```

[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 680 Introduced in Senate (IS)]

  1st Session
                                 S. 680

 To provide for various energy efficiency programs and tax incentives, 
                        and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             March 17, 2005

  Ms. Snowe (for herself, Mrs. Feinstein, Mr. McCain, and Mr. Durbin) 
introduced the following bill; which was read twice and referred to the 
                          Committee on Finance

_______________________________________________________________________

                                 A BILL

 
 To provide for various energy efficiency programs and tax incentives, 
                        and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Efficient Energy 
Through Certified Technologies and Electricity Reliability (EFFECTER) 
Act of 2005''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

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

Sec. 101. Energy efficient commercial buildings deduction.
Sec. 102. Credit for construction of new energy efficient homes.
Sec. 103. Incentive for certain energy efficient property used in 
                            business.
Sec. 104. Credit for certain nonbusiness energy property.
Sec. 105. Energy credit for combined heat and power system property.
                  TITLE II--ENERGY EFFICIENT PRODUCTS

Sec. 201. Energy conservation standards for additional products.
Sec. 202. Energy labeling.
Sec. 203. Commercial package air conditioning and heating equipment.
Sec. 204. Commercial refrigerators, freezers, and refrigerator-
                            freezers.
              TITLE III--ENERGY EFFICIENT FEDERAL PROGRAMS

Sec. 301. Procurement of energy efficient products.
Sec. 302. Energy savings performance contracts.
Sec. 303. Federal building performance standards.
                        TITLE IV--PUBLIC HOUSING

Sec. 401. Public housing capital fund.
Sec. 402. Grants for energy-conserving improvements for assisted 
                            housing.
Sec. 403. Energy-efficient appliances.
Sec. 404. Energy efficiency standards.
                     TITLE V--RELIABILITY STANDARDS

Sec. 501. Electric reliability standards.

                        TITLE I--TAX INCENTIVES

SEC. 101. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

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

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

    ``(a) In General.--There shall be allowed as a deduction an amount 
equal to the cost of energy efficient commercial building property 
placed in service during the taxable year.
    ``(b) Maximum Amount of Deduction.--The deduction under subsection 
(a) with respect to any building for the taxable year and all prior 
taxable years shall not exceed an amount equal to the product of--
            ``(1) $2.25, and
            ``(2) the square footage of the building.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Energy efficient commercial building property.--The 
        term `energy efficient commercial building property' means 
        property--
                    ``(A) which is installed on or in any building 
                located in the United States,
                    ``(B) which is installed as part of--
                            ``(i) the interior lighting systems,
                            ``(ii) the heating, cooling, ventilation, 
                        and hot water systems, or
                            ``(iii) the building envelope, and
                    ``(C) which is certified in accordance with 
                subsection (d)(6) as being installed as part of a plan 
                designed to reduce the total annual energy and power 
                costs with respect to the interior lighting systems, 
                heating, cooling, ventilation, and hot water systems of 
                the building by 50 percent or more in comparison to a 
                reference building which meets the minimum requirements 
                of Standard 90.1-2001 using methods of calculation 
                under subsection (d)(2).
        A building described in subparagraph (A) may include any 
        residential rental property, including any low-rise multifamily 
        structure or single family housing property which is not within 
        the scope of Standard 90.1-2001, but shall not include any 
        qualified new energy efficient home (within the meaning of 
        section 45J(d)(3)) for which a credit under section 45J has 
        been allowed.
            ``(2) Standard 90.1-2001.--The term `Standard 90.1-2001' 
        means Standard 90.1-2001 of the American Society of Heating, 
        Refrigerating, and Air Conditioning Engineers and the 
        Illuminating Engineering Society of North America (as in effect 
        on April 2, 2003).
    ``(d) Special Rules.--
            ``(1) Partial allowance.--
                    ``(A) In general.--Except as provided in subsection 
                (f), if--
                            ``(i) the requirement of subsection 
                        (c)(1)(C) is not met, but
                            ``(ii) there is a certification in 
                        accordance with paragraph (6) that any system 
                        referred to in subsection (c)(1)(B) satisfies 
                        the energy-savings targets established by the 
                        Secretary under subparagraph (B) with respect 
                        to such system,
                then the requirement of subsection (c)(1)(C) shall be 
                treated as met with respect to such system, and the 
                deduction under subsection (a) shall be allowed with 
                respect to energy efficient commercial building 
                property installed as part of such system and as part 
                of a plan to meet such targets, except that subsection 
                (b) shall be applied to such property by substituting 
                `$.75' for `$2.25'.
                    ``(B) Regulations.--The Secretary, after 
                consultation with the Secretary of Energy, shall 
                establish a target for each system described in 
                subsection (c)(1)(B) which, if such targets were met 
                for all such systems, the building would meet the 
                requirements of subsection (c)(1)(C).
            ``(2) Methods of calculation.--The Secretary, after 
        consultation with the Secretary of Energy, shall promulgate 
        regulations which describe in detail methods for calculating 
        and verifying energy and power consumption and cost, based on 
        the provisions of the 2005 California Nonresidential 
        Alternative Calculation Method Approval Manual or, in the case 
        of residential property, the 2005 California Residential 
        Alternative Calculation Method Approval Manual. These 
        regulations shall meet the following requirements:
                    ``(A) In calculating tradeoffs and energy 
                performance, the regulations shall prescribe the costs 
                per unit of energy and power, such as kilowatt hour, 
                kilowatt, gallon of fuel oil, and cubic foot or Btu of 
                natural gas, which may be dependent on time of usage. 
                If a State has developed annual energy usage and cost 
                calculation procedures based on time of usage costs for 
                use in the performance standards of the State's 
                building energy code before the effective date of this 
                section, the State may use those annual energy usage 
                and cost calculation procedures in lieu of those 
                adopted by the Secretary.
                    ``(B) The calculation methods under this paragraph 
                need not comply fully with section 11 of Standard 90.1-
                2001.
                    ``(C) The calculation methods shall be fuel 
                neutral, such that the same energy efficiency features 
                shall qualify a building for the deduction under this 
                section regardless of whether the heating source is a 
                gas or oil furnace or an electric heat pump. The 
                reference building for a proposed design which employs 
                electric resistance heating shall be modeled as using a 
                heat pump.
                    ``(D) The calculation methods shall provide 
                appropriate calculated energy savings for design 
                methods and technologies not otherwise credited in 
                either Standard 90.1-2001 or in the 2005 California 
                Nonresidential Alternative Calculation Method Approval 
                Manual, including the following:
                            ``(i) Natural ventilation.
                            ``(ii) Evaporative cooling.
                            ``(iii) Automatic lighting controls such as 
                        occupancy sensors, photocells, and timeclocks.
                            ``(iv) Daylighting.
                            ``(v) Designs utilizing semi-conditioned 
                        spaces which maintain adequate comfort 
                        conditions without air conditioning or without 
                        heating.
                            ``(vi) Improved fan system efficiency, 
                        including reductions in static pressure.
                            ``(vii) Advanced unloading mechanisms for 
                        mechanical cooling, such as multiple or 
                        variable speed compressors.
                            ``(viii) The calculation methods may take 
                        into account the extent of commissioning in the 
                        building, and allow the taxpayer to take into 
                        account measured performance which exceeds 
                        typical performance.
                            ``(ix) On-site generation of electricity, 
                        including combined heat and power systems, fuel 
                        cells, and renewable energy generation such as 
                        solar energy.
                            ``(x) Wiring with lower energy losses than 
                        wiring satisfying Standard 90.1-2001 
                        requirements for building power distribution 
                        systems.
            ``(3) Computer software.--
                    ``(A) In general.--Any calculation under paragraph 
                (2) shall be prepared by qualified computer software.
                    ``(B) Qualified computer software.--For purposes of 
                this paragraph, the term `qualified computer software' 
                means software--
                            ``(i) for which the software designer has 
                        certified that the software meets all 
                        procedures and detailed methods for calculating 
                        energy and power consumption and costs as 
                        required by the Secretary,
                            ``(ii) which provides such forms as 
                        required to be filed by the Secretary in 
                        connection with energy efficiency of property 
                        and the deduction allowed under this section, 
                        and
                            ``(iii) which provides a notice form which 
                        documents the energy efficiency features of the 
                        building and its projected annual energy costs.
            ``(4) Allocation of deduction for public property.--In the 
        case of energy efficient commercial building property installed 
        on or in public property, the Secretary shall promulgate a 
        regulation to allow the allocation of the deduction to the 
        person primarily responsible for designing the property in lieu 
        of the public entity which is the owner of such property. Such 
        person shall be treated as the taxpayer for purposes of this 
        section.
            ``(5) Notice to owner.--Each certification required under 
        this section shall include an explanation to the building owner 
        regarding the energy efficiency features of the building and 
        its projected annual energy costs as provided in the notice 
        under paragraph (3)(B)(iii).
            ``(6) Certification.--
                    ``(A) In general.--The Secretary shall prescribe 
                the manner and method for the making of certifications 
                under this section.
                    ``(B) Procedures.--The Secretary shall include as 
                part of the certification process procedures for 
                inspection and testing by qualified individuals 
                described in subparagraph (C) to ensure compliance of 
                buildings with energy-savings plans and targets. Such 
                procedures shall be comparable, given the difference 
                between commercial and residential buildings, to the 
                requirements in the Mortgage Industry National 
                Accreditation Procedures for Home Energy Rating 
                Systems.
                    ``(C) Qualified individuals.--Individuals qualified 
                to determine compliance shall be only those individuals 
                who are recognized by an organization certified by the 
                Secretary for such purposes.
    ``(e) Basis Reduction.--For purposes of this subtitle, if a 
deduction is allowed under this section with respect to any energy 
efficient commercial building property, the basis of such property 
shall be reduced by the amount of the deduction so allowed.
    ``(f) Interim Rules for Lighting Systems.--Until such time as the 
Secretary issues final regulations under subsection (d)(1)(B) with 
respect to property which is part of a lighting system--
            ``(1) In general.--The lighting system target under 
        subsection (d)(1)(A)(ii) shall be a reduction in lighting power 
        density of 25 percent (50 percent in the case of a warehouse) 
        of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 
        (not including additional interior lighting power allowances) 
        of Standard 90.1-2001.
            ``(2) Reduction in deduction if reduction less than 40 
        percent.--
                    ``(A) In general.--If, with respect to the lighting 
                system of any building other than a warehouse, the 
                reduction in lighting power density of the lighting 
                system is not at least 40 percent, only the applicable 
                percentage of the amount of deduction otherwise 
                allowable under this section with respect to such 
                property shall be allowed.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage is the 
                number of percentage points (not greater than 100) 
                equal to the sum of--
                            ``(i) 50, and
                            ``(ii) the amount which bears the same 
                        ratio to 50 as the excess of the reduction of 
                        lighting power density of the lighting system 
                        over 25 percentage points bears to 15.
                    ``(C) Exceptions.--This subsection shall not apply 
                to any system--
                            ``(i) the controls and circuiting of which 
                        do not comply fully with the mandatory and 
                        prescriptive requirements of Standard 90.1-2001 
                        and which do not include provision for bilevel 
                        switching in all occupancies except hotel and 
                        motel guest rooms, store rooms, restrooms, and 
                        public lobbies, or
                            ``(ii) which does not meet the minimum 
                        requirements for calculated lighting levels as 
                        set forth in the Illuminating Engineering 
                        Society of North America Lighting Handbook, 
                        Performance and Application, Ninth Edition, 
                        2000.
    ``(g) Coordination With Other Tax Benefits.--
            ``(1) No double benefit.--No deduction shall be allowed 
        under subsection (a) with respect to any building for which a 
        credit under section 45J has been allowed.
            ``(2) Special rule with respect to buildings with energy 
        efficient property.--In any case in which a deduction under 
        section 200 or a credit under section 25C has been allowed with 
        respect to property in connection with a building, the annual 
        energy and power costs of the reference building referred to in 
        subsection (c)(1)(C) shall be determined assuming such 
        reference building contains the property for which such 
        deduction or credit has been allowed.
    ``(h) Regulations.--The Secretary shall promulgate such regulations 
as necessary--
            ``(1) to take into account new technologies regarding 
        energy efficiency and renewable energy for purposes of 
        determining energy efficiency and savings under this section, 
        and
            ``(2) to provide for a recapture of the deduction allowed 
        under this section if the plan described in subsection 
        (c)(1)(C) or (d)(1)(A) is not fully implemented.
    ``(i) Termination.--This section shall not apply with respect to 
property placed in service after December 31, 2010.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) of the Internal Revenue Code of 1986 is 
        amended by striking ``and'' at the end of paragraph (30), by 
        striking the period at the end of paragraph (31) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(32) to the extent provided in section 179C(e).''.
            (2) Section 1245(a) of such Code is amended by inserting 
        ``179C,'' after ``179B,'' both places it appears in paragraphs 
        (2)(C) and (3)(C).
            (3) Section 1250(b)(3) of such Code is amended by inserting 
        before the period at the end of the first sentence ``or by 
        section 179C''.
            (4) Section 263(a)(1) of such Code is amended by striking 
        ``or'' at the end of subparagraph (H), by striking the period 
        at the end of subparagraph (I) and inserting ``, or'', and by 
        inserting after subparagraph (I) the following new 
        subparagraph:
                    ``(J) expenditures for which a deduction is allowed 
                under section 179C.''.
            (5) Section 312(k)(3)(B) of such Code is amended by 
        striking ``section 179, 179A, or 179B'' each place it appears 
        in the heading and text and inserting ``section 179, 179A, 
        179B, or 179C''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after section 179B the following new item:

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

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

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

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

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor with respect to a qualified new energy efficient 
home, the credit determined under this section for the taxable year 
with respect to such home is an amount equal to the aggregate adjusted 
bases of all energy efficient property installed in such home during 
construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a dwelling unit shall not 
                exceed--
                            ``(i) in the case of a dwelling unit 
                        described in clause (i) or (iii) of subsection 
                        (c)(3)(C), $1,000, and
                            ``(ii) in the case of a dwelling unit 
                        described in clause (ii) or (iv) of subsection 
                        (c)(3)(C), $2,000.
