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pendent System Operator, independent transmission 
provider, or other transmission organization finally 
approved by the Commission for the operation of 
transmission facilities. 
‘‘(7) The term ‘regional entity’ means an entity 
having enforcement authority pursuant to subsection 
(e)(4). 
‘‘(b) JURISDICTION AND APPLICABILITY.—(1) The 
Commission shall have jurisdiction, within the United 
States, over the ERO certified by the Commission under 
subsection (c), any regional entities, and all users, owners 
and operators of the bulk-power system, including but not 
limited to the entities described in section 201(f), for pur-
poses of approving reliability standards established under 
this section and enforcing compliance with this section. All 
users, owners and operators of the bulk-power system 
shall comply with reliability standards that take effect 
under this section. 
‘‘(2) The Commission shall issue a final rule to imple-
ment the requirements of this section not later than 180 
days after the date of enactment of this section. 
‘‘(c) CERTIFICATION.—Following the issuance of a 
Commission rule under subsection (b)(2), any person may 
submit an application to the Commission for certification 
as the Electric Reliability Organization. The Commission
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may certify 1 such ERO if the Commission determines 
that such ERO— 
‘‘(1) has the ability to develop and enforce, sub-
ject to subsection (e)(2), reliability standards that 
provide for an adequate level of reliability of the 
bulk-power system; and 
‘‘(2) has established rules that— 
‘‘(A) assure its independence of the users 
and owners and operators of the bulk-power 
system, while assuring fair stakeholder rep-
resentation in the selection of its directors and 
balanced decisionmaking in any ERO com-
mittee or subordinate organizational structure; 
‘‘(B) allocate equitably reasonable dues, 
fees, and other charges among end users for all 
activities under this section; 
‘‘(C) provide fair and impartial procedures 
for enforcement of reliability standards through 
the imposition of penalties in accordance with 
subsection (e) (including limitations on activi-
ties, functions, or operations, or other appro-
priate sanctions); 
‘‘(D) provide for reasonable notice and op-
portunity for public comment, due process, 
openness, and balance of interests in developing
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reliability standards and otherwise exercising its 
duties; and 
‘‘(E) provide for taking, after certification, 
appropriate steps to gain recognition in Canada 
and Mexico. 
‘‘(d) RELIABILITY STANDARDS.—(1) The Electric 
Reliability Organization shall file each reliability standard 
or modification to a reliability standard that it proposes 
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.
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‘‘(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-
posed reliability standard or a modification to a reliability 
standard that the Commission disapproves in whole or in 
part. 
‘‘(5) The Commission, upon its own motion or upon 
complaint, may order the Electric Reliability Organization 
to submit to the Commission a proposed reliability stand-
ard or a modification to a reliability standard that ad-
dresses a specific matter if the Commission considers such 
a new or modified reliability standard appropriate to carry 
out this section. 
‘‘(6) The final rule adopted under subsection (b)(2) 
shall include fair processes for the identification and time-
ly resolution of any conflict between a reliability standard 
and any function, rule, order, tariff, rate schedule, or 
agreement accepted, approved, or ordered by the Commis-
sion applicable to a transmission organization. Such trans-
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mission organization shall continue to comply with such 
function, rule, order, tariff, rate schedule or agreement ac-
cepted approved, or ordered by the Commission until— 
‘‘(A) the Commission finds a conflict exists be-
tween a reliability standard and any such provision; 
‘‘(B) the Commission orders a change to such 
provision pursuant to section 206 of this part; and 
‘‘(C) the ordered change becomes effective 
under this part. 
If the Commission determines that a reliability standard 
needs to be changed as a result of such a conflict, it shall 
order the ERO to develop and file with the Commission 
a modified reliability standard under paragraph (4) or (5) 
of this subsection. 
‘‘(e) ENFORCEMENT.—(1) The ERO may impose, 
subject to paragraph (2), a penalty on a user or owner 
or operator of the bulk-power system for a violation of a 
reliability standard approved by the Commission under 
subsection (d) if the ERO, after notice and an opportunity 
for a hearing— 
‘‘(A) finds that the user or owner or operator 
has violated a reliability standard approved by the 
Commission under subsection (d); and 
‘‘(B) files notice and the record of the pro-
ceeding with the Commission.
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‘‘(2) A penalty imposed under paragraph (1) may 
take effect not earlier than the 31st day after the ERO 
files with the Commission notice of the penalty and the 
record of proceedings. Such penalty shall be subject to re-
view by the Commission, on its own motion or upon appli-
cation by the user, owner or operator that is the subject 
of the penalty filed within 30 days after the date such 
notice is filed with the Commission. Application to the 
Commission for review, or the initiation of review by the 
Commission on its own motion, shall not operate as a stay 
of such penalty unless the Commission otherwise orders 
upon its own motion or upon application by the user, 
owner or operator that is the subject of such penalty. In 
any proceeding to review a penalty imposed under para-
graph (1), the Commission, after notice and opportunity 
for hearing (which hearing may consist solely of the record 
before the ERO and opportunity for the presentation of 
supporting reasons to affirm, modify, or set aside the pen-
alty), shall by order affirm, set aside, reinstate, or modify 
the penalty, and, if appropriate, remand to the ERO for 
further proceedings. The Commission shall implement ex-
pedited procedures for such hearings. 
‘‘(3) On its own motion or upon complaint, the Com-
mission may order compliance with a reliability standard 
and may impose a penalty against a user or owner or oper-
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ator of the bulk-power system if the Commission finds, 
after notice and opportunity for a hearing, that the user 
or owner or operator of the bulk-power system has en-
gaged or is about to engage in any acts or practices that 
constitute or will constitute a violation of a reliability 
standard. 
‘‘(4) The Commission shall issue regulations author-
izing the ERO to enter into an agreement to delegate au-
thority to a regional entity for the purpose of proposing 
reliability standards to the ERO and enforcing reliability 
standards under paragraph (1) if— 
‘‘(A) the regional entity is governed by— 
‘‘(i) an independent board; 
‘‘(ii) a balanced stakeholder board; or 
‘‘(iii) a combination independent and bal-
anced stakeholder board. 
‘‘(B) the regional entity otherwise satisfies the 
provisions of subsection (c)(1) and (2); and 
‘‘(C) the agreement promotes effective and effi-
cient administration of bulk-power system reliability. 
The Commission may modify such delegation. The ERO 
and the Commission shall rebuttably presume that a pro-
posal for delegation to a regional entity organized on an 
Interconnection-wide basis promotes effective and efficient 
administration of bulk-power system reliability and should
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be approved. Such regulation may provide that the Com-
mission may assign the ERO’s authority to enforce reli-
ability standards under paragraph (1) directly to a re-
gional entity consistent with the requirements of this para-
graph. 
‘‘(5) The Commission may take such action as is nec-
essary or appropriate against the ERO or a regional entity 
to ensure compliance with a reliability standard or any 
Commission order affecting the ERO or a regional entity. 
‘‘(6) Any penalty imposed under this section shall 
bear a reasonable relation to the seriousness of the viola-
tion and shall take into consideration the efforts of such 
user, owner, or operator to remedy the violation in a time-
ly manner. 
‘‘(f) CHANGES IN ELECTRIC RELIABILITY ORGANIZA-
TION RULES.—The Electric Reliability Organization shall 
file with the Commission for approval any proposed rule 
or proposed rule change, accompanied by an explanation 
of its basis and purpose. The Commission, upon its own 
motion or complaint, may propose a change to the rules 
of the ERO. A proposed rule or proposed rule change shall 
take effect upon a finding by the Commission, after notice 
and opportunity for comment, that the change is just, rea-
sonable, not unduly discriminatory or preferential, is in
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the public interest, and satisfies the requirements of sub-
section (c). 
‘‘(g) RELIABILITY REPORTS.—The ERO shall con-
duct periodic assessments of the reliability and adequacy 
of the bulk-power system in North America. 
‘‘(h) COORDINATION WITH CANADA AND MEXICO.— 
The President is urged to negotiate international agree-
ments with the governments of Canada and Mexico to pro-
vide for effective compliance with reliability standards and 
the effectiveness of the ERO in the United States and 
Canada or Mexico. 
‘‘(i) SAVINGS PROVISIONS.—(1) The ERO shall have 
authority to develop and enforce compliance with reli-
ability standards for only the bulk-power system. 
‘‘(2) This section does not authorize the ERO or the 
Commission to order the construction of additional gen-
eration or transmission capacity or to set and enforce com-
pliance with standards for adequacy or safety of electric 
facilities or services. 
‘‘(3) Nothing in this section shall be construed to pre-
empt any authority of any State to take action to ensure 
the safety, adequacy, and reliability of electric service 
within that State, as long as such action is not incon-
sistent with any reliability standard.
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‘‘(4) Within 90 days of the application of the Electric 
Reliability Organization or other affected party, and after 
notice and opportunity for comment, the Commission shall 
issue a final order determining whether a State action is 
inconsistent with a reliability standard, taking into consid-
eration any recommendation of the ERO. 
‘‘(5) The Commission, after consultation with the 
ERO and the State taking action, may stay the effective-
ness of any State action, pending the Commission’s 
issuance of a final order. 
‘‘(j) REGIONAL ADVISORY BODIES.—The Commis-
sion shall establish a regional advisory body on the petition 
of at least 2⁄3 of the States within a region that have more 
than 1⁄2 of their electric load served within the region. A 
regional advisory body shall be composed of 1 member 
from each participating State in the region, appointed by 
the Governor of each State, and may include representa-
tives of agencies, States, and provinces outside the United 
States. A regional advisory body may provide advice to the 
Electric Reliability Organization, a regional entity, or the 
Commission regarding the governance of an existing or 
proposed regional entity within the same region, whether 
a standard proposed to apply within the region is just, 
reasonable, not unduly discriminatory or preferential, and 
in the public interest, whether fees proposed to be assessed
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within the region are just, reasonable, not unduly discrimi-
natory or preferential, and in the public interest and any 
other responsibilities requested by the Commission. The 
Commission may give deference to the advice of any such 
regional advisory body if that body is organized on an 
Interconnection-wide basis. 
‘‘(k) ALASKA AND HAWAII.—The provisions of this 
section do not apply to Alaska or Hawaii.’’. 
(b) STATUS OF ERO.—The Electric Reliability Orga-
nization certified by the Federal Energy Regulatory Com-
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. 
Subtitle B—Transmission 
Infrastructure Modernization 
SEC. 1221. SITING OF INTERSTATE ELECTRIC TRANS-
MISSION FACILITIES. 
(a) AMENDMENT OF FEDERAL POWER ACT.—Part 
II of the Federal Power Act is amended by adding at the 
end the following:
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‘‘SEC. 216. SITING OF INTERSTATE ELECTRIC TRANS-
MISSION FACILITIES. 
‘‘(a) DESIGNATION OF NATIONAL INTEREST ELEC-
TRIC TRANSMISSION CORRIDORS.— 
‘‘(1) TRANSMISSION
CONGESTION
STUDY.— 
Within 1 year after the enactment of this section, 
and every 3 years thereafter, the Secretary of En-
ergy, in consultation with affected States, shall con-
duct a study of electric transmission congestion. 
After considering alternatives and recommendations 
from interested parties, including an opportunity for 
comment from affected States, the Secretary shall 
issue a report, based on such study, which may des-
ignate any geographic area experiencing electric en-
ergy transmission capacity constraints or congestion 
that adversely affects consumers as a national inter-
est electric transmission corridor. The Secretary 
shall conduct the study and issue the report in con-
sultation with any appropriate regional entity ref-
erenced in section 215 of this Act. 
‘‘(2) CONSIDERATIONS.—In determining wheth-
er to designate a national interest electric trans-
mission corridor referred to in paragraph (1) under 
this section, the Secretary may consider whether— 
‘‘(A) the economic vitality and development 
of the corridor, or the end markets served by
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the corridor, may be constrained by lack of ade-
quate or reasonably priced electricity; 
‘‘(B)(i) economic growth in the corridor, or 
the end markets served by the corridor, may be 
jeopardized by reliance on limited sources of en-
ergy; and 
‘‘(ii) a diversification of supply is war-
ranted; 
‘‘(C) the energy independence of the 
United States would be served by the designa-
tion; 
‘‘(D) the designation would be in the inter-
est of national energy policy; and 
‘‘(E) the designation would enhance na-
tional defense and homeland security. 
‘‘(b) CONSTRUCTION PERMIT.—Except as provided 
in subsection (i), the Commission is authorized, after no-
tice and an opportunity for hearing, to issue a permit or 
permits for the construction or modification of electric 
transmission facilities in a national interest electric trans-
mission corridor designated by the Secretary under sub-
section (a) if the Commission finds that— 
‘‘(1)(A) a State in which the transmission fa-
cilities are to be constructed or modified is without 
authority to—
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‘‘(i) approve the siting of the facilities; or 
‘‘(ii) consider the interstate benefits ex-
pected to be achieved by the proposed construc-
tion or modification of transmission facilities in 
the State; 
‘‘(B) the applicant for a permit is a transmit-
ting utility under this Act but does not qualify to 
apply for a permit or siting approval for the pro-
posed project in a State because the applicant does 
not serve end-use customers in the State; or 
‘‘(C) a State commission or other entity that 
has authority to approve the siting of the facilities 
has— 
‘‘(i) withheld approval for more than 1 
year after the filing of an application pursuant 
to applicable law seeking approval or 1 year 
after the designation of the relevant national in-
terest electric transmission corridor, whichever 
is later; or 
‘‘(ii) conditioned its approval in such a 
manner that the proposed construction or modi-
fication will not significantly reduce trans-
mission congestion in interstate commerce or is 
not economically feasible;
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present their views and recommendations with respect to 
the need for and impact of a facility covered by the permit. 
‘‘(e) RIGHTS-OF-WAY.—In the case of a permit under 
subsection (b) for electric transmission facilities to be lo-
cated on property other than property owned by the 
United States or a State, if the permit holder cannot ac-
quire by contract, or is unable to agree with the owner 
of the property to the compensation to be paid for, the 
necessary right-of-way to construct or modify such trans-
mission facilities, the permit holder may acquire the right- 
of-way by the exercise of the right of eminent domain in 
the district court of the United States for the district in 
which the property concerned is located, or in the appro-
priate court of the State in which the property is located. 
The practice and procedure in any action or proceeding 
for that purpose in the district court of the United States 
shall conform as nearly as may be with the practice and 
procedure in similar action or proceeding in the courts of 
the State where the property is situated. 
‘‘(f) STATE LAW.—Nothing in this section shall pre-
clude any person from constructing or modifying any 
transmission facility pursuant to State law. 
‘‘(g) COMPENSATION.—Any exercise of eminent do-
main authority pursuant to this section shall be considered 
a taking of private property for which just compensation
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is due. Just compensation shall be an amount equal to 
the full fair market value of the property taken on the 
date of the exercise of eminent domain authority, except 
that the compensation shall exceed fair market value if 
necessary to make the landowner whole for decreases in 
the value of any portion of the land not subject to eminent 
domain. Any parcel of land acquired by eminent domain 
under this subsection shall be transferred back to the 
owner from whom it was acquired (or his heirs or assigns) 
if the land is not used for the construction or modification 
of electric transmission facilities within a reasonable pe-
riod of time after the acquisition. Other than construction, 
modification, operation, or maintenance of electric trans-
mission facilities and related facilities, property acquired 
under subsection (e) may not be used for any purpose (in-
cluding use for any heritage area, recreational trail, or 
park) without the consent of the owner of the parcel from 
whom the property was acquired (or the owner’s heirs or 
assigns). 
