I 
108TH CONGRESS 
2D SESSION 
H. R. 4206
To provide for various energy efficiency programs and tax incentives, and 
for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 22, 2004
Mr. CUNNINGHAM (for himself, Mr. MARKEY, Mr. MATSUI, and Mr. LEWIS 
of California) introduced the following bill; which was referred to the 
Committee on Energy and Commerce, and in addition to the Committees 
on Ways and Means, and Financial Services, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such 
provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To provide for various energy efficiency programs and tax 
incentives, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Efficient Energy Through Certified Technologies and 
Electricity Reliability (EFFECTER) Act of 2004’’. 
(b) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
Sec. 1. Short title; table of contents. 
TITLE I—TAX INCENTIVES 
Sec. 101. Energy efficient commercial buildings deduction. 
Sec. 102. Credit for construction of new energy efficient homes. 
Sec. 103. Incentive for certain energy efficient property used in business. 
Sec. 104. Credit for certain nonbusiness energy property. 
Sec. 105. Energy credit for combined heat and power system property. 
Sec. 106. Credit for energy efficient appliances. 
TITLE II—ENERGY EFFICIENT PRODUCTS 
Sec. 201. Energy conservation standards for additional products. 
Sec. 202. Energy labeling. 
TITLE III—ENERGY EFFICIENCY FEDERAL PROGRAMS 
Sec. 301. Procurement of energy efficient products. 
Sec. 302. Energy savings performance contracts. 
Sec. 303. Federal building performance standards. 
TITLE IV—PUBLIC HOUSING 
Sec. 401. Public Housing Capital Fund. 
Sec. 402. Grants for energy-conserving improvements for assisted housing. 
Sec. 403. Energy-efficient appliances. 
Sec. 404. Energy efficiency standards. 
TITLE V—RELIABILITY STANDARDS 
Sec. 501. Electric reliability standards.
TITLE I—TAX INCENTIVES 
SEC. 101. ENERGY EFFICIENT COMMERCIAL BUILDINGS DE-
DUCTION. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
itemized deductions for individuals and corporations) is 
amended by inserting after section 179A the following new 
section:
‘‘SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS 
DEDUCTION. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction 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 de-
duction 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 BUILD-
ING PROPERTY.—The term ‘energy efficient commer-
cial building property’ means property—
‘‘(A) which is installed on or in any build-
ing located in the United States, 
‘‘(B) which is installed as part of—
‘‘(i) the lighting systems, 
‘‘(ii) the heating, cooling, ventilation, 
and hot water systems, or 
‘‘(iii) the building envelope, and 
‘‘(C) which is certified in accordance with 
subsection (d)(4) as being installed as part of 
a plan designed to reduce the total annual en-
ergy and power costs with respect to the light-
ing 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 calcula-
tion under subsection (d)(2). 
A building described in subparagraph (A) may in-
clude any residential rental property, including any 
low-rise multifamily structure or single family hous-
ing property which is not within the scope of Stand-
ard 90.1–2001. 
‘‘(2) STANDARD 90.1–2001.—The term ‘Stand-
ard 90.1–2001’ means Standard 90.1–2001 of the 
American Society of Heating, Refrigerating, and Air 
Conditioning Engineers and the Illuminating Engi-
neering 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 accord-
ance with subsection (d)(4) that any sys-
tem referred to in subsection (c)(1)(B) sat-
isfies the energy-savings targets estab-
lished by the Secretary under subpara-
graph (B) with respect to such system, 
then the requirement of subsection (c)(1)(C) 
shall be treated as met with respect to such sys-
tem, 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 Sec-
retary, after consultation with the Secretary of En-
ergy, shall promulgate regulations which describe in 
detail methods for calculating and verifying energy
and power consumption and cost, based on the pro-
visions of the 2005 California Nonresidential Alter-
native 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 kil-
owatt 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 de-
veloped annual energy usage and cost reduction 
procedures based on time of usage costs for use 
in the performance standards of the State’s 
building energy code before the effective date of 
this section, the State may use those annual en-
ergy usage and cost reduction procedures in 
lieu of those adopted by the Secretary. 
‘‘(B) The calculation methods under this 
paragraph need not comply fully with section 
11 of Standard 90.1–2001. 
‘‘(C) The calculation methods shall be fuel 
neutral, such that the same energy efficiency
features shall qualify a building for the deduc-
tion 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 resist-
ance 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 Calcula-
tion Method Approval Manual, including the 
following: 
‘‘(i) Natural ventilation. 
‘‘(ii) Evaporative cooling. 
‘‘(iii) Automatic lighting controls such 
as occupancy sensors, photocells, and time-
clocks. 
‘‘(iv) Daylighting. 
‘‘(v) Designs utilizing semi-condi-
tioned 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 mecha-
nisms for mechanical cooling, such as mul-
tiple or variable speed compressors. 
‘‘(viii) The calculation methods may 
take into account the extent of commis-
sioning in the building, and allow the tax-
payer to take into account measured per-
formance which exceeds typical perform-
ance. 
‘‘(ix) On-site generation of electricity, 
including combined heat and power sys-
tems, fuel cells, and renewable energy gen-
eration such as solar energy. 
‘‘(x) Wiring with lower energy losses 
than wiring satisfying Standard 90.1–2001 
requirements for building power distribu-
tion 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 calcu-
lating energy and power consumption and 
costs as required by the Secretary, 
‘‘(ii) which provides such forms as re-
quired to be filed by the Secretary in con-
nection with energy efficiency of property 
and the deduction allowed under this sec-
tion, and 
‘‘(iii) which provides a notice form 
which documents the energy efficiency fea-
tures of the building and its projected an-
nual energy costs. 
‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC 
PROPERTY.—In the case of energy efficient commer-
cial building property installed on or in public prop-
erty, 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 tax-
payer for purposes of this section. 
‘‘(5) NOTICE
TO
OWNER.—Each certification 
required under this section shall include an expla-
nation 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 mak-
ing of certifications under this section. 
‘‘(B) PROCEDURES.—The Secretary shall 
include as part of the certification process pro-
cedures for inspection and testing by qualified 
individuals described in subparagraph (C) to 
ensure compliance of buildings with energy-sav-
ings plans and targets. Such procedures shall 
be comparable, given the difference between 
commercial and residential buildings, to the re-
quirements in the Mortgage Industry National 
Accreditation Procedures for Home Energy 
Rating Systems. 