                    ``(B) Prior credit amounts on same dwelling unit 
                taken into account.--If a credit was allowed under 
                subsection (a) with respect to a dwelling unit in 1 or 
                more prior taxable years, the amount of the credit 
                otherwise allowable for the taxable year with respect 
                to such dwelling unit shall be reduced by the sum of 
                the credits allowed under subsection (a) with respect 
                to the dwelling unit for all prior taxable years.
            ``(2) Coordination with certain credits.--For purposes of 
        this section--
                    ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to 
                qualified rehabilitation expenditures (as defined in 
                section 47(c)(2)) or to the energy percentage of energy 
                property (as determined under section 48(a)), and
                    ``(B) expenditures taken into account under section 
                47 or 48(a) shall not be taken into account under this 
                section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible contractor.--The term `eligible contractor' 
        means--
                    ``(A) the person who constructed the qualified new 
                energy efficient home, or
                    ``(B) in the case of a qualified new energy 
                efficient home which is a manufactured home, the 
                manufactured home producer of such home.
        If more than 1 person is described in subparagraph (A) or (B) 
        with respect to any qualified new energy efficient home, such 
        term means the person designated as such by the owner of such 
        home.
            ``(2) Energy efficient property.--The term `energy 
        efficient property' means any energy efficient building 
        envelope component, and any energy efficient heating or cooling 
        equipment or system, which can, individually or in combination 
        with other components, result in a dwelling unit meeting the 
        requirements of this section.
            ``(3) Qualified new energy efficient home.--The term 
        `qualified new energy efficient home' means a dwelling unit--
                    ``(A) located in the United States,
                    ``(B) the construction of which is substantially 
                completed after the date of the enactment of this 
                section, and
                    ``(C) which is--
                            ``(i) certified to have a level of annual 
                        heating and cooling energy consumption which is 
                        at least 30 percent below the annual level of 
                        heating and cooling energy consumption of a 
                        comparable dwelling unit constructed in 
                        accordance with the standards of chapter 4 of 
                        the 2003 International Energy Conservation 
                        Code, as such Code (including supplements) is 
                        in effect on the date of the enactment of this 
                        section, and for which the heating and cooling 
                        equipment efficiencies correspond to the 
                        minimum allowed under the regulations 
                        established by the Department of Energy 
                        pursuant to the National Appliance Energy 
                        Conservation Act of 1987 and in effect at the 
                        time of construction, and to have building 
                        envelope component improvements account for at 
                        least \1/3\ of such 30 percent,
                            ``(ii) certified to have a level of annual 
                        heating and cooling energy consumption which is 
                        at least 50 percent below such annual level and 
                        to have building envelope component 
                        improvements account for at least \1/5\ of such 
                        50 percent,
                            ``(iii) a manufactured home which meets the 
                        requirements of clause (i) and which conforms 
                        to Federal Manufactured Home Construction and 
                        Safety Standards (section 3280 of title 24, 
                        Code of Federal Regulations), or
                            ``(iv) a manufactured home which meets the 
                        requirements of clause (ii) and which conforms 
                        to Federal Manufactured Home Construction and 
                        Safety Standards (section 3280 of title 24, 
                        Code of Federal Regulations).
            ``(4) Construction.--The term `construction' includes 
        substantial reconstruction and rehabilitation.
            ``(5) Acquire.--The term `acquire' includes purchase and, 
        in the case of reconstruction and rehabilitation, such term 
        includes a binding written contract for such reconstruction or 
        rehabilitation.
            ``(6) Building envelope component.--The term `building 
        envelope component' means--
                    ``(A) any insulation material or system which is 
                specifically and primarily designed to reduce the heat 
                loss or gain of a dwelling unit when installed in or on 
                such dwelling unit,
                    ``(B) exterior windows (including skylights),
                    ``(C) exterior doors, and
                    ``(D) any metal roof installed on a dwelling unit, 
                but only if such roof has appropriate pigmented 
                coatings which--
                            ``(i) are specifically and primarily 
                        designed to reduce the heat gain of such 
                        dwelling unit, and
                            ``(ii) meet the Energy Star program 
                        requirements.
    ``(d) Certification.--
            ``(1) Method of certification.--A certification described 
        in subsection (c)(3)(C) shall be determined in accordance with 
        guidance prescribed by the Secretary, after consultation with 
        the Secretary of Energy. Such guidance shall specify procedures 
        and methods for calculating energy and cost savings.
            ``(2) Form.--A certification described in subsection 
        (c)(3)(C) shall be made in writing in a manner which specifies 
        in readily verifiable fashion the energy efficient building 
        envelope components and energy efficient heating or cooling 
        equipment installed and their respective rated energy 
        efficiency performance.
    ``(e) Basis Adjustment.--For purposes of this subtitle, if a credit 
is determined under this section for any expenditure with respect to 
any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so determined.
    ``(f) Special Rule With Respect to Buildings With Energy Efficient 
Property.--In any case in which a deduction under section 200 or a 
credit under section 25C has been allowed with respect to property in 
connection with a dwelling unit, the level of annual heating and 
cooling energy consumption of the comparable dwelling unit referred to 
in clauses (i) and (ii) of subsection (c)(3)(C) shall be determined 
assuming such comparable dwelling unit contains the property for which 
such deduction or credit has been allowed.
    ``(g) Application of Section.--
            ``(1) 50 percent homes.--In the case of any dwelling unit 
        described in clause (ii) or (iv) of subsection (c)(3)(C), 
        subsection (a) shall apply to qualified new energy efficient 
        homes acquired during the period beginning on the date of the 
        enactment of this section, and ending on December 31, 2009.
            ``(2) 30 percent homes.--In the case of any dwelling unit 
        described in clause (i) or (iii) of subsection (c)(3)(C), 
        subsection (a) shall apply to qualified new energy efficient 
        homes acquired during the period beginning on the date of the 
        enactment of this section, and ending on December 31, 2007.''.
    (b) Credit Made Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 (relating to current year business 
credit) is amended by striking ``plus'' at the end of paragraph (18), 
by striking the period at the end of paragraph (19) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(20) the new energy efficient home credit determined 
        under section 45J(a).''.
    (c) Basis Adjustment.--Subsection (a) of section 1016 of the 
Internal Revenue Code of 1986, as amended by section 101, is amended by 
striking ``and'' at the end of paragraph (31), by striking the period 
at the end of paragraph (32) and inserting ``, and'', and by adding at 
the end the following new paragraph:
            ``(33) to the extent provided in section 45J(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 45J.''.
    (d) Deduction for Certain Unused Business Credits.--Section 196(c) 
of the Internal Revenue Code of 1986 (defining qualified business 
credits) is amended by striking ``and'' at the end of paragraph (11), 
by striking the period at the end of paragraph (12) and inserting ``, 
and'', and by adding after paragraph (12) the following new paragraph:
            ``(13) the new energy efficient home credit determined 
        under section 45J(a).''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

                              ``Sec. 45J. New energy efficient home 
                                        credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

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

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

``SEC. 200. ENERGY PROPERTY DEDUCTION.

    ``(a) In General.--There shall be allowed as a deduction for the 
taxable year an amount equal to the sum of--
            ``(1) the amount determined under subsection (b) for each 
        energy property of the taxpayer placed in service during such 
        taxable year, and
            ``(2) the energy efficient residential rental building 
        property deduction determined under subsection (e).
    ``(b) Amount for Energy Property.--
            ``(1) In general.--The amount determined under this 
        subsection for the taxable year for each item of energy 
        property shall equal the amount specified for such property in 
        the following table:
      

------------------------------------------------------------------------
     Description of property:               Allowable amount is:
------------------------------------------------------------------------
Elected solar hot water property..      $1.00 per each kwh/year of
                                     savings.
Photovoltaic property.............      $4.50 per peak watt.
Advanced main air circulating fan       $150.
 or a Tier 1 natural gas, propane,
 or oil water heater.
Tier 2 energy-efficient building        $900.
 property.
Tier 1 energy-efficient building        $450.
 property (other than an advanced
 main air circulating fan or a
 natural gas, propane, or oil
 water heater).
------------------------------------------------------------------------

            ``(2) Elected solar hot water property.--In the case of 
        elected solar hot water property, the taxpayer may elect to 
        substitute `$21 per annual Therm of natural gas savings' for 
        `$1.00 per each kwh/year of savings' in the table contained in 
        paragraph (1).
    ``(c) Energy Property Defined.--
            ``(1) In general.--For purposes of this part, the term 
        `energy property' means any property--
                    ``(A) which is--
                            ``(i) solar energy property,
                            ``(ii) Tier 2 energy-efficient building 
                        property,
                            ``(iii) Tier 1 energy-efficient building 
                        property, or
                            ``(iv) an advanced main air circulating 
                        fan,
                    ``(B)(i) the construction, reconstruction, or 
                erection of which is completed by the taxpayer, or
                    ``(ii) which is acquired by the taxpayer if the 
                original use of such property commences with the 
                taxpayer,
                    ``(C) with respect to which depreciation (or 
                amortization in lieu of depreciation) is allowable, and
                    ``(D) which meets the performance and quality 
                standards, and the certification requirements (if any), 
                which--
                            ``(i) have been prescribed by the Secretary 
                        by regulations (after consultation with the 
                        Secretary of Energy or the Administrator of the 
                        Environmental Protection Agency, as 
                        appropriate),
                            ``(ii) in the case of the energy efficiency 
                        ratio (EER) for central air conditioners and 
                        electric heat pumps--
                                    ``(I) require measurements to be 
                                based on published data which is tested 
                                by manufacturers at 95 degrees 
                                Fahrenheit, and
                                    ``(II) may be based on the 
                                certified data of the Air Conditioning 
                                and Refrigeration Institute that are 
                                prepared in partnership with the 
                                Consortium for Energy Efficiency,
                            ``(iii) in the case of geothermal heat 
                        pumps--
                                    ``(I) shall be based on testing 
                                under the conditions of ARI/ISO 
                                Standard 13256-1 for Water Source Heat 
                                Pumps or ARI 870 for Direct Expansion 
                                GeoExchange Heat Pumps (DX), as 
                                appropriate, and
                                    ``(II) shall include evidence that 
                                water heating services have been 
                                provided through a desuperheater or 
                                integrated water heating system 
                                connected to the storage water heater 
                                tank, and
                            ``(iv) are in effect at the time of the 
                        acquisition of the property.
            ``(2) Solar energy property.--In the case of--
                    ``(A) elected solar hot water property, the 
                regulations under paragraph (1)(D) shall be based on 
                the OG-300 Standard for the Annual Performance of OG-
                300 Certified Systems of the Solar Rating and 
                Certification Corporation, and
                    ``(B) photovoltaics, such regulations shall be 
                based on the ASTM Standard E 1036 and E 1036M-96 
                Standard Test Method for Electric Performance of 
                Nonconcentrator Terrestrial Photovoltaic Modules and 
                Arrays Using Reference Cells,
        to the extent the Secretary determines such standards carry out 
        the purposes of this section.
            ``(3) Exception.--Such term shall not include any property 
        which is public utility property (as defined in section 
        46(f)(5) as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1990).
    ``(d) Definitions Relating to Types of Energy Property.--For 
purposes of this section--
            ``(1) Solar energy property.--
                    ``(A) In general.--The term `solar energy property' 
                means equipment which uses solar energy--
                            ``(i) to generate electricity, or
                            ``(ii) to provide hot water for use in a 
                        structure.
                    ``(B) Elected solar hot water property.--
                            ``(i) In general.--The term `elected solar 
                        hot water property' means property which is 
                        solar energy property by reason of subparagraph 
                        (A)(ii) and for which an election under this 
                        subparagraph is in effect.
                            ``(ii) Election.--For purposes of clause 
                        (i), a taxpayer may elect to treat property 
                        described in clause (i) as elected solar hot 
                        water property.
                    ``(C) Photovoltaic property.--The term 
                `photovoltaic property' means solar energy property 
                which uses a solar photovoltaic process to generate 
                electricity.
                    ``(D) Swimming pools, etc., used as storage 
                medium.--The term `solar energy property' shall not 
                include a swimming pool, hot tub, or any other energy 
                storage medium which has a function other than the 
                function of such storage.
                    ``(E) Solar panels.--No solar panel or other 
                property installed as a roof (or portion thereof) shall 
                fail to be treated as solar energy property solely 
                because it constitutes a structural component of the 
                structure on which it is installed.
            ``(2) Tier 2 energy-efficient building property.--The term 
        `Tier 2 energy-efficient building property' means--
                    ``(A) an electric heat pump water heater which 
                yields an energy factor of at least 2.0 in the standard 
                Department of Energy test procedure,
                    ``(B) an electric heat pump which has a heating 
                seasonal performance factor (HSPF) of at least 9, a 
                seasonal energy efficiency ratio (SEER) of at least 15, 
                and an energy efficiency ratio (EER) of at least 13,
                    ``(C) a geothermal heat pump which--
                            ``(i) in the case of a closed loop product, 
                        has an energy efficiency ratio (EER) of at 
                        least 14.1 and a heating coefficient of 
                        performance (COP) of at least 3.3,
                            ``(ii) in the case of an open loop product, 
                        has an energy efficiency ratio (EER) of at 
                        least 16.2 and a heating coefficient of 
                        performance (COP) of at least 3.6, and
                            ``(iii) in the case of a direct expansion 
                        (DX) product, has an energy efficiency ratio 
                        (EER) of at least 15 and a heating coefficient 
                        of performance (COP) of at least 3.5,
                    ``(D) a central air conditioner which has a 
                seasonal energy efficiency ratio (SEER) of at least 15 
                and an energy efficiency ratio (EER) of at least 13, 
                and
                    ``(E) a natural gas, propane, or oil water heater 
                which has an energy factor of at least 0.80.
