112 
year limitation to a Federal Transmitting Utility to fund 
the construction, operation and maintenance of high-volt-
age electric transmission facilities authorized by sub-
section (1). Except as specified in subparagraph (C), 
amounts used for construction, operation and maintenance 
shall be recovered by the Federal Transmitting Utility and 
repaid to the Transmission Fund over a period of 50 
years. 
(C) If a Federal Transmitting Utility determines that 
revenue from users of the high-voltage electric trans-
mission facility may not be sufficient to recover its costs 
over time, it may set a transmission rate for its use sepa-
rate from rates charged for the use of the Federal Trans-
mitting Utility’s other transmission facilities. In such 
event, power and transmission customers of the Federal 
Transmitting Utility shall not be liable for the costs of 
the high-voltage transmission facility except for the 
amount of transmission capacity such customers utilize as 
determined by each Federal Transmitting Utility. Any 
amounts that cannot be so recovered from such separate 
rate over a period of 50 years shall not be required to 
be repaid by the Federal Transmitting Utility to the 
Transmission Fund in the United States Treasury. 
(3) The regulations promulgated pursuant to this Act 
shall, to the maximum extent practicable, ensure that not 
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less than 75 percent of the capacity of any high-voltage 
electric transmission line constructed by a Federal trans-
mitting utility pursuant to this section is used for elec-
tricity from renewable energy. 
SEC. 425. FEDERAL POWER MARKETING ADMINISTRATIONS 
AND TVA. 
(a) PROMOTION OF RENEWABLE ENERGY AND EN-
ERGY EFFICIENCY.—The Western Area Power Adminis-
tration, the Southeastern Area Power Administration, the 
Southwestern Area Power Administration and the Ten-
nessee Valley Authority shall each identify and, to the ex-
tent economically feasible and not inconsistent with other 
statutory obligations, take steps to promote energy con-
servation and renewable energy electric resource develop-
ment in the regions served by such utility. 
(b) ACQUISITION OF RENEWABLE ENERGY AND RE-
NEWABLE ENERGY CREDITS.—Each Federal Power Mar-
keting Administration and the Tennessee Valley Authority 
may, subject to advance payment arrangements by the 
Federal Government being in place that assure the Fed-
eral Power Marketing Administration is held financially 
harmless for its actions pursuant to this section, use its 
purchasing power to acquire on behalf of the Federal gov-
ernment electricity from renewable energy and renewable 
energy credits in sufficient amounts to meet the require-
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ments of section 203 of the Energy Policy Act of 2005. 
The Federal agencies on behalf of which a Federal Power 
Marketing Administration or the Tennessee Valley Au-
thority acquires renewable energy or renewable energy 
credits shall fully reimburse the Federal Power Marketing 
Administration or the Tennessee Valley Authority for such 
transactions. 
(c) TRIBAL RENEWABLE ENERGY.—Each Federal 
Power Marketing Administration and the Tennessee Val-
ley Authority shall identify opportunities for promoting 
the development of facilities generating electricity from re-
newable energy on Indian lands. 
(d) NONREIMBURSABLE FUNDS.—The amounts ex-
pended by a Federal Power Marketing Administration or 
the Tennessee Valley Authority pursuant to this section 
shall not be subject to reimbursement by the customers 
of such utility. 
SEC. 426. CONSISTENCY WITH ENVIRONMENTAL LAWS. 
Nothing in this Act shall be deemed to waive any ex-
isting Federal or State environmental protection provision, 
including the requirements of— 
(1) the National Forest Management Act of 
1976 (16 U.S.C. 472a et seq.); 
(2) the Endangered Species Act of 1973 (16 
U.S.C. 1531 et seq.); 
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(3) the National Environmental Policy Act of 
1969 (42 U.S.C. 4231 et. seq.); 
(4) the Federal Water Pollution Control Act of 
1969 (33 U.S.C. 1251 et . seq.); and 
(5) the Federal Land Policy and Management 
Act of 1976 (43 U.S.C. 1701 et seq.). 
Subtitle D—Net Metering 
SEC. 431. ESTABLISHING MINIMUM NET METERING AND 
INTERCONNECTION STANDARDS. 
(a) FINDINGS.—The Congress finds that it is in the 
public interest to: 
(1) Enable small businesses, residences, schools, 
churches, farms with small electric generation units, 
and other retail electric customers who generate 
electric energy to return or sell surplus electric en-
ergy on the open market. 
(2) Encourage private investment in renewable 
and alternate energy resources. 
(3) Stimulate the economic growth. 
(4) Enhance the continued diversification sec-
tion of energy resources used in the United States. 
(5) Remove regulatory barriers for net meter-
ing. 
(b) NET METERING AND INTERCONNECTION STAND-
ARDS.—Section 113 of the Public Utility Regulatory Poli-
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cies Act of 1978 is amended by adding the following new 
subsections at the end thereof: 
‘‘(d) NET METERING.— 
‘‘(1) DEFINITIONS.—As used in this subsection: 
‘‘(A) The term ‘customer-generator’ means 
the owner or operator of a qualified generation 
unit. 
