power system 

23 property,’’. 

24 (b) COMBINED HEAT AND POWER SYSTEM PROP25 ERTY.—Section 48 of the Internal Revenue Code of 1986
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1 (relating to energy credit; reforestation credit) is amended 

2 by adding at the end the following new subsection: 

3 ‘‘(c) COMBINED HEAT AND POWER SYSTEM PROP4 ERTY.—For purposes of subsection (a)(3)(A)(iii)—

5 ‘‘(1) COMBINED HEAT AND POWER SYSTEM

6 PROPERTY.—The term ‘combined heat and power 

7 system property’ means property comprising a sys8 tem—

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

10 for the simultaneous or sequential generation of 

11 electrical power, mechanical shaft power, or 

12 both, in combination with the generation of 

13 steam or other forms of useful thermal energy 

14 (including heating and cooling applications), 

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

16 not more than 15 megawatts or a mechanical 

17 energy capacity of not more than 2,000 horse18 power or an equivalent combination of electrical 

19 and mechanical energy capacities, 

20 ‘‘(C) which produces—

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

22 useful energy in the form of thermal en23 ergy which is not used to produce electrical 

24 or mechanical power (or combination 

25 thereof), and 
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1 ‘‘(ii) at least 20 percent of its total 

2 useful energy in the form of electrical or 

3 mechanical power (or combination thereof), 

4 ‘‘(D) the energy efficiency percentage of 

5 which exceeds 60 percent, and 

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

8 ‘‘(2) SPECIAL RULES.—

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

12 fraction—

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

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

16 normal operating rates, and expected to be 

17 consumed in its normal application, and 

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

19 lower heating value of the fuel sources for 

20 the system. 

21 ‘‘(B) DETERMINATIONS MADE ON BTU

22 BASIS.—The energy efficiency percentage and 

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

24 be determined on a Btu basis. 
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1 ‘‘(C) INPUT AND OUTPUT PROPERTY NOT

2 INCLUDED.—The term ‘combined heat and 

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

5 facility or to distribute energy produced by the 

6 facility. 

7 ‘‘(D) PUBLIC UTILITY PROPERTY.—

8 ‘‘(i) ACCOUNTING RULE FOR PUBLIC

9 UTILITY PROPERTY.—If the combined heat 

10 and power system property is public utility 

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

12 the taxpayer may only claim the credit 

13 under subsection (a) if, with respect to 

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

16 ‘‘(ii) CERTAIN EXCEPTION NOT TO

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

18 which follows subparagraph (D) thereof 

19 shall not apply to combined heat and 

20 power system property. 

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

22 designed to use bagasse for at least 90 percent of 

23 the energy source—

24 ‘‘(A) paragraph (1)(D) shall not apply, but 
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1 ‘‘(B) the amount of credit determined 

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

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

6 energy efficiency percentage of such system 

7 bears to 60 percent.’’. 

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

9 this subsection shall apply to periods after December 31, 

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

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

13 of the enactment of the Revenue Reconciliation Act of 

14 1990). 

15 SEC. 106. CREDIT FOR ENERGY EFFICIENT APPLIANCES. 

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

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

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

20 new section: 

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

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

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

25 to the sum of—
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1 ‘‘(1) the tier I appliance amount, and 

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

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

5 with or within the taxable year. 

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

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

9 appliance amount is equal to—

10 ‘‘(A) $100, multiplied by 

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

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

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

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

16 amount equal to the eligible production reduced by 

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

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

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

22 and tier II appliances so produced. 

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

25 the taxpayer for any calendar year is the excess of—
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1 ‘‘(A) the number of such appliances which 

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

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

5 number of such appliances which were produced 

6 by the taxpayer (or any predecessor) during the 

7 preceding 3-calendar year period. 

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

9 For purposes of this section—

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

11 efficient appliance’ means any tier I appliance or tier 

12 II appliance which is produced in the United States. 

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

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

16 with at least a 1.50 MEF, and 

17 ‘‘(B) a refrigerator which consumes at 

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

20 hours per year than the energy conservation 

21 standards for refrigerators promulgated by the 

22 Department of Energy and effective on July 1, 

23 2001. 

24 ‘‘(3) TIER II APPLIANCE.—The term ‘tier II ap25 pliance’ means a refrigerator produced before 2007 
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1 which consumes at least 20 percent less kilowatt 

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

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

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

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

8 means an automatic defrost refrigerator-freezer 

9 which has an internal volume of at least 16.5 cubic 

10 feet. 

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

12 Energy Factor (as determined by the Secretary of 

13 Energy). 

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

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

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

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

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

22 predecessor) for any prior taxable year. 

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

25 with respect to a taxpayer for the taxable year shall 
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1 not exceed an amount equal to 2 percent of the aver2 age annual gross receipts of the taxpayer for the 3 

3 taxable years preceding the taxable year for which 

4 the credit is determined. 

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

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

7 section 448(c) shall apply. 

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

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

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

12 apply. 

13 ‘‘(2) CONTROLLED GROUPS.—

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

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

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

17 414 shall be treated as a single manufacturer. 

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

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

21 to this section, section 1563 shall be applied 

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

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

24 information or certification as the Secretary, after con-
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1 sultation with the Secretary of Energy, determines nec2 essary to claim the credit amount under subsection (a). 

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

4 with respect to appliances produced after December 31, 

5 2007.’’. 