            ``(3) Tier 1 energy-efficient building property.--The term 
        `Tier 1 energy-efficient building property' means--
                    ``(A) an electric heat pump which has a heating 
                system performance factor (HSPF) of at least 8.5, a 
                cooling seasonal energy efficiency ratio (SEER) of at 
                least 14, and an energy efficiency ratio (EER) of at 
                least 12,
                    ``(B) a central air conditioner which has a cooling 
                seasonal energy efficiency ratio (SEER) of at least 14 
                and an energy efficiency ratio (EER) of at least 12,
                    ``(C) a natural gas, propane, or oil water heater 
                which has an energy factor of at least 0.65, and
                    ``(D) an oil, natural gas, or propane furnace or 
                hot water boiler which achieves at least 95 percent 
                annual fuel utilization efficiency (AFUE).
            ``(4) Advanced main air circulating fan.--The term 
        `advanced main air circulating fan' means a fan used in a 
        natural gas, propane, or oil furnace originally placed in 
        service by the taxpayer during the taxable year, including a 
        fan which uses a brushless permanent magnet motor or another 
        type of motor which achieves similar or higher efficiency at 
        full and half speed, as determined by the Secretary.
    ``(e) Energy Efficient Residential Rental Building Property 
Deduction.--
            ``(1) Deduction allowed.--For purposes of subsection (a)--
                    ``(A) In general.--The energy efficient residential 
                rental building property deduction determined under 
                this subsection is an amount equal to energy efficient 
                residential rental building property expenditures made 
                by a taxpayer for the taxable year.
                    ``(B) Maximum amount of deduction.--The amount of 
                energy efficient residential rental building property 
                expenditures taken into account under subparagraph (A) 
                with respect to each dwelling unit shall not exceed--
                            ``(i) $6,000 in the case of a percentage 
                        reduction of 50 percent as determined under 
                        paragraph (2)(B), and
                            ``(ii) $12,000 times the percentage 
                        reduction in the case of a percentage reduction 
                        of less than 50 percent as determined under 
                        paragraph (2)(B).
                    ``(C) Year deduction allowed.--The deduction under 
                subparagraph (A) shall be allowed in the taxable year 
                in which the construction, reconstruction, erection, or 
                rehabilitation of the property is completed.
            ``(2) Energy efficient residential rental building property 
        expenditures.--For purposes of this subsection--
                    ``(A) In general.--The term `energy efficient 
                residential rental building property expenditures' 
                means an amount paid or incurred in connection with 
                construction, reconstruction, erection, or 
                rehabilitation of energy efficient residential rental 
                building property--
                            ``(i) for which depreciation is allowable 
                        under section 167,
                            ``(ii) which is located in the United 
                        States, and
                            ``(iii) the construction, reconstruction, 
                        erection, or rehabilitation of which is 
                        completed by the taxpayer.
                Such term includes expenditures for labor costs 
                properly allocable to the onsite preparation, assembly, 
                or original installation of the property.
                    ``(B) Energy efficient residential rental building 
                property.--
                            ``(i) In general.--The term `energy 
                        efficient residential rental building property' 
                        means any property which reduces total annual 
                        energy and power costs with respect to heating 
                        and cooling of the building by a percentage 
                        certified according to clause (ii).
                            ``(ii) Procedures.--
                                    ``(I) In general.--For purposes of 
                                clause (i), energy usage and costs 
                                shall be demonstrated by performance-
                                based compliance.
                                    ``(II) Performance-based 
                                compliance.--Performance-based 
                                compliance shall be demonstrated by 
                                calculating the percent energy cost 
                                savings for heating and cooling, as 
                                applicable, with respect to a dwelling 
                                unit when compared to the original 
                                condition of the dwelling unit.
                                    ``(III) Computer software.--
                                Computer software shall be used in 
                                support of performance-based compliance 
                                under subclause (II) and such software 
                                shall meet all of the procedures and 
                                methods for calculating energy savings 
                                reductions which are promulgated by the 
                                Secretary of Energy. Such regulations 
                                on the specifications for software and 
                                verification protocols shall be based 
                                on the 2005 California Residential 
                                Alternative Calculation Method Approval 
                                Manual.
                                    ``(IV) Calculation requirements.--
                                In calculating tradeoffs and energy 
                                performance, the regulations prescribed 
                                under this clause shall prescribe for 
                                the taxable year the costs per unit of 
                                energy and power, such as kilowatt 
                                hour, kilowatt, gallon of fuel oil, and 
                                cubic foot or Btu of natural gas, which 
                                may be dependent on time of usage. 
                                Where a State has developed annual 
                                energy usage and cost calculation 
                                procedures based on time of usage costs 
                                for use in the performance standards of 
                                the State's building energy code prior 
                                to the effective date of this section, 
                                the State may use those annual energy 
                                usage and cost calculation procedures 
                                in lieu of those adopted by the 
                                Secretary.
                                    ``(V) Approval of software 
                                submissions.--The Secretary shall 
                                approve software submissions which 
                                comply with the requirements of 
                                subclause (III).
                                    ``(VI) Procedures for inspection 
                                and testing of homes.--The Secretary 
                                shall ensure that procedures for the 
                                inspection and testing for compliance 
                                comply with the calculation 
                                requirements under subclause (IV) of 
                                this clause and clause (iv).
                            ``(iii) Determinations of compliance.--A 
                        determination of compliance with respect to 
                        energy efficient residential rental building 
                        property made for the purposes of this 
                        subparagraph shall be filed with the Secretary 
                        not later than 1 year after the date of such 
                        determination and shall include the TIN of the 
                        certifier, the address of the building in 
                        compliance, and the identity of the person for 
                        whom such determination was performed. 
                        Determinations of compliance filed with the 
                        Secretary shall be available for inspection by 
                        the Secretary of Energy.
                            ``(iv) Compliance.--
                                    ``(I) In general.--The Secretary, 
                                after consultation with the Secretary 
                                of Energy, shall establish requirements 
                                for certification and compliance 
                                procedures after examining the 
                                requirements for energy consultants and 
                                home energy ratings providers specified 
                                by the Mortgage Industry National Home 
                                Energy Rating Standards.
                                    ``(II) Individuals qualified to 
                                determine compliance.--The 
                                determination of compliance may be 
                                provided by a local building regulatory 
                                authority, a utility, a manufactured 
                                home production inspection primary 
                                inspection agency (IPIA), or an 
                                accredited home energy rating system 
                                provider. All providers shall be 
                                accredited, or otherwise authorized to 
                                use approved energy performance 
                                measurement methods, by the Residential 
                                Energy Services Network (RESNET).
                    ``(C) Allocation of deduction for public 
                property.--In the case of energy efficient residential 
                rental building property which is public property, the 
                Secretary shall promulgate a regulation to allow the 
                allocation of the deduction to the person primarily 
                responsible for designing the improvements to the 
                property in lieu of the public entity which is the 
                owner of such property. Such person shall be treated as 
                the taxpayer for purposes of this subsection.
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Basis reduction.--For purposes of this subtitle, if a 
        deduction is allowed under this section with respect to any 
        property, the basis of such property shall be reduced by the 
        amount of the deduction so allowed.
            ``(2) Double benefit.--Property which would, but for this 
        paragraph, be eligible for a deduction under more than one 
        provision of this section shall be eligible only under one such 
        provision, the provision specified by the taxpayer.
    ``(g) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(h) Termination.--This section shall not apply with respect to--
            ``(1) any energy property placed in service after December 
        31, 2009 (December 31, 2005, in the case of Tier 1 energy-
        efficient building property (other than an oil, natural gas, or 
        propane furnace or hot water boiler described in subsection 
        (d)(3)(D))), and
            ``(2) any energy efficient residential rental building 
        property expenditures in connection with property--
                    ``(A) placed in service after December 31, 2009, or
                    ``(B) the construction, reconstruction, erection, 
                or rehabilitation of which is not completed on or 
                before December 31, 2009.''.
    (b) Conforming Amendments.--
            (1) Section 48(a)(3)(A) of the Internal Revenue Code of 
        1986 is amended to read as follows:
                    ``(A) which is equipment used to produce, 
                distribute, or use energy derived from a geothermal 
                deposit (within the meaning of section 613(e)(2)), but 
                only, in the case of electricity generated by 
                geothermal power, up to (but not including) the 
                electrical transmission stage,''.
            (2) Subparagraph (B) of section 168(e)(3) of such Code is 
        amended--
                    (A) in clause (vi)(I)--
                            (i) by striking ``section 48(a)(3)'' and 
                        inserting ``section 200(d)(1)'', and
                            (ii) by striking ``clause (i)'' and 
                        inserting ``such subparagraph (A)'', and
                    (B) in the last sentence, by striking ``section 
                48(a)(3)'' and inserting ``section 200(c)(3)''.
            (3) Section 1016(a) of such Code, as amended by section 
        102, is amended by striking ``and'' at the end of paragraph 
        (32), by striking the period at the end of paragraph (33) and 
        inserting ``, and'', and by inserting the following new 
        paragraph:
            ``(34) for amounts allowed as a deduction under section 
        200(a).''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new item:

                              ``Sec. 200. Energy property deduction.''.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated to the Department of Energy out of amounts not already 
appropriated such sums as necessary to carry out this section.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 104. CREDIT FOR CERTAIN NONBUSINESS ENERGY PROPERTY.

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

``SEC. 25C. NONBUSINESS ENERGY PROPERTY.

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

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

                    ``(B) Elected solar hot water property.--In the 
                case of elected solar hot water property (as defined in 
                section 200(d)(1)(B)), the taxpayer may elect to 
                substitute `$7 per annual Therm of natural gas savings' 
                for `35 cents per each kwh/year of savings' in the 
                table contained in subparagraph (A).
            ``(3) Maximum amount.--In the case of property described in 
        the following table, the amount of expenditures taken into 
        account under paragraph (1) and the amount determined under 
        paragraph (2) for the taxable year for each item of qualified 
        energy property with respect to a dwelling unit shall not 
        exceed the amount specified for such property in such table:

      

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

    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Residential energy property expenditures.--The term 
        `residential energy property expenditures' means expenditures 
        made by the taxpayer for qualified energy property installed on 
        or in connection with a dwelling unit which--
                    ``(A) is located in the United States, and
                    ``(B) is used as a principal residence.
        Such term includes expenditures for labor costs properly 
        allocable to the onsite preparation, assembly, or original 
        installation of the property.
            ``(2) Qualified energy property.--
                    ``(A) In general.--The term `qualified energy 
                property' means--
                            ``(i) energy-efficient building property,
                            ``(ii) solar hot water property,
                            ``(iii) photovoltaic property, and
                            ``(iv) an advanced main air circulating 
                        fan.
                    ``(B) Swimming pool, etc., used as storage medium; 
                solar panels.--For purposes of this paragraph, the 
                provisions of subparagraphs (D) and (E) section 
                200(d)(1) shall apply.
                    ``(C) Required standards.--Property described under 
                subparagraph (A) shall meet the performance and quality 
                standards and certification standards of paragraphs 
                (1)(D) and (2) of section 200(c).
            ``(3) Energy-efficient building property.--The term 
        `energy-efficient building property' has the same meaning given 
        the terms `Tier 2 energy-efficient property', `Tier 1 energy-
        efficient property', and `advanced main air circulating fan' in 
        paragraphs (2), (3), and (4) of section 200(d), respectively.
            ``(4) Solar hot water property.--The term `solar hot water 
        property' means property which, when installed in connection 
        with a structure, uses solar energy for the purpose of 
        providing hot water for use within such structure and the 
        performance of which is determined in accordance with section 
        200(c)(2)(A).
            ``(5) Photovoltaic property.--The term `photovoltaic 
        property' has the same meaning given such term in section 
        200(d)(1)(C).
            ``(6) Highly energy-efficient principal residence.--
                    ``(A) In general.--Property is a highly energy-
                efficient principal residence if--
                            ``(i) such property is located in the 
                        United States,
                            ``(ii) the property is used as a principal 
                        residence, and
                            ``(iii) the projected heating and cooling 
                        energy usage of such property, measured in 
                        terms of average annual energy cost to 
                        taxpayer, is reduced by a percentage certified 
                        according to subparagraph (C) in comparison to 
                        the energy cost of such property if 
                        expenditures made by the taxpayer with respect 
                        to energy efficient improvements to such 
                        property were not made.
                    ``(B) Principal residence.--
                            ``(i) In general.--The term `principal 
                        residence' has the same meaning as when used in 
                        section 121, except that--
                                    ``(I) no ownership requirement 
                                shall be imposed, and
                                    ``(II) the period for which a 
                                building is treated as used as a 
                                principal residence shall also include 
                                the 60-day period ending on the 1st day 
                                on which it would (but for this 
                                subparagraph) first be treated as used 
                                as a principal residence.
                            ``(ii) Manufactured housing.--The term 
                        `residence' shall include a dwelling unit which 
                        is a manufactured home conforming to Federal 
                        Manufactured Home Construction and Safety 
                        Standards (24 C.F.R. 3280).
                    ``(C) Certification procedures.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(iii), energy usage shall be 
                        demonstrated by performance-based compliance.
                            ``(ii) Performance-based compliance.--
                        Performance-based compliance shall be 
                        demonstrated if the percent energy cost savings 
                        for heating and cooling is met with respect to 
                        a dwelling unit when compared to the original 
                        condition of the dwelling unit.
                            ``(iii) Computer software.--Computer 
                        software shall be used in support of 
                        performance-based compliance under clause (ii) 
                        and such software shall meet all of the 
                        procedures and methods for calculating energy 
                        savings reductions which are promulgated by the 
                        Secretary of Energy. Such regulations on the 
                        specifications for software and verification 
                        protocols shall be based on the 2005 California 
                        Residential Alternative Calculation Method 
                        Approval Manual.