‘‘(C) QUALIFIED
INDIVIDUALS.—Individ-
uals 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 sub-
title, if a deduction is allowed under this section with re-
spect 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 require-
ments in Table 9.3.1.1 or Table 9.3.1.2 (not includ-
ing 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 den-
sity 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 manda-
tory and prescriptive requirements of 
Standard 90.1–2001 and which do not in-
clude 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 min-
imum requirements for calculated lighting 
levels as set forth in the Illuminating Engi-
neering Society of North America Lighting 
Handbook, Performance and Application, 
Ninth Edition, 2000. 
‘‘(g) REGULATIONS.—The Secretary shall promul-
gate such regulations as necessary—
‘‘(1) to take into account new technologies re-
garding energy efficiency and renewable energy for 
purposes of determining energy efficiency and sav-
ings 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 imple-
mented. 
‘‘(h) TERMINATION.—This section shall not apply 
with respect to property placed in service after December 
31, 2009.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) of the Internal Revenue 
Code of 1986 is amended by striking ‘‘and’’ at the 
end of paragraph (27), by striking the period at the 
end of paragraph (28) and inserting ‘‘, and’’, and by 
adding at the end the following new paragraph:
‘‘(29) to the extent provided in section 
179B(e).’’. 
(2) Section 1245(a) of such Code is amended 
by inserting ‘‘179B,’’ after ‘‘179A,’’ both places it 
appears in paragraphs (2)(C) and (3)(C). 
(3) Section 1250(b)(3) of such Code is amend-
ed by inserting before the period at the end of the 
first sentence ‘‘or by section 179B’’. 
(4) Section 263(a)(1) of such Code is amended 
by striking ‘‘or’’ at the end of subparagraph (G), by 
striking the period at the end of subparagraph (H) 
and inserting ‘‘, or’’, and by inserting after subpara-
graph (H) the following new subparagraph: 
‘‘(I) expenditures for which a deduction is 
allowed under section 179B.’’. 
(5) Section 312(k)(3)(B) of such Code is 
amended by striking ‘‘or 179A’’ each place it ap-
pears in the heading and text and inserting ‘‘, 179A, 
or 179B’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 of the Internal 
Revenue Code of 1986 is amended by inserting after sec-
tion 179A the following new item:
‘‘Sec. 179B. Energy efficient commercial buildings deduction.’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after
the date of the enactment of this Act in taxable years end-
ing after such date. 
SEC. 102. CREDIT FOR CONSTRUCTION OF NEW ENERGY EF-
FICIENT HOMES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to business related credits) is amended by 
adding at the end the following new section: 
‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of an eligible contractor with respect to a quali-
fied 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 dur-
ing 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 de-
scribed in clause (i) or (iii) of subsection 
(c)(3)(C), $1,000, and
‘‘(ii) in the case of a dwelling unit de-
scribed in subsection (c)(3)(C)(ii), $2,000.
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME 
DWELLING UNIT TAKEN INTO ACCOUNT.—If a 
credit was allowed under subsection (a) with re-
spect to a dwelling unit in 1 or more prior tax-
able 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 por-
tion of the basis of any property which is attrib-
utable 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 ‘eligi-
ble contractor’ means—
‘‘(A) the person who constructed the quali-
fied 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 des-
ignated 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 en-
ergy efficient heating or cooling equipment or sys-
tem, 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 substan-
tially completed after December 31, 2003, and 
‘‘(C) which is—
‘‘(i) certified to have a level of annual 
heating and cooling energy consumption 
which is at least 30 percent below the an-
nual level of heating and cooling energy 
consumption of a comparable dwelling unit 
constructed in accordance with the stand-
ards 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 equip-
ment efficiencies correspond to the min-
imum allowed under the regulations estab-
lished by the Department of Energy pursu-
ant to the National Appliance Energy Con-
servation 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 an-
nual level and to have building envelope 
component improvements account for at 
least 1⁄5 of such 50 percent, or
‘‘(iii) a manufactured home which—
‘‘(I) conforms to Federal Manu-
factured 
Home 
Construction 
and 
Safety Standards (section 3280 of 
title 24, Code of Federal Regulations), 
and 
‘‘(II) meets the applicable stand-
ards required by the Administrator of 
the Environmental Protection Agency 
under 
the 
Energy 
Star 
Labeled 
Homes program. 
‘‘(4) CONSTRUCTION.—The term ‘construction’ 
includes substantial reconstruction and rehabilita-
tion. 
‘‘(5) ACQUIRE.—The term ‘acquire’ includes 
purchase and, in the case of reconstruction and re-
habilitation, 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 sky-
lights), 
‘‘(C) exterior doors, and 
‘‘(D) any metal roof installed on a dwelling 
unit, but only if such roof has appropriate pig-
mented coatings which—
‘‘(i) are specifically and primarily de-
signed to reduce the heat gain of such 
dwelling unit, and 
‘‘(ii) meet the Energy Star program 
requirements. 
‘‘(d) CERTIFICATION.—
‘‘(1) METHOD OF CERTIFICATION.—A certifi-
cation described in subsection (c)(3)(C) shall be de-
termined 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 sub-
section (c)(3)(C) shall be made in writing—
‘‘(A) in a manner which specifies in readily 
verifiable fashion the energy efficient building 
envelope components and energy efficient heat-
ing or cooling equipment installed and their re-
spective rated energy efficiency performance, 
and 
‘‘(B) in the case of a qualified new energy 
efficient home which is a manufactured home, 
accompanied by such documentation as required 
by the Administrator of the Environmental Pro-
tection Agency under the Energy Star Labeled 
Homes program. 
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, 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 sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so determined. 
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 
apply to qualified new energy efficient homes acquired 
during the period beginning on January 1, 2004, and end-
ing on December 31, 2006.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) of the Internal Revenue Code of 
1986 (relating to current year business credit) is amended 
by striking ‘‘plus’’ at the end of paragraph (14), by strik-
ing the period at the end of paragraph (15) and inserting 
‘‘, plus’’, and by adding at the end the following new para-
graph:
‘‘(16) the new energy efficient home credit de-
termined under section 45G(a).’’. 
(c) BASIS ADJUSTMENT.—Subsection (a) of section 
1016 of the Internal Revenue Code of 1986, as amended 
by section 101, is amended by striking ‘‘and’’ at the end 
of paragraph (28), by striking the period at the end of 
paragraph (29) and inserting ‘‘, and’’, and by adding at 
the end the following new paragraph: 
‘‘(30) to the extent provided in section 45G(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 45G.’’. 
(d) LIMITATION ON CARRYBACK.—Section 39(d) of 
the Internal Revenue Code of 1986 (relating to transition 
rules) is amended by adding at the end the following new 
paragraph: 
‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI-
CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—
No portion of the unused business credit for any 
taxable year which is attributable to the new energy 
efficient home credit determined under section 
45G(a) may be carried to a taxable year beginning 
before January 1, 2004.’’. 