‘‘(B) The term ‘net metering’ means meas-
uring the difference between the electricity sup-
plied to a customer-generator and the electricity 
generated by a customer-generator that is deliv-
ered to a local distribution section system at the 
same point of interconnection during an appli-
cable billing period and providing an energy 
credit to a customer-generator in the form of a 
kilowatt-hour credit for each kilowatt-hour of 
energy produced by a customer-generator from 
a qualified generation unit. 
‘‘(C) The term ‘qualified generation unit’ 
means an electric energy generation unit that 
meets each of the following requirements: 
‘‘(i) The unit is a fuel cell or uses as 
its energy source either solar, wind, bio-
mass, geothermal, anaerobic digestion or 
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landfill gas, or a combination of the fore-
going. 
‘‘(ii) The unit has a generating capac-
ity of not more than 1,000 kilowatts. 
‘‘(iii) The unit is located on premises 
that are owned, operated, leased, or other-
wise controlled by the customer-generator. 
‘‘(iv) The unit operates in parallel 
with the retail electric supplier. 
‘‘(v) The unit is intended primarily to 
offset part or all of the customer-genera-
tor’s requirements for electric energy. 
‘‘(D) The term ‘retail electric supplier’ 
means any electric utility that sells electric en-
ergy to the ultimate consumer thereof. 
‘‘(E) The term ‘local distribution system’ 
means any system for the distribution section of 
electric energy to the ultimate consumer there-
of, whether or not the owner or operator of 
such system is also a retail electric supplier. 
‘‘(2) ADOPTION.—Not later than one year after 
the enactment of this subsection, each State regu-
latory authority (with respect to each electric utility 
for which it has ratemaking authority), and each 
nonregulated electric utility, shall provide public no-
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tice and conduct a hearing respecting the standards 
established by paragraph (3) and, on the basis of 
such hearing, shall adopt such standard. 
‘‘(3) ESTABLISHMENT
OF
NET
METERING 
STANDARD.—Each retail electric supplier shall offer 
to arrange (either directly or through a local dis-
tribution company or other third party) to make net 
metering available, on a first-come-first-served basis, 
to each of its retail customers in accordance with the 
provisions of this subsection and each of the fol-
lowing requirements: 
‘‘(A) Rates and charges and contract 
terms and conditions for the sale of electric en-
ergy to customer-generators shall be the same 
as the rates and charges and contract terms 
and conditions that would be applicable if the 
customer-generator did not own or operate a 
qualified generation unit and use a net meter-
ing system. 
‘‘(B) Each retail electric supplier shall no-
tify all of its retail customers of the standard 
established under this paragraph upon adoption 
of such standard. 
‘‘(4) NET ENERGY MEASUREMENT.—Each re-
tail electric supplier shall arrange to provide to cus-
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tomer-generators who qualify for net metering under 
subsection (b) an electrical energy meter capable of 
net metering and measuring the flow of electricity 
either to or from the customer and using a single 
meter and single register, except where it is not 
practical to do so. Where it is not practical to pro-
vide the meter to the customer-generator, the retail 
electric supplier (either directly or through a local 
distribution company or other third party) shall, at 
its own expense, install one or more of such electric 
energy meters for the customer-generator concerned. 
‘‘(5) BILLING.—Each retail electric supplier 
subject to subsection (b) shall calculate the electric 
energy consumption for a customer using a net me-
tering system in the following manner: 
‘‘(A) The retail electric supplier shall 
measure the net electricity produced or con-
sumed during the billing period using the me-
tering installed as provided in paragraph (4). 
‘‘(B) If the electricity supplied by the retail 
electric supplier exceeds the electricity gen-
erated by the customer-generator during the 
billing period, the customer-generator shall be 
billed for the net electric energy supplied by the 
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retail electric supplier in accordance with nor-
mal billing practices 
‘‘(C)(i) If electric energy generated by the 
customer-generator exceeds the electric energy 
supplied by the retail electric supplier, the cus-
tomer-generator shall be billed for the appro-
priate customer charges for that billing period 
and credited for the excess electric energy gen-
erated during the billing period, with this credit 
appearing as a kilowatt-hour credit on the bill 
for the following billing period. The kilowatt- 
hour credits shall be applied to customer-gener-
ator electric energy consumption on the fol-
lowing billing period bill (except for a billing pe-
riod that ends in the next calendar year). At 
the beginning of each calendar year, any re-
maining unused kilowatt-hour credits shall be 
extinguished. 
‘‘(ii) Except as provided in this clause, if 
the customer-generator is using a meter and re-
tail billing arrangement that has time differen-
tiated rates, (a ‘time-of-use meter’), the kilo-
watt-hour credit shall be based on the ratio rep-
resenting the difference in retail rates for each 
time of use rate or the credits shall be shown 
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on the customer-generator’s bill as a monetary 
credit reflecting retail rates at the time of gen-
eration of the electric energy by the customer- 
generator. Notwithstanding the standard estab-
lished under section 11(d)(14), the supplier 
may require, at the supplier’s option, the cus-
tomer-generator with net metering to take elec-
tric service under a non-time differentiated en-
ergy rate tariff or service that it offers to cus-
tomers in the same rate class as the customer- 
generator. 