                            ``(iv) Calculation requirements.--In 
                        calculating tradeoffs and energy performance, 
                        the regulations shall prescribe the costs per 
                        unit of energy and power, such as kilowatt 
                        hour, kilowatt, gallon of fuel oil, and cubic 
                        foot or Btu of natural gas, which may be 
                        dependent on time of usage. If a State has 
                        developed annual energy usage and cost 
                        calculation procedures based on time of usage 
                        costs for use in the performance standards of 
                        the State's building energy code before the 
                        effective date of this section, the State may 
                        use those annual energy usage and cost 
                        calculation procedures in lieu of those adopted 
                        by the Secretary.
                            ``(v) Approval of software submissions.--
                        The Secretary shall approve software 
                        submissions which comply with the calculation 
                        requirements of clause (iii).
                            ``(vi) Procedures for inspection and 
                        testing of dwelling units.--The Secretary shall 
                        ensure that procedures for the inspection and 
                        testing for compliance comply with the 
                        calculation requirements under clause (iii) and 
                        subsection (d)(2).
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Determinations of compliance.--A determination of 
        compliance made for the purposes of this section shall be filed 
        with the Secretary within 1 year of the date of such 
        determination and shall include the TIN of the certifier, the 
        address of the building in compliance, and the identity of the 
        person for whom such determination was performed. 
        Determinations of compliance filed with the Secretary shall be 
        available for inspection by the Secretary of Energy.
            ``(2) Compliance.--
                    ``(A) In general.--The Secretary, after 
                consultation with the Secretary of Energy shall 
                establish requirements for certification and compliance 
                procedures after examining the requirements for energy 
                consultants and home energy ratings providers specified 
                by the Mortgage Industry National Home Energy Rating 
                Standards.
                    ``(B) Individuals qualified to determine 
                compliance.--The determination of compliance may be 
                provided by a local building regulatory authority, a 
                utility, a manufactured home production inspection 
                primary inspection agency (IPIA), or an accredited home 
                energy rating system provider. All providers shall be 
                accredited, or otherwise authorized to use approved 
                energy performance measurement methods, by the 
                Residential Energy Services Network (RESNET).
            ``(3) Dollar amounts in case of joint occupancy.--In the 
        case of any dwelling unit which if jointly occupied and used 
        during any calendar year as a principal residence by 2 or more 
        individuals the following rules shall apply:
                    ``(A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures made during 
                such calendar year by any of such individuals with 
                respect to such dwelling unit shall be determined by 
                treating all of such individuals as 1 taxpayer whose 
                taxable year is such calendar year.
                    ``(B) There shall be allowable with respect to such 
                expenditures to each of such individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount determined under subparagraph (A) 
                as the amount of such expenditures made by such 
                individual during such calendar year bears to the 
                aggregate of such expenditures made by all of such 
                individuals during such calendar year.
            ``(4) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having made his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation and such 
        credit shall be allocated pro rata to such individual.
            ``(5) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having made his 
                proportionate share of any expenditures of such 
                association and any credit shall be allocated 
                appropriately.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as principal residences.
            ``(6) Joint ownership of energy items.--
                    ``(A) In general.--Any expenditure otherwise 
                qualifying as an expenditure under this section shall 
                not be treated as failing to so qualify merely because 
                such expenditure was made with respect to 2 or more 
                dwelling units.
                    ``(B) Limits applied separately.--In the case of 
                any expenditure described in subparagraph (A), the 
                amount of the credit allowable under subsection (a) 
                shall (subject to paragraph (1)) be computed separately 
                with respect to the amount of the expenditure made for 
                each dwelling unit.
            ``(7) Allocation in certain cases.--If less than 80 percent 
        of the use of an item is for nonbusiness purposes, only that 
        portion of the expenditures for such item which is properly 
        allocable to use for nonbusiness purposes shall be taken into 
        account.
            ``(8) Coordination with other credits.--Property which 
        would, but for this paragraph, be eligible for credit under 
        more than one provision of this section shall be eligible only 
        under one such provision, the provision specified by the 
        taxpayer.
            ``(9) Year credit allowed.--The credit under subsection 
        (a)(2) shall be allowed in the taxable year in which the 
        percentage reduction with respect to the principal residence is 
        certified.
            ``(10) When expenditure made; amount of expenditure.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an expenditure with respect to an 
                item shall be treated as made when the original 
                installation of the item is completed.
                    ``(B) Expenditures part of building construction.--
                In the case of an expenditure in connection with the 
                construction of a structure, such expenditure shall be 
                treated as made when the original use of the 
                constructed structure by the taxpayer begins.
            ``(11) Property financed by subsidized energy financing.--
                    ``(A) Reduction of expenditures.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), for purposes of determining 
                        the amount of expenditures made by any 
                        individual with respect to any dwelling unit, 
                        there shall not be taken into account 
                        expenditures which are made from subsidized 
                        energy financing.
                            ``(ii) Subsidized energy financing.--For 
                        purposes of clause (i), the term `subsidized 
                        energy financing' has the same meaning given 
                        such term in section 48(a)(4)(C).
                    ``(B) Dollar limits reduced.--The dollar amounts in 
                the table contained in subsection (b)(3) with respect 
                to each property purchased for such dwelling unit for 
                any taxable year of such taxpayer shall be reduced 
                proportionately by an amount equal to the sum of--
                            ``(i) the amount of the expenditures made 
                        by the taxpayer during such taxable year with 
                        respect to such dwelling unit and not taken 
                        into account by reason of subparagraph (A), and
                            ``(ii) the amount of any Federal, State, or 
                        local grant received by the taxpayer during 
                        such taxable year which is used to make 
                        residential energy property expenditures with 
                        respect to the dwelling unit and is not 
                        included in the gross income of such taxpayer.
                    ``(C) Exception for state programs.--Subparagraphs 
                (A) and (B) shall not apply to expenditures made with 
                respect to property for which the taxpayer has received 
                a loan, State tax credit, or grant under any State 
                energy program.
    ``(e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(f) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(g) Termination.--This section shall not apply with respect to 
any energy property placed in service after December 31, 2009 (December 
31, 2005, in the case of Tier 1 energy-efficient building property 
(other than an oil, natural gas, or propane furnace or hot water boiler 
described in section 200(d)(3)(D))).''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 of the Internal Revenue 
        Code of 1986, as amended by section 103, is amended by striking 
        ``and'' at the end of paragraph (33), by striking the period at 
        the end of paragraph (34) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(35) to the extent provided in section 25C(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25C.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 25B the following new item:

                              ``Sec. 25C. Nonbusiness energy 
                                        property.''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to expenditures made after December 31, 2004.

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

    (a) In General.--Section 48(a)(3)(A) of the Internal Revenue Code 
of 1986 (defining energy property), as amended by section 103, is 
amended to read as follows:
                    ``(A) which is--
                            ``(i) equipment used to produce, 
                        distribute, or use energy derived from a 
                        geothermal deposit (within the meaning of 
                        section 613(e)(2)), but only, in the case of 
                        electricity generated by geothermal power, up 
                        to (but not including) the electrical 
                        transmission stage, or
                            ``(ii) combined heat and power system 
                        property,''.
    (b) Combined Heat and Power System Property.--Section 48 of the 
Internal Revenue Code of 1986 (relating to energy credit; reforestation 
credit) is amended by adding at the end the following new subsection:
    ``(c) Combined Heat and Power System Property.--For purposes of 
subsection (a)(3)(A)(ii)--
            ``(1) Combined heat and power system property.--The term 
        `combined heat and power system property' means property 
        comprising a system--
                    ``(A) which uses the same energy source for the 
                simultaneous or sequential generation of electrical 
                power, mechanical shaft power, or both, in combination 
                with the generation of steam or other forms of useful 
                thermal energy (including heating and cooling 
                applications),
                    ``(B) which has an electrical capacity of not more 
                than 15 megawatts or a mechanical energy capacity of 
                not more than 2,000 horsepower or an equivalent 
                combination of electrical and mechanical energy 
                capacities,
                    ``(C) which produces--
                            ``(i) at least 20 percent of its total 
                        useful energy in the form of thermal energy 
                        which is not used to produce electrical or 
                        mechanical power (or combination thereof), and
                            ``(ii) at least 20 percent of its total 
                        useful energy in the form of electrical or 
                        mechanical power (or combination thereof),
                    ``(D) the energy efficiency percentage of which 
                exceeds 60 percent, and
                    ``(E) which is placed in service before January 1, 
                2008.
            ``(2) Special rules.--
                    ``(A) Energy efficiency percentage.--For purposes 
                of this subsection, the energy efficiency percentage of 
                a system is the fraction--
                            ``(i) the numerator of which is the total 
                        useful electrical, thermal, and mechanical 
                        power produced by the system at normal 
                        operating rates, and expected to be consumed in 
                        its normal application, and
                            ``(ii) the denominator of which is the 
                        lower heating value of the fuel sources for the 
                        system.
                    ``(B) Determinations made on btu basis.--The energy 
                efficiency percentage and the percentages under 
                paragraph (1)(C) shall be determined on a Btu basis.
                    ``(C) Input and output property not included.--The 
                term `combined heat and power system property' does not 
                include property used to transport the energy source to 
                the facility or to distribute energy produced by the 
                facility.
                    ``(D) Public utility property.--
                            ``(i) Accounting rule for public utility 
                        property.--If the combined heat and power 
                        system property is public utility property (as 
                        defined in section 168(i)(10)), the taxpayer 
                        may only claim the credit under subsection (a) 
                        if, with respect to such property, the taxpayer 
                        uses a normalization method of accounting.
                            ``(ii) Certain exception not to apply.--The 
                        matter in subsection (a)(3) which follows 
                        subparagraph (D) thereof shall not apply to 
                        combined heat and power system property.
            ``(3) Systems using bagasse.--If a system is designed to 
        use bagasse for at least 90 percent of the energy source--
                    ``(A) paragraph (1)(D) shall not apply, but
                    ``(B) the amount of credit determined under 
                subsection (a) with respect to such system shall not 
                exceed the amount which bears the same ratio to such 
                amount of credit (determined without regard to this 
                paragraph) as the energy efficiency percentage of such 
                system bears to 60 percent.''.
    (c) Effective Date.--The amendments made by this subsection shall 
apply to periods after December 31, 2004, in taxable years ending after 
such date, under rules similar to the rules of section 48(m) of the 
Internal Revenue Code of 1986 (as in effect on the day before the date 
of the enactment of the Revenue Reconciliation Act of 1990).

                  TITLE II--ENERGY EFFICIENT PRODUCTS

SEC. 201. ENERGY CONSERVATION STANDARDS FOR ADDITIONAL PRODUCTS.

    (a) Definitions.--Section 321 of the Energy Policy and Conservation 
Act (42 U.S.C. 6291) is amended--
            (1) in paragraph (30)(S)--
                    (A) by inserting ``(i)'' before ``The term''; and
                    (B) by adding at the end the following:
                    ``(ii) The term `medium base compact fluorescent 
                lamp' does not include--
                            ``(I) any lamp that is--
                                    ``(aa) specifically designed to be 
                                used for special purpose applications; 
                                and
                                    ``(bb) unlikely to be used in 
                                general purpose applications, such as 
                                the applications described in 
                                subparagraph (D); or
                            ``(II) any lamp not described in 
                        subparagraph (D) that is excluded by the 
                        Secretary, by rule, because the lamp is--
                                    ``(aa) designed for special 
                                applications; and
                                    ``(bb) unlikely to be used in 
                                general purpose applications.''; and
            (2) by adding at the end the following:
            ``(32) The term `battery charger' means a device that 
        charges batteries for consumer products, including battery 
        chargers embedded in other consumer products.
            ``(33) The term `ceiling fan' means a nonportable device 
        that is suspended from a ceiling for circulating air via the 
        rotation of fan blades.
            ``(34) The term `ceiling fan light kit' means equipment 
        designed to provide light from a ceiling fan that can be--
                    ``(A) integral, such that the equipment is attached 
                to the ceiling fan prior to the time of retail sale; or
                    ``(B) attachable, such that at the time of retail 
                sale the equipment is not physically attached to the 
                ceiling fan, but may be included inside the ceiling fan 
                package at the time of sale or sold separately for 
                subsequent attachment to the fan.
            ``(35) The term `commercial refrigerators, freezers, and 
        refrigerator-freezers' means refrigerators, freezers, or 
        refrigerator-freezers that--
                    ``(A) are not consumer products regulated under 
                this Act; and
                    ``(B) incorporate most components involved in the 
                vapor-compression cycle and the refrigerated 
                compartment in a single package.
            ``(36) The term `dehumidifier' means a self-contained, 
        electrically operated, and mechanically encased assembly 
        consisting of--
                    ``(A) a refrigerated surface (evaporator) that 
                condenses moisture from the atmosphere;
                    ``(B) a refrigerating system, including an electric 
                motor;
                    ``(C) an air-circulating fan; and
                    ``(D) means for collecting or disposing of the 
                condensate.
            ``(37)(A) The term `distribution transformer' means a 
        transformer that--
                    ``(i) has an input voltage of 34.5 kilovolts or 
                less;
                    ``(ii) has an output voltage of 600 volts or less; 
                and
                    ``(iii) is rated for operation at a frequency of 60 
                hertz.
            ``(B) The term `distribution transformer' does not 
        include--
                    ``(i) a transformer with multiple voltage taps, 
                with the highest voltage tap equaling at least 20 
                percent more than the lowest voltage tap;
                    ``(ii) a transformer that is designed to be used in 
                a special purpose application and is unlikely to be 
                used in general purpose applications, such as a drive 
                transformer, rectifier transformer, auto-transformer, 
                Uninterruptible Power System transformer, impedance 
                transformer, harmonic transformer, regulating 
                transformer, sealed and nonventilating transformer, 
                machine tool transformer, welding transformer, 
                grounding transformer, or testing transformer; or
                    ``(iii) any transformer not listed in clause (ii) 
                that is excluded by the Secretary by rule because--
                            ``(I) the transformer is designed for a 
                        special application;
                            ``(II) the transformer is unlikely to be 
                        used in general purpose applications; and
                            ``(III) the application of standards to the 
                        transformer would not result in significant 
                        energy savings.