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS 
CREDITS.—Section 196(c) of the Internal Revenue Code 
of 1986 (defining qualified business credits) is amended
by striking ‘‘and’’ at the end of paragraph (10), by strik-
ing the period at the end of paragraph (11) and inserting 
‘‘, and’’, and by adding after paragraph (11) the following 
new paragraph: 
‘‘(12) the new energy efficient home credit de-
termined under section 45G(a).’’. 
(f) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new item:
‘‘Sec. 45G. New energy efficient home credit.’’.
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003. 
SEC. 103. INCENTIVE FOR CERTAIN ENERGY EFFICIENT 
PROPERTY USED IN BUSINESS. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by adding at the end the following new section: 
‘‘SEC. 199. ENERGY PROPERTY DEDUCTION. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction 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 sub-
section (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 spec-
ified for such property in the following table: 
Description of property: 
Allowable amount is: 
Elected solar hot water property .....................................
$1.00 per each 
kwh/year of sav-
ings. 
Photovoltaic property .......................................................
$4.50 per peak 
watt. 
Advanced main air circulating fan or a Tier 1 natural 
gas, propane, or oil water heater.
$150. 
Tier 2 energy-efficient building property .........................
$900. 
Tier 1 energy-efficient building property (other than an 
advanced main air circulating fan or a natural gas, 
propane, or oil water heater).
$450. 
‘‘(2) ELECTED
SOLAR
HOT
WATER
PROP-
ERTY.—In the case of elected solar hot water prop-
erty, the taxpayer may elect to substitute ‘$21 per 
annual Therm of natural gas savings’ for ‘$1.00 per 
each kwh/year of savings’ in the table contained in 
paragraph (1). 
‘‘(c) ENERGY PROPERTY DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this part, 
the term ‘energy property’ means any property—
‘‘(A) which is—
‘‘(i) solar energy property,
‘‘(ii) Tier 2 energy-efficient building 
property, or 
‘‘(iii) Tier 1 energy-efficient building 
property, 
‘‘(B)(i) the construction, reconstruction, or 
erection of which is completed by the taxpayer, 
or 
‘‘(ii) which is acquired by the taxpayer if 
the original use of such property commences 
with the taxpayer, 
‘‘(C) with respect to which depreciation (or 
amortization in lieu of depreciation) is allow-
able, and 
‘‘(D) which meets the performance and 
quality standards, and the certification require-
ments (if any), which—
‘‘(i) have been prescribed by the Sec-
retary by regulations (after consultation 
with the Secretary of Energy or the Ad-
ministrator of the Environmental Protec-
tion Agency, as appropriate), 
‘‘(ii) in the case of the energy effi-
ciency ratio (EER) for central air condi-
tioners and electric heat pumps—
‘‘(I) require measurements to be 
based on published data which is test-
ed by manufacturers at 95 degrees 
Fahrenheit, and 
‘‘(II) do not require ratings to be 
based on certified data of the Air 
Conditioning and Refrigeration Insti-
tute, 
‘‘(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 pro-
vided through a desuperheater or inte-
grated water heating system con-
nected 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 Elec-
tric Performance of Nonconcentrator Terres-
trial Photovoltaic Modules and Arrays Using 
Reference Cells, 
to the extent the Secretary determines such stand-
ards carry out the purposes of this section.
‘‘(3) EXCEPTION.—Such term shall not include 
any property which is public utility property (as de-
fined in section 46(f)(5) as in effect on the day be-
fore the date of the enactment of the Revenue Rec-
onciliation 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 en-
ergy 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 PROP-
ERTY.—
‘‘(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 ef-
fect. 
‘‘(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 struc-
tural component of the structure on which it is 
installed. 
‘‘(2) TIER
ENERGY-EFFICIENT
BUILDING 
PROPERTY.—The term ‘Tier 2 energy-efficient build-
ing 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 proce-
dure, 
‘‘(B) an electric heat pump which has a 
heating seasonal performance factor (HSPF) of 
at least 9, a seasonal energy efficiency ratio 
(SEER) of at least 15, and an energy efficiency 
ratio (EER) of at least 12.5, 
‘‘(C) a geothermal heat pump which—
‘‘(i) in the case of a closed loop prod-
uct, 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 prod-
uct, has an energy efficiency ratio (EER) 
of at least 16.2 and a heating coefficient of 
performance (COP) of at least 3.6, and 
‘‘(iii) in the case of a direct expansion 
(DX) product, has an energy efficiency 
ratio (EER) of at least 15 and a heating 
coefficient of performance (COP) of at 
least 3.5, 
‘‘(D) a central air conditioner which has a 
seasonal energy efficiency ratio (SEER) of at 
least 15 and an energy efficiency ratio (EER) 
of at least 12.5, and 
‘‘(E) a natural gas, propane, or oil water 
heater which has an energy factor of at least 
0.80. 
‘‘(3) TIER
ENERGY-EFFICIENT
BUILDING 
PROPERTY.—The term ‘Tier 1 energy-efficient build-
ing property’ means—
‘‘(A) an electric heat pump which has a 
heating system performance factor (HSPF) of 
at least 7.5, a cooling seasonal energy efficiency
ratio (SEER) of at least 13.5, and an energy 
efficiency ratio (EER) of at least 11.5, 
‘‘(B) a central air conditioner which has a 
cooling seasonal energy efficiency ratio (SEER) 
of at least 13.5 and an energy efficiency ratio 
(EER) of at least 11.5, 
‘‘(C) a natural gas, propane, or oil water 
heater which has an energy factor of at least 
0.65, and 
‘‘(D) an oil, natural gas, or propane fur-
nace 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 Sec-
retary. 
‘‘(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 build-
ing property expenditures made by a taxpayer 
for the taxable year. 
‘‘(B) MAXIMUM
AMOUNT
OF
DEDUC-
TION.—The amount of energy efficient residen-
tial rental building property expenditures taken 
into account under subparagraph (A) with re-
spect to each dwelling unit shall not exceed—
‘‘(i) $6,000 in the case of a percent-
age reduction of 50 percent as determined 
under paragraph (2)(B), and 
‘‘(ii) $12,000 times the percentage re-
duction in the case of a percentage reduc-
tion of less than 50 percent as determined 
under paragraph (2)(B). 
‘‘(C) YEAR
DEDUCTION
ALLOWED.—The 
deduction under subparagraph (A) shall be al-
lowed in the taxable year in which the construc-
tion, reconstruction, erection, or rehabilitation 
of the property is completed.