6 (b) CREDIT MADE PART OF GENERAL BUSINESS

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

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

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

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

12 at the end the following new paragraph: 

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

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

16 the Internal Revenue Code of 1986 (relating to transition 

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

18 at the end the following new paragraph: 

19 ‘‘(12) NO CARRYBACK OF ENERGY EFFICIENT

20 APPLIANCE CREDIT BEFORE EFFECTIVE DATE.—No 

21 portion of the unused business credit for any taxable 

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

24 be carried to a taxable year ending before January 

25 1, 2004.’’.
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1 (d) CLERICAL AMENDMENT.—The table of sections 

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

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

5 new item:

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

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

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

9 TITLE II—ENERGY EFFICIENT 

10 PRODUCTS 

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

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

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

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

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

17 include any lamp specifically designed to be used for 

18 special purpose applications and that is unlikely to 

19 be used in general purpose applications such as 

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

21 not include any lamp not described in subparagraph 

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

24 and is unlikely to be used in general purpose appli25 cations.’’; and
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1 (2) by adding at the end the following: 

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

4 and includes battery chargers embedded in other 

5 consumer products. 

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

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

10 equipment designed to provide light from a ceiling 

11 fan that can be—

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

13 attached to the ceiling fan prior to the time of 

14 retail sale; or 

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

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

18 inside the ceiling fan package at the time of 

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

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

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

24 ‘‘(A) are not consumer products regulated 

25 under this Act; and 
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1 ‘‘(B) incorporate most components involved 

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

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

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

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

10 sign that—

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

12 place to identify an exit; and 

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

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

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

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

20 transformer that—

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

22 or less; 

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

24 less; and 
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1 ‘‘(iii) is rated for operation at a frequency 

2 of 60 Hertz. 

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

4 not include—

5 ‘‘(i) transformers with multiple voltage 

6 taps, with the highest voltage tap equaling at 

7 least 20 percent more than the lowest voltage 

8 tap; 

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

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

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

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

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

18 in a special purpose application and are unlikely 

19 to be used in general purpose applications; or 

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

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

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

24 special application; 
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1 ‘‘(II) the transformer is unlikely to be 

2 used in general purpose applications; and 

3 ‘‘(III) the application of standards to 

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

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

8 that—

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

10 less; 

11 ‘‘(B) is air-cooled; and 

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

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

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

16 by the user; and 

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

18 when an appliance is connected to the main 

19 electricity supply and used in accordance with 

20 the manufacturer’s instructions, 

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

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

24 electric lamp with a reflector bowl that directs light 

25 upward so as to give indirect illumination. 
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1 ‘‘(42) The term ‘traffic signal module’ means a 

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

4 lens, and all other parts necessary for operation, 

5 that communicates movement messages to drivers 

6 through red, amber, and green colors. 

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

8 consisting of 2 or more coils of insulated wire that 

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

11 voltage or current value. 

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

15 include a warm air furnace.’’. 

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

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

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

20 following: 

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

22 shall be based on the test method used under 

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

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

6 Electrical Manufacturers Association (NEMA TP 2–

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

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

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

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

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

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

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

17 shall be based on the test method used under the 

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

20 on the date of enactment of this paragraph. 

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

23 methods used under the October 30, 2003, version 

24 of the Energy Star program of the Environmental 

25 Protection Agency and Department of Energy for 
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1 compact fluorescent lamps. Covered products shall 

2 meet all test requirements for regulated parameters 

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

4 be marketed prior to completion of lamp life and 

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

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

9 life and lamp life time. 

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

11 fans shall be based on the test procedure contained 

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

14 Environmental Protection Agency, unless pursuant 

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

17 and 

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

19 ‘‘(f) ADDITIONAL CONSUMER AND COMMERCIAL

20 PRODUCTS.—

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

22 after the date of enactment of this subsection, the 

23 Secretary shall prescribe testing requirements for re24 frigerated bottled or canned beverage vending ma-
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1 chines, and commercial refrigerators, freezers, and 

2 refrigerator-freezers. 

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

4 based on existing test procedures used in industry, 

5 to the extent practicable.’’. 

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

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

8 by adding at the end the following: 

9 ‘‘(u) BATTERY CHARGER AND EXTERNAL POWER

10 SUPPLY ELECTRIC ENERGY CONSUMPTION.—

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

12 shall, within 18 months after the date of enactment 

13 of this subsection, prescribe by notice and comment, 

14 definitions and test procedures for the power use of 

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

17 consider, among other factors, existing definitions 

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

21 battery chargers and external power supplies. This 

22 assessment shall include estimates of the significance 

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

25 classes for standards. Prior to the end of this time 
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1 period, the Secretary shall hold a scoping workshop 

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

4 for these products. 

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

6 the date of enactment of this subsection, issue a 

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

9 and external power supplies or classes thereof. For 

10 each product class, any such standards shall be set 

11 at the lowest level of energy use that—

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

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

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

16 mode and other operating modes. 

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

18 COVERED PRODUCTS.—In determining pursuant to 

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

21 be revised, the Secretary shall consider, for covered 

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

24 mode into such test procedures and energy conserva25 tion standards, taking into account, among other 
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1 relevant factors, standby mode power consumption 

2 compared to overall product energy consumption. 

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

4 propose a standard under this section unless the 

5 Secretary has issued applicable test procedures for 

6 each product pursuant to section 323. 

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

8 under this subsection shall be applicable to products 

9 manufactured or imported 3 years after the date of 

10 issuance. 

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

12 and the Administrator shall collaborate and develop 

13 programs, including programs pursuant to section 

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

15 voluntary industry agreements or codes of conduct, 

16 that are designed to reduce standby mode energy 

17 use. 

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

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

22 after the date on which testing requirements are 

23 prescribed by the Secretary pursuant to section 

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

25 conservation standards for refrigerated bottled or
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1 canned beverage vending machines, and commercial 

2 refrigerators, freezers, and refrigerator-freezers. 

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

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

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

10 final rule establishing the standard. 