            ``(38) The term `external power supply' means an external 
        power supply circuit that is used to convert household electric 
        current into DC current or lower-voltage AC current to operate 
        a consumer product.
            ``(39) The term `illuminated exit sign' means a sign that--
                    ``(A) is designed to be permanently fixed in place 
                to identify an exit; and
                    ``(B) consists of an electrically powered integral 
                light source that--
                            ``(i) illuminates the legend `EXIT' and any 
                        directional indicators; and
                            ``(ii) provides contrast between the 
                        legend, any directional indicators, and the 
                        background.
            ``(40) The term `low-voltage dry-type distribution 
        transformer' means a distribution transformer that--
                    ``(A) has an input voltage of 600 volts or less;
                    ``(B) is air-cooled; and
                    ``(C) does not use oil as a coolant.
            ``(41) The term `standby mode' means the lowest power 
        consumption mode, as established on an individual product basis 
        by the Secretary, that--
                    ``(A) cannot be switched off or influenced by the 
                user; and
                    ``(B) may persist for an indefinite time when an 
                appliance is--
                            ``(i) connected to the main electricity 
                        supply; and
                            ``(ii) used in accordance with the 
                        instructions of the manufacturer.
            ``(42) The term `torchiere' means a portable electric lamp 
        with a reflector bowl that directs light upward to give 
        indirect illumination.
            ``(43) The term `traffic signal module' means a standard 8-
        inch (200mm) or 12-inch (300mm) traffic signal indication 
        that--
                    ``(A) consists of a light source, a lens, and all 
                other parts necessary for operation; and
                    ``(B) communicates movement messages to drivers 
                through red, amber, and green colors.
            ``(44) The term `transformer' means a device consisting of 
        2 or more coils of insulated wire that transfers alternating 
        current by electromagnetic induction from 1 coil to another to 
        change the original voltage or current value.
            ``(45)(A) The term `unit heater' means a self-contained 
        fan-type heater designed to be installed within the heated 
        space.
            ``(B) The term `unit heater' does not include a warm air 
        furnace.
            ``(46)(A) The term `commercial prerinse spray valve' means 
        a handheld device designed and marketed for use with commercial 
        dishwashing and ware washing equipment that sprays water on 
        dishes, flatware, and other food service items for the purpose 
        of removing food residue before cleaning the items.
            ``(B) The Secretary may modify the definition of 
        `commercial prerinse spray valve' by rule--
                    ``(i) to include products--
                            ``(I) that are extensively used in 
                        conjunction with commercial dishwashing and 
                        ware washing equipment;
                            ``(II) the application of standards to 
                        which would result in significant energy 
                        savings; and
                            ``(III) the application of standards to 
                        which would meet the criteria specified in 
                        subsection (o)(4); and
                    ``(ii) to exclude products--
                            ``(I) that are used for special food 
                        service applications;
                            ``(II) that are unlikely to be widely used 
                        in conjunction with commercial dishwashing and 
                        ware washing equipment; and
                            ``(III) the application of standards to 
                        which would not result in significant energy 
                        savings.''.
    (b) Test Procedures.--Section 323 of the Energy Policy and 
Conservation Act (42 U.S.C. 6293) is amended--
            (1) in subsection (b), by adding at the end the following:
    ``(9) Test procedures for illuminated exit signs shall be based on 
the test method used under version 2.0 of the Energy Star program of 
the Environmental Protection Agency for illuminated exit signs.
    ``(10)(A) Test procedures for distribution transformers and low-
voltage dry-type distribution transformers shall be based on the 
`Standard Test Method for Measuring the Energy Consumption of 
Distribution Transformers' prescribed by the National Electrical 
Manufacturers Association (NEMA TP 2-1998).
    ``(B) The Secretary may review and revise the test procedures 
established under subparagraph (A).
    ``(C) For purposes of section 346(a), the test procedures 
established under subparagraph (A) shall be considered to be the 
testing requirements prescribed by the Secretary under section 
346(a)(1) for distribution transformers for which the Secretary makes a 
determination that energy conservation standards would--
            ``(i) be technologically feasible and economically 
        justified; and
            ``(ii) result in significant energy savings.
    ``(11) Test procedures for traffic signal modules shall be based on 
the test method used under the Energy Star program of the Environmental 
Protection Agency for traffic signal modules, as in effect on the date 
of enactment of this paragraph.
    ``(12)(A) Test procedures for medium-base compact fluorescent lamps 
shall be based on the test methods for compact fluorescent lamps used 
under the August 9, 2001, version of the Energy Star program of the 
Environmental Protection Agency and the Department of Energy.
    ``(B) Except as provided in subparagraph (C), medium-base compact 
fluorescent lamps shall meet all test requirements for regulated 
parameters of section 325(bb).
    ``(C) Notwithstanding subparagraph (B), if manufacturers document 
engineering predictions and analysis that support expected attainment 
of lumen maintenance at 40 percent rated life and lamp life time, 
medium-base compact fluorescent lamps may be marketed before completion 
of lamp life and lumen maintenance at 40 percent of rated life testing.
    ``(13) Air movement test procedures for ceiling fans shall be based 
on the test procedure contained in the Energy Star Program Requirements 
for Residential Ceiling Fans, version 2.0, developed by the 
Environmental Protection Agency, unless, pursuant to this section, the 
Secretary promulgates an alternative test procedure.
    ``(14) Test procedures for dehumidifiers shall be based on the test 
criteria used under the Energy Star Program Requirements for 
Dehumidifiers developed by the Environmental Protection Agency, as in 
effect on the date of enactment of this paragraph unless revised by the 
Secretary pursuant to this section.
    ``(15) The test procedure for measuring flow rate for commercial 
prerinse spray valves shall be based on American Society for Testing 
and Materials Standard F2324, entitled `Standard Test Method for 
Prerinse Spray Valves.' ''; and
            (2) by adding at the end the following:
    ``(f) Additional Consumer and Commercial Products.--(1) Not later 
than 2 years after the date of enactment of this subsection, the 
Secretary shall prescribe testing requirements for--
            ``(A) refrigerated bottled or canned beverage vending 
        machines; and
            ``(B) commercial refrigerators, freezers, and refrigerator-
        freezers.
    ``(2) To the maximum extent practicable, the testing requirements 
prescribed under paragraph (1) shall be based on existing test 
procedures used in industry.''.
    (c) New Standards.--Section 325 of the Energy Policy and 
Conservation Act (42 U.S.C. 6295) is amended by adding at the end the 
following:
    ``(u) Battery Charger and External Power Supply Electric Energy 
Consumption.--(1)(A) Not later than 18 months after the date of 
enactment of this subsection, the Secretary shall, after providing 
notice and an opportunity for comment, prescribe, by rule, definitions 
and test procedures for the power use of battery chargers and external 
power supplies.
    ``(B) In establishing the test procedures under subparagraph (A), 
the Secretary shall--
            ``(i) consider existing definitions and test procedures 
        used for measuring energy consumption in standby mode and other 
        modes; and
            ``(ii) assess the current and projected future market for 
        battery chargers and external power supplies.
    ``(C) The assessment under subparagraph (B)(ii) shall include--
            ``(i) estimates of the significance of potential energy 
        savings from technical improvements to battery chargers and 
        external power supplies; and
            ``(ii) suggested product classes for standards.
    ``(D) Not later than 18 months after the date of enactment of this 
subsection, the Secretary shall hold a scoping workshop to discuss and 
receive comments on plans for developing energy conservation standards 
for energy use for battery chargers and external power supplies.
    ``(E)(i) Not later than 3 years after the date of enactment of this 
subsection, the Secretary shall issue a final rule that determines 
whether energy conservation standards shall be issued for battery 
chargers and external power supplies or classes of battery chargers and 
external power supplies.
    ``(ii) For each product class, any standards issued under clause 
(i) shall be set at the lowest level of energy use that--
            ``(I) meets the criteria and procedures of subsections (o), 
        (p), (q), (r), (s), and (t); and
            ``(II) would result in significant overall annual energy 
        savings, considering standby mode and other operating modes.
    ``(2) In determining under section 323 whether test procedures and 
energy conservation standards under this section should be revised with 
respect to covered products that are major sources of standby mode 
energy consumption, the Secretary shall consider whether to incorporate 
standby mode into the test procedures and energy conservation 
standards, taking into account standby mode power consumption compared 
to overall product energy consumption.
    ``(3) The Secretary shall not propose a standard under this section 
unless the Secretary has issued applicable test procedures for each 
product under section 323.
    ``(4) Any standard issued under this subsection shall be applicable 
to products manufactured or imported beginning on the date that is 3 
years after the date of issuance.
    ``(5) The Secretary and the Administrator shall collaborate and 
develop programs (including Energy Star Programs and other voluntary 
industry agreements or codes of conduct) that are designed to reduce 
standby mode energy use.
    ``(v) Vending Machines and Commercial Refrigerators, Freezers, and 
Refrigerator-Freezers.--(1) Not later than 3 years after the date on 
which testing requirements are prescribed by the Secretary under 
section 323(f), the Secretary shall prescribe, by rule, energy 
conservation standards for--
            ``(A) refrigerated bottled or canned beverage vending 
        machines; and
            ``(B) commercial refrigerators, freezers, and refrigerator-
        freezers.
    ``(2) In establishing standards under this subsection, the 
Secretary shall use the criteria and procedures prescribed under 
subsections (o) and (p).
    ``(3) Any standard prescribed under this subsection shall apply to 
products manufactured 3 years after the date of publication of a final 
rule establishing the standard.
    ``(w) Illuminated Exit Signs.--An illuminated exit sign 
manufactured on or after January 1, 2006, shall meet the version 2.0 
Energy Star Program performance requirements for illuminated exit signs 
prescribed by the Environmental Protection Agency.
    ``(x) Torchieres.--A torchiere manufactured on or after January 1, 
2006--
            ``(1) shall consume not more than 190 watts of power; and
            ``(2) shall not be capable of operating with lamps that 
        total more than 190 watts.
    ``(y) Low Voltage Dry-Type Distribution Transformers.--The 
efficiency of a low voltage dry-type distribution transformer 
manufactured on or after January 1, 2006, shall be the Class I 
Efficiency Levels for distribution transformers specified in table 4-2 
of the `Guide for Determining Energy Efficiency for Distribution 
Transformers' published by the National Electrical Manufacturers 
Association (NEMA TP-1-2002).
    ``(z) Traffic Signal Modules.--A traffic signal module manufactured 
on or after January 1, 2007, shall--
            ``(1) meet the performance requirements used under the 
        Energy Star program of the Environmental Protection Agency for 
        traffic signals, as in effect on the date of enactment of this 
        subsection; and
            ``(2) be installed with compatible, electrically connected 
        signal control interface devices and conflict monitoring 
        systems.
    ``(aa) Unit Heaters.--A unit heater manufactured on or after the 
date that is 3 years after the date of enactment of this subsection 
shall--
            ``(1) be equipped with an intermittent ignition device; and
            ``(2) have power venting or an automatic flue damper.
    ``(bb) Medium-Base Compact Fluorescent Lamps.--(1) A bare lamp and 
covered lamp (no reflector) medium-base compact fluorescent lamp 
manufactured on or after January 1, 2006, shall meet the following 
requirements prescribed by the August 9, 2001, version of the Energy 
Star Program Requirements for Compact Fluorescent Lamps, Energy Star 
Eligibility Criteria, Energy-Efficiency Specification issued by the 
Environmental Protection Agency and Department of Energy:
            ``(A) Minimum initial efficacy.
            ``(B) Lumen maintenance at 1,000 hours.
            ``(C) Lumen maintenance at 40 percent of rated life.
            ``(D) Rapid cycle stress test.
            ``(E) Lamp life.
    ``(2) The Secretary may, by rule, establish requirements for color 
quality (CRI), power factor, operating frequency, and maximum allowable 
start time based on the requirements prescribed by the August 9, 2001, 
version of the Energy Star Program Requirements for Compact Fluorescent 
Lamps.
    ``(3) The Secretary may, by rule--
            ``(A) revise the requirements established under paragraph 
        (2); or
            ``(B) establish other requirements, after considering 
        energy savings, cost effectiveness, and consumer satisfaction.
    ``(cc) Ceiling Fans and Ceiling Fan Light Kits.--(1)(A) All ceiling 
fans manufactured on or after January 1, 2008, shall have the following 
features:
            ``(i) Lighting controls separate from fan speed controls.
            ``(ii) Adjustable speed controls (either more than 1 speed 
        or variable speed).
            ``(iii) The capability of reversible fan action, except for 
        fans sold for industrial applications, outdoor applications, 
        and where safety standards would be violated by the use of the 
        reversible mode.
    ``(B) The Secretary may promulgate regulations to define in greater 
detail the exceptions provided under subparagraph (A)(iii) but may not 
substantively expand the exceptions.
    ``(2) Ceiling fan light kits manufactured on or after January 1, 
2008, shall--
            ``(A) meet the Energy Star Program Requirements for 
        Residential Light Fixtures, version 3.1, issued by the 
        Environmental Protection Agency, and be packaged with lamps to 
        fill all sockets;
            ``(B) be packaged with screw-based compact fluorescent 
        lamps to fill all sockets and meet the Energy Star Program 
        Requirements for Compact Fluorescent Lamps, version 3.0, issued 
        by the Department of Energy; or
            ``(C) use and be packaged with light sources other than 
        compact fluorescent lamps that meet the minimum efficacy 
        requirements, as measured in lumens per watt, of the Energy 
        Star Program Requirements for Compact Fluorescent Lamps, 
        version 3.0, issued by the Department of Energy.