‘‘(h) COORDINATION OF FEDERAL AUTHORIZATIONS 
FOR TRANSMISSION AND DISTRIBUTION FACILITIES.— 
‘‘(1) LEAD AGENCY.—If an applicant, or pro-
spective applicant, for a Federal authorization re-
lated to an electric transmission or distribution facil-
ity so requests, the Department of Energy (DOE)
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shall act as the lead agency for purposes of coordi-
nating all applicable Federal authorizations and re-
lated environmental reviews of the facility. For pur-
poses of this subsection, the term ‘Federal author-
ization’ means any authorization required under 
Federal law in order to site a transmission or dis-
tribution facility, including but not limited to such 
permits, special use authorizations, certifications, 
opinions, or other approvals as may be required, 
whether issued by a Federal or a State agency. To 
the maximum extent practicable under applicable 
Federal law, the Secretary of Energy shall coordi-
nate this Federal authorization and review process 
with any Indian tribes, multi-State entities, and 
State agencies that are responsible for conducting 
any separate permitting and environmental reviews 
of the facility, to ensure timely and efficient review 
and permit decisions. 
‘‘(2) AUTHORITY TO SET DEADLINES.—As lead 
agency, the Department of Energy, in consultation 
with agencies responsible for Federal authorizations 
and, as appropriate, with Indian tribes, multi-State 
entities, and State agencies that are willing to co-
ordinate their own separate permitting and environ-
mental reviews with the Federal authorization and
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environmental reviews, shall establish prompt and 
binding intermediate milestones and ultimate dead-
lines for the review of, and Federal authorization de-
cisions relating to, the proposed facility. The Sec-
retary of Energy shall ensure that once an applica-
tion has been submitted with such data as the Sec-
retary considers necessary, all permit decisions and 
related environmental reviews under all applicable 
Federal laws shall be completed within 1 year or, if 
a requirement of another provision of Federal law 
makes this impossible, as soon thereafter as is prac-
ticable. The Secretary of Energy also shall provide 
an expeditious pre-application mechanism for pro-
spective applicants to confer with the agencies in-
volved to have each such agency determine and com-
municate to the prospective applicant within 60 days 
of when the prospective applicant submits a request 
for such information concerning— 
‘‘(A) the likelihood of approval for a poten-
tial facility; and 
‘‘(B) key issues of concern to the agencies 
and public. 
‘‘(3) CONSOLIDATED ENVIRONMENTAL REVIEW 
AND RECORD OF DECISION.—As lead agency head, 
the Secretary of Energy, in consultation with the af-
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fected agencies, shall prepare a single environmental 
review document, which shall be used as the basis 
for all decisions on the proposed project under Fed-
eral law. The document may be an environmental as-
sessment or environmental impact statement under 
the National Environmental Policy Act of 1969 if 
warranted, or such other form of analysis as may be 
warranted. The Secretary of Energy and the heads 
of other agencies shall streamline the review and 
permitting of transmission and distribution facilities 
within corridors designated under section 503 of the 
Federal Land Policy and Management Act (43 
U.S.C. 1763) by fully taking into account prior anal-
yses and decisions relating to the corridors. Such 
document shall include consideration by the relevant 
agencies of any applicable criteria or other matters 
as required under applicable laws. 
‘‘(4) APPEALS.—In the event that any agency 
has denied a Federal authorization required for a 
transmission or distribution facility, or has failed to 
act by the deadline established by the Secretary pur-
suant to this section for deciding whether to issue 
the authorization, the applicant or any State in 
which the facility would be located may file an ap-
peal with the Secretary, who shall, in consultation
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with the affected agency, review the denial or take 
action on the pending application. Based on the 
overall record and in consultation with the affected 
agency, the Secretary may then either issue the nec-
essary authorization with any appropriate condi-
tions, or deny the application. The Secretary shall 
issue a decision within 90 days of the filing of the 
appeal. In making a decision under this paragraph, 
the Secretary shall comply with applicable require-
ments of Federal law, including any requirements of 
the Endangered Species Act, the Clean Water Act, 
the National Forest Management Act, the National 
Environmental Policy Act of 1969, and the Federal 
Land Policy and Management Act. 
‘‘(5) CONFORMING REGULATIONS AND MEMO-
RANDA
OF
UNDERSTANDING.—Not later than 18 
months after the date of enactment of this section, 
the Secretary of Energy shall issue any regulations 
necessary to implement this subsection. Not later 
than 1 year after the date of enactment of this sec-
tion, the Secretary and the heads of all Federal 
agencies with authority to issue Federal authoriza-
tions shall enter into Memoranda of Understanding 
to ensure the timely and coordinated review and per-
mitting of electricity transmission and distribution
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facilities. The head of each Federal agency with au-
thority to issue a Federal authorization shall des-
ignate a senior official responsible for, and dedicate 
sufficient other staff and resources to ensure, full 
implementation of the DOE regulations and any 
Memoranda. Interested Indian tribes, multi-State 
entities, and State agencies may enter such Memo-
randa of Understanding. 
‘‘(6) DURATION AND RENEWAL.—Each Federal 
land use authorization for an electricity transmission 
or distribution facility shall be issued— 
‘‘(A) for a duration, as determined by the 
Secretary of Energy, commensurate with the 
anticipated use of the facility, and 
‘‘(B) with appropriate authority to manage 
the right-of-way for reliability and environ-
mental protection. 
Upon the expiration of any such authorization (in-
cluding an authorization issued prior to enactment 
of this section), the authorization shall be reviewed 
for renewal taking fully into account reliance on 
such electricity infrastructure, recognizing its impor-
tance for public health, safety and economic welfare 
and as a legitimate use of Federal lands.
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‘‘(7) MAINTAINING
AND
ENHANCING
THE 
TRANSMISSION INFRASTRUCTURE.—In exercising the 
responsibilities under this section, the Secretary of 
Energy shall consult regularly with the Federal En-
ergy Regulatory Commission (FERC), FERC-ap-
proved electric reliability organizations (including re-
lated regional entities), and FERC-approved Re-
gional Transmission Organizations and Independent 
System Operators. 
‘‘(i) INTERSTATE COMPACTS.—The consent of Con-
gress is hereby given for 3 or more contiguous States to 
enter into an interstate compact, subject to approval by 
Congress, establishing regional transmission siting agen-
cies to facilitate siting of future electric energy trans-
mission facilities within such States and to carry out the 
electric energy transmission siting responsibilities of such 
States. The Secretary of Energy may provide technical as-
sistance to regional transmission siting agencies estab-
lished under this subsection. Such regional transmission 
siting agencies shall have the authority to review, certify, 
and permit siting of transmission facilities, including fa-
cilities in national interest electric transmission corridors 
(other than facilities on property owned by the United 
States). The Commission shall have no authority to issue 
a permit for the construction or modification of electric
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transmission facilities within a State that is a party to 
a compact, unless the members of a compact are in dis-
agreement and the Secretary makes, after notice and an 
opportunity for a hearing, the finding described in section 
(b)(1)(C). 
‘‘(j) SAVINGS CLAUSE.—Nothing in this section shall 
be construed to affect any requirement of the environ-
mental laws of the United States, including, but not lim-
ited to, the National Environmental Policy Act of 1969. 
Subsection (h)(4) of this section shall not apply to any 
Congressionally-designated components of the National 
Wilderness Preservation System, the National Wild and 
Scenic Rivers System, or the National Park system (in-
cluding National Monuments therein). 
‘‘(k) ERCOT.—This section shall not apply within 
the area referred to in section 212(k)(2)(A).’’. 
(b) REPORTS
TO CONGRESS
ON CORRIDORS
AND 
RIGHTS OF WAY ON FEDERAL LANDS.—The Secretary of 
the Interior, the Secretary of Energy, the Secretary of Ag-
riculture, and the Chairman of the Council on Environ-
mental Quality shall, within 90 days of the date of enact-
ment of this subsection, submit a joint report to Congress 
identifying each of the following: 
(1) All existing designated transmission and 
distribution corridors on Federal land and the status
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of work related to proposed transmission and dis-
tribution corridor designations under Title V of the 
Federal Land Policy and Management Act (43 
U.S.C. 1761 et. Seq.), the schedule for completing 
such work, any impediments to completing the work, 
and steps that Congress could take to expedite the 
process. 
(2) The number of pending applications to lo-
cate transmission and distribution facilities on Fed-
eral lands, key information relating to each such fa-
cility, how long each application has been pending, 
the schedule for issuing a timely decision as to each 
facility, and progress in incorporating existing and 
new such rights-of-way into relevant land use and 
resource management plans or their equivalent. 
(3) The number of existing transmission and 
distribution rights-of-way on Federal lands that will 
come up for renewal within the following 5, 10, and 
15 year periods, and a description of how the Secre-
taries plan to manage such renewals. 
SEC. 1222. THIRD-PARTY FINANCE. 
(a) EXISTING FACILITIES.—The Secretary of Energy 
(hereinafter in this section referred to as the ‘‘Secretary’’), 
acting through the Administrator of the Western Area 
Power Administration (hereinafter in this section referred
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to as ‘‘WAPA’’), or through the Administrator of the 
Southwestern Power Administration (hereinafter in this 
section referred to as ‘‘SWPA’’), or both, may design, de-
velop, construct, operate, maintain, or own, or participate 
with other entities in designing, developing, constructing, 
operating, maintaining, or owning, an electric power 
transmission facility and related facilities (‘‘Project’’) 
needed to upgrade existing transmission facilities owned 
by SWPA or WAPA if the Secretary of Energy, in con-
sultation with the applicable Administrator, determines 
that the proposed Project— 
(1)(A) is located in a national interest electric 
transmission corridor designated under section 
216(a) of the Federal Power Act and will reduce 
congestion of electric transmission in interstate com-
merce; or 
(B) is necessary to accommodate an actual or 
projected increase in demand for electric trans-
mission capacity; 
(2) is consistent with— 
(A) transmission needs identified, in a 
transmission expansion plan or otherwise, by 
the appropriate Regional Transmission Organi-
zation or Independent System Operator (as de-
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fined in the Federal Power Act), if any, or ap-
proved regional reliability organization; and 
(B) efficient and reliable operation of the 
transmission grid; and 
(3) would be operated in conformance with pru-
dent utility practice. 
(b) 
NEW
FACILITIES.—The 
Secretary, 
acting 
through WAPA or SWPA, or both, may design, develop, 
construct, operate, maintain, or own, or participate with 
other entities in designing, developing, constructing, oper-
ating, maintaining, or owning, a new electric power trans-
mission facility and related facilities (‘‘Project’’) located 
within any State in which WAPA or SWPA operates if 
the Secretary, in consultation with the applicable Adminis-
trator, determines that the proposed Project— 
(1)(A) is located in an area designated under 
section 216(a) of the Federal Power Act and will re-
duce congestion of electric transmission in interstate 
commerce; or 
(B) is necessary to accommodate an actual or 
projected increase in demand for electric trans-
mission capacity; 
(2) is consistent with— 
(A) transmission needs identified, in a 
transmission expansion plan or otherwise, by
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the appropriate Regional Transmission Organi-
zation or Independent System Operator, if any, 
or approved regional reliability organization; 
and 
(B) efficient and reliable operation of the 
transmission grid; 
(3) will be operated in conformance with pru-
dent utility practice; 
(4) will be operated by, or in conformance with 
the rules of, the appropriate (A) Regional Trans-
mission Organization or Independent System Oper-
ator, if any, or (B) if such an organization does not 
exist, regional reliability organization; and 
(5) will not duplicate the functions of existing 
transmission facilities or proposed facilities which 
are the subject of ongoing or approved siting and re-
lated permitting proceedings. 
(c) OTHER FUNDS.— 
(1) IN GENERAL.—In carrying out a Project 
under subsection (a) or (b), the Secretary may ac-
cept and use funds contributed by another entity for 
the purpose of carrying out the Project. 
(2) AVAILABILITY.—The contributed funds 
shall be available for expenditure for the purpose of 
carrying out the Project—
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(A) without fiscal year limitation; and 
(B) as if the funds had been appropriated 
specifically for that Project. 
(3) ALLOCATION OF COSTS.—In carrying out a 
Project under subsection (a) or (b), any costs of the 
Project not paid for by contributions from another 
entity shall be collected through rates charged to 
customers using the new transmission capability pro-
vided by the Project and allocated equitably among 
these project beneficiaries using the new trans-
mission capability. 
(d) RELATIONSHIP TO OTHER LAWS.—Nothing in 
this section affects any requirement of— 
(1) any Federal environmental law, including 
the National Environmental Policy Act of 1969 (42 
U.S.C. 4321 et seq.); 
(2) any Federal or State law relating to the 
siting of energy facilities; or 
(3) any existing authorizing statutes. 
(e) SAVINGS CLAUSE.—Nothing in this section shall 
constrain or restrict an Administrator in the utilization 
of other authority delegated to the Administrator of 
WAPA or SWPA. 
(f) SECRETARIAL
DETERMINATIONS.—Any deter-
mination made pursuant to subsections (a) or (b) shall
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be based on findings by the Secretary using the best avail-
able data. 
(g) MAXIMUM FUNDING AMOUNT.—The Secretary 
shall not accept and use more than $100,000,000 under 
subsection (c)(1) for the period encompassing fiscal years 
2004 through 2013. 
SEC. 1223. TRANSMISSION SYSTEM MONITORING. 
Within 6 months after the date of enactment of this 
Act, the Secretary of Energy and the Federal Energy Reg-
ulatory Commission shall study and report to Congress on 
the steps which must be taken to establish a system to 
make available to all transmission system owners and Re-
gional Transmission Organizations (as defined in the Fed-
eral Power Act) within the Eastern and Western Inter-
connections real-time information on the functional status 
of all transmission lines within such Interconnections. In 
such study, the Commission shall assess technical means 
for implementing such transmission information system 
and identify the steps the Commission or Congress must 
take to require the implementation of such system. 
SEC. 1224. ADVANCED TRANSMISSION TECHNOLOGIES. 
(a) AUTHORITY.—The Federal Energy Regulatory 
Commission, in the exercise of its authorities under the 
Federal Power Act and the Public Utility Regulatory Poli-
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cies Act of 1978, shall encourage the deployment of ad-
vanced transmission technologies. 
(b) DEFINITION.—For the purposes of this section, 
the term ‘‘advanced transmission technologies’’ means 
technologies that increase the capacity, efficiency, or reli-
ability of existing or new transmission facilities, including, 
but not limited to— 
(1) high-temperature lines (including super-
conducting cables); 
(2) underground cables; 
(3) advanced conductor technology (including 
advanced composite conductors, high-temperature 
low-sag conductors, and fiber optic temperature 
sensing conductors); 
(4) high-capacity ceramic electric wire, connec-
tors, and insulators; 
(5) optimized transmission line configurations 
(including multiple phased transmission lines); 
(6) modular equipment; 
(7) wireless power transmission; 
(8) ultra-high voltage lines; 
(9) high-voltage DC technology; 
(10) flexible AC transmission systems;
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(11) energy storage devices (including pumped 
hydro, compressed air, superconducting magnetic en-
ergy storage, flywheels, and batteries); 
(12) controllable load; 
(13) distributed generation (including PV, fuel 
cells, microturbines); 
(14) enhanced power device monitoring; 
(15) direct system state sensors; 
(16) fiber optic technologies; 
(17) power electronics and related software (in-
cluding real time monitoring and analytical soft-
ware); and 
(18) any other technologies the Commission 
considers appropriate. 
(c) 
OBSOLETE
OR
IMPRACTICABLE
TECH-
NOLOGIES.—The Commission is authorized to cease en-
couraging the deployment of any technology described in 
this section on a finding that such technology has been 
rendered obsolete or otherwise impracticable to deploy. 