‘‘(6) PERCENT LIMITATIONS.— 
‘‘(A) TWO
PERCENT
LIMITATION.—The 
standard established under this subsection shall 
not apply for a calendar year in the case of a 
customer-generator served by a local distribu-
tion company when the total generating capac-
ity of all customer-generators with net metering 
systems served by that local distribution com-
pany in that calendar year is equal to or in ex-
cess of 2 percent of the capacity necessary to 
meet the local distribution company’s average 
forecasted aggregate customer peak demand for 
that calendar year. 
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‘‘(B) ONE
PERCENT
LIMITATION.—The 
standard established under this subsection shall 
not apply for a calendar year in the case of a 
customer-generator served by a local distribu-
tion company when the total generating capac-
ity of all customer-generators with net metering 
systems served by that local distribution com-
pany in that calendar year using a single type 
of qualified generation units (as listed in para-
graph (1)(C)(i)) is equal to or in excess of 1 
percent of the capacity necessary to meet the 
company’s average forecasted aggregate cus-
tomer peak demand for that calendar year. 
‘‘(C) RECORDS AND NOTICE.—- Each re-
tail electric supplier shall maintain, and make 
available to the public, records of the total gen-
erating capacity of customer-generators of such 
system that are using net metering, the type of 
generating systems and energy source used by 
the electric generating systems used by such 
customer-generators. Each such retail electric 
supplier shall notify the State regulatory au-
thority and the Federal Energy Regulatory 
Commission when the total generating capacity 
of such customer-generators is equal to or in 
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excess of the limitations set forth in subpara-
graph (B). 
‘‘(7) OWNERSHIP OF CREDITS.—For purposes 
of Federal and State laws providing renewable en-
ergy credits or greenhouse gas credits, the customer- 
generator with a qualified generating unit and net 
metering shall be treated as owning and having title 
to the renewable energy attributes, renewable energy 
credits and greenhouse gas emission credits related 
to any electricity produced by the qualified gener-
ating unit. No retail electric supplier shall claim title 
to or ownership of any renewable energy attributes, 
renewable energy credits or greenhouse gas emission 
credits of the customer-generator as a result of 
interconnecting the customer-generator or providing 
or offering the customer-generator net metering. 
‘‘(8) SAFETY
AND
PERFORMANCE
STAND-
ARDS.—(A) A qualified generation unit and net me-
tering system used by a customer-generator shall 
meet all applicable safety and performance and reli-
ability standards established by the national elec-
trical code, the Institute of Electrical and Elec-
tronics Engineers, Underwriters Laboratories, or the 
American National Standards Institute. 
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‘‘(B) The Commission shall, after consultation 
with State regulatory authorities and nonregulated 
local distribution systems and after notice and op-
portunity for comment, prohibit by regulation the 
imposition of additional charges by electric suppliers 
and local distribution systems for equipment or serv-
ices for safety or performance that are additional to 
those necessary to meet the standards and require-
ments referred to in subparagraph (A) of this para-
graph and subsection (e) of this section (relating to 
interconnection). 
‘‘(9) DETERMINATION
OF
COMPLIANCE.—Any 
State regulatory authority (with respect to each elec-
tric utility for which it has ratemaking authority), 
and each nonregulated electric utility may apply to 
the Commission for a determination that any State 
net metering requirement or regulations complies 
with the requirements of this subsection. In the ab-
sence of such a determination, the Commission, on 
its own motion or pursuant to the petition of any in-
terested person, may, after notice and opportunity 
for a hearing on the record, issue an order requiring 
against any retail electric supplier or local distribu-
tion company, or both, to require compliance with 
this subsection. Any person who violates any require-
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ment of this subsection or any order of the Commis-
sion under this subsection shall be subject to civil 
penalties in the amount of $10,000 for each day 
that such violation continues. Such penalties may be 
assessed by the Commission, after notice and oppor-
tunity for hearing, in the same manner as penalties 
are assessed under section 31(d) of the Federal 
Power Act. 
‘‘(e) INTERCONNECTION STANDARDS.— 
‘‘(1) DEFINITIONS.—For purposes of this sub-
section, the terms defined in subsection (d) shall 
apply. 
‘‘(2) MODEL STANDARDS.—(A) Within one year 
after the enactment of this subsection the Commis-
sion shall publish model standards for the physical 
connection between local distribution systems and 
qualified generation units and electric generation 
units that meet the requirements of subsection 
(d)(1)(C) other than clause (ii) thereof and that do 
not exceed 20,000 kilowatts of capacity. Such model 
standards shall be designed to encourage the use of 
qualified generation units and to ensure the safety 
and reliability of such units and the local distribu-
tion systems interconnected with such units. 
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‘‘(B) The model standards shall have two sepa-
rate expedited procedures for interconnecting quali-
fied generation units up to 15 kilowatts and a sepa-
rate standard that expedites interconnection for 
qualified generation units up to 2000 kilowatts. 