    ``(3)(A) Notwithstanding any provision of this Act, if the 
requirements of subsections (o) and (p) are met, the Secretary may 
consider and prescribe energy efficiency or energy use standards for 
electricity used by ceiling fans to circulate air in a room.
    ``(B) If the Secretary sets the standards, the Secretary shall 
consider--
            ``(i) exempting or setting different standards for certain 
        product classes for which the primary standards are not 
        technically feasible or economically justified; and
            ``(ii) establishing separate exempted product classes for 
        highly decorative fans for which air movement performance is a 
        secondary design feature.
    ``(C) Any air movement standard prescribed under this subsection 
shall apply to products manufactured on or after the date that is 3 
years after the date of publication of a final rule establishing the 
standard.
    ``(dd) Dehumidifiers.--(1) Dehumidifiers manufactured on or after 
October 1, 2008, shall have an Energy Factor that meets or exceeds the 
following values:

``Product Capacity (pints/day):      Minimum Energy Factor (Liters/kWh)
     25..........................................                1.00 
    > 25 -  35...................................                1.20 
    > 35 -  54...................................                1.30 
    > 54 - < 75...................................                1.50 
      75.........................................                2.25.
    ``(2)(A) Not later than October 1, 2010, the Secretary shall 
publish a final rule in accordance with subsections (o) and (p), to 
determine whether the standards established under paragraph (1) should 
be amended.
    ``(B) The final rule shall contain any amendment by the Secretary 
and shall provide that the amendment shall apply to products 
manufactured on or after October 1, 2012.
    ``(C) If the Secretary does not publish an amendment that takes 
effect by October 1, 2012, dehumidifiers manufactured on or after 
October 1, 2012, shall have an Energy Factor that meets or exceeds the 
following values:

``Product Capacity (pints/day):      Minimum Energy Factor (Liters/kWh)
     25..........................................                1.20 
    > 25 -  35...................................                1.30 
    > 35 -  45...................................                1.40 
    > 45 -  54...................................                1.50 
    > 54 - < 75...................................                1.60 
      75.........................................                 2.5.
    ``(ee) Commercial Prerinse Spray Valves.--Commercial prerinse spray 
valves manufactured on or after January 1, 2006, shall have a flow rate 
less than or equal to 1.6 gallons per minute.
    ``(ff) Effective Date.--Section 327 shall apply to--
            ``(1) a product for which standards are to be established 
        under subsections (u) and (v) on the date on which a final rule 
        is issued by the Department of Energy, except that any State or 
        local standards prescribed or enacted for the product before 
        the date on which the final rule is issued shall not be 
        preempted until the standard established under subsection (u) 
        or (v) for the product takes effect; and
            ``(2) a product for which standards are established under 
        subsections (w) through (ee) on the date of enactment of those 
        subsections, except that any State or local standards 
        prescribed or enacted before the date of enactment of those 
        subsections shall not be preempted until the standards 
        established under subsections (w) through (ee) take effect.''.
    (d) Residential Furnace Fans.--Section 325(f)(3) of the Energy 
Policy and Conservation Act (42 U.S.C. 6295(f)(3)) is amended by adding 
at the end the following:
    ``(D) Notwithstanding any other provision of this Act, if the 
requirements of subsection (o) are met, the Secretary may consider and 
prescribe energy efficiency or energy use standards for electricity 
used for purposes of circulating air through duct work.''.
    (e) General Rule of Preemption.--Section 327(c) of the Energy 
Policy and Conservation Act (42 U.S.C. 6297(c)) is amended--
            (1) in paragraph (5), by striking ``or'' at the end;
            (2) in paragraph (6), by striking the period at the end and 
        inserting ``; or''; and
            (3) by adding at the end the following:
            ``(7) is a regulation concerning standards for commercial 
        prerinse spray valves adopted by the California Energy 
        Commission before January 1, 2005, or is an amendment to such a 
        regulation developed to align California regulations with 
        changes in American Society for Testing and Materials 
        Regulation F2324.''.

SEC. 202. ENERGY LABELING.

    (a) Rulemaking on Effectiveness of Consumer Product Labeling.--
Section 324(a)(2) of the Energy Policy and Conservation Act (42 U.S.C. 
6294(a)(2)) is amended by adding at the end the following:
    ``(F)(i) Not later than 90 days after the date of enactment of this 
subparagraph, the Commission shall initiate a rulemaking to consider--
            ``(I) the effectiveness of the consumer products labeling 
        program in--
                    ``(aa) assisting consumers in making purchasing 
                decisions; and
                    ``(bb) improving energy efficiency; and
            ``(II) changes to the labeling rules that would improve the 
        effectiveness of consumer product labels.
    ``(ii) Not later than 2 years after the date of enactment of this 
subparagraph, the Commission shall complete the rulemaking initiated 
under clause (i).''.
    (b) Rulemaking on Labeling for Additional Products.--Section 324(a) 
of the Energy Policy and Conservation Act (42 U.S.C. 6294(a)) is 
amended by adding at the end the following:
    ``(5)(A) After a test procedure has been prescribed under section 
323, the Secretary or the Commission, as appropriate, may, for covered 
products referred to in subsections (u) through (ee) of section 325, 
prescribe, by rule, under this section, labeling requirements for the 
products.
    ``(B) In the case of products to which TP-1 standards under section 
325(y) apply, labeling requirements shall be based on the `Standard for 
the Labeling of Distribution Transformer Efficiency' prescribed by the 
National Electrical Manufacturers Association (NEMA TP-3) as in effect 
on the date of enactment of this paragraph.
    ``(C) In the case of dehumidifiers covered under section 325(dd), 
the Commission shall not require an Energy Guide label.
    ``(6)(A) Not later than July 1, 2006, the Commission shall 
prescribe by rule, pursuant to this section, labeling requirements for 
the electricity used by ceiling fans to circulate air in a room.
    ``(B) The requirements shall be based on the test procedure and 
labeling requirements contained in the Energy Star Program Requirements 
for Residential Ceiling Fans, version 2.0, issued by the Environmental 
Protection Agency, except that third party testing and other non-
labeling requirements shall not be promulgated unless the Commission 
determines the requirements are necessary to achieve compliance.
    ``(C) The rule shall apply to products manufactured after the later 
of--
            ``(i) January 1, 2008; or
            ``(ii) the date that is 60 days after the final rule is 
        prescribed.''.

SEC. 203. COMMERCIAL PACKAGE AIR CONDITIONING AND HEATING EQUIPMENT.

    (a) Definitions.--Section 340 of the Energy Policy and Conservation 
Act (42 U.S.C. 6311) is amended--
            (1) in paragraph (1)--
                    (A) by redesignating subparagraphs (D) through (G) 
                as subparagraphs (E) through (H), respectively; and
                    (B) by inserting after subparagraph (C) the 
                following:
                    ``(D) Very large commercial package air 
                conditioning and heating equipment.'';
            (2) in paragraph (2)(B), by striking ``small and large''; 
        and
            (3) by striking paragraphs (8) and (9) and inserting the 
        following:
            ``(8)(A) The term `commercial package air conditioning and 
        heating equipment' means air-cooled, water-cooled, 
        evaporatively-cooled, or water source (not including ground 
        water source) electrically operated, unitary central air 
        conditioners and central air conditioning heat pumps for 
        commercial application.
            ``(B) The term `small commercial package air conditioning 
        and heating equipment' means commercial package air 
        conditioning and heating equipment that is rated below 135,000 
        Btu per hour (cooling capacity).
            ``(C) The term `large commercial package air conditioning 
        and heating equipment' means commercial package air 
        conditioning and heating equipment that is rated at or above 
        135,000 Btu per hour and below 240,000 Btu per hour (cooling 
        capacity).
            ``(D) The term `very large commercial package air 
        conditioning and heating equipment' means commercial package 
        air conditioning and heating equipment that is rated at or 
        above 240,000 Btu per hour and below 760,000 Btu per hour 
        (cooling capacity).''.
    (b) Standards.--Section 342(a) of the Energy Policy and 
Conservation Act (42 U.S.C. 6313(a)) is amended--
            (1) in the subsection heading, by striking ``Small and 
        Large'' and inserting ``Small, Large, and Very Large'';
            (2) in paragraph (1), by inserting ``but before January 1, 
        2010,'' after ``January 1, 1994,'';
            (3) in paragraph (2), by inserting ``but before January 1, 
        2010,'' after ``January 1, 1995,''; and
            (4) in paragraph (6)--
                    (A) in subparagraph (A)--
                            (i) by inserting ``(i)'' after ``(A)'';
                            (ii) by striking ``the date of enactment of 
                        the Energy Policy Act of 1992'' and inserting 
                        ``January 1, 2010'';
                            (iii) by inserting after ``large commercial 
                        package air conditioning and heating 
                        equipment'' the following: ``and very large 
                        commercial package air conditioning and heating 
                        equipment, or if ASHRAE/IES Standard 90.1, as 
                        in effect on October 24, 1992, is amended with 
                        respect to any''; and
                            (iv) by adding at the end the following:
    ``(ii) If ASHRAE/IES Standard 90.1 is not amended with respect to 
small commercial package air conditioning and heating equipment, large 
commercial package air conditioning and heating equipment, and very 
large commercial package air conditioning and heating equipment during 
the 5-year period beginning on the effective date of a standard, the 
Secretary may initiate a rulemaking to determine whether a more 
stringent standard would result in significant additional conservation 
of energy and is technologically feasible and economically 
justified.''; and
                    (B) in subparagraph (C)(ii), by inserting ``and 
                very large commercial package air conditioning and 
                heating equipment'' after ``large commercial package 
                air conditioning and heating equipment''; and
            (5) by adding at the end the following:
    ``(7) Each small commercial package air conditioning and heating 
equipment manufactured on or after January 1, 2010, shall meet the 
following standards:
            ``(A) The minimum energy efficiency ratio of air-cooled 
        central air conditioners at or above 65,000 Btu per hour 
        (cooling capacity) and less than 135,000 Btu per hour (cooling 
        capacity) shall be--
                    ``(i) 11.2 for equipment with no heating or 
                electric resistance heating; and
                    ``(ii) 11.0 for equipment with all other heating 
                system types that are integrated into the equipment (at 
                a standard rating of 95 degrees F db).
            ``(B) The minimum energy efficiency ratio of air-cooled 
        central air conditioner heat pumps at or above 65,000 Btu per 
        hour (cooling capacity) and less than 135,000 Btu per hour 
        (cooling capacity) shall be--
                    ``(i) 11.0 for equipment with no heating or 
                electric resistance heating; and
                    ``(ii) 10.8 for equipment with all other heating 
                system types that are integrated into the equipment (at 
                a standard rating of 95 degrees F db).
            ``(C) The minimum coefficient of performance in the heating 
        mode of air-cooled central air conditioning heat pumps at or 
        above 65,000 Btu per hour (cooling capacity) and less than 
        135,000 Btu per hour (cooling capacity) shall be 3.3 (at a high 
        temperature rating of 47 degrees F db).
    ``(8) Each large commercial package air conditioning and heating 
equipment manufactured on or after January 1, 2010, shall meet the 
following standards:
            ``(A) The minimum energy efficiency ratio of air-cooled 
        central air conditioners at or above 135,000 Btu per hour 
        (cooling capacity) and less than 240,000 Btu per hour (cooling 
        capacity) shall be--
                    ``(i) 11.0 for equipment with no heating or 
                electric resistance heating; and
                    ``(ii) 10.8 for equipment with all other heating 
                system types that are integrated into the equipment (at 
                a standard rating of 95 degrees F db).
            ``(B) The minimum energy efficiency ratio of air-cooled 
        central air conditioner heat pumps at or above 135,000 Btu per 
        hour (cooling capacity) and less than 240,000 Btu per hour 
        (cooling capacity) shall be--
                    ``(i) 10.6 for equipment with no heating or 
                electric resistance heating; and
                    ``(ii) 10.4 for equipment with all other heating 
                system types that are integrated into the equipment (at 
                a standard rating of 95 degrees F db).
            ``(C) The minimum coefficient of performance in the heating 
        mode of air-cooled central air conditioning heat pumps at or 
        above 135,000 Btu per hour (cooling capacity) and less than 
        240,000 Btu per hour (cooling capacity) shall be 3.2 (at a high 
        temperature rating of 47 degrees F db).
    ``(9) Each very large commercial package air conditioning and 
heating equipment manufactured on or after January 1, 2010, shall meet 
the following standards:
            ``(A) The minimum energy efficiency ratio of air-cooled 
        central air conditioners at or above 240,000 Btu per hour 
        (cooling capacity) and less than 760,000 Btu per hour (cooling 
        capacity) shall be--
                    ``(i) 10.0 for equipment with no heating or 
                electric resistance heating; and
                    ``(ii) 9.8 for equipment with all other heating 
                system types that are integrated into the equipment (at 
                a standard rating of 95 degrees F db).
            ``(B) The minimum energy efficiency ratio of air-cooled 
        central air conditioner heat pumps at or above 240,000 Btu per 
        hour (cooling capacity) and less than 760,000 Btu per hour 
        (cooling capacity) shall be--
                    ``(i) 9.5 for equipment with no heating or electric 
                resistance heating; and
                    ``(ii) 9.3 for equipment with all other heating 
                system types that are integrated into the equipment (at 
                a standard rating of 95 degrees F db).
            ``(C) The minimum coefficient of performance in the heating 
        mode of air-cooled central air conditioning heat pumps at or 
        above 240,000 Btu per hour (cooling capacity) and less than 
        760,000 Btu per hour (cooling capacity) shall be 3.2 (at a high 
        temperature rating of 47 degrees F db).''.
    (c) Test Procedures.--Section 343 of the Energy Policy and 
Conservation Act (42 U.S.C. 6314) is amended in subsections (a)(4) and 
(d)(1), by inserting ``very large commercial package air conditioning 
and heating equipment,'' after ``large commercial package air 
conditioning and heating equipment,'' each place it appears.