SEC. 1225. ELECTRIC TRANSMISSION AND DISTRIBUTION 
PROGRAMS. 
(a) ELECTRIC TRANSMISSION
AND DISTRIBUTION 
PROGRAM.—The Secretary of Energy (hereinafter in this 
section referred to as the ‘‘Secretary’’) acting through the 
Director of the Office of Electric Transmission and Dis-
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tribution shall establish a comprehensive research, devel-
opment, demonstration and commercial application pro-
gram to promote improved reliability and efficiency of 
electrical transmission and distribution systems. This pro-
gram shall include— 
(1) advanced energy delivery and storage tech-
nologies, materials, and systems, including new 
transmission technologies, such as flexible alter-
nating current transmission systems, composite con-
ductor materials and other technologies that enhance 
reliability, operational flexibility, or power-carrying 
capability; 
(2) advanced grid reliability and efficiency tech-
nology development; 
(3) technologies contributing to significant load 
reductions; 
(4) advanced metering, load management, and 
control technologies; 
(5) technologies to enhance existing grid compo-
nents; 
(6) the development and use of high-tempera-
ture superconductors to— 
(A) enhance the reliability, operational 
flexibility, or power-carrying capability of elec-
tric transmission or distribution systems; or
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(B) increase the efficiency of electric en-
ergy generation, transmission, distribution, or 
storage systems; 
(7) integration of power systems, including sys-
tems to deliver high-quality electric power, electric 
power reliability, and combined heat and power; 
(8) supply of electricity to the power grid by 
small scale, distributed and residential-based power 
generators; 
(9) the development and use of advanced grid 
design, operation and planning tools; 
(10) any other infrastructure technologies, as 
appropriate; and 
(11) technology transfer and education. 
(b) PROGRAM PLAN.—Not later than 1 year after the 
date of the enactment of this legislation, the Secretary, 
in consultation with other appropriate Federal agencies, 
shall prepare and transmit to Congress a 5-year program 
plan to guide activities under this section. In preparing 
the program plan, the Secretary may consult with utilities, 
energy services providers, manufacturers, institutions of 
higher education, other appropriate State and local agen-
cies, environmental organizations, professional and tech-
nical societies, and any other persons the Secretary con-
siders appropriate.
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(c) IMPLEMENTATION.—The Secretary shall consider 
implementing this program using a consortium of indus-
try, university and national laboratory participants. 
(d) REPORT.—Not later than 2 years after the trans-
mittal of the plan under subsection (b), the Secretary shall 
transmit a report to Congress describing the progress 
made under this section and identifying any additional re-
sources needed to continue the development and commer-
cial application of transmission and distribution infra-
structure technologies. 
(e) POWER DELIVERY RESEARCH INITIATIVE.— 
(1) IN GENERAL.—The Secretary shall establish 
a research, development, demonstration, and com-
mercial application initiative specifically focused on 
power delivery utilizing components incorporating 
high temperature superconductivity. 
(2) GOALS.—The goals of this initiative shall be 
to— 
(A) establish facilities to develop high tem-
perature superconductivity power applications 
in partnership with manufacturers and utilities; 
(B) provide technical leadership for estab-
lishing reliability for high temperature super-
conductivity power applications including suit-
able modeling and analysis;
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(C) facilitate commercial transition toward 
direct current power transmission, storage, and 
use for high power systems utilizing high tem-
perature superconductivity; and 
(D) facilitate the integration of very low 
impedance high temperature superconducting 
wires and cables in existing electric networks to 
improve system performance, power flow control 
and reliability. 
(3) REQUIREMENTS.—The initiative shall in-
clude— 
(A) feasibility analysis, planning, research, 
and design to construct demonstrations of 
superconducting links in high power, direct cur-
rent and controllable alternating current trans-
mission systems; 
(B) public-private partnerships to dem-
onstrate deployment of high temperature super-
conducting cable into testbeds simulating a re-
alistic transmission grid and under varying 
transmission conditions, including actual grid 
insertions; and 
(C) testbeds developed in cooperation with 
national laboratories, industries, and univer-
sities to demonstrate these technologies, pre-
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pare the technologies for commercial introduc-
tion, and address cost or performance road-
blocks to successful commercial use. 
(4) AUTHORIZATION OF APPROPRIATIONS.—For 
purposes of carrying out this subsection, there are 
authorized to be appropriated— 
(A) for fiscal year 2004, $15,000,000; 
(B) for fiscal year 2005, $20,000,000; 
(C) for fiscal year 2006, $30,000,000; 
(D) for fiscal year 2007, $35,000,000; and 
(E) for fiscal year 2008, $40,000,000. 
SEC. 1226. ADVANCED POWER SYSTEM TECHNOLOGY IN-
CENTIVE PROGRAM. 
(a) PROGRAM.—The Secretary of Energy is author-
ized to establish an Advanced Power System Technology 
Incentive Program to support the deployment of certain 
advanced power system technologies and to improve and 
protect certain critical governmental, industrial, and com-
mercial processes. Funds provided under this section shall 
be used by the Secretary to make incentive payments to 
eligible owners or operators of advanced power system 
technologies to increase power generation through en-
hanced operational, economic, and environmental perform-
ance. Payments under this section may only be made upon
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receipt by the Secretary of an incentive payment applica-
tion establishing an applicant as either— 
(1) a qualifying advanced power system tech-
nology facility; or 
(2) a qualifying security and assured power fa-
cility. 
(b) INCENTIVES.—Subject to availability of funds, a 
payment of 1.8 cents per kilowatt-hour shall be paid to 
the owner or operator of a qualifying advanced power sys-
tem technology facility under this section for electricity 
generated at such facility. An additional 0.7 cents per kilo-
watt-hour shall be paid to the owner or operator of a quali-
fying security and assured power facility for electricity 
generated at such facility. Any facility qualifying under 
this section shall be eligible for an incentive payment for 
up to, but not more than, the first 10,000,000 kilowatt- 
hours produced in any fiscal year. 
(c) ELIGIBILITY.—For purposes of this section: 
(1) QUALIFYING
ADVANCED
POWER
SYSTEM 
TECHNOLOGY FACILITY.—The term ‘‘qualifying ad-
vanced power system technology facility’’ means a 
facility using an advanced fuel cell, turbine, or hy-
brid power system or power storage system to gen-
erate or store electric energy.
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(2) QUALIFYING
SECURITY
AND
ASSURED 
POWER
FACILITY.—The term ‘‘qualifying security 
and assured power facility’’ means a qualifying ad-
vanced power system technology facility determined 
by the Secretary of Energy, in consultation with the 
Secretary of Homeland Security, to be in critical 
need of secure, reliable, rapidly available, high-qual-
ity power for critical governmental, industrial, or 
commercial applications. 
(d) AUTHORIZATION.—There are authorized to be ap-
propriated to the Secretary of Energy for the purposes 
of this section, $10,000,000 for each of the fiscal years 
2004 through 2010. 
SEC. 1227. OFFICE OF ELECTRIC TRANSMISSION AND DIS-
TRIBUTION. 
(a) CREATION OF AN OFFICE OF ELECTRIC TRANS-
MISSION AND DISTRIBUTION.—Title II of the Department 
of Energy Organization Act (42 U.S.C. 7131 et seq.) (as 
amended by section 502(a) of this Act) is amended by in-
serting the following after section 217, as added by title 
V of this Act: 
‘‘SEC. 218. OFFICE OF ELECTRIC TRANSMISSION AND DIS-
TRIBUTION. 
‘‘(a) ESTABLISHMENT.—There is established within 
the Department an Office of Electric Transmission and
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Distribution. This Office shall be headed by a Director, 
subject to the authority of the Secretary. The Director 
shall be appointed by the Secretary. The Director shall 
be compensated at the annual rate prescribed for level IV 
of the Executive Schedule under section 5315 of title 5, 
United States Code. 
‘‘(b) DIRECTOR.—The Director shall— 
‘‘(1) coordinate and develop a comprehensive, 
multi-year strategy to improve the Nation’s elec-
tricity transmission and distribution; 
‘‘(2) implement or, where appropriate, coordi-
nate the implementation of, the recommendations 
made in the Secretary’s May 2002 National Trans-
mission Grid Study; 
‘‘(3) oversee research, development, and dem-
onstration to support Federal energy policy related 
to electricity transmission and distribution; 
‘‘(4) grant authorizations for electricity import 
and export pursuant to section 202(c), (d), (e), and 
(f) of the Federal Power Act (16 U.S.C. 824a); 
‘‘(5) perform other functions, assigned by the 
Secretary, related to electricity transmission and dis-
tribution; and 
‘‘(6) develop programs for workforce training in 
power and transmission engineering.’’.
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(b) CONFORMING AMENDMENTS.—(1) The table of 
contents of the Department of Energy Organization Act 
(42 U.S.C. 7101 note) is amended by inserting after the 
item relating to section 217 the following new item: 
‘‘Sec. 218. Office of Electric Transmission and Distribution.’’. 
(2) Section 5315 of title 5, United States Code, is 
amended by inserting after the item relating to ‘‘Inspector 
General, Department of Energy.’’ the following: 
‘‘Director, Office of Electric Transmission and 
Distribution, Department of Energy.’’. 
Subtitle C—Transmission 
Operation Improvements 
SEC. 1231. OPEN NONDISCRIMINATORY ACCESS. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by inserting after section 211 the fol-
lowing new section: 
‘‘SEC. 211A. OPEN ACCESS BY UNREGULATED TRANSMIT-
TING UTILITIES. 
‘‘(a) TRANSMISSION SERVICES.—Subject to section 
212(h), the Commission may, by rule or order, require an 
unregulated transmitting utility to provide transmission 
services— 
‘‘(1) at rates that are comparable to those that 
the unregulated transmitting utility charges itself; 
and
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‘‘(2) on terms and conditions (not relating to 
rates) that are comparable to those under which 
such unregulated transmitting utility provides trans-
mission services to itself and that are not unduly 
discriminatory or preferential. 
‘‘(b) EXEMPTION.—The Commission shall exempt 
from any rule or order under this section any unregulated 
transmitting utility that— 
‘‘(1) sells no more than 4,000,000 megawatt 
hours of electricity per year; or 
‘‘(2) does not own or operate any transmission 
facilities that are necessary for operating an inter-
connected transmission system (or any portion 
thereof); or 
‘‘(3) meets other criteria the Commission deter-
mines to be in the public interest. 
‘‘(c) LOCAL DISTRIBUTION FACILITIES.—The re-
quirements of subsection (a) shall not apply to facilities 
used in local distribution. 
‘‘(d) EXEMPTION
TERMINATION.—Whenever the 
Commission, after an evidentiary hearing held upon a 
complaint and after giving consideration to reliability 
standards established under section 215, finds on the 
basis of a preponderance of the evidence that any exemp-
tion granted pursuant to subsection (b) unreasonably im-
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pairs the continued reliability of an interconnected trans-
mission system, it shall revoke the exemption granted to 
that transmitting utility. 
‘‘(e) APPLICATION
TO UNREGULATED TRANSMIT-
TING UTILITIES.—The rate changing procedures applica-
ble to public utilities under subsections (c) and (d) of sec-
tion 205 are applicable to unregulated transmitting utili-
ties for purposes of this section. 
‘‘(f) REMAND.—In exercising its authority under 
paragraph (1) of subsection (a), the Commission may re-
mand transmission rates to an unregulated transmitting 
utility for review and revision where necessary to meet the 
requirements of subsection (a). 
‘‘(g) OTHER REQUESTS.—The provision of trans-
mission services under subsection (a) does not preclude a 
request for transmission services under section 211. 
‘‘(h) LIMITATION.—The Commission may not require 
a State or municipality to take action under this section 
that would violate a private activity bond rule for purposes 
of section 141 of the Internal Revenue Code of 1986 (26 
U.S.C. 141). 
‘‘(i) TRANSFER OF CONTROL OF TRANSMITTING FA-
CILITIES.—Nothing in this section authorizes the Commis-
sion to require an unregulated transmitting utility to 
transfer control or operational control of its transmitting
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facilities to an RTO or any other Commission-approved 
independent transmission organization designated to pro-
vide nondiscriminatory transmission access. 
‘‘(j) DEFINITION.—For purposes of this section, the 
term ‘unregulated transmitting utility’ means an entity 
that— 
‘‘(1) owns or operates facilities used for the 
transmission of electric energy in interstate com-
merce; and 
‘‘(2) is an entity described in section 201(f).’’. 
SEC. 1232. SENSE OF CONGRESS ON REGIONAL TRANS-
MISSION ORGANIZATIONS. 
It is the sense of Congress that, in order to promote 
fair, open access to electric transmission service, benefit 
retail consumers, facilitate wholesale competition, improve 
efficiencies in transmission grid management, promote 
grid reliability, remove opportunities for unduly discrimi-
natory or preferential transmission practices, and provide 
for the efficient development of transmission infrastruc-
ture needed to meet the growing demands of competitive 
wholesale power markets, all transmitting utilities in inter-
state commerce should voluntarily become members of Re-
gional Transmission Organizations as defined in section 
3 of the Federal Power Act.
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SEC. 1233. REGIONAL TRANSMISSION ORGANIZATION AP-
PLICATIONS PROGRESS REPORT. 
Not later than 120 days after the date of enactment 
of this section, the Federal Energy Regulatory Commis-
sion shall submit to Congress a report containing each of 
the following: 
(1) A list of all regional transmission organiza-
tion applications filed at the Commission pursuant 
to subpart F of part 35 of title 18, Code of Federal 
Regulations (in this section referred to as ‘‘Order 
No. 2000’’), including an identification of each pub-
lic utility and other entity included within the pro-
posed membership of the regional transmission orga-
nization. 
(2) A brief description of the status of each 
pending regional transmission organization applica-
tion, including a precise explanation of how each 
fails to comply with the minimal requirements of 
Order No. 2000 and what steps need to be taken to 
bring each application into such compliance. 
(3) For any application that has not been fi-
nally approved by the Commission, a detailed de-
scription of every aspect of the application that the 
Commission has determined does not conform to the 
requirements of Order No. 2000.
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(4) For any application that has not been fi-
nally approved by the Commission, an explanation 
by the Commission of why the items described pur-
suant to paragraph (3) constitute material non-
compliance with the requirements of the Commis-
sion’s Order No. 2000 sufficient to justify denial of 
approval by the Commission. 
(5) For all regional transmission organization 
applications filed pursuant to the Commission’s 
Order No. 2000, whether finally approved or not— 
(A) a discussion of that regional trans-
mission organization’s efforts to minimize rate 
seams between itself and— 
(i) other regional transmission organi-
zations; and 
(ii) entities not participating in a re-
gional transmission organization; 
(B) a discussion of the impact of such 
seams on consumers and wholesale competition; 
and 
(C) a discussion of minimizing cost-shifting 
on consumers. 
SEC. 1234. FEDERAL UTILITY PARTICIPATION IN REGIONAL 
TRANSMISSION ORGANIZATIONS. 
(a) DEFINITIONS.—For purposes of this section—
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(1) APPROPRIATE FEDERAL REGULATORY AU-
THORITY.—The term ‘‘appropriate Federal regu-
latory authority’’ means— 
(A) with respect to a Federal power mar-
keting agency (as defined in the Federal Power 
Act), the Secretary of Energy, except that the 
Secretary may designate the Administrator of a 
Federal power marketing agency to act as the 
appropriate Federal regulatory authority with 
respect to the transmission system of that Fed-
eral power marketing agency; and 
(B) with respect to the Tennessee Valley 
Authority, the Board of Directors of the Ten-
nessee Valley Authority. 