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

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

13 meet the Version 2.0 Energy Star Program performance 

14 requirements for illuminated exit signs prescribed by the 

15 Environmental Protection Agency. 

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

17 after January 1, 2005—

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

19 power; and 

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

21 lamps that total more than 190 watts. 

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

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

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

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

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

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

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

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

11 electrically connected signal control interface devices and 

12 conflict monitoring systems. 

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

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

17 or an automatic flue damper. 

18 ‘‘(bb) MEDIUM BASE COMPACT FLUORESCENT

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

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

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

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

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

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

8 version of the Energy Star Program Requirements for 

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

10 revise these requirements or establish other requirements 

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

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

14 KITS.—

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

17 ‘‘(A) lighting controls separate from fan 

18 speed controls; 

19 ‘‘(B) adjustable speed controls (either 

20 more than 1 speed or variable speeds); and 

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

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

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

3 ‘‘(iii) where safety standards would be 

4 violated by the use of the reversible mode. 

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

6 light kits manufactured on or after January 1, 

7 2007, shall—

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

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

12 fill all sockets; 

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

15 such lamps meeting the Energy Star Program 

16 Requirements for Compact Fluorescent Lamps 

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

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

20 sources, other than compact fluorescent lamps, 

21 that meet the minimum efficacy requirements 

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

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

2 CEILING FANS.—

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

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

7 or energy use standards (based on cubic feet 

8 per minute per watt or watts) for electricity 

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

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

13 ‘‘(i) exempting or setting different 

14 standards for certain product classes for 

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

17 and 

18 ‘‘(ii) establishing separate exempted 

19 product classes for highly decorative fans 

20 for which air movement performance is a 

21 secondary design feature. 

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

24 shall apply to products manufactured on or
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1 after the date that is 3 years after publication 

2 of a final rule establishing the standard. 

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

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

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

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

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

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

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

15 date of enactment of those subsections, except that 

16 any State or local standards prescribed or enacted 

17 prior to the date of enactment of those subsections 

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

21 (d) RESIDENTIAL FURNACE FANS.—Section 

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

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

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

2 Secretary may consider, and prescribe, if the requirements 

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

4 or energy use standards for electricity used for purposes 

5 of circulating air through duct work.’’. 

6 SEC. 202. ENERGY LABELING. 

7 (a) RULEMAKING ON EFFECTIVENESS OF CONSUMER

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

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

10 amended by adding at the end the following: 

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

12 days after the date of enactment of this subparagraph and 

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

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

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

17 products labeling program in assisting consumers in 

18 making purchasing decisions and improving energy 

19 efficiency; and 

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

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

23 (b) RULEMAKING ON LABELING FOR ADDITIONAL

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

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

6 pursuant to this section, labeling requirements for the 

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

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

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

11 based on the ‘Standard for the Labeling of Distribution 

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

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

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

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

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

22 Requirements for Residential Ceiling Fans (Version 2.0) 

23 issued by the Environmental Protection Agency. 

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

2 are necessary to achieve compliance. 

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

4 after the latter of—

5 ‘‘(i) January 1, 2007; or 

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

7 final rule is promulgated.’’.

8 TITLE III—ENERGY EFFICIENCY 

9 FEDERAL PROGRAMS 

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

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

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

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

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

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

20 energy efficiency under an Energy Star program. 

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

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

2 agency’ has the meaning given the term in section 

3 4 of the Office of Federal Procurement Policy Act 

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

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

6 ‘FEMP designated product’ means a product that is 

7 designated under the Federal Energy Management 

8 Program of the Department of Energy as being 

9 among the highest 25 percent of equivalent products 

10 for energy efficiency. 

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

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

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

17 ‘‘(A) an Energy Star product; or 

18 ‘‘(B) a FEMP designated product. 

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

20 agency is not required to procure an Energy Star 

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

23 in writing that— 

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

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

2 into account; or 

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

4 designated product is reasonably available that 

5 meets the functional requirements of the execu6 tive agency. 

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

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

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

14 into the factors for the evaluation of offers received 

15 for the procurement, criteria for energy efficiency 

16 that are consistent with the criteria used for rating 

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

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

20 FEDERAL CATALOGS.—Energy Star products and FEMP 

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

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

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

3 Federal Energy Management Program, except in cases 

4 where the agency ordering a product specifies in writing 

5 that no Energy Star product or FEMP designated product 

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

7 or that no Energy Star product or FEMP designated 

8 product is cost-effective for the intended application over 

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

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

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

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

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

18 and energy efficiency groups. 

19 ‘‘(2) All Federal agencies are encouraged to take ac20 tions to maximize the efficiency of air conditioning and 

21 refrigeration equipment, including appropriate cleaning 

22 and maintenance, including the use of any system treat23 ment or additive that will reduce the electricity consumed 

24 by air conditioning and refrigeration equipment. Any such 

25 treatment or additive must be—
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1 ‘‘(A) determined by the Secretary to be effective 

2 in increasing the efficiency of air conditioning and 

3 refrigeration equipment without having an adverse 

4 impact on air conditioning performance (including 

5 cooling capacity) or equipment useful life; 

6 ‘‘(B) determined by the Administrator of the 

7 Environmental Protection Agency to be environ8 mentally safe; and 

9 ‘‘(C) shown to increase seasonal energy effi10 ciency ratio (SEER) or energy efficiency ratio 

11 (EER) when tested by the National Institute of 

12 Standards and Technology according to Department 

13 of Energy test procedures without causing any ad14 verse impact on the system, system components, the 

15 refrigerant or lubricant, or other materials in the 

16 system. 

17 Results of testing described in subparagraph (C) shall be 

18 published in the Federal Register for public review and 

19 comment. For purposes of this section, a hardware device 

20 or primary refrigerant shall not be considered an additive. 