Such expedited procedures shall be based on those 
best practices among the States that have adopted 
interconnection standards. In designing such expe-
dited procedures, the Commission shall consider 
Interstate Renewable Energy Council Model Rule 
MR–I2005. 
‘‘(C) Within 2 years after the enactment of this 
subsection, each State shall adopt the model stand-
ards published under this paragraph, with or with-
out modification, and submit such standards to the 
Commission for approval. The Commission shall ap-
prove a modification of the model standards only if 
the Commission determines that such modification is 
consistent with or superior to the purpose of such 
standards and is required by reason of local condi-
tions. 
‘‘(D) If standards have not been approved 
under this paragraph by the Commission for any 
State within 2 years after the enactment of this sub-
section, the Commission shall, by rule or order, en-
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force the Commission’s model standards in such 
State until such time as State standards are ap-
proved by the Commission. 
‘‘(E) Within two years after the enactment of 
this subsection, and after notice and opportunity for 
comment, the Commission shall publish an update of 
such model standards, considering changes in the 
underlying standards and technologies. Such updates 
shall be made available to State regulatory authori-
ties for their consideration. 
‘‘(3) SAFETY, 
RELIABILITY, 
PERFORMANCE, 
AND COST.—The standards under this section shall 
establish those measures for the safety and reli-
ability of the affected equipment and local distribu-
tion systems as may be appropriate. Such standards 
shall be consistent with all applicable safety and per-
formance standards established by the national elec-
trical code, the Institute of Electrical and Elec-
tronics Engineers, Underwriters Laboratories, or the 
American National Standards Institute yet con-
stitute the minimum cost and technical burdens to 
the interconnecting customer generator as the Com-
mission shall, by rule, prescribe. 
‘‘(4) ADDITIONAL CHARGES.—The model stand-
ards under this subsection prohibit the imposition of 
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additional charges by local distribution systems for 
equipment or services for interconnection that are 
additional to those necessary to meet such standards 
and that are in excess of the charges and equipment 
requirements identified in the best practices of 
states with interconnection standards. 
‘‘(5) RELATIONSHIP TO EXISTING LAW REGARD-
ING INTERCONNECTION.—Nothing in this subsection 
affects the application of section 111(d)(15) relating 
to interconnection. 
‘‘(6) CONSUMER FRIENDLY CONTRACTS.—The 
Commission shall promulgate regulations insuring 
that simplified contracts will be used for the inter-
connection of electric energy by electric energy 
transmission or distribution systems and generating 
facilities that have a power production capacity not 
greater than 2000 kilowatts and shall consider the 
best practices for consumer friendly contracts adopt-
ed by States or national associations of state regu-
lators. Such contracts shall not require liability or 
other insurance in excess of what is typically carried 
by customer-generators for general liability. 
‘‘(7) ENFORCEMENT.—Any person who violates 
any requirement of this subsection shall be subject 
to civil penalties in the amount of $10,000 for each 
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129 
day that such violation continues. Such penalties 
may be assessed by the Commission, after notice and 
opportunity for hearing, in the same manner as pen-
alties are assessed under section 31(d) of the Fed-
eral Power Act.’’. 
(c) RELATIONSHIP TO STATE LAW.—Section 117 of 
the Public Utility Regulatory Policies Act of 1978 is 
amended by striking ‘‘Nothing’’ and inserting ‘‘(1) Except 
as provided in paragraph (2), nothing’’ and by adding the 
following at the end thereof: 
‘‘(2) No State or nonregulated utility may adopt or 
enforce any standard or requirement concerning net me-
tering or interconnection that restricts access to the elec-
tric power transmission or distribution system by qualified 
generators beyond those standards and requirements iden-
tified in section 113(d). Nothing in this Act shall preclude 
a State from adopting or enforcing incentives or require-
ments to encourage qualified generation and net metering 
that are additional to or equivalent to those required 
under section 113(d) or that afford greater access to the 
electric power transmission and distribution system by 
qualified generators as defined in section 113(d) or afford 
greater compensation or credit for electricity generated by 
such generators.’’. 
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SEC. 432. RETAIL ELECTRIC AND GAS UTILITY EFFICIENCY 
POLICIES. 
(a) IN GENERAL.—The Public Utility Regulatory 
Policies Act of 1978 is amended by adding the following 
after section 609: 
‘‘SEC. 610. EFFICIENCY RESOURCE STANDARDS FOR RE-
TAIL ELECTRICITY AND NATURAL GAS DIS-
TRIBUTORS. 
‘‘(a) DEFINITIONS.—In this section: 
‘‘(1) BASE QUANTITY.—The term ‘base quan-
tity’, with respect to a retail electricity or natural 
gas distributor, means the total quantity of electric 
energy or natural gas delivered by the retail elec-
tricity or natural gas distributor to retail customers 
during the most recent calendar year for which in-
formation is available. 