(2) FEDERAL
UTILITY.—The term ‘‘Federal 
utility’’ means a Federal power marketing agency or 
the Tennessee Valley Authority. 
(3) TRANSMISSION SYSTEM.—The term ‘‘trans-
mission system’’ means electric transmission facili-
ties owned, leased, or contracted for by the United 
States and operated by a Federal utility. 
(b) TRANSFER.—The appropriate Federal regulatory 
authority is authorized to enter into a contract, agreement 
or other arrangement transferring control and use of all 
or part of the Federal utility’s transmission system to an
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RTO or ISO (as defined in the Federal Power Act), ap-
proved by the Federal Energy Regulatory Commission. 
Such contract, agreement or arrangement shall include— 
(1) performance standards for operation and 
use of the transmission system that the head of the 
Federal utility determines necessary or appropriate, 
including standards that assure recovery of all the 
Federal utility’s costs and expenses related to the 
transmission facilities that are the subject of the 
contract, agreement or other arrangement; consist-
ency with existing contracts and third-party financ-
ing arrangements; and consistency with said Federal 
utility’s statutory authorities, obligations, and limi-
tations; 
(2) provisions for monitoring and oversight by 
the Federal utility of the RTO’s or ISO’s fulfillment 
of the terms and conditions of the contract, agree-
ment or other arrangement, including a provision for 
the resolution of disputes through arbitration or 
other means with the regional transmission organi-
zation or with other participants, notwithstanding 
the obligations and limitations of any other law re-
garding arbitration; and 
(3) a provision that allows the Federal utility to 
withdraw from the RTO or ISO and terminate the
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contract, agreement or other arrangement in accord-
ance with its terms. 
Neither this section, actions taken pursuant to it, nor any 
other transaction of a Federal utility using an RTO or 
ISO shall confer upon the Federal Energy Regulatory 
Commission jurisdiction or authority over the Federal util-
ity’s electric generation assets, electric capacity or energy 
that the Federal utility is authorized by law to market, 
or the Federal utility’s power sales activities. 
(c) EXISTING STATUTORY
AND OTHER OBLIGA-
TIONS.— 
(1) SYSTEM OPERATION REQUIREMENTS.—No 
statutory provision requiring or authorizing a Fed-
eral utility to transmit electric power or to construct, 
operate or maintain its transmission system shall be 
construed to prohibit a transfer of control and use 
of its transmission system pursuant to, and subject 
to all requirements of subsection (b). 
(2) OTHER
OBLIGATIONS.—This subsection 
shall not be construed to— 
(A) suspend, or exempt any Federal utility 
from, any provision of existing Federal law, in-
cluding but not limited to any requirement or 
direction relating to the use of the Federal util-
ity’s transmission system, environmental protec-
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tion, fish and wildlife protection, flood control, 
navigation, water delivery, or recreation; or 
(B) authorize abrogation of any contract 
or treaty obligation. 
(3) REPEAL.—Section 311 of title III of Appen-
dix B of the Act of October 27, 2000 (P.L. 106– 
377, section 1(a)(2); 114 Stat. 1441, 1441A–80; 16 
U.S.C. 824n) is repealed. 
SEC. 1235. STANDARD MARKET DESIGN. 
(a) REMAND.—The Commission’s proposed rule-
making entitled ‘‘Remedying Undue Discrimination 
through Open Access Transmission Service and Standard 
Electricity Market Design’’ (Docket No. RM01–12–000) 
(‘‘SMD NOPR’’) is remanded to the Commission for re-
consideration. No final rule mandating a standard elec-
tricity market design pursuant to the proposed rule-
making, including any rule or order of general applica-
bility within the scope of the proposed rulemaking, may 
be issued before October 31, 2006, or take effect before 
December 31, 2006. Any final rule issued by the Commis-
sion pursuant to the proposed rulemaking shall be pre-
ceded by a second notice of proposed rulemaking issued 
after the date of enactment of this Act and an opportunity 
for public comment.
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(b) SAVINGS CLAUSE.—This section shall not be con-
strued to modify or diminish any authority or obligation 
the Commission has under this Act, the Federal Power 
Act, or other applicable law, including, but not limited to, 
any authority to— 
(1) issue any rule or order (of general or par-
ticular applicability) pursuant to any such authority 
or obligation; or 
(2) act on a filing or filings by 1 or more trans-
mitting utilities for the voluntary formation of a Re-
gional Transmission Organization or Independent 
System Operator (as defined in the Federal Power 
Act) (and related market structures or rules) or vol-
untary modification of an existing Regional Trans-
mission Organization or Independent System Oper-
ator (and related market structures or rules). 
SEC. 1236. NATIVE LOAD SERVICE OBLIGATION. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by adding at the end the following: 
‘‘SEC. 217. NATIVE LOAD SERVICE OBLIGATION. 
‘‘(a) MEETING SERVICE OBLIGATIONS.—(1) Any 
load-serving entity that, as of the date of enactment of 
this section— 
‘‘(A) owns generation facilities, markets the 
output of Federal generation facilities, or holds
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rights under 1 or more wholesale contracts to pur-
chase electric energy, for the purpose of meeting a 
service obligation, and 
‘‘(B) by reason of ownership of transmission fa-
cilities, or 1 or more contracts or service agreements 
for firm transmission service, holds firm trans-
mission rights for delivery of the output of such gen-
eration facilities or such purchased energy to meet 
such service obligation, 
is entitled to use such firm transmission rights, or, equiva-
lent tradable or financial transmission rights, in order to 
deliver such output or purchased energy, or the output of 
other generating facilities or purchased energy to the ex-
tent deliverable using such rights, to the extent required 
to meet its service obligation. 
‘‘(2) To the extent that all or a portion of the service 
obligation covered by such firm transmission rights or 
equivalent tradable or financial transmission rights is 
transferred to another load-serving entity, the successor 
load-serving entity shall be entitled to use the firm trans-
mission rights or equivalent tradable or financial trans-
mission rights associated with the transferred service obli-
gation. Subsequent transfers to another load-serving enti-
ty, or back to the original load-serving entity, shall be enti-
tled to the same rights.
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‘‘(3) The Commission shall exercise its authority 
under this Act in a manner that facilitates the planning 
and expansion of transmission facilities to meet the rea-
sonable needs of load-serving entities to satisfy their serv-
ice obligations. 
‘‘(b) ALLOCATION
OF
TRANSMISSION
RIGHTS.— 
Nothing in this section shall affect any methodology ap-
proved by the Commission prior to September 15, 2003, 
for the allocation of transmission rights by an RTO or 
ISO that has been authorized by the Commission to allo-
cate transmission rights. 
‘‘(c) CERTAIN TRANSMISSION RIGHTS.—The Com-
mission may exercise authority under this Act to make 
transmission rights not used to meet an obligation covered 
by subsection (a) available to other entities in a manner 
determined by the Commission to be just, reasonable, and 
not unduly discriminatory or preferential. 
‘‘(d) OBLIGATION TO BUILD.—Nothing in this Act 
shall relieve a load-serving entity from any obligation 
under State or local law to build transmission or distribu-
tion facilities adequate to meet its service obligations. 
‘‘(e) CONTRACTS.—Nothing in this section shall pro-
vide a basis for abrogating any contract or service agree-
ment for firm transmission service or rights in effect as 
of the date of the enactment of this subsection.
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‘‘(f) WATER PUMPING FACILITIES.—The Commis-
sion shall ensure that any entity described in section 
201(f) that owns transmission facilities used predomi-
nately to support its own water pumping facilities shall 
have, with respect to such facilities, protections for trans-
mission service comparable to those provided to load-serv-
ing entities pursuant to this section. 
‘‘(g) ERCOT.—This section shall not apply within 
the area referred to in section 212(k)(2)(A). 
‘‘(h) JURISDICTION.—This section does not authorize 
the Commission to take any action not otherwise within 
its jurisdiction. 
‘‘(i) EFFECT OF EXERCISING RIGHTS.—An entity 
that lawfully exercises rights granted under subsection (a) 
shall not be considered by such action as engaging in 
undue discrimination or preference under this Act. 
‘‘(j) TVA AREA.—For purposes of subsection 
(a)(1)(B), a load-serving entity that is located within the 
service area of the Tennessee Valley Authority and that 
has a firm wholesale power supply contract with the Ten-
nessee Valley Authority shall be deemed to hold firm 
transmission rights for the transmission of such power. 
‘‘(k) DEFINITIONS.—For purposes of this section: 
‘‘(1) The term ‘distribution utility’ means an 
electric utility that has a service obligation to end-
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users or to a State utility or electric cooperative 
that, directly or indirectly, through 1 or more addi-
tional State utilities or electric cooperatives, provides 
electric service to end-users. 
‘‘(2) The term ‘load-serving entity’ means a dis-
tribution utility or an electric utility that has a serv-
ice obligation. 
‘‘(3) The term ‘service obligation’ means a re-
quirement applicable to, or the exercise of authority 
granted to, an electric utility under Federal, State 
or local law or under long-term contracts to provide 
electric service to end-users or to a distribution util-
ity. 
‘‘(4) The term ‘State utility’ means a State or 
any political subdivision of a State, or any agency, 
authority, or instrumentality of any 1 or more of the 
foregoing, or a corporation which is wholly owned, 
directly or indirectly, by any 1 or more of the fore-
going, competent to carry on the business of devel-
oping, transmitting, utilizing or distributing power.’’. 
SEC. 1237. STUDY ON THE BENEFITS OF ECONOMIC DIS-
PATCH. 
(a) STUDY.—The Secretary of Energy, in coordina-
tion and consultation with the States, shall conduct a 
study on—
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(1) the procedures currently used by electric 
utilities to perform economic dispatch; 
(2) identifying possible revisions to those proce-
dures to improve the ability of nonutility generation 
resources to offer their output for sale for the pur-
pose of inclusion in economic dispatch; and 
(3) the potential benefits to residential, com-
mercial, and industrial electricity consumers nation-
ally and in each state if economic dispatch proce-
dures were revised to improve the ability of non-
utility generation resources to offer their output for 
inclusion in economic dispatch. 
(b) DEFINITION.—The term ‘‘economic dispatch’’ 
when used in this section means the operation of genera-
tion facilities to produce energy at the lowest cost to reli-
ably serve consumers, recognizing any operational limits 
of generation and transmission facilities. 
(c) REPORT TO CONGRESS AND THE STATES.—Not 
later than 90 days after the date of enactment of this Act, 
and on a yearly basis following, the Secretary of Energy 
shall submit a report to Congress and the States on the 
results of the study conducted under subsection (a), in-
cluding recommendations to Congress and the States for 
any suggested legislative or regulatory changes.
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Subtitle D—Transmission Rate 
Reform 
SEC. 1241. TRANSMISSION INFRASTRUCTURE INVESTMENT. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by adding at the end the following: 
‘‘SEC. 218. TRANSMISSION INFRASTRUCTURE INVESTMENT. 
‘‘(a) RULEMAKING REQUIREMENT.—Within 1 year 
after the enactment of this section, the Commission shall 
establish, by rule, incentive-based (including, but not lim-
ited to performance-based) rate treatments for the trans-
mission of electric energy in interstate commerce by public 
utilities for the purpose of benefiting consumers by ensur-
ing reliability and reducing the cost of delivered power by 
reducing transmission congestion. Such rule shall— 
‘‘(1) promote reliable and economically efficient 
transmission and generation of electricity by pro-
moting capital investment in the enlargement, im-
provement, maintenance and operation of facilities 
for the transmission of electric energy in interstate 
commerce; 
‘‘(2) provide a return on equity that attracts 
new investment in transmission facilities (including 
related transmission technologies); 
‘‘(3) encourage deployment of transmission 
technologies and other measures to increase the ca-
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pacity and efficiency of existing transmission facili-
ties and improve the operation of such facilities; and 
‘‘(4) allow recovery of all prudently incurred 
costs necessary to comply with mandatory reliability 
standards issued pursuant to section 215 of this 
Act. 
The Commission may, from time to time, revise such rule. 
‘‘(b) ADDITIONAL INCENTIVES FOR RTO PARTICIPA-
TION.—In the rule issued under this section, the Commis-
sion shall, to the extent within its jurisdiction, provide for 
incentives to each transmitting utility or electric utility 
that joins a Regional Transmission Organization or Inde-
pendent System Operator. Incentives provided by the 
Commission pursuant to such rule shall include— 
‘‘(1) recovery of all prudently incurred costs to 
develop and participate in any proposed or approved 
RTO, ISO, or independent transmission company; 
‘‘(2) recovery of all costs previously approved by 
a State commission which exercised jurisdiction over 
the transmission facilities prior to the utility’s par-
ticipation in the RTO or ISO, including costs nec-
essary to honor preexisting transmission service con-
tracts, in a manner which does not reduce the reve-
nues the utility receives for transmission services for
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a reasonable transition period after the utility joins 
the RTO or ISO; 
‘‘(3) recovery as an expense in rates of the 
costs prudently incurred to conduct transmission 
planning and reliability activities, including the costs 
of participating in RTO, ISO and other regional 
planning activities and design, study and other 
precertification costs involved in seeking permits and 
approvals for proposed transmission facilities; 
‘‘(4) a current return in rates for construction 
work in progress for transmission facilities and full 
recovery of prudently incurred costs for constructing 
transmission facilities; 
‘‘(5) formula transmission rates; and 
‘‘(6) a maximum 15 year accelerated deprecia-
tion on new transmission facilities for rate treatment 
purposes. 
The Commission shall ensure that any costs recoverable 
pursuant to this subsection may be recovered by such util-
ity through the transmission rates charged by such utility 
or through the transmission rates charged by the RTO 
or ISO that provides transmission service to such utility. 
‘‘(c) JUST AND REASONABLE RATES.—All rates ap-
proved under the rules adopted pursuant to this section, 
including any revisions to such rules, are subject to the
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requirement of sections 205 and 206 that all rates, 
charges, terms, and conditions be just and reasonable and 
not unduly discriminatory or preferential.’’. 
SEC. 1242. VOLUNTARY TRANSMISSION PRICING PLANS. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by adding at the end the following: 
‘‘SEC. 219. VOLUNTARY TRANSMISSION PRICING PLANS. 
‘‘(a) IN GENERAL.—Any transmission provider, in-
cluding an RTO or ISO, may submit to the Commission 
a plan or plans under section 205 containing the criteria 
for determining the person or persons that will be required 
to pay for any construction of new transmission facilities 
or expansion, modification or upgrade of transmission fa-
cilities (in this section referred to as ‘transmission service 
related expansion’) or new generator interconnection. 
‘‘(b) VOLUNTARY TRANSMISSION PRICING PLANS.— 
(1) Any plan or plans submitted under subsection (a) shall 
specify the method or methods by which costs may be allo-
cated or assigned. Such methods may include, but are not 
limited to: 
‘‘(A) directly assigned; 
‘‘(B) participant funded; or 
‘‘(C) rolled into regional or sub-regional rates.
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‘‘(6) This section shall not apply within the area re-
ferred to in section 212(k)(2)(A). 
‘‘(7) The term ‘transmission provider’ means a public 
utility that owns or operates facilities that provide inter-
connection or transmission service in interstate com-
merce.’’. 
Subtitle E—Amendments to PURPA 
SEC. 1251. NET METERING AND ADDITIONAL STANDARDS. 
(a) ADOPTION OF STANDARDS.—Section 111(d) of 
the Public Utility Regulatory Policies Act of 1978 (16 
U.S.C. 2621(d)) is amended by adding at the end the fol-
lowing: 
‘‘(11) NET
METERING.—Each electric utility 
shall make available upon request net metering serv-
ice to any electric consumer that the electric utility 
serves. For purposes of this paragraph, the term 
‘net metering service’ means service to an electric 
consumer under which electric energy generated by 
that electric consumer from an eligible on-site gener-
ating facility and delivered to the local distribution 
facilities may be used to offset electric energy pro-
vided by the electric utility to the electric consumer 
during the applicable billing period. 