21 ‘‘(e) REGULATIONS.—Not later than 180 days after 

22 the date of the enactment of this section, the Secretary 

23 shall issue guidelines to carry out this section.’’. 

24 (b) CONFORMING AMENDMENT.—The table of con25 tents of the National Energy Conservation Policy Act is 
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1 amended by inserting after the item relating to section 

2 551 the following new item:

‘‘Sec. 552. Federal procurement of energy efficient products.’’.

3 SEC. 302. ENERGY SAVINGS PERFORMANCE CONTRACTS. 

4 (a) PERMANENT EXTENSION.—Effective September 

5 30, 2003, section 801(c) of the National Energy Conserva6 tion Policy Act (42 U.S.C. 8287(c)) is repealed. 

7 (b) PAYMENT OF COSTS.—Section 802 of the Na8 tional Energy Conservation Policy Act (42 U.S.C. 8287a) 

9 is amended by inserting ‘‘, water, or wastewater treat10 ment’’ after ‘‘payment of energy’’. 

11 (c) ENERGY SAVINGS.—Section 804(2) of the Na12 tional Energy Conservation Policy Act (42 U.S.C. 

13 8287c(2)) is amended to read as follows: 

14 ‘‘(2) The term ‘energy savings’ means a reduc15 tion in the cost of energy, water, or wastewater 

16 treatment, from a base cost established through a 

17 methodology set forth in the contract, used in an ex18 isting federally owned building or buildings or other 

19 federally owned facilities as a result of—

20 ‘‘(A) the lease or purchase of operating 

21 equipment, improvements, altered operation and 

22 maintenance, or technical services; 

23 ‘‘(B) the increased efficient use of existing 

24 energy sources by cogeneration or heat recov25 ery, excluding any cogeneration process for 
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1 other than a federally owned building or build2 ings or other federally owned facilities; or 

3 ‘‘(C) the increased efficient use of existing 

4 water sources in either interior or exterior ap5 plications.’’. 

6 (d) ENERGY SAVINGS CONTRACT.—Section 804(3) of 

7 the National Energy Conservation Policy Act (42 U.S.C. 

8 8287c(3)) is amended to read as follows: 

9 ‘‘(3) The terms ‘energy savings contract’ and 

10 ‘energy savings performance contract’ mean a con11 tract that provides for the performance of services 

12 for the design, acquisition, installation, testing, and, 

13 where appropriate, operation, maintenance, and re14 pair, of an identified energy or water conservation 

15 measure or series of measures at 1 or more loca16 tions. Such contracts shall, with respect to an agen17 cy facility that is a public building (as such term is 

18 defined in section 3301 of title 40, United States 

19 Code), be in compliance with the prospectus require20 ments and procedures of section 3307 of title 40, 

21 United States Code.’’. 

22 (e) ENERGY OR WATER CONSERVATION MEASURE.—

23 Section 804(4) of the National Energy Conservation Pol24 icy Act (42 U.S.C. 8287c(4)) is amended to read as fol25 lows:
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1 ‘‘(4) The term ‘energy or water conservation 

2 measure’ means—

3 ‘‘(A) an energy conservation measure, as 

4 defined in section 551; or 

5 ‘‘(B) a water conservation measure that 

6 improves the efficiency of water use, is life-cycle 

7 cost-effective, and involves water conservation, 

8 water recycling or reuse, more efficient treat9 ment of wastewater or stormwater, improve10 ments in operation or maintenance efficiencies, 

11 retrofit activities, or other related activities, not 

12 at a Federal hydroelectric facility.’’. 

13 (f) REVIEW.—Not later than 180 days after the date 

14 of the enactment of this Act, the Secretary of Energy shall 

15 complete a review of the Energy Savings Performance 

16 Contract program to identify statutory, regulatory, and 

17 administrative obstacles that prevent Federal agencies 

18 from fully utilizing the program. In addition, this review 

19 shall identify all areas for increasing program flexibility 

20 and effectiveness, including audit and measurement 

21 verification requirements, accounting for energy use in de22 termining savings, contracting requirements, including the 

23 identification of additional qualified contractors, and en24 ergy efficiency services covered. The Secretary shall report 

25 these findings to Congress and shall implement identified 
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1 administrative and regulatory changes to increase pro2 gram flexibility and effectiveness to the extent that such 

3 changes are consistent with statutory authority. 

4 (g) EXTENSION OF AUTHORITY.—Any energy sav5 ings performance contract entered into under section 801 

6 of the National Energy Conservation Policy Act (42 

7 U.S.C. 8287) after October 1, 2003, and before the date 

8 of enactment of this Act, shall be deemed to have been 

9 entered into pursuant to such section 801 as amended by 

10 subsection (a) of this section. 

11 SEC. 303. FEDERAL BUILDING PERFORMANCE STANDARDS. 

12 Section 305(a) of the Energy Conservation and Pro13 duction Act (42 U.S.C. 6834(a)) is amended—

14 (1) in paragraph (2)(A), by striking ‘‘CABO 

15 Model Energy Code, 1992’’ and inserting ‘‘the 2003 

16 International Energy Conservation Code’’; and 

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

18 ‘‘(3) REVISED FEDERAL BUILDING ENERGY EFFI19 CIENCY PERFORMANCE STANDARDS.—

20 ‘‘(A) IN GENERAL.—Not later than 1 year after 

21 the date of enactment of this paragraph, the Sec22 retary of Energy shall establish, by rule, revised 

23 Federal building energy efficiency performance 

24 standards that require that—
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1 ‘‘(i) if life-cycle cost-effective, for new Fed2 eral buildings—

3 ‘‘(I) such buildings be designed so as 

4 to achieve energy consumption levels at 

5 least 30 percent below those of the version 

6 current as of the date of enactment of this 

7 paragraph of the ASHRAE Standard or 

8 the International Energy Conservation 

9 Code, as appropriate; and 

10 ‘‘(II) sustainable design principles are 

11 applied to the siting, design, and construc12 tion of all new and replacement buildings; 

13 and 

14 ‘‘(ii) where water is used to achieve energy 

15 efficiency, water conservation technologies shall 

16 be applied to the extent they are life-cycle cost 

17 effective. 