‘‘(2) ENERGY EFFICIENT RESIDENTIAL RENTAL 
BUILDING
PROPERTY
EXPENDITURES.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘energy effi-
cient residential rental building property ex-
penditures’ 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 allow-
able under section 167, 
‘‘(ii) which is located in the United 
States, and 
‘‘(iii) the construction, reconstruction, 
erection, or rehabilitation of which is com-
pleted by the taxpayer. 
Such term includes expenditures for labor costs 
properly allocable to the onsite preparation, as-
sembly, or original installation of the property. 
‘‘(B) ENERGY
EFFICIENT
RESIDENTIAL 
RENTAL BUILDING PROPERTY.—
‘‘(i) IN GENERAL.—The term ‘energy 
efficient residential rental building prop-
erty’ means any property which reduces 
total annual energy and power costs with
respect to heating and cooling of the build-
ing 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 perform-
ance-based compliance. 
‘‘(II) PERFORMANCE-BASED COM-
PLIANCE.—Performance-based compli-
ance shall be demonstrated by calcu-
lating 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 compli-
ance under subclause (II) and such 
software shall meet all of the proce-
dures and methods for calculating en-
ergy savings reductions which are pro-
mulgated 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
REQUIRE-
MENTS.—In calculating tradeoffs and 
energy performance, the regulations 
prescribed under this clause shall pre-
scribe 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 reduc-
tion procedures based on time of 
usage costs for use in the performance 
standards of the State’s building en-
ergy code prior to the effective date of 
this section, the State may use those 
annual energy usage and cost reduc-
tion procedures in lieu of those adopt-
ed by the Secretary. 
‘‘(V) APPROVAL
OF
SOFTWARE 
SUBMISSIONS.—The Secretary shall
approve software submissions which 
comply with the requirements of sub-
clause (III). 
‘‘(VI) PROCEDURES FOR INSPEC-
TION AND TESTING OF HOMES.—The 
Secretary shall ensure that procedures 
for the inspection and testing for com-
pliance comply with the calculation re-
quirements under subclause (IV) of 
this clause and clause (iv). 
‘‘(iii) DETERMINATIONS
OF
COMPLI-
ANCE.—A determination of compliance 
with respect to energy efficient residential 
rental building property made for the pur-
poses 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. Determina-
tions of compliance filed with the Secretary 
shall be available for inspection by the Sec-
retary of Energy. 
‘‘(iv) COMPLIANCE.—
‘‘(I) IN
GENERAL.—The Sec-
retary, after consultation with the 
Secretary of Energy, shall establish 
requirements for certification and 
compliance procedures after exam-
ining the requirements for energy con-
sultants and home energy ratings pro-
viders specified by the Mortgage In-
dustry 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 ac-
credited home energy rating system 
provider. All providers shall be accred-
ited, or otherwise authorized to use 
approved energy performance meas-
urement methods, by the Residential 
Energy Services Network (RESNET). 
‘‘(C) ALLOCATION
OF
DEDUCTION
FOR 
PUBLIC PROPERTY.—In the case of energy effi-
cient residential rental building property which 
is public property, the Secretary shall promul-
gate 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 sec-
tion—
‘‘(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 prop-
erty shall be reduced by the amount of the deduction 
so allowed. 
‘‘(2) 
DOUBLE
BENEFIT.—Property 
which 
would, but for this paragraph, be eligible for deduc-
tion 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 promul-
gate such regulations as necessary to take into account 
new technologies regarding energy efficiency and renew-
able energy for purposes of determining energy efficiency 
and savings under this section.
‘‘(h) TERMINATION.—This section shall not apply 
with respect to—
‘‘(1) any energy property placed in service after 
December 31, 2008 (December 31, 2005, in the case 
of Tier 1 energy-efficient building property), and
‘‘(2) any energy efficient residential rental 
building property expenditures in connection with 
property—
‘‘(A) placed in service after December 31, 
2007, or 
‘‘(B) the construction, reconstruction, erec-
tion, or rehabilitation of which is not completed 
on or before December 31, 2007.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 48(a)(3)(A) of the Internal Revenue 
Code of 1986 is amended to read as follows: 
‘‘(A) which is equipment used to produce, 
distribute, or use energy derived from a geo-
thermal deposit (within the meaning of section 
613(e)(2)), but only, in the case of electricity 
generated by geothermal power, up to (but not 
including) the electrical transmission stage,’’. 
(2) Subparagraph (B) of section 168(e)(3) of 
such Code is amended—
(A) in clause (vi)(I)—
(i) by striking ‘‘section 48(a)(3)’’ and 
inserting ‘‘section 199(d)(1)’’, and 
(ii) by striking ‘‘clause (i)’’ and in-
serting ‘‘such subparagraph (A)’’, and 
(B) in the last sentence, by striking ‘‘sec-
tion 
48(a)(3)’’ 
and 
inserting 
‘‘section 
199(c)(3)’’. 
(3) Section 1016(a) of such Code, as amended 
by section 102, is amended by striking ‘‘and’’ at the 
end of paragraph (29), by striking the period at the 
end of paragraph (30) and inserting ‘‘, and’’, and by 
inserting the following new paragraph: 
‘‘(31) for amounts allowed as a deduction under 
section 199(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 of the Internal 
Revenue Code of 1986 is amended by adding at the end 
the following new item:
‘‘Sec. 199. Energy property deduction.’’.
(d) AUTHORIZATION
OF APPROPRIATIONS.—There 
are authorized to be appropriated to the Department of 
Energy out of amounts not already appropriated such 
sums as necessary to carry out this section. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 104. CREDIT FOR CERTAIN NONBUSINESS ENERGY 
PROPERTY. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter 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 indi-
vidual, 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 sub-
section (b) for each qualified energy property of 
the taxpayer placed in service during such tax-
able year, and 
‘‘(B) so much of the credit amount speci-
fied in paragraph (2) which does not exceed the 
expenditures made by the taxpayer in connec-
tion with the construction, reconstruction, erec-
tion, or rehabilitation of a dwelling unit of the 
taxpayer which results in the unit being a high-
ly energy-efficient principal residence. 
For purposes of subparagraph (B), the expenditures 
may include labor costs properly allocable to the on-
site 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 re-
duction of 50 percent as determined under sub-
section (c)(6)(A)(iii), and 
‘‘(B) $4,000 times the percentage reduc-
tion in the case of a percentage reduction of 
less than 50 percent as determined under sub-
section (c)(6)(A)(iii). 
‘‘(b) AMOUNT
FOR
QUALIFIED
ENERGY
PROP-
ERTY.—
‘‘(1) RESIDENTIAL
ENERGY
PROPERTY
EX-
PENDITURES.—Except as provided in paragraph (2), 
the amount determined under this subsection for the 
taxable year for each item of qualified energy prop-
erty shall equal the amount of residential energy 
property expenditures made by the taxpayer with re-
spect to such property during such taxable year. 