‘‘(2) COMBINED HEAT AND POWER SYSTEM.— 
The terms ‘combined heat and power system’ and 
‘CHP system’ mean a system that— 
‘‘(A) uses the same energy source for the 
simultaneous or sequential generation of elec-
trical power, mechanical power, or both, in com-
bination with the generation of steam or other 
forms of useful thermal energy (including heat-
ing and cooling applications); 
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‘‘(B) produces at least 20 percent of its 
total useful energy in the form of thermal en-
ergy, and at least 15 percent of its total useful 
energy in the form of electrical or mechanical 
power (or a combination thereof); 
‘‘(C) except for systems designed for oper-
ation on cellulosic biomass fuel, has a marginal 
net heat rate of no more than 7,500 Btu/kWh, 
calculated on a higher heating value basis; 
‘‘(D) is designed for continuous operation; 
and 
‘‘(E) if generating electricity provides such 
electricity primarily for use for a facility or 
group of facilities located near the point where 
the electricity is generated, and from which net 
wholesale sales of electricity are not in excess of 
50 percent of total annual generation. 
‘‘(3) CUSTOMER
FACILITY.—The term ‘cus-
tomer facility’ means an end-use consumer of elec-
tricity or natural gas served by a retail electricity or 
natural gas distributor. 
‘‘(4) DEEMED
SAVINGS.—The term ‘deemed 
savings’ means an estimate of the average per unit 
savings from installation of specific common energy 
efficiency measures. Deemed savings estimates shall 
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be based on field studies or billing analyses of sav-
ings at a sample of sites where the specific measure 
is installed. 
‘‘(5) ELECTRIC
AND
NATURAL
GAS
SAVINGS 
CORPORATION .—The term ‘Electric and Natural 
Gas Savings Corporation ’ means the corporation 
certified pursuant to subsection (d)(7)(C). 
‘‘(6) ELECTRICITY.—(A) The term ‘electricity 
savings’ means any of the following: 
‘‘(i) Reductions in end-use electricity con-
sumption achieved by a customer facility rel-
ative tol 
‘‘(I) consumption at the same facility 
in a base year, as defined in rules issued 
by the Secretary; 
‘‘(II) in the case of replacement of 
equipment at the end of its life or of new 
equipment that does not replace existing 
equipment, consumption of new equipment 
of average efficiency, as defined in rules 
issued by the Secretary; or 
‘‘(III) in the case of a new facility, 
consumption at a reference facility, as de-
fined in rules issued by the Secretary. 
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‘‘(ii) Reductions in distribution system 
losses of electricity achieved by a retail elec-
tricity distributor relative to losses attributable 
to new or replacement distribution system 
equipment of average efficiency, as defined in 
rules issued by the Secretary. 
‘‘(iii) Any combination of the foregoing. 
‘‘(B) The reductions referred to in subpara-
graph (A) may be due to— 
‘‘(i) energy efficiency measures, including 
demand response measures that result in im-
proved energy efficiency; 
‘‘(ii) combined heat and power systems as 
calculated under subparagraph (D); 
‘‘(iii) recycled energy; or 
‘‘(iv) in the case of distribution system 
losses, upgraded distribution transformers, up-
graded electrical connectors, high temperature 
superconductors, or other measures to reduce 
such losses as specified in rules issued by the 
Secretary. 
‘‘(C) The reductions in end-use electricity con-
sumption at a customer facility shall be reduced on 
a Btu basis by the Btu equivalent of any associated 
increases in fuel consumption at such facility. The 
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conversion of any such fuel consumption increase to 
an equivalent amount of electricity on a Btu basis 
shall be determined by the Secretary based on the 
average heat rate of central station generation in the 
region (accounting for average transmission and dis-
tribution losses in the region), as determined in 
rules issued by the Secretary. 
‘‘(D) For a combined heat and power (CHP) 
system, the electricity savings shall be the electricity 
and mechanical power generated by the CHP system 
net of fuel used by the system, where the fuel used 
is the product of— 
‘‘(i) the electricity and mechanical power 
generated by the CHP system; 
‘‘(ii) the net-effective heat rate for the 
CHP system; and 
‘‘(iii) the inverse of the average heat rate 
of central station generation in the region, tak-
ing into consideration avoided transmission and 
distribution losses resulting from on-site gen-
eration as determined under subparagraph (C). 
‘‘(7) NATURAL
GAS
SAVINGS.—(A) The term 
‘natural gas savings’ means— 
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‘‘(i) reductions in end-use natural gas con-
sumption achieved by a customer facility rel-
ative to— 
‘‘(I) consumption at the same facility 
in a base year, as defined in rules issued 
by the Secretary; 
‘‘(II) in the case of replacement of 
equipment at the end of its life or of new 
equipment that does not replace existing 
equipment, consumption of new equipment 
of average efficiency, as defined in rules 
issued by the Secretary; or 
‘‘(III) in the case of a new facility, 
consumption at a reference facility, as de-
fined in rules issued by the Secretary; 
‘‘(ii) reductions in leakage, operational 
losses, and gas fuel consumption in the oper-
ation of a gas distribution system achieved by 
a retail gas distributor relative to such losses in 
a base year, as defined in rules issued by the 
Secretary; or 
‘‘(iii) any combination of the foregoing. 