18 ‘‘(B) ADDITIONAL REVISIONS.—Not later than 

19 1 year after the date of approval of each subsequent 

20 revision of the ASHRAE Standard or the Inter21 national Energy Conservation Code, as appropriate, 

22 the Secretary of Energy shall determine, based on 

23 the cost-effectiveness of the requirements under the 

24 amendments, whether the revised standards estab-
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1 lished under this paragraph should be updated to re2 flect the amendments. 

3 ‘‘(C) STATEMENT ON COMPLIANCE OF NEW

4 BUILDINGS.—In the budget request of the Federal 

5 agency for each fiscal year and each report sub6 mitted by the Federal agency under section 548(a) 

7 of the National Energy Conservation Policy Act (42 

8 U.S.C. 8258(a)), the head of each Federal agency 

9 shall include—

10 ‘‘(i) a list of all new Federal buildings 

11 owned, operated, or controlled by the Federal 

12 agency; and 

13 ‘‘(ii) a statement concerning whether the 

14 Federal buildings meet or exceed the revised 

15 standards established under this paragraph.’’. 

16 TITLE IV—PUBLIC HOUSING 

17 SEC. 401. PUBLIC HOUSING CAPITAL FUND. 

18 Section 9 of the United States Housing Act of 1937 

19 (42 U.S.C. 1437g) is amended—

20 (1) in subsection (d)(1)—

21 (A) in subparagraph (I), by striking ‘‘and’’ 

22 at the end; 

23 (B) in subparagraph (J), by striking the 

24 period at the end and inserting a semicolon; 

25 and 
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1 (C) by adding at the end the following new 

2 subparagraphs: 

3 ‘‘(K) improvement of energy and water-use 

4 efficiency by installing fixtures and fittings that 

5 conform to the American Society of Mechanical 

6 Engineers/American National Standards Insti7 tute standards A112.19.2–1998 and 

8 A112.18.1–2000, or any revision thereto, appli9 cable at the time of installation, and by increas10 ing energy efficiency and water conservation by 

11 such other means as the Secretary determines 

12 are appropriate; and 

13 ‘‘(L) integrated utility management and 

14 capital planning to maximize energy conserva15 tion and efficiency measures.’’; and 

16 (2) in subsection (e)(2)(C)—

17 (A) by striking ‘‘The’’ and inserting the 

18 following: 

19 ‘‘(i) IN GENERAL.—The’’; and 

20 (B) by adding at the end the following: 

21 ‘‘(ii) THIRD PARTY CONTRACTS.—

22 Contracts described in clause (i) may in23 clude contracts for equipment conversions 

24 to less costly utility sources, projects with 

25 resident-paid utilities, and adjustments to
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1 frozen base year consumption, including 

2 systems repaired to meet applicable build3 ing and safety codes and adjustments for 

4 occupancy rates increased by rehabilita5 tion. 

6 ‘‘(iii) TERM OF CONTRACT.—The total 

7 term of a contract described in clause (i) 

8 shall not exceed 20 years to allow longer 

9 payback periods for retrofits, including 

10 windows, heating system replacements, 

11 wall insulation, site-based generation, ad12 vanced energy savings technologies, includ13 ing renewable energy generation, and other 

14 such retrofits.’’. 

15 SEC. 402. GRANTS FOR ENERGY-CONSERVING IMPROVE16 MENTS FOR ASSISTED HOUSING. 

17 Section 251(b)(1) of the National Energy Conserva18 tion Policy Act (42 U.S.C. 8231(1)) is amended—

19 (1) by striking ‘‘financed with loans’’ and in20 serting ‘‘assisted’’; 

21 (2) by inserting after ‘‘1959,’’ the following: 

22 ‘‘which are eligible multifamily housing projects (as 

23 such term is defined in section 512 of the Multi24 family Assisted Housing Reform and Affordability 

25 Act of 1997 (42 U.S.C. 1437f note)) and are subject 
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1 to mortgage restructuring and rental assistance suf2 ficiency plans under such Act,’’; and 

3 (3) by inserting after the period at the end of 

4 the first sentence the following new sentence: ‘‘Such 

5 improvements may also include the installation of 

6 energy and water conserving fixtures and fittings 

7 that conform to the American Society of Mechanical 

8 Engineers/American National Standards Institute 

9 standards A112.19.2–1998 and A112.18.1–2000, or 

10 any revision thereto, applicable at the time of instal11 lation.’’. 

12 SEC. 403. ENERGY-EFFICIENT APPLIANCES. 

13 In purchasing appliances, a public housing agency 

14 shall purchase energy-efficient appliances that are Energy 

15 Star products or FEMP-designated products, as such 

16 terms are defined in section 553 of the National Energy 

17 Conservation Policy Act (as amended by this title), unless 

18 the purchase of energy-efficient appliances is not cost-ef19 fective to the agency. 