‘‘(12) FUEL
SOURCES.—Each electric utility 
shall develop a plan to minimize dependence on 1
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fuel source and to ensure that the electric energy it 
sells to consumers is generated using a diverse range 
of fuels and technologies, including renewable tech-
nologies. 
‘‘(13) 
FOSSIL
FUEL
GENERATION
EFFI-
CIENCY.—Each electric utility shall develop and im-
plement a 10-year plan to increase the efficiency of 
its fossil fuel generation.’’. 
(b) COMPLIANCE.— 
(1) TIME LIMITATIONS.—Section 112(b) of the 
Public Utility Regulatory Policies Act of 1978 (16 
U.S.C. 2622(b)) is amended by adding at the end 
the following: 
‘‘(3)(A) Not later than 2 years after the enactment 
of this paragraph, each State regulatory authority (with 
respect to each electric utility for which it has ratemaking 
authority) and each nonregulated electric utility shall com-
mence the consideration referred to in section 111, or set 
a hearing date for such consideration, with respect to each 
standard established by paragraphs (11) through (13) of 
section 111(d). 
‘‘(B) Not later than 3 years after the date of the en-
actment of this paragraph, each State regulatory authority 
(with respect to each electric utility for which it has rate-
making authority), and each nonregulated electric utility,
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shall complete the consideration, and shall make the deter-
mination, referred to in section 111 with respect to each 
standard established by paragraphs (11) through (13) of 
section 111(d).’’. 
(2) FAILURE TO COMPLY.—Section 112(c) of 
the Public Utility Regulatory Policies Act of 1978 
(16 U.S.C. 2622(c)) is amended by adding at the 
end the following: 
‘‘In the case of each standard established by paragraphs 
(11) through (13) of section 111(d), the reference con-
tained in this subsection to the date of enactment of this 
Act shall be deemed to be a reference to the date of enact-
ment of such paragraphs (11) through (13).’’. 
(3) PRIOR STATE ACTIONS.— 
(A) IN
GENERAL.—Section 112 of the 
Public Utility Regulatory Policies Act of 1978 
(16 U.S.C. 2622) is amended by adding at the 
end the following: 
‘‘(d) PRIOR STATE ACTIONS.—Subsections (b) and 
(c) of this section shall not apply to the standards estab-
lished by paragraphs (11) through (13) of section 111(d) 
in the case of any electric utility in a State if, before the 
enactment of this subsection— 
‘‘(1) the State has implemented for such utility 
the standard concerned (or a comparable standard);
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‘‘(2) the State regulatory authority for such 
State or relevant nonregulated electric utility has 
conducted a proceeding to consider implementation 
of the standard concerned (or a comparable stand-
ard) for such utility; or 
‘‘(3) the State legislature has voted on the im-
plementation of such standard (or a comparable 
standard) for such utility.’’. 
(B) CROSS REFERENCE.—Section 124 of 
such Act (16 U.S.C. 2634) is amended by add-
ing the following at the end thereof: ‘‘In the 
case of each standard established by paragraphs 
(11) through (13) of section 111(d), the ref-
erence contained in this subsection to the date 
of enactment of this Act shall be deemed to be 
a reference to the date of enactment of such 
paragraphs (11) through (13).’’. 
SEC. 1252. SMART METERING. 
(a) IN GENERAL.—Section 111(d) of the Public Utili-
ties Regulatory Policies Act of 1978 (16 U.S.C. 2621(d)) 
is amended by adding at the end the following: 
‘‘(14) TIME-BASED
METERING
AND
COMMU-
NICATIONS.— 
‘‘(A) Not later than 18 months after the 
date of enactment of this paragraph, each elec-
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tric utility shall offer each of its customer class-
es, and provide individual customers upon cus-
tomer request, a time-based rate schedule under 
which the rate charged by the electric utility 
varies during different time periods and reflects 
the variance, if any, in the utility’s costs of gen-
erating and purchasing electricity at the whole-
sale level. The time-based rate schedule shall 
enable the electric consumer to manage energy 
use and cost through advanced metering and 
communications technology. 
‘‘(B) The types of time-based rate sched-
ules that may be offered under the schedule re-
ferred to in subparagraph (A) include, among 
others— 
‘‘(i) time-of-use pricing whereby elec-
tricity prices are set for a specific time pe-
riod on an advance or forward basis, typi-
cally not changing more often than twice a 
year, based on the utility’s cost of gener-
ating and/or purchasing such electricity at 
the wholesale level for the benefit of the 
consumer. Prices paid for energy consumed 
during these periods shall be pre-estab-
lished and known to consumers in advance
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of such consumption, allowing them to 
vary their demand and usage in response 
to such prices and manage their energy 
costs by shifting usage to a lower cost pe-
riod or reducing their consumption overall; 
‘‘(ii) critical peak pricing whereby 
time-of-use prices are in effect except for 
certain peak days, when prices may reflect 
the costs of generating and/or purchasing 
electricity at the wholesale level and when 
consumers may receive additional discounts 
for reducing peak period energy consump-
tion; and 
‘‘(iii) real-time pricing whereby elec-
tricity prices are set for a specific time pe-
riod on an advanced or forward basis, re-
flecting the utility’s cost of generating and/ 
or purchasing electricity at the wholesale 
level, and may change as often as hourly. 
‘‘(C) Each electric utility subject to sub-
paragraph (A) shall provide each customer re-
questing a time-based rate with a time-based 
meter capable of enabling the utility and cus-
tomer to offer and receive such rate, respec-
tively.
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‘‘(D) For purposes of implementing this 
paragraph, any reference contained in this sec-
tion to the date of enactment of the Public Util-
ity Regulatory Policies Act of 1978 shall be 
deemed to be a reference to the date of enact-
ment of this paragraph. 
‘‘(E) In a State that permits third-party 
marketers to sell electric energy to retail elec-
tric consumers, such consumers shall be entitled 
to receive the same time-based metering and 
communications device and service as a retail 
electric consumer of the electric utility. 
‘‘(F) Notwithstanding subsections (b) and 
(c) of section 112, each State regulatory au-
thority shall, not later than 18 months after the 
date of enactment of this paragraph conduct an 
investigation in accordance with section 115(i) 
and issue a decision whether it is appropriate to 
implement the standards set out in subpara-
graphs (A) and (C).’’. 
(b) STATE INVESTIGATION OF DEMAND RESPONSE 
AND TIME-BASED METERING.—Section 115 of the Public 
Utilities Regulatory Policies Act of 1978 (16 U.S.C. 2625) 
is amended as follows:
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(1) By inserting in subsection (b) after the 
phrase ‘‘the standard for time-of-day rates estab-
lished by section 111(d)(3)’’ the following: ‘‘and the 
standard for time-based metering and communica-
tions established by section 111(d)(14)’’. 
(2) By inserting in subsection (b) after the 
phrase ‘‘are likely to exceed the metering’’ the fol-
lowing: ‘‘and communications’’. 
(3) By adding the at the end the following: 
‘‘(i) TIME-BASED
METERING
AND
COMMUNICA-
TIONS.—In making a determination with respect to the 
standard established by section 111(d)(14), the investiga-
tion requirement of section 111(d)(14)(F) shall be as fol-
lows: Each State regulatory authority shall conduct an in-
vestigation and issue a decision whether or not it is appro-
priate for electric utilities to provide and install time-based 
meters and communications devices for each of their cus-
tomers which enable such customers to participate in time- 
based pricing rate schedules and other demand response 
programs.’’. 
(c) 
FEDERAL
ASSISTANCE
ON
DEMAND
RE-
SPONSE.—Section 132(a) of the Public Utility Regulatory 
Policies Act of 1978 (16 U.S.C. 2642(a)) is amended by 
striking ‘‘and’’ at the end of paragraph (3), striking the
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period at the end of paragraph (4) and inserting ‘‘; and’’, 
and by adding the following at the end thereof: 
‘‘(5) technologies, techniques, and rate-making 
methods related to advanced metering and commu-
nications and the use of these technologies, tech-
niques and methods in demand response programs.’’. 
(d) FEDERAL GUIDANCE.—Section 132 of the Public 
Utility Regulatory Policies Act of 1978 (16 U.S.C. 2642) 
is amended by adding the following at the end thereof: 
‘‘(d) DEMAND RESPONSE.—The Secretary shall be 
responsible for— 
‘‘(1) educating consumers on the availability, 
advantages, and benefits of advanced metering and 
communications technologies, including the funding 
of demonstration or pilot projects; 
‘‘(2) working with States, utilities, other energy 
providers and advanced metering and communica-
tions experts to identify and address barriers to the 
adoption of demand response programs; and 
‘‘(3) not later than 180 days after the date of 
enactment of the Energy Policy Act of 2003, pro-
viding Congress with a report that identifies and 
quantifies the national benefits of demand response 
and makes a recommendation on achieving specific 
levels of such benefits by January 1, 2005.’’.
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(e) DEMAND RESPONSE AND REGIONAL COORDINA-
TION.— 
(1) IN GENERAL.—It is the policy of the United 
States to encourage States to coordinate, on a re-
gional basis, State energy policies to provide reliable 
and affordable demand response services to the pub-
lic. 
(2) TECHNICAL ASSISTANCE.—The Secretary of 
Energy shall provide technical assistance to States 
and regional organizations formed by 2 or more 
States to assist them in— 
(A) identifying the areas with the greatest 
demand response potential; 
(B) identifying and resolving problems in 
transmission and distribution networks, includ-
ing through the use of demand response; 
(C) developing plans and programs to use 
demand response to respond to peak demand or 
emergency needs; and 
(D) identifying specific measures con-
sumers can take to participate in these demand 
response programs. 
(3) REPORT.—Not later than 1 year after the 
date of enactment of the Energy Policy Act of 2003, 
the Commission shall prepare and publish an annual
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report, by appropriate region, that assesses demand 
response resources, including those available from all 
consumer classes, and which identifies and reviews— 
(A) saturation and penetration rate of ad-
vanced 
meters 
and 
communications 
tech-
nologies, devices and systems; 
(B) existing demand response programs 
and time-based rate programs; 
(C) the annual resource contribution of de-
mand resources; 
(D) the potential for demand response as 
a quantifiable, reliable resource for regional 
planning purposes; and 
(E) steps taken to ensure that, in regional 
transmission planning and operations, demand 
resources are provided equitable treatment as a 
quantifiable, reliable resource relative to the re-
source obligations of any load-serving entity, 
transmission provider, or transmitting party. 
(f) FEDERAL ENCOURAGEMENT
OF DEMAND RE-
SPONSE DEVICES.—It is the policy of the United States 
that time-based pricing and other forms of demand re-
sponse, whereby electricity customers are provided with 
electricity price signals and the ability to benefit by re-
sponding to them, shall be encouraged, and the deploy-
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ment of such technology and devices that enable electricity 
customers to participate in such pricing and demand re-
sponse systems shall be facilitated. It is further the policy 
of the United States that the benefits of such demand re-
sponse that accrue to those not deploying such technology 
and devices, but who are part of the same regional elec-
tricity entity, shall be recognized. 
(g) TIME LIMITATIONS.—Section 112(b) of the Pub-
lic Utility Regulatory Policies Act of 1978 (16 U.S.C. 
2622(b)) is amended by adding at the end the following: 
‘‘(4)(A) Not later than 1 year after the enact-
ment of this paragraph, each State regulatory au-
thority (with respect to each electric utility for which 
it has ratemaking authority) and each nonregulated 
electric utility shall commence the consideration re-
ferred to in section 111, or set a hearing date for 
such consideration, with respect to the standard es-
tablished by paragraph (14) of section 111(d). 
‘‘(B) Not later than 2 years after the date of 
the enactment of this paragraph, each State regu-
latory authority (with respect to each electric utility 
for which it has ratemaking authority), and each 
nonregulated electric utility, shall complete the con-
sideration, and shall make the determination, re-
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ferred to in section 111 with respect to the standard 
established by paragraph (14) of section 111(d).’’. 
(h) FAILURE TO COMPLY.—Section 112(c) of the 
Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 
2622(c)) is amended by adding at the end the following: 
‘‘In the case of the standard established by paragraph (14) 
of section 111(d), the reference contained in this sub-
section to the date of enactment of this Act shall be 
deemed to be a reference to the date of enactment of such 
paragraph (14).’’. 
(i) PRIOR STATE ACTIONS REGARDING SMART ME-
TERING STANDARDS.— 
(1) IN GENERAL.—Section 112 of the Public 
Utility Regulatory Policies Act of 1978 (16 U.S.C. 
2622) is amended by adding at the end the fol-
lowing: 
‘‘(e) PRIOR STATE ACTIONS.—Subsections (b) and 
(c) of this section shall not apply to the standard estab-
lished by paragraph (14) of section 111(d) in the case of 
any electric utility in a State if, before the enactment of 
this subsection— 
‘‘(1) the State has implemented for such utility 
the standard concerned (or a comparable standard); 
‘‘(2) the State regulatory authority for such 
State or relevant nonregulated electric utility has
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conducted a proceeding to consider implementation 
of the standard concerned (or a comparable stand-
ard) for such utility within the previous 3 years; or 
‘‘(3) the State legislature has voted on the im-
plementation of such standard (or a comparable 
standard) for such utility within the previous 3 
years.’’. 
(2) CROSS REFERENCE.—Section 124 of such 
Act (16 U.S.C. 2634) is amended by adding the fol-
lowing at the end thereof: ‘‘In the case of the stand-
ard established by paragraph (14) of section 111(d), 
the reference contained in this subsection to the date 
of enactment of this Act shall be deemed to be a ref-
erence to the date of enactment of such paragraph 
(14).’’. 
SEC. 1253. COGENERATION AND SMALL POWER PRODUC-
TION PURCHASE AND SALE REQUIREMENTS. 
(a) TERMINATION OF MANDATORY PURCHASE AND 
SALE REQUIREMENTS.—Section 210 of the Public Utility 
Regulatory Policies Act of 1978 (16 U.S.C. 824a–3) is 
amended by adding at the end the following: 
‘‘(m) TERMINATION OF MANDATORY PURCHASE AND 
SALE REQUIREMENTS.— 
‘‘(1) OBLIGATION
TO
PURCHASE.—After the 
date of enactment of this subsection, no electric util-
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ity shall be required to enter into a new contract or 
obligation to purchase electric energy from a quali-
fying cogeneration facility or a qualifying small 
power production facility under this section if the 
Commission finds that the qualifying cogeneration 
facility or qualifying small power production facility 
has nondiscriminatory access to— 
‘‘(A)(i) independently administered, auc-
tion-based day ahead and real time wholesale 
markets for the sale of electric energy; and (ii) 
wholesale markets for long-term sales of capac-
ity and electric energy; or 
‘‘(B)(i) transmission and interconnection 
services that are provided by a Commission-ap-
proved regional transmission entity and admin-
istered pursuant to an open access transmission 
tariff that affords nondiscriminatory treatment 
to all customers; and (ii) competitive wholesale 
markets that provide a meaningful opportunity 
to sell capacity, including long-term and short- 
term sales, and electric energy, including long- 
term, short-term and real-time sales, to buyers 
other than the utility to which the qualifying fa-
cility is interconnected. In determining whether 
a meaningful opportunity to sell exists, the
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Commission shall consider, among other fac-
tors, evidence of transactions within the rel-
evant market; or 
‘‘(C) wholesale markets for the sale of ca-
pacity and electric energy that are, at a min-
imum, of comparable competitive quality as 
markets described in subparagraphs (A) and 
(B). 