‘‘(B) The natural gas savings may be due to— 
‘‘(i) energy efficiency measures; 
‘‘(ii) recycled energy; or 
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‘‘(iii) in the case of gas distribution system 
losses, technologies and practices as specified in 
rules issued by the Secretary including meas-
ures recommended for gas distribution systems 
by the Natural Gas STAR Program adminis-
tered by the Environmental Protection Agency. 
‘‘(C) The reductions in natural gas consump-
tion shall be reduced on a Btu equivalent basis by 
any associated increases in the consumption of elec-
tricity or other substitute fuels by a customer facility 
or a natural gas distributor, as determined under 
rules issued by the Secretary. The conversion of any 
such increase in the consumption of electricity or 
other fuels to an equivalent amount of natural gas 
consumption on a Btu basis shall be determined by 
the Secretary based on the average heat rate of cen-
tral station electric generation in the region and av-
erage transmission and distribution losses in the re-
gion, as determined under rules issued by the Sec-
retary. 
‘‘(8) NET EFFECTIVE HEAT RATE.—The term 
‘net effective heat rate’ means a ratio, the numer-
ator of which is the higher heating value of the in-
crement of fuel required by a CHP system to 
produce electricity and mechanical power, over and 
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above the fuel that would be required to produce the 
equivalent thermal output of the CHP system by a 
system without power generation, expressed in Brit-
ish thermal units, and the denominator of which is 
the power output of the CHP system, expressed in 
kilowatt-hours. 
‘‘(9) PERFORMANCE
STANDARD.—The term 
‘performance standard’ means the performance 
standard for energy savings established under sub-
section (b). 
‘‘(10) RECYCLED ENERGY.—The term ‘recycled 
energy’ means electrical or mechanical power, or 
both, or thermal energy produced by modifying an 
industrial or commercial system that was in place 
prior to January 1, 2007, such that the modified 
system— 
‘‘(A) recaptures energy that would other-
wise be wasted from sources, including— 
‘‘(i) waste heat from industrial proc-
esses, natural gas compressor stations, and 
other sources; 
‘‘(ii) pressure in a fluid or gas system 
including but not limited to steam, natural 
gas, and water; and 
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‘‘(iii) blast furnace, coke oven, carbon 
black, and petrochemical process waste 
gas, or pollution control projects, including 
thermal oxidizers and gas flares; and 
‘‘(B) uses equipment and technologies in-
cluding— 
‘‘(i) back-pressure turbines in parallel 
with existing pressure-reducing valves in 
steam, water and gas systems; 
‘‘(ii) organic Rankine, Stirling, or 
Kalina cycle heat engine systems driven by 
waste heat; or 
‘‘(iii) heat recovery steam generators 
with steam turbine generators that recover 
waste heat. 
‘‘(11) RETAIL ELECTRICITY OR NATURAL GAS 
DISTRIBUTOR.—The term ‘retail electricity or nat-
ural gas distributor’ means a person (including a 
Federal, State, or local entity) that— 
‘‘(A) distributes electric energy or natural 
gas to consumers in the United States for a cal-
endar year, including electricity or natural gas 
supplied by unregulated suppliers, regardless of 
whether such suppliers are affiliated or unaffili-
ated with the distributor; and 
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‘‘(B) sold not less than 800,000 megawatt- 
hours of electric energy or 1 billion cubic feet 
of natural gas to consumers in the United 
States for purposes other than resale during the 
preceding calendar year. 
For purposes of this paragraph, electricity or nat-
ural gas sold at wholesale to large end-use customers 
shall be included but natural gas sold to wholesale 
electric generators to generate electric power for re-
sale shall not be not included. 
‘‘(b) PERFORMANCE STANDARD.— 
‘‘(1) IN GENERAL.—Each retail electricity or 
natural gas distributor shall undertake electricity 
and natural gas savings measures in each calendar 
year beginning with 2009 that produce electricity 
and natural gas savings as a percentage of the dis-
tributor’s base quantity at the applicable rate speci-
fied in paragraph (5). 
‘‘(2) SAVINGS.—The savings described in para-
graph (1) shall represent savings realized in the 
specified year from measures implemented in that 
year and all preceding years beginning with 2007. 
‘‘(3) LIMITS.—Savings from combined heat and 
power systems, recycled energy, and electricity or 
natural gas distribution system measures may be 
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used by a distributor to satisfy no more than 50 per-
cent of the applicable savings specified for any year 
in the table contained in paragraph (5). 
‘‘(4) COMPLIANCE.—(A) Each retail electricity 
or natural gas distributor subject to this subsection 
may use any electricity or natural gas savings meas-
ures available to the distributor to achieve compli-
ance with the performance standard established 
under this section, on the condition that the elec-
tricity and natural gas savings achieved by such 
measures are calculated and verified pursuant to the 
rules issued under subsection (c). 
‘‘(B) A retail electricity or natural gas dis-
tributor may demonstrate compliance with the per-
formance standard through the accumulation ofl 
‘‘(i) electricity or natural gas savings cred-
its achieved by such electricity or natural gas 
distributor and certified under clause (i) of sub-
section (d)(2)(A); 
‘‘(ii) electricity or natural gas savings cred-
its obtained by purchase under subsection 
(d)(6); 
‘‘(iii) electricity or natural gas savings 
credits borrowed against future years under 
subsection (d)(7); or 
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‘‘(iv) any combination of credits described 
in clauses (i), (ii), and (iii). 