‘‘(2) SOLAR
HOT
WATER
PROPERTY; PHOTO-
VOLTAIC 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¢ per each 
kwh/year of sav-
ings. 
Photovoltaic property .......................................................
$1.50 per peak 
watt. 
‘‘(B) ELECTED SOLAR HOT WATER PROP-
ERTY.—In the case of elected solar hot water 
property (as defined in section 199(d)(1)(B)), 
the taxpayer may elect to substitute ‘$7 per an-
nual Therm of natural gas savings’ for ‘35¢ per 
each kwh/year of savings’ in the table contained 
in subparagraph (A). 
‘‘(3) MAXIMUM AMOUNT.—In the case of prop-
erty 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 ex-
ceed the amount specified for such property in such 
table:
‘‘Description of property item: 
Maximum allowable 
credit amount is: 
Tier 2 energy-efficient building property .........................
$300.
‘‘Description of property item: 
Maximum allowable 
credit amount is: 
Advanced main air circulating fan or a Tier 1 natural 
gas, propane, or oil water heater.
$50. 
Tier 1 energy-efficient building property (other than an 
advanced main air circulating fan or a natural gas, 
propane, or oil water heater).
$150. 
Solar hot water property .................................................
$1,000. 
Photovoltaic property .......................................................
$6,000. 
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) RESIDENTIAL
ENERGY
PROPERTY
EX-
PENDITURES.—The term ‘residential energy prop-
erty 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, assem-
bly, or original installation of the property. 
‘‘(2) QUALIFIED ENERGY PROPERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
energy property’ means—
‘‘(i) energy-efficient building property, 
‘‘(ii) solar hot water property, and 
‘‘(iii) photovoltaic property. 
‘‘(B) SWIMMING
POOL, ETC., USED
AS 
STORAGE MEDIUM; SOLAR PANELS.—For pur-
poses of this paragraph, the provisions of sub-
paragraphs (D) and (E) section 199(d)(1) shall 
apply.
‘‘(C) REQUIRED
STANDARDS.—Property 
described under subparagraph (A) shall meet 
the performance and quality standards and cer-
tification standards of paragraphs (1)(D) and 
(2) of section 199(c). 
‘‘(3) 
ENERGY-EFFICIENT
BUILDING
PROP-
ERTY.—The term ‘energy-efficient building property’ 
has the same meaning given the terms ‘Tier 2 en-
ergy-efficient property’, ‘Tier 1 energy-efficient 
property’, and ‘advanced main air circulating fan’ in 
paragraphs (2), (3), and (4) of section 199(d), re-
spectively. 
‘‘(4) SOLAR HOT WATER PROPERTY.—The term 
‘solar hot water property’ means property which, 
when installed in connection with a structure, uses 
solar energy for the purpose of providing hot water 
for use within such structure and the performance 
of which is determined in accordance with section 
199(c)(2)(A).
‘‘(5) PHOTOVOLTAIC
PROPERTY.—The term 
‘photovoltaic property’ has the same meaning given 
such term in section 199(d)(1)(C).
‘‘(6) HIGHLY
ENERGY-EFFICIENT
PRINCIPAL 
RESIDENCE.—
‘‘(A) IN GENERAL.—Property is a highly 
energy-efficient principal residence if—
‘‘(i) such property is located in the 
United States, 
‘‘(ii) the property is used as a prin-
cipal residence, and 
‘‘(iii) the projected heating and cool-
ing energy usage of such property, meas-
ured in terms of average annual energy 
cost to taxpayer, is reduced by a percent-
age 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 ‘prin-
cipal 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 prin-
cipal residence shall also include the 
60-day period ending on the 1st day 
on which it would (but for this sub-
paragraph) 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 con-
forming 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
COMPLI-
ANCE.—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 com-
pared to the original condition of the dwell-
ing unit.
‘‘(iii) COMPUTER
SOFTWARE.—Com-
puter 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 calcu-
lating 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
REQUIRE-
MENTS.—In calculating tradeoffs and en-
ergy performance, the regulations shall 
prescribe the costs per unit of energy and 
power, such as kilowatt hour, kilowatt, gal-
lon of fuel oil, and cubic foot or Btu of 
natural gas, which may be dependent on 
time of usage. If a State has developed an-
nual energy usage and cost reduction pro-
cedures based on time of usage costs for 
use in the performance standards of the 
State’s building energy code before the ef-
fective date of this section, the State may
use those annual energy usage and cost re-
duction procedures in lieu of those adopted 
by the Secretary. 
‘‘(v) APPROVAL
OF
SOFTWARE
SUB-
MISSIONS.—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 sec-
tion—
‘‘(1) DETERMINATIONS
OF
COMPLIANCE.—A 
determination of compliance made for the purposes 
of this section shall be filed with the Secretary with-
in 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 per-
son for whom such determination was performed. 
Determinations of compliance filed with the Sec-
retary shall be available for inspection by the Sec-
retary 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 re-
quirements for energy consultants and home en-
ergy ratings providers specified by the Mort-
gage Industry National Home Energy Rating 
Standards. 
‘‘(B) INDIVIDUALS QUALIFIED TO DETER-
MINE
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 ap-
proved energy performance measurement meth-
ods, by the Residential Energy Services Net-
work (RESNET). 
‘‘(3) DOLLAR AMOUNTS IN CASE OF JOINT OC-
CUPANCY.—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 indi-
viduals as 1 taxpayer whose taxable year is 
such calendar year. 
‘‘(B) There shall be allowable with respect 
to such expenditures to each of such individ-
uals, a credit under subsection (a) for the tax-
able 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 indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as 
defined in such section), such individual shall be 
treated as having made his tenant-stockholder’s pro-
portionate 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 indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium 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
ASSO-
CIATION.—For purposes of this paragraph, the 
term ‘condominium management association’ 
means an organization which meets the require-
ments 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 oth-
erwise 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 sub-
paragraph (A), the amount of the credit allow-
able under subsection (a) shall (subject to para-
graph (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 nonbusi-
ness 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 eli-
gible for credit under more than one provision of 
this section shall be eligible only under one such pro-
vision, the provision specified by the taxpayer. 
‘‘(9) YEAR
CREDIT
ALLOWED.—The credit 
under subsection (a)(2) shall be allowed in the tax-
able year in which the percentage reduction with re-
spect 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 struc-
ture, such expenditure shall be treated as made 
when the original use of the constructed struc-
ture by the taxpayer begins. 