‘‘(2) REVISED PURCHASE AND SALE OBLIGA-
TION FOR NEW FACILITIES.—(A) After the date of 
enactment of this subsection, no electric utility shall 
be required pursuant to this section to enter into a 
new contract or obligation to purchase from or sell 
electric energy to a facility that is not an existing 
qualifying cogeneration facility unless the facility 
meets the criteria for qualifying cogeneration facili-
ties established by the Commission pursuant to the 
rulemaking required by subsection (n). 
‘‘(B) For the purposes of this paragraph, the 
term ‘existing qualifying cogeneration facility’ means 
a facility that— 
‘‘(i) was a qualifying cogeneration facility 
on the date of enactment of subsection (m); or 
‘‘(ii) had filed with the Commission a no-
tice of self-certification, self recertification or
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an application for Commission certification 
under 18 C.F.R. 292.207 prior to the date on 
which the Commission issues the final rule re-
quired by subsection (n). 
‘‘(3) COMMISSION REVIEW.—Any electric utility 
may file an application with the Commission for re-
lief from the mandatory purchase obligation pursu-
ant to this subsection on a service territory-wide 
basis. Such application shall set forth the factual 
basis upon which relief is requested and describe 
why the conditions set forth in subparagraphs (A), 
(B) or (C) of paragraph (1) of this subsection have 
been met. After notice, including sufficient notice to 
potentially affected qualifying cogeneration facilities 
and qualifying small power production facilities, and 
an opportunity for comment, the Commission shall 
make a final determination within 90 days of such 
application regarding whether the conditions set 
forth in subparagraphs (A), (B) or (C) of paragraph 
(1) have been met. 
‘‘(4) REINSTATEMENT OF OBLIGATION TO PUR-
CHASE.—At any time after the Commission makes a 
finding under paragraph (3) relieving an electric 
utility of its obligation to purchase electric energy, 
a qualifying cogeneration facility, a qualifying small
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power production facility, a State agency, or any 
other affected person may apply to the Commission 
for an order reinstating the electric utility’s obliga-
tion to purchase electric energy under this section. 
Such application shall set forth the factual basis 
upon which the application is based and describe 
why the conditions set forth in subparagraphs (A), 
(B) or (C) of paragraph (1) of this subsection are 
no longer met. After notice, including sufficient no-
tice to potentially affected utilities, and opportunity 
for comment, the Commission shall issue an order 
within 90 days of such application reinstating the 
electric utility’s obligation to purchase electric en-
ergy under this section if the Commission finds that 
the conditions set forth in subparagraphs (A), (B) or 
(C) of paragraph (1) which relieved the obligation to 
purchase, are no longer met. 
‘‘(5) OBLIGATION TO SELL.—After the date of 
enactment of this subsection, no electric utility shall 
be required to enter into a new contract or obliga-
tion to sell electric energy to a qualifying cogenera-
tion facility or a qualifying small power production 
facility under this section if the Commission finds 
that—
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‘‘(A) competing retail electric suppliers are 
willing and able to sell and deliver electric en-
ergy to the qualifying cogeneration facility or 
qualifying small power production facility; and 
‘‘(B) the electric utility is not required by 
State law to sell electric energy in its service 
territory. 
‘‘(6) NO
EFFECT
ON
EXISTING
RIGHTS
AND 
REMEDIES.—Nothing in this subsection affects the 
rights or remedies of any party under any contract 
or obligation, in effect or pending approval before 
the appropriate State regulatory authority or non- 
regulated electric utility on the date of enactment of 
this subsection, to purchase electric energy or capac-
ity from or to sell electric energy or capacity to a 
qualifying cogeneration facility or qualifying small 
power production facility under this Act (including 
the right to recover costs of purchasing electric en-
ergy or capacity). 
‘‘(7) RECOVERY OF COSTS.—(A) The Commis-
sion shall issue and enforce such regulations as are 
necessary to ensure that an electric utility that pur-
chases electric energy or capacity from a qualifying 
cogeneration facility or qualifying small power pro-
duction facility in accordance with any legally en-
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forceable obligation entered into or imposed under 
this section recovers all prudently incurred costs as-
sociated with the purchase. 
‘‘(B) A regulation under subparagraph (A) shall 
be enforceable in accordance with the provisions of 
law applicable to enforcement of regulations under 
the Federal Power Act (16 U.S.C. 791a et seq.). 
‘‘(n) RULEMAKING FOR NEW QUALIFYING FACILI-
TIES.—(1)(A) Not later than 180 days after the date of 
enactment of this section, the Commission shall issue a 
rule revising the criteria in 18 C.F.R. 292.205 for new 
qualifying cogeneration facilities seeking to sell electric en-
ergy pursuant to section 210 of this Act to ensure— 
‘‘(i) that the thermal energy output of a new 
qualifying cogeneration facility is used in a produc-
tive and beneficial manner; 
‘‘(ii) the electrical, thermal, and chemical out-
put of the cogeneration facility is used fundamen-
tally for industrial, commercial, or institutional pur-
poses and is not intended fundamentally for sale to 
an electric utility, taking into account technological, 
efficiency, economic, and variable thermal energy re-
quirements, as well as State laws applicable to sales 
of electric energy from a qualifying facility to its 
host facility; and
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‘‘(iii) continuing progress in the development of 
efficient electric energy generating technology. 
‘‘(B) The rule issued pursuant to section (n)(1)(A) 
shall be applicable only to facilities that seek to sell electric 
energy pursuant to section 210 of this Act. For all other 
purposes, except as specifically provided in section 
(m)(2)(A), qualifying facility status shall be determined 
in accordance with the rules and regulations of this Act. 
‘‘(2) Notwithstanding rule revisions under paragraph 
(1), the Commission’s criteria for qualifying cogeneration 
facilities in effect prior to the date on which the Commis-
sion issues the final rule required by paragraph (1) shall 
continue to apply to any cogeneration facility that— 
‘‘(A) was a qualifying cogeneration facility on 
the date of enactment of subsection (m), or 
‘‘(B) had filed with the Commission a notice of 
self-certification, self-recertification or an application 
for Commission certification under 18 C.F.R. 
292.207 prior to the date on which the Commission 
issues the final rule required by paragraph (1).’’. 
(b) ELIMINATION OF OWNERSHIP LIMITATIONS.— 
(1) QUALIFYING
SMALL
POWER
PRODUCTION 
FACILITY.—Section 3(17)(C) of the Federal Power 
Act (16 U.S.C. 796(17)(C)) is amended to read as 
follows:
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‘‘(C) ‘qualifying small power production fa-
cility’ means a small power production facility 
that the Commission determines, by rule, meets 
such requirements (including requirements re-
specting fuel use, fuel efficiency, and reliability) 
as the Commission may, by rule, prescribe;’’. 
(2) QUALIFYING
COGENERATION
FACILITY.— 
Section 3(18)(B) of the Federal Power Act (16 
U.S.C. 796(18)(B)) is amended to read as follows: 
‘‘(B) 
‘qualifying 
cogeneration 
facility’ 
means a cogeneration facility that the Commis-
sion determines, by rule, meets such require-
ments (including requirements respecting min-
imum size, fuel use, and fuel efficiency) as the 
Commission may, by rule, prescribe;’’. 
Subtitle F—Repeal of PUHCA 
SEC. 1261. SHORT TITLE. 
This subtitle may be cited as the ‘‘Public Utility 
Holding Company Act of 2004’’. 
SEC. 1262. DEFINITIONS. 
For purposes of this subtitle: 
(1) AFFILIATE.—The term ‘‘affiliate’’ of a com-
pany means any company, 5 percent or more of the 
outstanding voting securities of which are owned,
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controlled, or held with power to vote, directly or in-
directly, by such company. 
(2) ASSOCIATE COMPANY.—The term ‘‘associate 
company’’ of a company means any company in the 
same holding company system with such company. 
(3) COMMISSION.—The term ‘‘Commission’’ 
means the Federal Energy Regulatory Commission. 
(4) COMPANY.—The term ‘‘company’’ means a 
corporation, partnership, association, joint stock 
company, business trust, or any organized group of 
persons, whether incorporated or not, or a receiver, 
trustee, or other liquidating agent of any of the fore-
going. 
(5) ELECTRIC
UTILITY
COMPANY.—The term 
‘‘electric utility company’’ means any company that 
owns or operates facilities used for the generation, 
transmission, or distribution of electric energy for 
sale. 
(6) EXEMPT
WHOLESALE
GENERATOR
AND 
FOREIGN
UTILITY
COMPANY.—The terms ‘‘exempt 
wholesale generator’’ and ‘‘foreign utility company’’ 
have the same meanings as in sections 32 and 33, 
respectively, of the Public Utility Holding Company 
Act of 1935 (15 U.S.C. 79z–5a, 79z–5b), as those
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sections existed on the day before the effective date 
of this subtitle. 
(7) GAS
UTILITY
COMPANY.—The term ‘‘gas 
utility company’’ means any company that owns or 
operates facilities used for distribution at retail 
(other than the distribution only in enclosed portable 
containers or distribution to tenants or employees of 
the company operating such facilities for their own 
use and not for resale) of natural or manufactured 
gas for heat, light, or power. 
(8) HOLDING
COMPANY.—The term ‘‘holding 
company’’ means— 
(A) any company that directly or indirectly 
owns, controls, or holds, with power to vote, 10 
percent or more of the outstanding voting secu-
rities of a public-utility company or of a holding 
company of any public-utility company; and 
(B) any person, determined by the Com-
mission, after notice and opportunity for hear-
ing, to exercise directly or indirectly (either 
alone or pursuant to an arrangement or under-
standing with 1 or more persons) such a con-
trolling influence over the management or poli-
cies of any public-utility company or holding 
company as to make it necessary or appropriate
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for the rate protection of utility customers with 
respect to rates that such person be subject to 
the obligations, duties, and liabilities imposed 
by this subtitle upon holding companies. 
(9) HOLDING
COMPANY
SYSTEM.—The term 
‘‘holding company system’’ means a holding com-
pany, together with its subsidiary companies. 
(10) JURISDICTIONAL RATES.—The term ‘‘ju-
risdictional rates’’ means rates accepted or estab-
lished by the Commission for the transmission of 
electric energy in interstate commerce, the sale of 
electric energy at wholesale in interstate commerce, 
the transportation of natural gas in interstate com-
merce, and the sale in interstate commerce of nat-
ural gas for resale for ultimate public consumption 
for domestic, commercial, industrial, or any other 
use. 
(11) NATURAL GAS COMPANY.—The term ‘‘nat-
ural gas company’’ means a person engaged in the 
transportation of natural gas in interstate commerce 
or the sale of such gas in interstate commerce for 
resale. 
(12) PERSON.—The term ‘‘person’’ means an 
individual or company.
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(13) PUBLIC UTILITY.—The term ‘‘public util-
ity’’ means any person who owns or operates facili-
ties used for transmission of electric energy in inter-
state commerce or sales of electric energy at whole-
sale in interstate commerce. 
(14) PUBLIC-UTILITY
COMPANY.—The term 
‘‘public-utility company’’ means an electric utility 
company or a gas utility company. 
(15) STATE
COMMISSION.—The term ‘‘State 
commission’’ means any commission, board, agency, 
or officer, by whatever name designated, of a State, 
municipality, or other political subdivision of a State 
that, under the laws of such State, has jurisdiction 
to regulate public utility companies. 
(16) SUBSIDIARY COMPANY.—The term ‘‘sub-
sidiary company’’ of a holding company means— 
(A) any company, 10 percent or more of 
the outstanding voting securities of which are 
directly or indirectly owned, controlled, or held 
with power to vote, by such holding company; 
and 
(B) any person, the management or poli-
cies of which the Commission, after notice and 
opportunity for hearing, determines to be sub-
ject to a controlling influence, directly or indi-
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rectly, by such holding company (either alone or 
pursuant to an arrangement or understanding 
with 1 or more other persons) so as to make it 
necessary for the rate protection of utility cus-
tomers with respect to rates that such person 
be subject to the obligations, duties, and liabil-
ities imposed by this subtitle upon subsidiary 
companies of holding companies. 
(17) VOTING SECURITY.—The term ‘‘voting se-
curity’’ means any security presently entitling the 
owner or holder thereof to vote in the direction or 
management of the affairs of a company. 
SEC. 1263. REPEAL OF THE PUBLIC UTILITY HOLDING COM-
PANY ACT OF 1935. 
The Public Utility Holding Company Act of 1935 (15 
U.S.C. 79 et seq.) is repealed. 
SEC. 1264. FEDERAL ACCESS TO BOOKS AND RECORDS. 
(a) IN GENERAL.—Each holding company and each 
associate company thereof shall maintain, and shall make 
available to the Commission, such books, accounts, memo-
randa, and other records as the Commission determines 
are relevant to costs incurred by a public utility or natural 
gas company that is an associate company of such holding 
company and necessary or appropriate for the protection 
of utility customers with respect to jurisdictional rates.
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HR 4503 RDS 
(b) AFFILIATE COMPANIES.—Each affiliate of a hold-
ing company or of any subsidiary company of a holding 
company shall maintain, and shall make available to the 
Commission, such books, accounts, memoranda, and other 
records with respect to any transaction with another affil-
iate, as the Commission determines are relevant to costs 
incurred by a public utility or natural gas company that 
is an associate company of such holding company and nec-
essary or appropriate for the protection of utility cus-
tomers with respect to jurisdictional rates. 
(c) HOLDING COMPANY SYSTEMS.—The Commission 
may examine the books, accounts, memoranda, and other 
records of any company in a holding company system, or 
any affiliate thereof, as the Commission determines are 
relevant to costs incurred by a public utility or natural 
gas company within such holding company system and 
necessary or appropriate for the protection of utility cus-
tomers with respect to jurisdictional rates. 
(d) CONFIDENTIALITY.—No member, officer, or em-
ployee of the Commission shall divulge any fact or infor-
mation that may come to his or her knowledge during the 
course of examination of books, accounts, memoranda, or 
other records as provided in this section, except as may 
be directed by the Commission or by a court of competent 
jurisdiction.
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HR 4503 RDS 
SEC. 1265. STATE ACCESS TO BOOKS AND RECORDS. 
(a) IN GENERAL.—Upon the written request of a 
State commission having jurisdiction to regulate a public- 
utility company in a holding company system, the holding 
company or any associate company or affiliate thereof, 
other than such public-utility company, wherever located, 
shall produce for inspection books, accounts, memoranda, 
and other records that— 
(1) have been identified in reasonable detail in 
a proceeding before the State commission; 
(2) the State commission determines are rel-
evant to costs incurred by such public-utility com-
pany; and 
(3) are necessary for the effective discharge of 
the responsibilities of the State commission with re-
spect to such proceeding. 
(b) LIMITATION.—Subsection (a) does not apply to 
any person that is a holding company solely by reason of 
ownership of 1 or more qualifying facilities under the Pub-
lic Utility Regulatory Policies Act of 1978 (16 U.S.C. 
2601 et seq.). 
(c) CONFIDENTIALITY OF INFORMATION.—The pro-
duction of books, accounts, memoranda, and other records 
under subsection (a) shall be subject to such terms and 
conditions as may be necessary and appropriate to safe-
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guard against unwarranted disclosure to the public of any 
trade secrets or sensitive commercial information. 
(d) EFFECT ON STATE LAW.—Nothing in this sec-
tion shall preempt applicable State law concerning the pro-
vision of books, accounts, memoranda, and other records, 
or in any way limit the rights of any State to obtain books, 
accounts, memoranda, and other records under any other 
Federal law, contract, or otherwise. 