20 SEC. 404. ENERGY EFFICIENCY STANDARDS. 

21 Section 109 of the Cranston-Gonzalez National Af22 fordable Housing Act (42 U.S.C. 12709) is amended—

23 (1) in subsection (a)—

24 (A) in paragraph (1)—
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1 (i) by striking ‘‘1 year after the date 

2 of the enactment of the Energy Policy Act 

3 of 1992’’ and inserting ‘‘September 30, 

4 2004’’; 

5 (ii) in subparagraph (A), by striking 

6 ‘‘and’’ at the end; 

7 (iii) in subparagraph (B), by striking 

8 the period at the end and inserting ‘‘; 

9 and’’; and 

10 (iv) by adding at the end the fol11 lowing: 

12 ‘‘(C) rehabilitation and new construction of 

13 public and assisted housing funded by HOPE 

14 VI revitalization grants under section 24 of the 

15 United States Housing Act of 1937 (42 U.S.C. 

16 1437v), where such standards are determined 

17 to be cost effective by the Secretary of Housing 

18 and Urban Development.’’; and 

19 (B) in paragraph (2), by striking ‘‘Council 

20 of American’’ and all that follows through 

21 ‘‘90.1–1989’)’’ and inserting ‘‘2003 Inter22 national Energy Conservation Code’’; 

23 (2) in subsection (b)—

24 (A) by striking ‘‘within 1 year after the 

25 date of the enactment of the Energy Policy Act 
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1 of 1992’’ and inserting ‘‘by September 30, 

2 2004’’; and 

3 (B) by striking ‘‘CABO’’ and all that fol4 lows through ‘‘1989’’ and inserting ‘‘the 2003 

5 International Energy Conservation Code’’; and 

6 (3) in subsection (c)—

7 (A) in the heading, by striking ‘‘MODEL

8 ENERGY CODE’’ and inserting ‘‘THE INTER9 NATIONAL ENERGY CONSERVATION CODE’’; 

10 and 

11 (B) by striking ‘‘CABO’’ and all that fol12 lows through ‘‘1989’’ and inserting ‘‘the 2003 

13 International Energy Conservation Code’’. 

14 TITLE V—RELIABILITY 

15 STANDARDS 

16 SEC. 501. ELECTRIC RELIABILITY STANDARDS. 

17 (a) IN GENERAL.—Part II of the Federal Power Act 

18 (16 U.S.C 824 et seq.) is amended by adding at the end 

19 the following: 

20 ‘‘SEC. 215. ELECTRIC RELIABILITY. 

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

22 ‘‘(1) The term ‘bulk-power system’ means—

23 ‘‘(A) facilities and control systems nec24 essary for operating an interconnected electric 
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1 energy transmission network (or any portion 

2 thereof); and 

3 ‘‘(B) electric energy from generation facili4 ties needed to maintain transmission system re5 liability. 

6 The term does not include facilities used in the local 

7 distribution of electric energy. 

8 ‘‘(2) The terms ‘Electric Reliability Organiza9 tion’ and ‘ERO’ mean the organization certified by 

10 the Commission under subsection (c) the purpose of 

11 which is to establish and enforce reliability stand12 ards for the bulk-power system, subject to Commis13 sion review. 

14 ‘‘(3) The term ‘reliability standard’ means a re15 quirement, approved by the Commission under this 

16 section, to provide for reliable operation of the bulk17 power system. The term includes requirements for 

18 the operation of existing bulk-power system facilities 

19 and the design of planned additions or modifications 

20 to such facilities to the extent necessary to provide 

21 for reliable operation of the bulk-power system, but 

22 the term does not include any requirement to en23 large such facilities or to construct new transmission 

24 capacity or generation capacity.
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1 ‘‘(4) The term ‘reliable operation’ means oper2 ating the elements of the bulk-power system within 

3 equipment and electric system thermal, voltage, and 

4 stability limits so that instability, uncontrolled sepa5 ration, or cascading failures of such system will not 

6 occur as a result of a sudden disturbance or unan7 ticipated failure of system elements. 

8 ‘‘(5) The term ‘Interconnection’ means a geo9 graphic area in which the operation of bulk-power 

10 system components is synchronized such that the 

11 failure of 1 or more of such components may ad12 versely affect the ability of the operators of other 

13 components within the system to maintain reliable 

14 operation of the facilities within their control. 

15 ‘‘(6) The term ‘transmission organization’ 

16 means a Regional Transmission Organization, Inde17 pendent System Operator, independent transmission 

18 provider, or other transmission organization finally 

19 approved by the Commission for the operation of 

20 transmission facilities. 

21 ‘‘(7) The term ‘regional entity’ means an entity 

22 having enforcement authority pursuant to subsection 

23 (e)(4). 

24 ‘‘(b) JURISDICTION AND APPLICABILITY.—(1) The 

25 Commission shall have jurisdiction, within the United 
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1 States, over the ERO certified by the Commission under 

2 subsection (c), any regional entities, and all users, owners 

3 and operators of the bulk-power system, including but not 

4 limited to the entities described in section 201(f), for pur5 poses of approving reliability standards established under 

6 this section and enforcing compliance with this section. All 

7 users, owners and operators of the bulk-power system 

8 shall comply with reliability standards that take effect 

9 under this section. 

10 ‘‘(2) The Commission shall issue a final rule to imple11 ment the requirements of this section not later than 180 

12 days after the date of enactment of this section. 