‘‘(11) PROPERTY
FINANCED
BY
SUBSIDIZED 
ENERGY FINANCING.—
‘‘(A) REDUCTION OF EXPENDITURES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided 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
FINANC-
ING.—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 dol-
lar 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 sub-
paragraph (A), and 
‘‘(ii) the amount of any Federal, 
State, or local grant received by the tax-
payer 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 in-
come 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 pro-
gram. 
‘‘(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 sub-
section) 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 en-
ergy for purposes of determining energy efficiency and 
savings under this section. 
‘‘(g) TERMINATION.—This section shall not apply 
with respect to any energy property placed in service after 
December 31, 2008 (December 31, 2005, in the case of 
Tier 1 energy-efficient building property).’’. 
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 1016 of the Inter-
nal Revenue Code of 1986 as amended by section 
103, is amended by striking ‘‘and’’ at the end of 
paragraph (30), by striking the period at the end of 
paragraph (31) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph: 
‘‘(32) to the extent provided in section 25C(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 25C.’’. 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 of such Code is
amended by inserting after the item relating to sec-
tion 25B the following new item:
‘‘Sec. 25C. Nonbusiness energy property.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to expenditures made after December 31, 
2003. 
(2) ENERGY EFFICIENT BUILDING PROPERTY 
USED IN A PRINCIPAL RESIDENCE.—In the case of 
energy efficient building property, as defined in sec-
tion 25B(c) of the Internal Revenue Code of 1986, 
as added by subsection (a), the amendments made 
by this section shall apply to expenditures made 
after March 31, 2003. 
SEC. 105. ENERGY CREDIT FOR COMBINED HEAT AND 
POWER SYSTEM PROPERTY. 
(a) IN GENERAL.—Section 48(a)(3)(A) of the Inter-
nal Revenue Code of 1986 (defining energy property) is 
amended by striking ‘‘or’’ at the end of clause (i), by add-
ing ‘‘or’’ at the end of clause (ii), and by inserting after 
clause (ii) the following new clause: 
‘‘(iii) combined heat and power system 
property,’’. 
(b) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—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 PROP-
ERTY.—For purposes of subsection (a)(3)(A)(iii)—
‘‘(1) COMBINED
HEAT
AND
POWER
SYSTEM 
PROPERTY.—The term ‘combined heat and power 
system property’ means property comprising a sys-
tem—
‘‘(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 horse-
power 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 en-
ergy 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 Jan-
uary 1, 2007. 
‘‘(2) SPECIAL RULES.—
‘‘(A) 
ENERGY
EFFICIENCY
PERCENT-
AGE.—For purposes of this subsection, the en-
ergy efficiency percentage of a system is the 
fraction—
‘‘(i) the numerator of which is the 
total useful electrical, thermal, and me-
chanical 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 prop-
erty 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 normal-
ization 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 sys-
tem shall not exceed the amount which bears 
the same ratio to such amount of credit (deter-
mined without regard to this paragraph) as the 
energy efficiency percentage of such system 
bears to 60 percent.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this subsection shall apply to periods after December 31, 
2003, in taxable years ending after such date, under rules 
similar to the rules of section 48(m) of the Internal Rev-
enue Code of 1986 (as in effect on the day before the date 
of the enactment of the Revenue Reconciliation Act of 
1990). 
SEC. 106. CREDIT FOR ENERGY EFFICIENT APPLIANCES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to business-related credits), as amended by 
section 102, is amended by adding at the end the following 
new section: 
‘‘SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec-
tion 38, the energy efficient appliance credit determined 
under this section for the taxable year is an amount equal 
to the sum of—
‘‘(1) the tier I appliance amount, and 
‘‘(2) the tier II appliance amount, 
with respect to qualified energy efficient appliances pro-
duced by the taxpayer during the calendar year ending 
with or within the taxable year. 
‘‘(b) APPLIANCE AMOUNTS.—For purposes of sub-
section (a)—
‘‘(1) TIER I APPLIANCE AMOUNT.—The tier I 
appliance amount is equal to—
‘‘(A) $100, multiplied by 
‘‘(B) an amount (rounded to the nearest 
whole number) equal to the applicable percent-
age of the eligible production. 
‘‘(2) TIER II APPLIANCE AMOUNT.—The tier II 
appliance amount is equal to $150, multiplied by an 
amount equal to the eligible production reduced by 
the amount determined under paragraph (1)(B). 
‘‘(3) APPLICABLE PERCENTAGE.—The applica-
ble percentage is the percentage determined by di-
viding the tier I appliances produced by the taxpayer 
during the calendar year by the sum of the tier I 
and tier II appliances so produced. 
‘‘(4) ELIGIBLE PRODUCTION.—The eligible pro-
duction of qualified energy efficient appliances by 
the taxpayer for any calendar year is the excess of—
‘‘(A) the number of such appliances which 
are produced by the taxpayer during such cal-
endar year, over 
‘‘(B) 110 percent of the average annual 
number of such appliances which were produced 
by the taxpayer (or any predecessor) during the 
preceding 3-calendar year period. 
‘‘(c) QUALIFIED ENERGY EFFICIENT APPLIANCE.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified energy 
efficient appliance’ means any tier I appliance or tier 
II appliance which is produced in the United States. 
‘‘(2) TIER I APPLIANCE.—The term ‘tier I ap-
pliance’ means— 
‘‘(A) a clothes washer which is produced 
with at least a 1.50 MEF, and 
‘‘(B) a refrigerator which consumes at 
least 15 percent (20 percent in the case of a re-
frigerator produced after 2006) less kilowatt 
hours per year than the energy conservation 
standards for refrigerators promulgated by the 
Department of Energy and effective on July 1, 
2001. 
‘‘(3) TIER II APPLIANCE.—The term ‘tier II ap-
pliance’ means a refrigerator produced before 2007
which consumes at least 20 percent less kilowatt 
hours per year than the energy conservation stand-
ards described in paragraph (2)(B). 
‘‘(4) CLOTHES
WASHER.—The term ‘clothes 
washer’ means a residential clothes washer, includ-
ing a residential style coin operated washer. 
‘‘(5) REFRIGERATOR.—The term ‘refrigerator’ 
means an automatic defrost refrigerator-freezer 
which has an internal volume of at least 16.5 cubic 
feet. 
‘‘(6) MEF.—The term ‘MEF’ means Modified 
Energy Factor (as determined by the Secretary of 
Energy). 
‘‘(7) PRODUCED.—The term ‘produced’ in-
cludes manufactured. 
‘‘(d) LIMITATION ON MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The amount of credit al-
lowed under subsection (a) with respect to a tax-
payer for any taxable year shall not exceed 
$60,000,000, reduced by the amount of the credit 
allowed under subsection (a) to the taxpayer (or any 
predecessor) for any prior taxable year. 