(e) COURT JURISDICTION.—Any United States dis-
trict court located in the State in which the State commis-
sion referred to in subsection (a) is located shall have ju-
risdiction to enforce compliance with this section. 
SEC. 1266. EXEMPTION AUTHORITY. 
(a) RULEMAKING.—Not later than 90 days after the 
effective date of this subtitle, the Commission shall issue 
a final rule to exempt from the requirements of section 
1264 (relating to Federal access to books and records) any 
person that is a holding company, solely with respect to 
1 or more— 
(1) qualifying facilities under the Public Utility 
Regulatory Policies Act of 1978 (16 U.S.C. 2601 et 
seq.); 
(2) exempt wholesale generators; or 
(3) foreign utility companies.
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HR 4503 RDS 
(b) OTHER AUTHORITY.—The Commission shall ex-
empt a person or transaction from the requirements of 
section 1264 (relating to Federal access to books and 
records) if, upon application or upon the motion of the 
Commission— 
(1) the Commission finds that the books, ac-
counts, memoranda, and other records of any person 
are not relevant to the jurisdictional rates of a pub-
lic utility or natural gas company; or 
(2) the Commission finds that any class of 
transactions is not relevant to the jurisdictional 
rates of a public utility or natural gas company. 
SEC. 1267. AFFILIATE TRANSACTIONS. 
(a) COMMISSION AUTHORITY UNAFFECTED.—Noth-
ing in this subtitle shall limit the authority of the Commis-
sion under the Federal Power Act (16 U.S.C. 791a et seq.) 
to require that jurisdictional rates are just and reasonable, 
including the ability to deny or approve the pass through 
of costs, the prevention of cross-subsidization, and the 
issuance of such rules and regulations as are necessary 
or appropriate for the protection of utility consumers. 
(b) RECOVERY OF COSTS.—Nothing in this subtitle 
shall preclude the Commission or a State commission from 
exercising its jurisdiction under otherwise applicable law 
to determine whether a public-utility company, public util-
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HR 4503 RDS 
ity, or natural gas company may recover in rates any costs 
of an activity performed by an associate company, or any 
costs of goods or services acquired by such public-utility 
company from an associate company. 
SEC. 1268. APPLICABILITY. 
Except as otherwise specifically provided in this sub-
title, no provision of this subtitle shall apply to, or be 
deemed to include— 
(1) the United States; 
(2) a State or any political subdivision of a 
State; 
(3) any foreign governmental authority not op-
erating in the United States; 
(4) any agency, authority, or instrumentality of 
any entity referred to in paragraph (1), (2), or (3); 
or 
(5) any officer, agent, or employee of any entity 
referred to in paragraph (1), (2), (3), or (4) acting 
as such in the course of his or her official duty. 
SEC. 1269. EFFECT ON OTHER REGULATIONS. 
Nothing in this subtitle precludes the Commission or 
a State commission from exercising its jurisdiction under 
otherwise applicable law to protect utility customers.
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HR 4503 RDS 
SEC. 1270. ENFORCEMENT. 
The Commission shall have the same powers as set 
forth in sections 306 through 317 of the Federal Power 
Act (16 U.S.C. 825e–825p) to enforce the provisions of 
this subtitle. 
SEC. 1271. SAVINGS PROVISIONS. 
(a) IN GENERAL.—Nothing in this subtitle, or other-
wise in the Public Utility Holding Company Act of 1935, 
or rules, regulations, or orders thereunder, prohibits a per-
son from engaging in or continuing to engage in activities 
or transactions in which it is legally engaged or authorized 
to engage on the date of enactment of this Act, if that 
person continues to comply with the terms (other than an 
expiration date or termination date) of any such author-
ization, whether by rule or by order. 
(b) EFFECT ON OTHER COMMISSION AUTHORITY.— 
Nothing in this subtitle limits the authority of the Com-
mission under the Federal Power Act (16 U.S.C. 791a et 
seq.) or the Natural Gas Act (15 U.S.C. 717 et seq.). 
SEC. 1272. IMPLEMENTATION. 
Not later than 12 months after the date of enactment 
of this subtitle, the Commission shall— 
(1) issue such regulations as may be necessary 
or appropriate to implement this subtitle (other than 
section 1265, relating to State access to books and 
records); and
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HR 4503 RDS 
(2) submit to Congress detailed recommenda-
tions on technical and conforming amendments to 
Federal law necessary to carry out this subtitle and 
the amendments made by this subtitle. 
SEC. 1273. TRANSFER OF RESOURCES. 
All books and records that relate primarily to the 
functions transferred to the Commission under this sub-
title shall be transferred from the Securities and Exchange 
Commission to the Commission. 
SEC. 1274. EFFECTIVE DATE. 
(a) IN GENERAL.—Except for section 1272 (relating 
to implementation), this subtitle shall take effect 12 
months after the date of enactment of this subtitle. 
(b) COMPLIANCE WITH CERTAIN RULES.—If the 
Commission approves and makes effective any final rule-
making modifying the standards of conduct governing en-
tities that own, operate, or control facilities for trans-
mission of electricity in interstate commerce or transpor-
tation of natural gas in interstate commerce prior to the 
effective date of this subtitle, any action taken by a public- 
utility company or utility holding company to comply with 
the requirements of such rulemaking shall not subject 
such public-utility company or utility holding company to 
any regulatory requirement applicable to a holding com-
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HR 4503 RDS 
pany under the Public Utility Holding Company Act of 
1935 (15 U.S.C. 79 et seq.). 
SEC. 1275. SERVICE ALLOCATION. 
(a) FERC REVIEW.—In the case of non-power goods 
or administrative or management services provided by an 
associate company organized specifically for the purpose 
of providing such goods or services to any public utility 
in the same holding company system, at the election of 
the system or a State commission having jurisdiction over 
the public utility, the Commission, after the effective date 
of this subtitle, shall review and authorize the allocation 
of the costs for such goods or services to the extent rel-
evant to that associate company in order to assure that 
each allocation is appropriate for the protection of inves-
tors and consumers of such public utility. 
(b) COST ALLOCATION.—Nothing in this section shall 
preclude the Commission or a State commission from exer-
cising its jurisdiction under other applicable law with re-
spect to the review or authorization of any costs allocated 
to a public utility in a holding company system located 
in the affected State as a result of the acquisition of non- 
power goods or administrative and management services 
by such public utility from an associate company orga-
nized specifically for that purpose.
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HR 4503 RDS 
(c) RULES.—Not later than 6 months after the date 
of enactment of this Act, the Commission shall issue rules 
(which rules shall be effective no earlier than the effective 
date of this subtitle) to exempt from the requirements of 
this section any company in a holding company system 
whose public utility operations are confined substantially 
to a single State and any other class of transactions that 
the Commission finds is not relevant to the jurisdictional 
rates of a public utility. 
(d) PUBLIC UTILITY.—As used in this section, the 
term ‘‘public utility’’ has the meaning given that term in 
section 201(e) of the Federal Power Act. 
SEC. 1276. AUTHORIZATION OF APPROPRIATIONS. 
There are authorized to be appropriated such funds 
as may be necessary to carry out this subtitle. 
SEC. 1277. CONFORMING AMENDMENTS TO THE FEDERAL 
POWER ACT. 
(a) CONFLICT OF JURISDICTION.—Section 318 of the 
Federal Power Act (16 U.S.C. 825q) is repealed. 
(b) DEFINITIONS.—(1) Section 201(g)(5) of the Fed-
eral Power Act (16 U.S.C. 824(g)(5)) is amended by strik-
ing ‘‘1935’’ and inserting ‘‘2003’’. 
(2) Section 214 of the Federal Power Act (16 U.S.C. 
824m) is amended by striking ‘‘1935’’ and inserting 
‘‘2003’’.
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HR 4503 RDS 
Subtitle G—Market Transparency, 
Enforcement, 
and 
Consumer 
Protection 
SEC. 1281. MARKET TRANSPARENCY RULES. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by adding at the end the following: 
‘‘SEC. 220. MARKET TRANSPARENCY RULES. 
‘‘(a) IN GENERAL.—Not later than 180 days after 
the date of enactment of this section, the Commission 
shall issue rules establishing an electronic information sys-
tem to provide the Commission and the public with access 
to such information as is necessary or appropriate to fa-
cilitate price transparency and participation in markets 
subject to the Commission’s jurisdiction under this Act. 
Such systems shall provide information about the avail-
ability and market price of wholesale electric energy and 
transmission services to the Commission, State commis-
sions, buyers and sellers of wholesale electric energy, users 
of transmission services, and the public on a timely basis. 
The Commission shall have authority to obtain such infor-
mation from any electric utility or transmitting utility, in-
cluding any entity described in section 201(f). 
‘‘(b) EXEMPTIONS.—The Commission shall exempt 
from disclosure information it determines would, if dis-
closed, be detrimental to the operation of an effective mar-
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HR 4503 RDS 
ket or jeopardize system security. This section shall not 
apply to transactions for the purchase or sale of wholesale 
electric energy or transmission services within the area de-
scribed in section 212(k)(2)(A). In determining the infor-
mation to be made available under this section and time 
to make such information available, the Commission shall 
seek to ensure that consumers and competitive markets 
are protected from the adverse effects of potential collu-
sion or other anti-competitive behaviors that can be facili-
tated by untimely public disclosure of transaction-specific 
information. 
‘‘(c) COMMODITY
FUTURES
TRADING
COMMIS-
SION.—This section shall not affect the exclusive jurisdic-
tion of the Commodity Futures Trading Commission with 
respect to accounts, agreements, contracts, or transactions 
in commodities under the Commodity Exchange Act (7 
U.S.C. 1 et seq.). Any request for information to a des-
ignated contract market, registered derivatives transaction 
execution facility, board of trade, exchange, or market in-
volving accounts, agreements, contracts, or transactions in 
commodities (including natural gas, electricity and other 
energy commodities) within the exclusive jurisdiction of 
the Commodity Futures Trading Commission shall be di-
rected to the Commodity Futures Trading Commission.
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‘‘(d) SAVINGS PROVISION.—In exercising its author-
ity under this section, the Commission shall not— 
‘‘(1) compete with, or displace from the market 
place, any price publisher; or 
‘‘(2) regulate price publishers or impose any re-
quirements on the publication of information.’’. 
SEC. 1282. MARKET MANIPULATION. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by adding at the end the following: 
‘‘SEC. 221. PROHIBITION ON FILING FALSE INFORMATION. 
‘‘No person or other entity (including an entity de-
scribed in section 201(f)) shall willfully and knowingly re-
port any information relating to the price of electricity 
sold at wholesale or availability of transmission capacity, 
which information the person or any other entity knew to 
be false at the time of the reporting, to a Federal agency 
with intent to fraudulently affect the data being compiled 
by such Federal agency. 
‘‘SEC. 222. PROHIBITION ON ROUND TRIP TRADING. 
‘‘(a) PROHIBITION.—No person or other entity (in-
cluding an entity described in section 201(f)) shall willfully 
and knowingly enter into any contract or other arrange-
ment to execute a ‘round trip trade’ for the purchase or 
sale of electric energy at wholesale.
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HR 4503 RDS 
‘‘(b) DEFINITION.—For the purposes of this section, 
the term ‘round trip trade’ means a transaction, or com-
bination of transactions, in which a person or any other 
entity— 
‘‘(1) enters into a contract or other arrange-
ment to purchase from, or sell to, any other person 
or other entity electric energy at wholesale; 
‘‘(2) simultaneously with entering into the con-
tract or arrangement described in paragraph (1), ar-
ranges a financially offsetting trade with such other 
person or entity for the same such electric energy, 
at the same location, price, quantity and terms so 
that, collectively, the purchase and sale transactions 
in themselves result in no financial gain or loss; and 
‘‘(3) enters into the contract or arrangement 
with a specific intent to fraudulently affect reported 
revenues, trading volumes, or prices.’’. 
SEC. 1283. ENFORCEMENT. 
(a) COMPLAINTS.—Section 306 of the Federal Power 
Act (16 U.S.C. 825e) is amended as follows: 
(1) By inserting ‘‘electric utility,’’ after ‘‘Any 
person,’’. 
(2) By inserting ‘‘, transmitting utility,’’ after 
‘‘licensee’’ each place it appears.
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HR 4503 RDS 
(b) REVIEW
OF
COMMISSION
ORDERS.—Section 
313(a) of the Federal Power Act (16 U.S.C. 8251) is 
amended by inserting ‘‘electric utility,’’ after ‘‘person,’’ in 
the first 2 places it appears and by striking ‘‘any person 
unless such person’’ and inserting ‘‘any entity unless such 
entity’’. 
(c) INVESTIGATIONS.—Section 307(a) of the Federal 
Power Act (16 U.S.C. 825f(a)) is amended as follows: 
(1) By inserting ‘‘, electric utility, transmitting 
utility, or other entity’’ after ‘‘person’’ each time it 
appears. 
(2) By striking the period at the end of the 
first sentence and inserting the following: ‘‘or in ob-
taining information about the sale of electric energy 
at wholesale in interstate commerce and the trans-
mission of electric energy in interstate commerce.’’. 
(d) CRIMINAL PENALTIES.—Section 316 of the Fed-
eral Power Act (16 U.S.C. 825o) is amended— 
(1) in subsection (a), by striking ‘‘$5,000’’ and 
inserting ‘‘$1,000,000’’, and by striking ‘‘two years’’ 
and inserting ‘‘5 years’’; 
(2) in subsection (b), by striking ‘‘$500’’ and 
inserting ‘‘$25,000’’; and 
(3) by striking subsection (c).
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(e) CIVIL PENALTIES.—Section 316A of the Federal 
Power Act (16 U.S.C. 825o–1) is amended as follows: 
(1) In subsections (a) and (b), by striking ‘‘sec-
tion 211, 212, 213, or 214’’ each place it appears 
and inserting ‘‘Part II’’. 
(2) In subsection (b), by striking ‘‘$10,000’’ 
and inserting ‘‘$1,000,000’’. 
SEC. 1284. REFUND EFFECTIVE DATE. 
Section 206(b) of the Federal Power Act (16 U.S.C. 
824e(b)) is amended as follows: 
(1) By striking ‘‘the date 60 days after the fil-
ing of such complaint nor later than 5 months after 
the expiration of such 60-day period’’ in the second 
sentence and inserting ‘‘the date of the filing of such 
complaint nor later than 5 months after the filing of 
such complaint’’. 
(2) By striking ‘‘60 days after’’ in the third 
sentence and inserting ‘‘of’’. 
(3) By striking ‘‘expiration of such 60-day pe-
riod’’ in the third sentence and inserting ‘‘publica-
tion date’’. 
(4) By striking the fifth sentence and inserting 
the following: ‘‘If no final decision is rendered by the 
conclusion of the 180-day period commencing upon 
initiation of a proceeding pursuant to this section,
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the Commission shall state the reasons why it has 
failed to do so and shall state its best estimate as 
to when it reasonably expects to make such deci-
sion.’’. 
SEC. 1285. REFUND AUTHORITY. 
Section 206 of the Federal Power Act (16 U.S.C. 
824e) is amended by adding the following new subsection 
at the end thereof: 
‘‘(e)(1) Except as provided in paragraph (2), if an 
entity described in section 201(f) voluntarily makes a 
short-term sale of electric energy and the sale violates 
Commission rules in effect at the time of the sale, such 
entity shall be subject to the Commission’s refund author-
ity under this section with respect to such violation. 
‘‘(2) This section shall not apply to— 
‘‘(A) any entity that sells less than 8,000,000 
megawatt hours of electricity per year; or 
‘‘(B) any electric cooperative. 