13 ‘‘(c) CERTIFICATION.—Following the issuance of a 

14 Commission rule under subsection (b)(2), any person may 

15 submit an application to the Commission for certification 

16 as the Electric Reliability Organization. The Commission 

17 may certify 1 such ERO if the Commission determines 

18 that such ERO—

19 ‘‘(1) has the ability to develop and enforce, sub20 ject to subsection (e)(2), reliability standards that 

21 provide for an adequate level of reliability of the 

22 bulk-power system; and 

23 ‘‘(2) has established rules that—

24 ‘‘(A) assure its independence of the users 

25 and owners and operators of the bulk-power 
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1 system, while assuring fair stakeholder rep2 resentation in the selection of its directors and 

3 balanced decisionmaking in any ERO com4 mittee or subordinate organizational structure; 

5 ‘‘(B) allocate equitably reasonable dues, 

6 fees, and other charges among end users for all 

7 activities under this section; 

8 ‘‘(C) provide fair and impartial procedures 

9 for enforcement of reliability standards through 

10 the imposition of penalties in accordance with 

11 subsection (e) (including limitations on activi12 ties, functions, or operations, or other appro13 priate sanctions); 

14 ‘‘(D) provide for reasonable notice and op15 portunity for public comment, due process, 

16 openness, and balance of interests in developing 

17 reliability standards and otherwise exercising its 

18 duties; and 

19 ‘‘(E) provide for taking, after certification, 

20 appropriate steps to gain recognition in Canada 

21 and Mexico. 

22 ‘‘(d) RELIABILITY STANDARDS.—(1) The Electric 

23 Reliability Organization shall file each reliability standard 

24 or modification to a reliability standard that it proposes 
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1 to be made effective under this section with the Commis2 sion. 

3 ‘‘(2) The Commission may approve, by rule or order, 

4 a proposed reliability standard or modification to a reli5 ability standard if it determines that the standard is just, 

6 reasonable, not unduly discriminatory or preferential, and 

7 in the public interest. The Commission shall give due 

8 weight to the technical expertise of the Electric Reliability 

9 Organization with respect to the content of a proposed 

10 standard or modification to a reliability standard and to 

11 the technical expertise of a regional entity organized on 

12 an Interconnection-wide basis with respect to a reliability 

13 standard to be applicable within that Interconnection, but 

14 shall not defer with respect to the effect of a standard 

15 on competition. A proposed standard or modification shall 

16 take effect upon approval by the Commission. 

17 ‘‘(3) The Electric Reliability Organization shall 

18 rebuttably presume that a proposal from a regional entity 

19 organized on an Interconnection-wide basis for a reliability 

20 standard or modification to a reliability standard to be ap21 plicable on an Interconnection-wide basis is just, reason22 able, and not unduly discriminatory or preferential, and 

23 in the public interest. 

24 ‘‘(4) The Commission shall remand to the Electric 

25 Reliability Organization for further consideration a pro-
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1 posed reliability standard or a modification to a reliability 

2 standard that the Commission disapproves in whole or in 

3 part. 

4 ‘‘(5) The Commission, upon its own motion or upon 

5 complaint, may order the Electric Reliability Organization 

6 to submit to the Commission a proposed reliability stand7 ard or a modification to a reliability standard that ad8 dresses a specific matter if the Commission considers such 

9 a new or modified reliability standard appropriate to carry 

10 out this section. 

11 ‘‘(6) The final rule adopted under subsection (b)(2) 

12 shall include fair processes for the identification and time13 ly resolution of any conflict between a reliability standard 

14 and any function, rule, order, tariff, rate schedule, or 

15 agreement accepted, approved, or ordered by the Commis16 sion applicable to a transmission organization. Such trans17 mission organization shall continue to comply with such 

18 function, rule, order, tariff, rate schedule or agreement ac19 cepted approved, or ordered by the Commission until—

20 ‘‘(A) the Commission finds a conflict exists be21 tween a reliability standard and any such provision; 

22 ‘‘(B) the Commission orders a change to such 

23 provision pursuant to section 206 of this part; and 

24 ‘‘(C) the ordered change becomes effective 

25 under this part.
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1 If the Commission determines that a reliability standard 

2 needs to be changed as a result of such a conflict, it shall 

3 order the ERO to develop and file with the Commission 

4 a modified reliability standard under paragraph (4) or (5) 

5 of this subsection. 

6 ‘‘(e) ENFORCEMENT.—(1) The ERO may impose, 

7 subject to paragraph (2), a penalty on a user or owner 

8 or operator of the bulk-power system for a violation of a 

9 reliability standard approved by the Commission under 

10 subsection (d) if the ERO, after notice and an opportunity 

11 for a hearing—

12 ‘‘(A) finds that the user or owner or operator 

13 has violated a reliability standard approved by the 

14 Commission under subsection (d); and 

15 ‘‘(B) files notice and the record of the pro16 ceeding with the Commission. 

17 ‘‘(2) A penalty imposed under paragraph (1) may 

18 take effect not earlier than the 31st day after the ERO 

19 files with the Commission notice of the penalty and the 

20 record of proceedings. Such penalty shall be subject to re21 view by the Commission, on its own motion or upon appli22 cation by the user, owner or operator that is the subject 

23 of the penalty filed within 30 days after the date such 

24 notice is filed with the Commission. Application to the 

25 Commission for review, or the initiation of review by the 
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1 Commission on its own motion, shall not operate as a stay 

2 of such penalty unless the Commission otherwise orders 

3 upon its own motion or upon application by the user, 

4 owner or operator that is the subject of such penalty. In 

5 any proceeding to review a penalty imposed under para6 graph (1), the Commission, after notice and opportunity 

7 for hearing (which hearing may consist solely of the record 

8 before the ERO and opportunity for the presentation of 

9 supporting reasons to affirm, modify, or set aside the pen10 alty), shall by order affirm, set aside, reinstate, or modify 

11 the penalty, and, if appropriate, remand to the ERO for 

12 further proceedings. The Commission shall implement ex13 pedited procedures for such hearings. 

