‘‘(B) PROCESS.—To the extent feasible,
the Commission shall develop the standards
through a process involving interested parties.
‘‘(C) ADVISORY
COMMITTEE.—The Com-
mission shall establish an advisory committee
composed of qualified experts to make rec-
ommendations to the Commission concerning
development of the standards.
‘‘(D) ADMINISTRATION.—
‘‘(i) BY A NON-FEDERAL REGULATORY
AUTHORITY.—Except where subject to the
jurisdiction of the Commission pursuant to
provisions other than clause (ii), a non-
Federal regulatory authority may admin-
ister and enforce the rule promulgated
under subparagraph (A).
‘‘(ii) BY
THE
COMMISSION.—To the
extent that a non-Federal regulatory au-
thority does not administer and enforce the
rule, the Commission shall administer and
enforce the rule with respect to inter-
connection in that jurisdiction.
‘‘(3) RIGHT TO BACKUP POWER.—
‘‘(A) IN
GENERAL.—In accordance with
subparagraph (B), a local distribution utility
shall offer to sell backup power to a generating
facility that has interconnected with the local
distribution utility to the extent that the local
distribution utility—
‘‘(i) is not subject to an order of a
non-Federal regulatory authority to pro-
vide open access to the distribution facili-
ties of the local distribution utility;
‘‘(ii) has not offered to provide open
access to the distribution facilities of the
local distribution utility; or
‘‘(iii) does not allow a generating fa-
cility to purchase backup power from an-
other entity using the distribution facilities
of the local distribution utility.
‘‘(B) RATES, TERMS, AND CONDITIONS.—A
sale of backup power under subparagraph (A)
shall be at such a rate, and under such terms
and conditions, as are just and reasonable and
not unduly discriminatory or preferential, tak-
ing into account the actual incremental cost,
whenever incurred by the local distribution util-
ity, to supply such backup power service during
the period in which the backup power service is
provided, as determined by the appropriate reg-
ulatory authority.
‘‘(C) NO
REQUIREMENT
FOR
CERTAIN
SALES.—A local distribution utility shall not be
required to offer backup power for resale to any
entity other than the entity for which the
backup power is purchased.
‘‘(D) NEW OR EXPANDED LOADS.—To the
extent backup power is used to serve a new or
expanded load on the distribution system, the
generating facility shall pay any reasonable
costs associated with any transmission, distribu-
tion, or generation upgrade required to provide
such service.’’.
(c) INTERCONNECTION
TO TRANSMISSION FACILI-
TIES.—Section 210 of the Federal Power Act (16 U.S.C.
824i) is amended by inserting after subsection (e) (as
added by subsection (b)) the following:
‘‘(f) INTERCONNECTION TO TRANSMISSION FACILI-
TIES.—
‘‘(1) INTERCONNECTION.—
‘‘(A) IN GENERAL.—Notwithstanding sub-
sections (a) and (c), a transmitting utility shall
interconnect a generating facility with the
transmission facilities of the transmitting utility
if the owner of the generating facility—
‘‘(i) complies with the final rule pro-
mulgated under paragraph (2); and
‘‘(ii) pays the costs of the interconnec-
tion.
‘‘(B) COSTS.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the costs of the interconnection—
‘‘(I) shall be just and reasonable
and not unduly discriminatory; and
‘‘(II) shall be comparable to the
costs charged by the transmitting util-
ity for interconnection by any simi-
larly situated generating facility to the
transmitting facilities of the transmit-
ting utility.
‘‘(ii) EFFECT OF FERC LITE.—A non-
Federal regulatory authority that, under
any provision of Federal law enacted be-
fore, on, or after the date of enactment of
this subparagraph, is authorized to deter-
mine the rates for transmission service
shall be authorized to determine the costs
of any interconnection under this subpara-
graph in accordance with that provision of
Federal law.
‘‘(C) APPLICABLE
REQUIREMENTS.—The
right of a generating facility to interconnect
under subparagraph (A) does not—
‘‘(i) relieve the generating facility or
the transmitting utility of other Federal,
State, or local requirements; or
‘‘(ii) provide the generating facility
with transmission or distribution service.
‘‘(2) RULE.—
‘‘(A) IN GENERAL.—Not later than 1 year
after the date of enactment of this subpara-
graph, the Commission shall promulgate a final
rule to establish reasonable and appropriate
technical standards for the interconnection of a
generating facility with the transmission facili-
ties of a transmitting utility.
‘‘(B) PROCESS.—To the extent feasible,
the Commission shall develop the standards
through a process involving interested parties.
‘‘(C) ADVISORY
COMMITTEE.—The Com-
mission shall establish an advisory committee
composed of qualified experts to make rec-
ommendations to the Commission concerning
development of the standards.
‘‘(3) RIGHT TO BACKUP POWER.—
‘‘(A) IN
GENERAL.—In accordance with
subparagraph (B), a transmitting utility shall
offer to sell backup power to a generating facil-
ity that has interconnected with the transmit-
ting utility unless—
‘‘(i) Federal or State law (including
regulations) allows a generating facility to
purchase backup power from an entity
other than the transmitting utility; or
‘‘(ii) a transmitting utility allows a
generating facility to purchase backup
power from an entity other than the trans-
mitting utility using—
‘‘(I) the transmission facilities of
the transmitting utility; and
‘‘(II) the transmission facilities
of any other transmitting utility.