‘‘(2) 
LIMITATION
BASED
ON
GROSS
RE-
CEIPTS.—The credit allowed under subsection (a) 
with respect to a taxpayer for the taxable year shall
not exceed an amount equal to 2 percent of the aver-
age annual gross receipts of the taxpayer for the 3 
taxable years preceding the taxable year for which 
the credit is determined. 
‘‘(3) GROSS RECEIPTS.—For purposes of this 
subsection, the rules of paragraphs (2) and (3) of 
section 448(c) shall apply. 
‘‘(e) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—Rules similar to the rules 
of subsections (c), (d), and (e) of section 52 shall 
apply. 
‘‘(2) CONTROLLED GROUPS.—
‘‘(A) IN GENERAL.—All persons treated as 
a single employer under subsection (a) or (b) of 
section 52 or subsection (m) or (o) of section 
414 shall be treated as a single manufacturer. 
‘‘(B) INCLUSION
OF
FOREIGN
CORPORA-
TIONS.—For purposes of subparagraph (A), in 
applying subsections (a) and (b) of section 52 
to this section, section 1563 shall be applied 
without regard to subsection (b)(2)(C) thereof. 
‘‘(f) VERIFICATION.—The taxpayer shall submit such 
information or certification as the Secretary, after con-
sultation with the Secretary of Energy, determines nec-
essary to claim the credit amount under subsection (a). 
‘‘(g) TERMINATION.—This section shall not apply 
with respect to appliances produced after December 31, 
2007.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) of the Internal Revenue Code of 
1986 (relating to current year business credit), as amend-
ed by section 102, is amended by striking ‘‘plus’’ at the 
end of paragraph (15), by striking the period at the end 
of paragraph (16) and inserting ‘‘, plus’’, and by adding 
at the end the following new paragraph: 
‘‘(17) the energy efficient appliance credit de-
termined under section 45H(a).’’. 
(c) LIMITATION ON CARRYBACK.—Section 39(d) of 
the Internal Revenue Code of 1986 (relating to transition 
rules), as amended by section 102, is amended by adding 
at the end the following new paragraph: 
‘‘(12) NO CARRYBACK OF ENERGY EFFICIENT 
APPLIANCE CREDIT BEFORE EFFECTIVE DATE.—No 
portion of the unused business credit for any taxable 
year which is attributable to the energy efficient ap-
pliance credit determined under section 45H(a) may 
be carried to a taxable year ending before January 
1, 2004.’’.
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986, as amended by sec-
tion 102, is amended by adding at the end the following 
new item:
‘‘Sec. 45H. Energy efficient appliance credit.’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to appliances produced after De-
cember 31, 2003, in taxable years ending after such date. 
TITLE II—ENERGY EFFICIENT 
PRODUCTS 
SEC. 201. ENERGY CONSERVATION STANDARDS FOR ADDI-
TIONAL PRODUCTS. 
(a) DEFINITIONS.—Section 321 of the Energy Policy 
and Conservation Act (42 U.S.C. 6291) is amended—
(1) in paragraph (30)(S), by striking the period 
and adding at the end the following: ‘‘but does not 
include any lamp specifically designed to be used for 
special purpose applications and that is unlikely to 
be used in general purpose applications such as 
those described in subparagraph (D), and also does 
not include any lamp not described in subparagraph 
(D) that is excluded by the Secretary, by rule, be-
cause the lamp is designed for special applications 
and is unlikely to be used in general purpose appli-
cations.’’; and
(2) by adding at the end the following: 
‘‘(32) The term ‘battery charger’ means a de-
vice that charges batteries for consumer products 
and includes battery chargers embedded in other 
consumer products. 
‘‘(33) The term ‘ceiling fan’ means a nonport-
able device that is suspended from a ceiling for cir-
culating air through the rotation of fan blades. 
‘‘(34) The term ‘ceiling fan light kit’ means 
equipment designed to provide light from a ceiling 
fan that can be—
‘‘(A) integral, such that the equipment is 
attached to the ceiling fan prior to the time of 
retail sale; or 
‘‘(B) attachable, such that at the time of 
retail sale the equipment is not physically at-
tached to the ceiling fan, but may be included 
inside the ceiling fan package at the time of 
sale or sold separately for subsequent attach-
ment to the fan. 
‘‘(35) The term ‘commercial refrigerators, 
freezers, and refrigerator-freezers’ means refrig-
erators, 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 refrig-
erated compartment in a single package. 
‘‘(36) The term ‘external power supply’ means 
an external power supply circuit that is used to con-
vert household electric current into either DC cur-
rent or lower-voltage AC current to operate a con-
sumer product. 
‘‘(37) The term ‘illuminated exit sign’ means a 
sign that—
‘‘(A) is designed to be permanently fixed in 
place to identify an exit; and 
‘‘(B) consists of an electrically powered in-
tegral light source that illuminates the legend 
‘EXIT’ and any directional indicators and pro-
vides contrast between the legend, any direc-
tional indicators, and the background. 
‘‘(38)(A) Except as provided in subparagraph 
(B), the term ‘distribution transformer’ means a 
transformer that—
‘‘(i) has an input voltage of 34.5 kilovolts 
or less; 
‘‘(ii) has an output voltage of 600 volts or 
less; and
‘‘(iii) is rated for operation at a frequency 
of 60 Hertz. 
‘‘(B) The term ‘distribution transformer’ does 
not include—
‘‘(i) transformers with multiple voltage 
taps, with the highest voltage tap equaling at 
least 20 percent more than the lowest voltage 
tap; 
‘‘(ii) transformers, such as those commonly 
known as drive transformers, rectifier trans-
formers, 
auto-transformers, 
Uninterruptible 
Power System transformers, impedance trans-
formers, harmonic transformers, regulating 
transformers, sealed and nonventilating trans-
formers, machine tool transformers, welding 
transformers, grounding transformers, or test-
ing transformers, that are designed to be used 
in a special purpose application and are unlikely 
to be used in general purpose applications; or 
‘‘(iii) any transformer not listed in clause 
(ii) that is excluded by the Secretary by rule be-
cause—
‘‘(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 signifi-
cant energy savings. 
‘‘(39) The term ‘low-voltage dry-type distribu-
tion transformer’ means a distribution transformer 
that—
‘‘(A) has an input voltage of 600 volts or 
less; 
‘‘(B) is air-cooled; and 
‘‘(C) does not use oil as a coolant. 