‘‘(5) APPLICABLE RATES.—(A) The applicable 
rates referred to in paragraph (1) are as follows: 
‘‘Year 
Electricity Savings (%) 
Natural Gas Savings 
(%) 
2009 
0.25 
0.20 
2010 
0.75 
0.50 
2011 
1.50 
0.80 
2012 
2.25 
1.15 
2013 
3.00 
1.50 
2014 
4.00 
2.00 
2015 
5.00 
2.50 
2016 
6.00 
3.00 
2017 
7.00 
3.50 
2018 
8.00 
4.00 
2019 
9.00 
4.50 
2020 
10.00 
5.00 
‘‘(B) At least 2 years before the beginning of 
any year after 2020, the Secretary, after notice and 
opportunity for comment, shall set the applicable 
rate, taking into consideration the economic and en-
vironmental benefits of the energy savings and the 
cost of the savings measures. 
‘‘(c) DETERMINATION OF COMPLIANCE RULES.—Not 
later than 1 year after the date of enactment of this sec-
tion, the Secretary shall issue rules that describe the 
means to be used to calculate and verify compliance with 
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the performance standard that include each of the fol-
lowing: 
‘‘(1) Procedures and standards for defining and 
measuring electricity savings and natural gas sav-
ings from customer facility end-uses and from utility 
distribution systems that occur in a calendar year 
(including measures implemented in previous cal-
endar years beginning in 2007). At a minimum, 
these procedures and standards shall— 
‘‘(A) specify the types and categories of ef-
ficiency measures that will be eligible for certifi-
cation under subsection (d)(2); 
‘‘(B) require that energy consumption esti-
mates for customer facilities or portions thereof 
in the base and current years be adjusted, when 
appropriate, to account for changes in weather, 
level of production, and building area; 
‘‘(C) allow energy consumption estimates 
from discrete processes and equipment within 
industrial facilities in the base and current 
years to be adjusted for factors identified by 
rule that may be responsible for significant 
year-to-year changes; 
‘‘(D) allow energy consumption estimates 
from discrete processes and equipment within 
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industrial facilities in the base and current 
years to be adjusted for factors identified by 
rule that may be responsible for significant 
year-to-year changes; 
‘‘(E) account for the useful life of energy 
saving measures; 
‘‘(F) include deemed savings values for 
commonly-used efficiency measures and make 
provision for such values to be periodically re-
viewed and revised; 
‘‘(G) minimize the chances that more than 
one entity will claim credit for the same sav-
ings; and 
‘‘(H) exclude savings that— 
‘‘(i) are attributable to measures or 
systems installed before January 1, 2007, 
or to modifications of processes or systems 
undertaken prior to January 1, 2007; 
‘‘(ii) are otherwise required by Fed-
eral, State, local, or Indian tribal law or 
regulation; 
‘‘(iii) are achieved without the inter-
vention of the electricity or natural gas dis-
tributor or of any other entity seeking 
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credits under paragraph (2)(A)(ii) of , ex-
cept as provided under subsection (e); 
‘‘(iv) are attributable to Federal, 
State, or local tax incentives, grants, loans, 
or other public financial support for energy 
efficiency measures; or 
‘‘(v) have already been credited under 
this section to another entity. 
‘‘(2) Procedures and standards for verification 
of electricity or natural gas savings reported by re-
tail electricity and natural gas distributors. At a 
minimum, such procedures and standards shall— 
‘‘(A) provide for periodic spot checks on a 
sample of sites to verify that measures are in 
place and functioning; 
‘‘(B) provide that savings estimates are 
calibrated with billing analysis or end-use me-
tering on a sample of sites where technically 
feasible and economically justified; and 
‘‘(C) provide for the protection of cus-
tomers’ proprietary information against unwar-
ranted disclosure. 
‘‘(3) Requirements for the content and format 
of a biennial report from each retail electricity or 
natural gas distributor demonstrating the compli-
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ance of the distributor with the performance stand-
ard, including a detailed description of the calcula-
tion of electricity and natural gas savings to enable 
the appropriate regulatory authority to verify and 
enforce compliance with the requirements of this sec-
tion (including regulations issued under this sec-
tion). 
‘‘(4) Provision for reviewing and revising the 
electricity and natural gas consumption of reference 
facilities and of new equipment of average efficiency 
at intervals of not greater than 4 years. 
‘‘(d) CREDIT AND TRADING SYSTEM.— 
‘‘(1) ESTABLISHMENT.—Not later than one 
year after the date of enactment of this section, and 
after consultation with the Administrator of the En-
vironmental Protection Agency, the Secretary shall 
issue rules establishing a nationwide credit and cred-
it trading system for electricity and natural gas sav-
ings. 