‘‘(B) RATES, TERMS, AND CONDITIONS.—A
sale of backup power under subparagraph (A)
shall be at such a rate, and under such terms
and conditions, as are just and reasonable and
not unduly discriminatory or preferential, tak-
ing into account the actual incremental cost,
whenever incurred by the local distribution util-
ity, to supply such backup power service during
the period in which the backup power service is
provided, as determined by the appropriate reg-
ulatory authority.
‘‘(C) NO
REQUIREMENT
FOR
CERTAIN
SALES.—A transmitting utility shall not be re-
quired to offer backup power for resale to any
entity other than the entity for which the
backup power is purchased.
‘‘(D) NEW OR EXPANDED LOADS.—To the
extent backup power is used to serve a new or
expanded load on the transmission system, the
generating facility shall pay any reasonable
costs associated with any transmission, distribu-
tion, or generation upgrade required to provide
such service.’’.
(d) CONFORMING AMENDMENTS.—Section 210 of the
Federal Power Act (16 U.S.C. 824i) is amended—
(1) in subsection (a)(1)—
(A) by inserting ‘‘transmitting utility, local
distribution utility,’’ after ‘‘electric utility,’’;
and
(B) in subparagraph (A), by inserting
‘‘any transmitting utility,’’ after ‘‘small power
production facility,’’;
(2) in subsection (b)(2), by striking ‘‘an evi-
dentiary hearing’’ and inserting ‘‘a hearing’’;
(3) in subsection (c)(2)—
(A) in subparagraph (B), by striking ‘‘or’’
at the end;
(B) in subparagraph (C), by striking
‘‘and’’ at the end and inserting ‘‘or’’; and
(C) by adding at the end the following:
‘‘(D) promote competition in electricity mar-
kets, and’’; and
(4) in subsection (d), by striking the last sen-
tence.
TITLE 
II—INVESTMENT 
TAX
CREDIT FOR COMBINED HEAT
AND POWER SYSTEMS
SEC. 201. INVESTMENT TAX CREDIT FOR COMBINED HEAT
AND POWER SYSTEMS.
(a) IN GENERAL.—Section 48(a)(3)(A) of the Inter-
nal Revenue Code of 1986 (relating to energy property)
is amended by striking ‘‘or’’ at the end of clause (i), by
adding ‘‘or’’ at the end of clause (ii), and by adding at
the end the following new clause:
‘‘(iii) a qualified combined heat and
power system,’’.
(b) QUALIFIED COMBINED HEAT AND POWER SYS-
TEMS.—
(1) IN GENERAL.—Section 48 of the Internal
Revenue Code of 1986 (relating to energy credit; re-
forestation credit) is amended by adding at the end
the following new subsection:
‘‘(c) QUALIFIED COMBINED HEAT AND POWER SYS-
TEMS CREDIT.—
‘‘(1) IN GENERAL.—For purposes of this sub-
part, the term ‘qualified combined heat and power
system’ means any property—
‘‘(A) comprising a system that uses the
same energy source for the simultaneous or se-
quential generation of electricity or mechanical
shaft power (or both) and steam or other forms
of useful thermal energy (including heating and
cooling applications), and
‘‘(B) which meets the requirements de-
scribed in paragraph (2).
‘‘(2) REQUIREMENTS.—The requirements de-
scribed in this paragraph are as follows:
‘‘(A) MINIMUM
STANDARDS
FOR
QUALI-
FIED COMBINED HEAT AND POWER SYSTEMS.—
‘‘(i) CAPACITY.—A qualified combined
heat and power system must have an elec-
trical capacity in excess of 50 kilowatts or
with a capacity to produce mechanical
power in excess of 67 horsepower (or an
equivalent combination of electrical and
mechanical energy capacities).
‘‘(ii) POWER PRODUCED.—A qualified
combined heat and power system must
produce at least 20 percent of its total use-
ful energy in the form of thermal energy
and at least 20 percent of its total useful
energy in the form of electrical or mechan-
ical power (or a combination thereof).
‘‘(B) ENERGY EFFICIENCY STANDARDS.—
‘‘(i) ENERGY EFFICIENCY FOR SMALL-
ER SYSTEMS.—In the case of a qualified
combined heat and power system with an
electrical capacity of not more than 50
megawatts (or a mechanical energy capac-
ity in excess of 67,000 horsepower), the
total energy efficiency of the system must
exceed 60 percent.
‘‘(ii) ENERGY EFFICIENCY FOR LARG-
ER SYSTEMS.—In the case of a qualified
combined heat and power system with an
electrical 
capacity 
in 
excess 
of 
megawatts (or a mechanical energy capac-
ity in excess of 67,000 horsepower), the
total energy efficiency of the system must
exceed 70 percent.
‘‘(iii) ENERGY EFFICIENCY.—For pur-
poses of this paragraph, the total energy
efficiency of a combined heat and power
system is computed as the sum of the use-
ful electrical, thermal, and mechanical
power produced by the system at normal
operating rates, measured on a Btu basis,
divided by the lower heating value of the
primary fuel source for the system sup-
plied.’’.
(2) QUALIFIED COMBINED HEAT AND POWER
SYSTEM
AS
PUBLIC
UTILITY
PROPERTY.—Section
48(a)(3) of such Code (relating to energy property)
is amended by inserting ‘‘(other than qualified com-
bined heat and power systems)’’ after ‘‘ ‘energy
property’ ’’ in the last sentence.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
June 30, 2001, and before June 30, 2005.
Æ