    (d) Labeling.--Section 344(e) of the Energy Policy and Conservation 
Act (42 U.S.C. 6315(e)) is amended in the first and second sentences, 
by inserting ``very large commercial package air conditioning and 
heating equipment,'' after ``large commercial package air conditioning 
and heating equipment,'' each place it appears.
    (e) Administration, Penalties, Enforcement, and Preemption.--
Section 345 of the Energy Policy and Conservation Act (42 U.S.C. 6316) 
is amended by adding at the end the following:
    ``(d)(1) Except as provided in paragraphs (2) and (3), section 327 
shall apply with respect to the equipment specified in section 
340(1)(D) to the same extent and in the same manner as section 327 
applies under part B on the date of enactment of this subsection.
    ``(2) Any State or local standard prescribed or enacted prior to 
the date of enactment of this subsection shall not be preempted until 
the standards established under section 342(a)(9) take effect on 
January 1, 2010.
    ``(3) If the California Energy Commission adopts, not later than 
March 31, 2006, a regulation concerning the energy efficiency or energy 
use of the equipment specified in section 340(1)(D), the regulation 
shall be effective until, and shall no longer be effective after, the 
standards established under section 342(a)(9) take effect on January 1, 
2010.''.

SEC. 204. COMMERCIAL REFRIGERATORS, FREEZERS, AND REFRIGERATOR-
              FREEZERS.

    (a) Definitions.--Section 340 of the Energy Policy and Conservation 
Act (42 U.S.C. 6311), as amended by section 203, is amended--
            (1) in paragraph (1)--
                    (A) by redesignating subparagraph (H) as 
                subparagraph (I); and
                    (B) by inserting after subparagraph (G) the 
                following:
            ``(H) commercial refrigerators, freezers, and refrigerator-
        freezers.''; and
            (2) by adding at the end the following:
            ``(19)(A) The term `commercial refrigerator, freezer, and 
        refrigerator-freezer' means refrigeration equipment that--
                    ``(i) is not a consumer product (as defined in 
                section 321);
                    ``(ii) operates at a chilled, frozen, combination 
                chilled and frozen, or variable temperature;
                    ``(iii) displays or stores merchandise and other 
                perishable materials horizontally, semivertically, or 
                vertically;
                    ``(iv) has transparent or solid doors, sliding or 
                hinged doors, a combination of hinged, sliding, 
                transparent, or solid doors, or no doors;
                    ``(v) is designed for pull-down temperature 
                applications or holding temperature applications; and
                    ``(vi) is connected to a self-contained condensing 
                unit or to a remote condensing unit.
            ``(B) The term `holding temperature application' means a 
        use of commercial refrigeration equipment other than a pull-
        down temperature application, except a blast chiller or 
        freezer.
            ``(C) The term `integrated average temperature' means the 
        average temperature of all test package measurements taken 
        during the test.
            ``(D) The term `pull-down temperature application' means a 
        commercial refrigerator with doors that, when fully loaded with 
        12 ounce beverage cans at 90 degrees F, can cool those 
        beverages to an average stable temperature of 38 degrees F in 
        12 hours or less.
            ``(E) The term `remote condensing unit' means a factory-
        made assembly of refrigerating components designed to compress 
        and liquefy a specific refrigerant that is remotely located 
        from the refrigerated equipment and consists of 1 or more 
        refrigerant compressors, refrigerant condensers, condenser fans 
        and motors, and factory supplied accessories.
            ``(F) The term `self-contained condensing unit' means a 
        factory-made assembly of refrigerating components designed to 
        compress and liquefy a specific refrigerant that is an integral 
        part of the refrigerated equipment and consists of 1 or more 
        refrigerant compressors, refrigerant condensers, condenser fans 
        and motors, and factory supplied accessories.''.
    (b) Standards.--Section 342 of the Energy Policy and Conservation 
Act (42 U.S.C. 6313) is amended by adding at the end the following:
    ``(c) Commercial Refrigerators, Freezers, and Refrigerator-
freezers.--(1) In this subsection:
            ``(A) The term `AV' means the adjusted volume 
        (ft<SUP>3</SUP>) (defined as 1.63 x frozen temperature 
        compartment volume (ft<SUP>3</SUP>) + chilled temperature 
        compartment volume (ft<SUP>3</SUP>)) with compartment volumes 
        measured in accordance with the Association of Home Appliance 
        Manufacturers Standard HRF1-1979.
            ``(B) The term `V' means the chilled or frozen compartment 
        volume (ft<SUP>3</SUP>) (as defined in the Association of Home 
        Appliance Manufacturers Standard HRF1-1979).
            ``(C) Other terms have the meanings established by the 
        Secretary, based on industry-accepted definitions and practice.
    ``(2) Each commercial refrigerator, freezer, and refrigerator-
freezer with a self-contained condensing unit designed for holding 
temperature applications manufactured on or after January 1, 2010, 
shall meet the following standard levels in kilowatt hours per day:

  ``Refrigerators with solid doors  0.10 V + 2.04
  Refrigerators with transparent    0.12 V + 3.34
   doors.
  Freezers with solid doors.......  0.40 V + 1.38
  Freezers with transparent doors.  0.75 V + 4.10
  Refrigerators/freezers with       0.27 AV - 0.71 or 0.70
   solid doors the greater of.

    ``(3) Each commercial refrigerator with a self-contained condensing 
unit designed for pull-down temperature applications manufactured on or 
after January 1, 2010, shall meet the following standard levels in 
kilowatt hours per day: Refrigerators with transparent doors 0.126 V + 
3.51.
    ``(4)(A) Not later than January 1, 2009, the Secretary of Energy 
shall prescribe, by rule, standard levels for ice-cream freezers, self-
contained commercial refrigerators, freezers, and refrigerator-freezers 
without doors, and remote condensing commercial refrigerators, 
freezers, and refrigerator-freezers, with the standard levels effective 
for equipment manufactured on or after January 1, 2012.
    ``(B) Not later than January 1, 2009, the Secretary shall 
prescribe, by rule, standard levels for other types of commercial 
refrigerators, freezers, and refrigerator-freezers not covered by 
paragraphs (1), (2), and (3) and subparagraph (A) with the standard 
levels effective for equipment manufactured on or after January 1, 
2012.
    ``(5)(A)(i) Not later than January 1, 2013, the Secretary shall 
publish a final rule to determine if the standards established under 
paragraphs (1), (2), (3), and (4)(A) should be amended.
    ``(ii) The rule shall provide that any amended standards shall 
apply to products manufactured on or after the date that is 3 years 
after the final amended standard is published unless the Secretary 
determines, by rule, that 3 years is inadequate, in which case the 
Secretary may establish an application date for products manufactured 
not later than 5 years after the final amended standard is published.
    ``(B)(i) Not later than 3 years after the amended final standard 
referred to in subparagraph (A) takes effect or after the Secretary 
publishes a final rule determining that the standard should not be 
amended, the Secretary shall publish a final rule to determine if the 
standards established under paragraphs (1), (2), (3), and (4)(A) should 
be amended.
    ``(ii) The rule shall provide that any amended standards shall 
apply to products manufactured on or after the date that is 3 years 
after the final amended standard is published unless the Secretary 
determines, by rule, that 3 years is inadequate, in which case the 
Secretary may establish an application date for products manufactured 
not later than 5 years after the final amended standard is 
published.''.
    (c) Test procedures.--Section 343 of the Energy Policy and 
Conservation Act (42 U.S.C. 6314) is amended--
            (1) in subsection (a), by adding at the end the following:
    ``(6)(A)(i) In the case of commercial refrigerators, freezers, and 
refrigerator-freezers, the test procedures shall be the test procedures 
determined by the Secretary to be generally accepted industry testing 
procedures or rating procedures developed or recognized by the ASHRAE 
or by the American National Standards Institute.
    ``(ii) In the case of self-contained refrigerators, freezers, and 
refrigerator-freezers to which standards are applicable under 
subsection 342(c)(1), the initial test procedures shall be ASHRAE 117 
that is in effect on January 1, 2005.
    ``(B)(i) In the case of commercial refrigerators, freezers, and 
refrigerators-freezers with doors covered by the standards adopted in 
February 2002, by the California Energy Commission, the rating 
temperatures shall be the integrated average temperature of 38 degrees 
F (+/- 2 degrees F) for refrigerator compartments and 0 degrees F (+/- 
2 degrees F) for freezer compartments.
    ``(C) The Secretary shall prescribe a rule, that meets the 
requirements of paragraphs (2) and (3), to establish the appropriate 
rating temperatures for the other products for which standards will be 
established under subsection 342(c)(2).
    ``(D) In establishing the appropriate test temperatures under this 
subparagraph, the Secretary shall follow the procedures and meet the 
requirements specified in section 323(e).
    ``(E)(i) Not later than 180 days after the publication of the new 
ASHRAE 117 test procedure, if the ASHRAE 117 test procedure for 
commercial refrigerators, freezers, and refrigerator-freezers is 
amended, the Secretary shall, by rule, amend the test procedure for the 
product as necessary to be consistent with the amended ASHRAE 117 test 
procedure unless the Secretary makes a determination, by rule, and 
supported by clear and convincing evidence, that to do so would not 
meet the requirements for test procedures described in paragraphs (2) 
and (3).
    ``(ii) If the Secretary needs more than 180 days to review and 
adopt the amended test procedure or rating procedure, the Secretary 
shall publish a notice in the Federal Register stating the intent of 
the Secretary to take up to an additional 1 year before the amended 
test procedure or rating procedure would become effective.
    ``(F)(i) If another test procedure besides ASHRAE 117 is approved 
by the American National Standards Institute, the Secretary shall, by 
rule--
            ``(I) review the relative strengths and weaknesses of the 
        new test procedure relative to ASHRAE 117; and
            ``(II) based on that review, adopt 1 of those test 
        procedures for subsequent use in the standards program.
    ``(ii) If a new test procedure is adopted--
            ``(I) section 323(e) shall apply; and
            ``(II) subparagraph (B) shall apply to the adopted test 
        procedure.''; and
            (2) in subsection (d)(1), by striking ``and unfired hot 
        water storage tanks,'' and inserting: ``unfired hot water 
        storage tanks, and commercial refrigerators, freezers, and 
        refrigerator-freezers,''.
    (d) Labeling.--Section 344(e) of the Energy Policy and Conservation 
Act (42 U.S.C. 6315(e)), as amended by section 203(d), is amended by 
striking ``and unfired hot water storage tanks'' each place it appears 
and inserting ``unfired hot water storage tanks, and commercial 
refrigerators, freezers, and refrigerator-freezers''.
    (e) Administration, Penalties, Enforcement, and Preemption.--
Section 345 of the Energy Policy and Conservation Act (42 U.S.C. 6316), 
as amended by section 203(e), is amended by adding at the end the 
following:
    ``(e)(1)(A) The provisions of subsections (a), (b), and (d) of 
section 326, subsections (m) through (s) of section 325, and sections 
328 through 336 shall apply with respect to equipment specified in 
section 340(1)(G) to the same extent and in the same manner as those 
provisions apply under part B.
    ``(B) In applying those provisions to that equipment, paragraphs 
(1), (2), (3), and (4) of subsection (a) shall apply.
    ``(2)(A)(i) The provisions of section 327 shall apply with respect 
to the equipment specified in section 340(1)(G) that have standards 
established under section 342(c)(2) to the same extent and in the same 
manner as those provisions apply under part B on the date of enactment 
of this subsection, except that any State or local standard prescribed 
or enacted before the date of enactment of this subsection shall not be 
preempted until the standards established under section 342(c) take 
effect.
    ``(ii) In applying those provisions to that equipment, paragraphs 
(1), (2), and (3) of subsection (a) shall apply.
    ``(B) Notwithstanding subparagraph (A), if the California Energy 
Commission adopts, not later than March 31, 2005, a regulation 
concerning the energy efficiency or energy use of the equipment 
specified in section 340(1)(G) that have standards established under 
section 342(c)(2), those standards shall be effective until, and shall 
no longer be effective after, the standards established under section 
342(c)(2) take effect on January 1, 2010.
    ``(3)(A) The provisions of section 327 shall apply with respect to 
the equipment specified in 340(1)(G) that have standards established 
under section 342(c)(3) to the same extent and in the same manner as 
they apply under part B on the date of publication of the final rule by 
the Secretary, except that any State or local standard prescribed or 
enacted before the date of publication of the final rule by the 
Secretary shall not be preempted until the standards take effect.
    ``(B) In applying those provisions for the purpose of that 
equipment, paragraphs (1), (2), and (3) of subsection (a) shall apply.
    ``(4) If the Secretary does not issue a final rule for a specific 
type of equipment specified in section 340(1)(G) within the time frame 
specified in section 342(c)(3), the provisions of subsections (b) and 
(c) of section 327 shall no longer apply to that specific type of 
equipment beginning on the date that is 2 years after the scheduled 
date for a final rule and until the Secretary publishes a final rule 
covering the specific type of equipment, at which time those provisions 
shall apply to the specific type of equipment.
    ``(5)(A) In the case of any commercial refrigerator, freezer, and 
refrigerator-freezer to which standards are applicable under section 
342(c)(2), the Secretary shall require manufacturers to certify, 
through an independent testing or certification program nationally 
recognized in the United States, that the commercial refrigerator, 
freezer, and refrigerator-freezer meets the applicable standard.
    ``(B) The Secretary shall, to the maximum extent practicable, 
encourage the establishment of at least 2 such independent testing and 
certification programs.
    ``(C) As part of certification, information on equipment energy use 
and interior volume shall be made available to the Secretary.''.

              TITLE III--ENERGY EFFICIENT FEDERAL PROGRAMS

SEC. 301. PROCUREMENT OF ENERGY EFFICIENT PRODUCTS.

    (a) Requirements.--Part 3 of title V of the National Energy 
Conservation Policy Act is amended--
            (1) by redesignating section 551 (42 U.S.C. 8259) as 
        section 552; and
            (2) by inserting after section 550 (42 U.S.C. 8258b) the 
        following:

``SEC. 551. FEDERAL PROCUREMENT OF ENERGY EFFICIENT PRODUCTS.