14 ‘‘(3) On its own motion or upon complaint, the Com15 mission may order compliance with a reliability standard 

16 and may impose a penalty against a user or owner or oper17 ator of the bulk-power system if the Commission finds, 

18 after notice and opportunity for a hearing, that the user 

19 or owner or operator of the bulk-power system has en20 gaged or is about to engage in any acts or practices that 

21 constitute or will constitute a violation of a reliability 

22 standard. 

23 ‘‘(4) The Commission shall issue regulations author24 izing the ERO to enter into an agreement to delegate au25 thority to a regional entity for the purpose of proposing 
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1 reliability standards to the ERO and enforcing reliability 

2 standards under paragraph (1) if—

3 ‘‘(A) the regional entity is governed by—

4 ‘‘(i) an independent board; 

5 ‘‘(ii) a balanced stakeholder board; or 

6 ‘‘(iii) a combination independent and bal7 anced stakeholder board; 

8 ‘‘(B) the regional entity otherwise satisfies the 

9 provisions of subsection (c)(1) and (2); and 

10 ‘‘(C) the agreement promotes effective and effi11 cient administration of bulk-power system reliability. 

12 The Commission may modify such delegation. The ERO 

13 and the Commission shall rebuttably presume that a pro14 posal for delegation to a regional entity organized on an 

15 Interconnection-wide basis promotes effective and efficient 

16 administration of bulk-power system reliability and should 

17 be approved. Such regulation may provide that the Com18 mission may assign the ERO’s authority to enforce reli19 ability standards under paragraph (1) directly to a re20 gional entity consistent with the requirements of this para21 graph. 

22 ‘‘(5) The Commission may take such action as is nec23 essary or appropriate against the ERO or a regional entity 

24 to ensure compliance with a reliability standard or any 

25 Commission order affecting the ERO or a regional entity.
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1 ‘‘(6) Any penalty imposed under this section shall 

2 bear a reasonable relation to the seriousness of the viola3 tion and shall take into consideration the efforts of such 

4 user, owner, or operator to remedy the violation in a time5 ly manner. 

6 ‘‘(f) CHANGES IN ELECTRIC RELIABILITY ORGANIZA7 TION RULES.—The Electric Reliability Organization shall 

8 file with the Commission for approval any proposed rule 

9 or proposed rule change, accompanied by an explanation 

10 of its basis and purpose. The Commission, upon its own 

11 motion or complaint, may propose a change to the rules 

12 of the ERO. A proposed rule or proposed rule change shall 

13 take effect upon a finding by the Commission, after notice 

14 and opportunity for comment, that the change is just, rea15 sonable, not unduly discriminatory or preferential, is in 

16 the public interest, and satisfies the requirements of sub17 section (c). 

18 ‘‘(g) RELIABILITY REPORTS.—The ERO shall con19 duct periodic assessments of the reliability and adequacy 

20 of the bulk-power system in North America. 

21 ‘‘(h) COORDINATION WITH CANADA AND MEXICO.—

22 The President is urged to negotiate international agree23 ments with the governments of Canada and Mexico to pro24 vide for effective compliance with reliability standards and 
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1 the effectiveness of the ERO in the United States and 

2 Canada or Mexico. 

3 ‘‘(i) SAVINGS PROVISIONS.—(1) The ERO shall have 

4 authority to develop and enforce compliance with reli5 ability standards for only the bulk-power system. 

6 ‘‘(2) This section does not authorize the ERO or the 

7 Commission to order the construction of additional gen8 eration or transmission capacity or to set and enforce com9 pliance with standards for adequacy or safety of electric 

10 facilities or services. 

11 ‘‘(3) Nothing in this section shall be construed to pre12 empt any authority of any State to take action to ensure 

13 the safety, adequacy, and reliability of electric service 

14 within that State, as long as such action is not incon15 sistent with any reliability standard. 

16 ‘‘(4) Within 90 days of the application of the Electric 

17 Reliability Organization or other affected party, and after 

18 notice and opportunity for comment, the Commission shall 

19 issue a final order determining whether a State action is 

20 inconsistent with a reliability standard, taking into consid21 eration any recommendation of the ERO. 

22 ‘‘(5) The Commission, after consultation with the 

23 ERO and the State taking action, may stay the effective24 ness of any State action, pending the Commission’s 

25 issuance of a final order. 
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1 ‘‘(j) REGIONAL ADVISORY BODIES.—The Commis2 sion shall establish a regional advisory body on the petition 

of at least 2 3 ⁄3 of the States within a region that have more 

than 1 4 ⁄2 of their electric load served within the region. A 

5 regional advisory body shall be composed of 1 member 

6 from each participating State in the region, appointed by 

7 the Governor of each State, and may include representa8 tives of agencies, States, and provinces outside the United 

9 States. A regional advisory body may provide advice to the 

10 Electric Reliability Organization, a regional entity, or the 

11 Commission regarding the governance of an existing or 

12 proposed regional entity within the same region, whether 

13 a standard proposed to apply within the region is just, 

14 reasonable, not unduly discriminatory or preferential, and 

15 in the public interest, whether fees proposed to be assessed 

16 within the region are just, reasonable, not unduly discrimi17 natory or preferential, and in the public interest and any 

18 other responsibilities requested by the Commission. The 

19 Commission may give deference to the advice of any such 

20 regional advisory body if that body is organized on an 

21 Interconnection-wide basis. 

22 ‘‘(k) ALASKA AND HAWAII.—The provisions of this 

23 section do not apply to Alaska or Hawaii.’’. 

24 (b) STATUS OF ERO.—The Electric Reliability Orga25 nization certified by the Federal Energy Regulatory Com-
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1 mission under section 215(c) of the Federal Power Act 

2 and any regional entity delegated enforcement authority 

3 pursuant to section 215(e)(4) of that Act are not depart4 ments, agencies, or instrumentalities of the United States 

5 Government.

Æ