‘‘(2) CREDITS.— 
‘‘(A) IN
GENERAL.—In accordance with 
the rules issued under paragraph (1), the Sec-
retary 
‘‘(i) shall certify as credits, electricity 
and natural gas savings achieved by a re-
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tail electricity or natural gas distributor in 
a given calendar year if the savings comply 
with the rules issued under subsection 
(c)(1); 
‘‘(ii) shall certify as credits, customer 
electricity and natural gas savings under-
taken by State agencies and other entities 
if— 
‘‘(I) a retail electricity or natural 
gas distributor did not help finance 
measures to achieve these savings; 
and 
‘‘(II) the savings comply with the 
rules issued under subsection (c); and 
‘‘(iii) shall not award credits to any 
retail electricity or natural gas distributor 
subject to State administration and en-
forcement under subsection (g) unless the 
Secretary has determined that the adminis-
tration and enforcement are at least equiv-
alent to administration and enforcement by 
the Secretary. 
‘‘(B) AMOUNT OF CREDITS.—A credit cer-
tified by the Secretary under this subsection— 
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‘‘(i) shall equal 1,000 kilowatt-hours, 
in the case of an electricity savings credit; 
or 
‘‘(ii) shall equal 10 therms, in the 
case of a natural gas savings credit. 
‘‘(3) TREATMENT OF CREDITS.— 
‘‘(A) USE OF CREDITS.—A credit may be 
counted toward compliance with the perform-
ance standard only once. 
‘‘(B) PROPERTY RIGHTS.—An electricity or 
natural gas savings credit certified under this 
subsection shall not be considered to be a prop-
erty right. 
‘‘(C) REDUCTION
AND
TERMINATION
OF 
CREDITS.—Nothing in this section or any other 
provision of the law limits the authority of the 
United States to reduce or terminate a credit 
certified under this subsection. 
‘‘(4) FEE.— 
‘‘(A) IN
GENERAL.—To receive certifi-
cation of an electricity or natural gas savings 
credit under this section, the recipient of the 
credit shall pay a fee, calculated by the Sec-
retary, in an amount that is equal to the lesser 
of the following: 
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‘‘(i) 
The 
administrative 
costs 
of 
issuing, recording, monitoring the sale or 
exchange, and tracking, of the credit. 
‘‘(ii) For the years 2009 and 2010, 5 
percent of the fair market value of the 
credit, as determined by the Secretary, and 
for the years 2011 and thereafter, 3 per-
cent of the fair market value of the credit, 
as determined by the Secretary. 
‘‘(B) USE OF FEES BY SECRETARY.—Sub-
ject to annual appropriation, the Secretary shall 
use amounts equivalent to the fees paid under 
this paragraph to pay administrative costs de-
scribed in subparagraph (A)(i). If receipts ex-
ceed the administrative costs incurred by the 
Secretary in any two consecutive fiscal years, 
the Secretary shall, not later than January 1 of 
the first fiscal year thereafter, reduce the fee 
accordingly. 
‘‘(5) CREDIT SALE AND USE.— 
‘‘(A) SALE.—A retail electric or natural 
gas distributor may sell a credit certified under 
this subsection to any other entity, and other 
entities may sell such credit to a retail electric 
or natural gas distributor or any other entity, 
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in accordance with accounting and verification 
procedures contained in rules issued by the Sec-
retary under paragraph (1). 
‘‘(B) USE.—A credit certified under this 
subsection and sold under subparagraph (A) 
may be used by a purchasing retail electricity 
or natural gas distributor for purposes of com-
plying with the performance standard. 
‘‘(C) DURATION
OF
VALIDITY.—A credit 
certified under this subsection may only be used 
for compliance with this section for 3 years 
from the date issued. 
‘‘(6) CREDIT
BORROWING.—(A) During the 
first year covered by the performance standard, a re-
tail electricity or natural gas distributor that has 
reason to believe that the distributor will not have 
sufficient electricity or natural gas savings credits to 
comply with the performance standard may— 
‘‘(i) submit a plan to the Secretary dem-
onstrating that the retail electricity or natural 
gas distributor will earn or acquire sufficient 
credits within the subsequent 2 calendar years 
that would enable the retail electricity or nat-
ural gas distributor to meet the performance 
standard for all three calendar years; and 
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‘‘(ii) upon the approval of the plan by the 
Secretary, apply credits expected to be earned 
or acquired within the subsequent 2 calendar 
years to meet the performance standard for the 
applicable calendar year. 
‘‘(B) Any retail electricity or natural gas dis-
tributor that has submitted such a plan shall, by 
March 31 of the fourth calendar year, submit to the 
Secretary the credits necessary to repay all credits 
borrowed. 
‘‘(7) BUYOUT OPTION.— 
‘‘(A) IN GENERAL.—An electricity or nat-
ural gas distributor may elect to comply with 
this section for any calendar year by paying to 
the certified Electric and Natural Gas Savings 
Corporation not later than March 31 of the fol-
lowing year, a fee of 5 cents per kilowatt-hour 
or 50 cents per therm, for any portion of the 
electricity or natural gas savings credit the dis-
tributor would otherwise be obligated to achieve 
for the year. 
‘‘(B) USE OF BUYOUT FEES.—The Electric 
and Natural Gas Savings Corporation shall— 
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