‘‘(40) The term ‘standby mode’ means the low-
est power consumption mode that—
‘‘(A) cannot be switched off or influenced 
by the user; and 
‘‘(B) may persist for an indefinite time 
when an appliance is connected to the main 
electricity supply and used in accordance with 
the manufacturer’s instructions, 
as defined on an individual product basis by the Sec-
retary. 
‘‘(41) The term ‘torchiere’ means a portable 
electric lamp with a reflector bowl that directs light 
upward so as to give indirect illumination.
‘‘(42) The term ‘traffic signal module’ means a 
standard 8-inch (200mm) or 12-inch (300mm) traf-
fic signal indication, consisting of a light source, a 
lens, and all other parts necessary for operation, 
that communicates movement messages to drivers 
through red, amber, and green colors. 
‘‘(43) The term ‘transformer’ means a device 
consisting of 2 or more coils of insulated wire that 
transfers alternating current by electromagnetic in-
duction from 1 coil to another to change the original 
voltage or current value. 
‘‘(44) The term ‘unit heater’ means a self-con-
tained fan-type heater designed to be installed with-
in the heated space, except that such term does not 
include a warm air furnace.’’. 
(b) TEST PROCEDURES.—Section 323 of the Energy 
Policy and Conservation Act (42 U.S.C. 6293) is amend-
ed—
(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 Envi-
ronmental Protection Agency for illuminated exit 
signs.
‘‘(10) Test procedures for distribution trans-
formers and low voltage dry-type distribution trans-
formers shall be based on the ‘Standard Test Meth-
od for Measuring the Energy Consumption of Dis-
tribution Transformers’ prescribed by the National 
Electrical Manufacturers Association (NEMA TP 2–
1998). The Secretary may review and revise this test 
procedure. For purposes of section 346(a), this test 
procedure shall be deemed to be testing require-
ments prescribed by the Secretary under section 
346(a)(1) for distribution transformers for which the 
Secretary makes a determination that energy con-
servation standards would be technologically feasible 
and economically justified, and would result in sig-
nificant 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 Protec-
tion Agency for traffic signal modules, as in effect 
on the date of enactment of this paragraph. 
‘‘(12) Test procedures for medium base com-
pact fluorescent lamps shall be based on the test 
methods used under the October 30, 2003, version 
of the Energy Star program of the Environmental 
Protection Agency and Department of Energy for
compact fluorescent lamps. Covered products shall 
meet all test requirements for regulated parameters 
in section 325(bb). However, covered products may 
be marketed prior to completion of lamp life and 
lumen maintenance at 40 percent of rated life test-
ing provided manufacturers document engineering 
predictions and analysis that support expected at-
tainment of lumen maintenance at 40 percent rated 
life and lamp life time. 
‘‘(13) Air movement test procedures for ceiling 
fans shall be based on the test procedure contained 
in the Energy Star Program Requirements for Resi-
dential Ceiling Fans (Version 2.0) developed by the 
Environmental Protection Agency, unless pursuant 
to this section, the Secretary promulgates regula-
tions establishing an alternative test procedure.’’; 
and 
(2) by adding at the end the following: 
‘‘(f) ADDITIONAL
CONSUMER
AND
COMMERCIAL 
PRODUCTS.—
‘‘(1) IN
GENERAL.—Not later than 2 years 
after the date of enactment of this subsection, the 
Secretary shall prescribe testing requirements for re-
frigerated bottled or canned beverage vending ma-
chines, and commercial refrigerators, freezers, and 
refrigerator-freezers. 
‘‘(2) BASIS.—The testing requirements shall be 
based on existing test procedures used in industry, 
to the extent practicable.’’. 
(c) NEW STANDARDS.—Section 325 of the Energy 
Policy and Conservation Act (42 U.S.C. 6295) is amended 
by adding at the end the following: 
‘‘(u) BATTERY CHARGER AND EXTERNAL POWER 
SUPPLY ELECTRIC ENERGY CONSUMPTION.—
‘‘(1) INITIAL RULEMAKING.—(A) The Secretary 
shall, within 18 months after the date of enactment 
of this subsection, prescribe by notice and comment, 
definitions and test procedures for the power use of 
battery chargers and external power supplies. In es-
tablishing these test procedures, the Secretary shall 
consider, among other factors, existing definitions 
and test procedures used for measuring energy con-
sumption in standby mode and other modes and as-
sess the current and projected future market for 
battery chargers and external power supplies. This 
assessment shall include estimates of the significance 
of potential energy savings from technical improve-
ments to these products and suggested product 
classes for standards. Prior to the end of this time
period, the Secretary shall hold a scoping workshop 
to discuss and receive comments on plans for devel-
oping energy conservation standards for energy use 
for these products. 
‘‘(B) The Secretary shall, within 3 years after 
the date of enactment of this subsection, issue a 
final rule that determines whether energy conserva-
tion standards shall be issued for battery chargers 
and external power supplies or classes thereof. For 
each product class, any such standards shall be set 
at the lowest level of energy use that—
‘‘(i) meets the criteria and procedures of 
subsections (o), (p), (q), (r), (s), and (t); and 
‘‘(ii) will result in significant overall an-
nual energy savings, considering both standby 
mode and other operating modes. 
‘‘(2) REVIEW
OF
STANDBY
ENERGY
USE
IN 
COVERED PRODUCTS.—In determining pursuant to 
section 323 whether test procedures and energy con-
servation standards pursuant to this section should 
be revised, the Secretary shall consider, for covered 
products that are major sources of standby mode en-
ergy consumption, whether to incorporate standby 
mode into such test procedures and energy conserva-
tion standards, taking into account, among other
106
to be made effective under this section with the Commis-
sion. 
‘‘(2) The Commission may approve, by rule or order, 
a proposed reliability standard or modification to a reli-
ability standard if it determines that the standard is just, 
reasonable, not unduly discriminatory or preferential, and 
in the public interest. The Commission shall give due 
weight to the technical expertise of the Electric Reliability 
Organization with respect to the content of a proposed 
standard or modification to a reliability standard and to 
the technical expertise of a regional entity organized on 
an Interconnection-wide basis with respect to a reliability 
standard to be applicable within that Interconnection, but 
shall not defer with respect to the effect of a standard 
on competition. A proposed standard or modification shall 
take effect upon approval by the Commission. 
‘‘(3) The Electric Reliability Organization shall 
rebuttably presume that a proposal from a regional entity 
organized on an Interconnection-wide basis for a reliability 
standard or modification to a reliability standard to be ap-
plicable on an Interconnection-wide basis is just, reason-
able, 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 pro-
114
mission under section 215(c) of the Federal Power Act 
and any regional entity delegated enforcement authority 
pursuant to section 215(e)(4) of that Act are not depart-
ments, agencies, or instrumentalities of the United States 
Government.
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