    ``(a) Definitions.--In this section:
            ``(1) The term `Energy Star product' means a product that 
        is rated for energy efficiency under an Energy Star program.
            ``(2) The term `Energy Star program' means the Energy Star 
        program of the Environmental Protection Agency.
            ``(3) The term `executive agency' has the meaning given the 
        term in section 4 of the Office of Federal Procurement Policy 
        Act (41 U.S.C. 403).
            ``(4) The term `FEMP designated product' means a product 
        that is designated under the Federal Energy Management Program 
        of the Department of Energy as being among the highest 25 
        percent of equivalent products for energy efficiency.
    ``(b) Procurement of Energy Efficient Products.--(1) Except as 
provided in paragraph (2), to meet the requirements of an executive 
agency for an energy consuming product, the head of the executive 
agency shall procure--
            ``(A) an Energy Star product; or
            ``(B) a FEMP designated product.
    ``(2) The head of an executive agency shall not be required to 
comply with paragraph (1) if the head of the executive agency specifies 
in writing that--
            ``(A) taking into account energy cost savings, an Energy 
        Star product or FEMP designated product is not cost-effective 
        over the life of the product; or
            ``(B) no Energy Star product or FEMP designated product is 
        reasonably available that meets the functional requirements of 
        the executive agency.
    ``(3) The head of an executive agency shall incorporate criteria 
for energy efficiency that are consistent with the criteria used for 
rating Energy Star products and FEMP designated products into--
            ``(A) the specifications for any procurements involving 
        energy consuming products and systems, including--
                    ``(i) guide specifications;
                    ``(ii) project specifications; and
                    ``(iii) construction, renovation, and services 
                contracts that include the provision of energy 
                consuming products and systems; and
            ``(B) the factors for the evaluation of offers received for 
        the procurement.
    ``(c) Listing of Energy Efficient Products in Federal Catalogs.--
(1) Any inventory or listing of products by the General Services 
Administration or the Defense Logistics Agency shall clearly identify 
and prominently display Energy Star products and FEMP designated 
products.
    ``(2)(A) Except as provided in subparagraph (B), the General 
Services Administration or the Defense Logistics Agency shall supply 
only Energy Star products or FEMP designated products for all product 
categories covered by the Energy Star program or the Federal Energy 
Management Program.
    ``(B) Subparagraph (A) shall not apply if an agency ordering a 
product specifies in writing that--
            ``(i) taking into account energy cost savings, no Energy 
        Star product or FEMP designated product is cost-effective for 
        the intended application over the life of the product; or
            ``(ii) no Energy Star product or FEMP designated product is 
        available to meet the functional requirements of the ordering 
        agency.
    ``(d) Specific Products.--(1) In the case of an electric motor of 1 
to 500 horsepower, an executive agency shall select only a premium 
efficient motor that meets the standard established by the Secretary 
under paragraph (2).
    ``(2) Not later than 120 days after the date of enactment of this 
subsection and after considering the recommendations of associated 
electric motor manufacturers and energy efficiency groups, the 
Secretary shall establish a standard for premium efficient motors.
    ``(3)(A) Each Federal agency is encouraged to take actions (such as 
appropriate cleaning and maintenance) to maximize the efficiency of air 
conditioning and refrigeration equipment, including the use of a system 
treatment or additive that--
            ``(i) would reduce the electricity consumed by air 
        conditioning and refrigeration equipment; and
            ``(ii) meets the criteria specified in subparagraph (B).
    ``(B) A system treatment or additive referred to in subparagraph 
(A) shall be--
            ``(i) determined by the Secretary to be effective in 
        increasing the efficiency of air conditioning and refrigeration 
        equipment without having an adverse impact on--
                    ``(I) air conditioning and refrigeration 
                performance (including cooling capacity); or
                    ``(II) the useful life of the equipment;
            ``(ii) determined by the Administrator of the Environmental 
        Protection Agency to be environmentally safe; and
            ``(iii) shown, in tests conducted by the National Institute 
        of Standards and Technology, in accordance with Department of 
        Energy test procedures, to increase the seasonal energy 
        efficiency ratio (SEER) or energy efficiency ratio (EER) 
        without having any adverse impact on the system, system 
        components, the refrigerant or lubricant, or other materials in 
        the system.
    ``(4) The results of the tests described in paragraph (3)(B)(iii) 
shall be published in the Federal Register for public review and 
comment.
    ``(5) For purposes of this subsection, a hardware device or primary 
refrigerant shall not be considered an additive.
    ``(e) Regulations.--Not later than 180 days after the date of 
enactment of this section, the Secretary shall issue guidelines to 
carry out this section.''.
    (b) Conforming Amendment.--The table of contents of the National 
Energy Conservation Policy Act is amended--
            (1) by redesignating the item relating to section 551 as 
        section 552; and
            (2) by inserting after the item relating to section 550 the 
        following:

``Sec. 551. Federal procurement of energy efficient products.''.

SEC. 302. ENERGY SAVINGS PERFORMANCE CONTRACTS.

    (a) Permanent Extension.--Effective September 30, 2005, section 801 
of the National Energy Conservation Policy Act (42 U.S.C. 8287) is 
amended by striking subsection (c).
    (b) Payment of Costs.--Section 802 of the National Energy 
Conservation Policy Act (42 U.S.C. 8287a) is amended by inserting ``, 
water, or wastewater treatment'' after ``payment of energy''.
    (c) Energy Savings.--Section 804 of the National Energy 
Conservation Policy Act (42 U.S.C. 8287c) is amended by striking 
paragraph (2) and inserting the following:
            ``(2) The term `energy savings' means a reduction in the 
        cost of energy, water, or wastewater treatment, from a base 
        cost established through a methodology set forth in the 
        contract, used in 1 or more existing federally owned buildings 
        or other federally owned facilities as a result of--
                    ``(A) the lease or purchase of operating equipment, 
                improvements, altered operation and maintenance, or 
                technical services;
                    ``(B) the increased efficient use of existing 
                energy sources by cogeneration or heat recovery, 
                excluding any cogeneration process for other than a 
                federally owned building or buildings or other 
                federally owned facilities; or
                    ``(C) the increased efficient use of existing water 
                sources in interior or exterior applications.''.
    (d) Energy Savings Contract.--Section 804 of the National Energy 
Conservation Policy Act (42 U.S.C. 8287c) is amended by striking 
paragraph (3) and inserting the following:
            ``(3)(A) The terms `energy savings contract' and `energy 
        savings performance contract' mean a contract that provides for 
        the performance of services for the design, acquisition, 
        installation, testing, and, as appropriate, operation, 
        maintenance, and repair, of an identified energy or water 
        conservation measure or series of measures at 1 or more 
        locations.
            ``(B) With respect to an agency facility that is a public 
        building (as defined in section 3301 of title 40, United States 
        Code), a contract described in subparagraph (A) shall be in 
        compliance with the prospectus requirements and procedures of 
        section 3307 of title 40, United States Code.''.
    (e) Energy or Water Conservation Measure.--Section 804(4) of the 
National Energy Conservation Policy Act (42 U.S.C. 8287c(4)) is amended 
to read as follows:
            ``(4) The term `energy or water conservation measure' 
        means--
                    ``(A) an energy conservation measure (as defined in 
                section 551); or
                    ``(B) a water conservation measure at a non-Federal 
                hydroelectric facility that--
                            ``(i) improves the efficiency of water use;
                            ``(ii) is life-cycle cost-effective; and
                            ``(iii) involves--
                                    ``(I) water conservation, 
                                recycling, or reuse;
                                    ``(II) more efficient treatment of 
                                wastewater or stormwater;
                                    ``(III) improvements in operation 
                                or maintenance efficiencies;
                                    ``(IV) retrofit activities; or
                                    ``(V) other related activities.''.
    (f) Review.--
            (1) In general.--Not later than 180 days after the date of 
        enactment of this Act, the Secretary of Energy shall complete a 
        review of the energy savings performance contract program 
        carried out under title VIII of the National Energy 
        Conservation Policy Act (42 U.S.C. 8287 et seq.) to identify--
                    (A) statutory, regulatory, and administrative 
                obstacles that prevent Federal agencies from fully 
                using the program; and
                    (B) any areas for increasing program flexibility 
                and effectiveness, including--
                            (i) audit and measurement verification 
                        requirements;
                            (ii) accounting for energy use in 
                        determining savings;
                            (iii) contracting requirements, including 
                        the identification of additional qualified 
                        contractors; and
                            (iv) energy efficiency services covered.
            (2) Report.--The Secretary shall--
                    (A) submit to Congress a report that describes the 
                findings of the Secretary under paragraph (1); and
                    (B) to the extent that the changes are consistent 
                with statutory authority, implement the identified 
                administrative and regulatory changes to increase 
                program flexibility and effectiveness.
    (g) Extension of Authority.--Any energy savings performance 
contract entered into under section 801 of the National Energy 
Conservation Policy Act (42 U.S.C. 8287) after October 1, 2004, and 
before the date of enactment of this Act, shall be deemed to have been 
entered into under that section.

SEC. 303. FEDERAL BUILDING PERFORMANCE STANDARDS.

    Section 305(a) of the Energy Conservation and Production Act (42 
U.S.C. 6834(a)) is amended--
            (1) in paragraph (2)(A), by striking ``CABO Model Energy 
        Code, 1992'' and inserting ``the 2003 International Energy 
        Conservation Code, as such Code (including supplements) is in 
        effect on the date of the enactment of the Efficient Energy 
        Through Certified Technologies and Electricity Reliability 
        (EFFECTER) Act of 2005''; and
            (2) by adding at the end the following:
    ``(3)(A) Not later than 1 year after the date of enactment of this 
paragraph, there shall be establish, by rule, revised Federal building 
energy efficiency performance standards that require that--
            ``(i) if life-cycle cost-effective for new Federal 
        buildings--
                    ``(I) the buildings be designed to achieve energy 
                consumption levels that are at least 30 percent below 
                the levels established in the version of the ASHRAE 
                Standard or the International Energy Conservation Code, 
                as appropriate, that is in effect as of the date of 
                enactment of this paragraph; and
                    ``(II) sustainable design principles are applied to 
                the siting, design, and construction of all new and 
                replacement buildings; and
            ``(ii) if water is used to achieve energy efficiency, water 
        conservation technologies shall be applied to the extent that 
        the technologies are life-cycle cost-effective.
    ``(B) Not later than 1 year after the date of approval of each 
subsequent revision of the ASHRAE Standard or the International Energy 
Conservation Code, as appropriate, the Secretary shall determine, based 
on the cost-effectiveness of the requirements under the amendment, 
whether the revised standards established under this paragraph should 
be updated to reflect the amendment.
    ``(C) In the budget request of the Federal agency for each fiscal 
year and each report submitted by the Federal agency under section 
548(a) of the National Energy Conservation Policy Act (42 U.S.C. 
8258(a)), the head of each Federal agency shall include--
            ``(i) a list of all new Federal buildings owned, operated, 
        or controlled by the Federal agency; and
            ``(ii) a statement specifying whether the Federal buildings 
        meet or exceed the revised standards established under this 
        paragraph.''.

                        TITLE IV--PUBLIC HOUSING

SEC. 401. PUBLIC HOUSING CAPITAL FUND.

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

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

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

SEC. 403. ENERGY-EFFICIENT APPLIANCES.

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

SEC. 404. ENERGY EFFICIENCY STANDARDS.

    Section 109 of the Cranston-Gonzalez National Affordable Housing 
Act (42 U.S.C. 12709) is amended--
            (1) in subsection (a)--
                    (A) in paragraph (1)--
                            (i) by striking ``1 year after the date of 
                        the enactment of the Energy Policy Act of 
                        1992'' and inserting ``September 30, 2005'';
                            (ii) in subparagraph (A), by striking 
                        ``and'' at the end;
                            (iii) in subparagraph (B), by striking the 
                        period at the end and inserting ``; and''; and
                            (iv) by adding at the end the following:
                    ``(C) rehabilitation and new construction of public 
                and assisted housing funded by HOPE VI revitalization 
                grants under section 24 of the United States Housing 
                Act of 1937 (42 U.S.C. 1437v), where such standards are 
                determined to be cost effective by the Secretary of 
                Housing and Urban Development.''; and
                    (B) in paragraph (2), by striking ``Council of 
                American'' and all that follows through ``90.1-1989')'' 
                and inserting ``2003 International Energy Conservation 
                Code, as such Code (including supplements) is in effect 
                on the date of the enactment of the Efficient Energy 
                Through Certified Technologies and Electricity 
                Reliability (EFFECTER) Act of 2005'';
            (2) in subsection (b)--
                    (A) by striking ``within 1 year after the date of 
                the enactment of the Energy Policy Act of 1992'' and 
                inserting ``by September 30, 2005''; and
                    (B) by striking ``CABO'' and all that follows 
                through ``1989'' and inserting ``2003 International 
                Energy Conservation Code, as such Code (including 
                supplements) is in effect on the date of the enactment 
                of the Efficient Energy Through Certified Technologies 
                and Electricity Reliability (EFFECTER) Act of 2005''; 
                and
            (3) in subsection (c)--
                    (A) in the heading, by striking ``Model Energy 
                Code'' and inserting ``The International Energy 
                Conservation Code''; and
                    (B) by striking ``CABO'' and all that follows 
                through ``1989'' and inserting ``the 2003 International 
                Energy Conservation Code, as such Code (including 
                supplements) is in effect on the date of the enactment 
                of the Efficient Energy Through Certified Technologies 
                and Electricity Reliability (EFFECTER) Act of 2005''.

                     TITLE V--RELIABILITY STANDARDS

SEC. 501. ELECTRIC RELIABILITY STANDARDS.

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

``SEC. 215. ELECTRIC RELIABILITY.

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