‘‘(3) For purposes of this subsection, the term ‘short- 
term sale’ means an agreement for the sale of electric en-
ergy at wholesale in interstate commerce that is for a pe-
riod of 31 days or less (excluding monthly contracts sub-
ject to automatic renewal). 
‘‘(4) The Commission shall have refund authority 
under subsection (e)(1) with respect to a voluntary short-
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term sale of electric energy by the Bonneville Power Ad-
ministration (in this section ‘Bonneville’) only if the sale 
is at an unjust and unreasonable rate and, in that event, 
may order a refund only for short-term sales made by 
Bonneville at rates that are higher than the highest just 
and reasonable rate charged by any other entity for a 
short-term sale of electric energy in the same geographic 
market for the same, or most nearly comparable, period 
as the sale by Bonneville. 
‘‘(5) With respect to any Federal power marketing 
agency or the Tennessee Valley Authority, the Commission 
shall not assert or exercise any regulatory authority or 
powers under subsection (e)(1) other than the ordering of 
refunds to achieve a just and reasonable rate.’’. 
SEC. 1286. SANCTITY OF CONTRACT. 
(a) IN GENERAL.—The Federal Energy Regulatory 
Commission (in this section, ‘‘the Commission’’) shall have 
no authority to abrogate or modify any provision of an 
executed contract or executed contract amendment de-
scribed in subsection (b) that has been entered into or 
taken effect, except upon a finding that failure to take 
such action would be contrary to the public interest. 
(b) LIMITATION.—Except as provided in subsection 
(c), this section shall apply only to a contract or contract 
amendment—
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(1) executed on or after the date of enactment 
of this Act; and 
(2) entered into— 
(A) for the purchase or sale of electric en-
ergy under section 205 of the Federal Power 
Act (16 U.S.C. 824d) where the seller has been 
authorized by the Commission to charge mar-
ket-based rates; or 
(B) under section 4 of the Natural Gas 
Act (15 U.S.C. 717c) where the natural gas 
company has been authorized by the Commis-
sion to charge market-based rates for the serv-
ice described in the contract. 
(c) EXCLUSION.—This section shall not apply to an 
executed contract or executed contract amendment that 
expressly provides for a standard of review other than the 
public interest standard. 
(d) SAVINGS PROVISION.—With respect to contracts 
to which this section does not apply, nothing in this sec-
tion alters existing law regarding the applicable standard 
of review for a contract subject to the jurisdiction of the 
Commission.
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SEC. 1287. CONSUMER PRIVACY AND UNFAIR TRADE PRAC-
TICES. 
(a) PRIVACY.—The Federal Trade Commission may 
issue rules protecting the privacy of electric consumers 
from the disclosure of consumer information obtained in 
connection with the sale or delivery of electric energy to 
electric consumers. 
(b) SLAMMING.—The Federal Trade Commission 
may issue rules prohibiting the change of selection of an 
electric utility except with the informed consent of the 
electric consumer or if approved by the appropriate State 
regulatory authority. 
(c) CRAMMING.—The Federal Trade Commission 
may issue rules prohibiting the sale of goods and services 
to an electric consumer unless expressly authorized by law 
or the electric consumer. 
(d) RULEMAKING.—The Federal Trade Commission 
shall proceed in accordance with section 553 of title 5, 
United States Code, when prescribing a rule under this 
section. 
(e) STATE AUTHORITY.—If the Federal Trade Com-
mission determines that a State’s regulations provide 
equivalent or greater protection than the provisions of this 
section, such State regulations shall apply in that State 
in lieu of the regulations issued by the Commission under 
this section.
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(f) DEFINITIONS.—For purposes of this section: 
(1) STATE
REGULATORY
AUTHORITY.—The 
term ‘‘State regulatory authority’’ has the meaning 
given that term in section 3(21) of the Federal 
Power Act (16 U.S.C. 796(21)). 
(2) ELECTRIC CONSUMER AND ELECTRIC UTIL-
ITY.—The terms ‘‘electric consumer’’ and ‘‘electric 
utility’’ have the meanings given those terms in sec-
tion 3 of the Public Utility Regulatory Policies Act 
of 1978 (16 U.S.C. 2602). 
Subtitle H—Merger Reform 
SEC. 1291. MERGER REVIEW REFORM AND ACCOUNT-
ABILITY. 
(a) MERGER REVIEW REFORM.—Within 180 days 
after the date of enactment of this Act, the Secretary of 
Energy, in consultation with the Federal Energy Regu-
latory Commission and the Attorney General of the United 
States, shall prepare, and transmit to Congress each of 
the following: 
(1) A study of the extent to which the authori-
ties vested in the Federal Energy Regulatory Com-
mission under section 203 of the Federal Power Act 
are duplicative of authorities vested in— 
(A) other agencies of Federal and State 
Government; and
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(B) the Federal Energy Regulatory Com-
mission, including under sections 205 and 206 
of the Federal Power Act. 
(2) Recommendations on reforms to the Fed-
eral Power Act that would eliminate any unneces-
sary duplication in the exercise of regulatory author-
ity or unnecessary delays in the approval (or dis-
approval) of applications for the sale, lease, or other 
disposition of public utility facilities. 
(b) MERGER REVIEW ACCOUNTABILITY.—Not later 
than 1 year after the date of enactment of this Act and 
annually thereafter, with respect to all orders issued with-
in the preceding year that impose a condition on a sale, 
lease, or other disposition of public utility facilities under 
section 203(b) of the Federal Power Act, the Federal En-
ergy Regulatory Commission shall transmit a report to 
Congress explaining each of the following: 
(1) The condition imposed. 
(2) Whether the Commission could have im-
posed such condition by exercising its authority 
under any provision of the Federal Power Act other 
than under section 203(b). 
(3) If the Commission could not have imposed 
such condition other than under section 203(b), why
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the Commission determined that such condition was 
consistent with the public interest. 
SEC. 1292. ELECTRIC UTILITY MERGERS. 
(a) AMENDMENT.—Section 203(a) of the Federal 
Power Act (16 U.S.C. 824b(a)) is amended to read as fol-
lows: 
‘‘(a)(1) No public utility shall, without first having 
secured an order of the Commission authorizing it to do 
so— 
‘‘(A) sell, lease, or otherwise dispose of the 
whole of its facilities subject to the jurisdiction of 
the Commission, or any part thereof of a value in 
excess of $10,000,000; 
‘‘(B) merge or consolidate, directly or indi-
rectly, such facilities or any part thereof with those 
of any other person, by any means whatsoever; or 
‘‘(C) purchase, acquire, or take any security 
with a value in excess of $10,000,000 of any other 
public utility. 
‘‘(2) No holding company in a holding company sys-
tem that includes a public utility shall purchase, acquire, 
or take any security with a value in excess of $10,000,000 
of, or, by any means whatsoever, directly or indirectly, 
merge or consolidate with, a public utility or a holding 
company in a holding company system that includes a
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public utility with a value in excess of $10,000,000 with-
out first having secured an order of the Commission au-
thorizing it to do so. 
‘‘(3) Upon receipt of an application for such approval 
the Commission shall give reasonable notice in writing to 
the Governor and State commission of each of the States 
in which the physical property affected, or any part there-
of, is situated, and to such other persons as it may deem 
advisable. 
‘‘(4) After notice and opportunity for hearing, the 
Commission shall approve the proposed disposition, con-
solidation, acquisition, or change in control, if it finds that 
the proposed transaction will be consistent with the public 
interest. In evaluating whether a transaction will be con-
sistent with the public interest, the Commission shall con-
sider whether the proposed transaction— 
‘‘(A) will adequately protect consumer interests; 
‘‘(B) will be consistent with competitive whole-
sale markets; 
‘‘(C) will impair the financial integrity of any 
public utility that is a party to the transaction or an 
associate company of any party to the transaction; 
and 
‘‘(D) satisfies such other criteria as the Com-
mission considers consistent with the public interest.
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‘‘(5) The Commission shall, by rule, adopt procedures 
for the expeditious consideration of applications for the 
approval of dispositions, consolidations, or acquisitions 
under this section. Such rules shall identify classes of 
transactions, or specify criteria for transactions, that nor-
mally meet the standards established in paragraph (4). 
The Commission shall provide expedited review for such 
transactions. The Commission shall grant or deny any 
other application for approval of a transaction not later 
than 180 days after the application is filed. If the Com-
mission does not act within 180 days, such application 
shall be deemed granted unless the Commission finds, 
based on good cause, that further consideration is required 
to determine whether the proposed transaction meets the 
standards of paragraph (4) and issues an order tolling the 
time for acting on the application for not more than 180 
days, at the end of which additional period the Commis-
sion shall grant or deny the application. 
‘‘(6) For purposes of this subsection, the terms ‘asso-
ciate company’, ‘holding company’, and ‘holding company 
system’ have the meaning given those terms in the Public 
Utility Holding Company Act of 2004.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall take effect 12 months after the date of 
enactment of this section.
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Subtitle I—Definitions 
SEC. 1295. DEFINITIONS. 
(a) ELECTRIC UTILITY.—Section 3(22) of the Fed-
eral Power Act (16 U.S.C. 796(22)) is amended to read 
as follows: 
‘‘(22) ELECTRIC UTILITY.—The term ‘electric 
utility’ means any person or Federal or State agency 
(including any entity described in section 201(f)) 
that sells electric energy; such term includes the 
Tennessee Valley Authority and each Federal power 
marketing administration.’’. 
(b) TRANSMITTING UTILITY.—Section 3(23) of the 
Federal Power Act (16 U.S.C. 796(23)) is amended to 
read as follows: 
‘‘(23) 
TRANSMITTING
UTILITY.—The 
term 
‘transmitting utility’ means an entity, including any 
entity described in section 201(f), that owns, oper-
ates, or controls facilities used for the transmission 
of electric energy— 
‘‘(A) in interstate commerce; or 
‘‘(B) for the sale of electric energy at 
wholesale.’’. 
(c) ADDITIONAL DEFINITIONS.—Section 3 of the 
Federal Power Act (16 U.S.C. 796) is amended by adding 
at the end the following:
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‘‘(26) ELECTRIC
COOPERATIVE.—The term 
‘electric cooperative’ means a cooperatively owned 
electric utility. 
‘‘(27) RTO.—The term ‘Regional Transmission 
Organization’ or ‘RTO’ means an entity of sufficient 
regional scope approved by the Commission to exer-
cise operational or functional control of facilities 
used for the transmission of electric energy in inter-
state commerce and to ensure nondiscriminatory ac-
cess to such facilities. 
‘‘(28) ISO.—The term ‘Independent System 
Operator’ or ‘ISO’ means an entity approved by the 
Commission to exercise operational or functional 
control of facilities used for the transmission of elec-
tric energy in interstate commerce and to ensure 
nondiscriminatory access to such facilities.’’. 
(d) COMMISSION.—For the purposes of this title, the 
term ‘‘Commission’’ means the Federal Energy Regu-
latory Commission. 
(e) APPLICABILITY.—Section 201(f) of the Federal 
Power Act (16 U.S.C. 824(f)) is amended by adding after 
‘‘political subdivision of a state,’’ the following: ‘‘an elec-
tric cooperative that has financing under the Rural Elec-
trification Act of 1936 (7 U.S.C. 901 et seq.) or that sells
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less than 4,000,000 megawatt hours of electricity per 
year,’’. 
Subtitle J—Technical and 
Conforming Amendments 
SEC. 1297. CONFORMING AMENDMENTS. 
The Federal Power Act is amended as follows: 
(1) Section 201(b)(2) of such Act (16 U.S.C. 
824(b)(2)) is amended as follows: 
(A) In the first sentence by striking ‘‘210, 
211, and 212’’ and inserting ‘‘203(a)(2), 
206(e), 210, 211, 211A, 212, 215, 216, 217, 
218, 219, 220, 221, and 222’’. 
(B) In the second sentence by striking 
‘‘210 or 211’’ and inserting ‘‘203(a)(2), 206(e), 
210, 211, 211A, 212, 215, 216, 217, 218, 219, 
220, 221, and 222’’. 
(C) Section 201(b)(2) of such Act is 
amended by striking ‘‘The’’ in the first place it 
appears and inserting ‘‘Notwithstanding section 
201(f), the’’ and in the second sentence after 
‘‘any order’’ by inserting ‘‘or rule’’. 
(2) Section 201(e) of such Act is amended by 
striking ‘‘210, 211, or 212’’ and inserting ‘‘206(e), 
206(f), 210, 211, 211A, 212, 215, 216, 217, 218, 
219, 220, 221, and 222’’.
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(3) Section 206 of such Act (16 U.S.C. 824e) 
is amended as follows: 
(A) In subsection (b), in the seventh sen-
tence, by striking ‘‘the public utility to make’’. 
(B) In the first sentence of subsection (a), 
by striking ‘‘hearing had’’ and inserting ‘‘hear-
ing held’’. 
(4) Section 211(c) of such Act (16 U.S.C. 
824j(c)) is amended by— 
(A) striking ‘‘(2)’’; 
(B) striking ‘‘(A)’’ and inserting ‘‘(1)’’ 
(C) striking ‘‘(B)’’ and inserting ‘‘(2)’’; 
and 
(D) striking ‘‘termination of modification’’ 
and inserting ‘‘termination or modification’’. 
(5) Section 211(d)(1) of such Act (16 U.S.C. 
824j(d)(1)) is amended by striking ‘‘electric utility’’ 
the second time it appears and inserting ‘‘transmit-
ting utility’’. 
(6) Section 315 (c) of such Act (16 U.S.C. 
825n(c)) is amended by striking ‘‘subsection’’ and 
inserting ‘‘section’’.
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TITLE XIII—ENERGY TAX 
INCENTIVES 
SEC. 1300. SHORT TITLE; AMENDMENT OF 1986 CODE. 
(a) SHORT TITLE.—This title may be cited as the 
‘‘Energy Tax Policy Act of 2004’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this title an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
Subtitle A—Conservation 
PART I—RESIDENTIAL AND BUSINESS PROPERTY 
SEC. 1301. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT 
PROPERTY. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal 
credits) is amended by inserting after section 25B the fol-
lowing new section: 
‘‘SEC. 25C. RESIDENTIAL ENERGY EFFICIENT PROPERTY. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, 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—
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‘‘(1) 15 percent of the qualified solar water 
heating property expenditures made by the taxpayer 
during such year, 
‘‘(2) 15 percent of the qualified photovoltaic 
property expenditures made by the taxpayer during 
such year, 
‘‘(3) 15 percent of the qualified wind energy 
property expenditures made by the taxpayer during 
such year, and 
‘‘(4) 20 percent of the qualified fuel cell prop-
erty expenditures made by the taxpayer during such 
year. 
‘‘(b) LIMITATIONS.— 
‘‘(1) MAXIMUM CREDIT.— 
‘‘(A) IN
GENERAL.—The credit allowed 
under subsection (a) shall not exceed— 
‘‘(i) $2,000 for property described in 
paragraph (1), (2), or (3) of subsection 
(c), and 
‘‘(ii) $500 for each 0.5 kilowatt of ca-
pacity of property described in subsection 
(c)(4). 
‘‘(B) PRIOR EXPENDITURES BY TAXPAYER 
ON SAME RESIDENCE TAKEN INTO ACCOUNT.— 
In determining the amount of the credit allowed
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to a taxpayer with respect to any dwelling unit 
under this section, the dollar amount under 
subparagraph (A)(i) with respect to each type 
of property described in such subparagraph 
shall be reduced by the credit allowed to the 
taxpayer under this section with respect to such 
property for all preceding taxable years with re-
spect to such dwelling unit. 
‘‘(2) PROPERTY STANDARDS.—No credit shall 
be allowed under this section for an item of property 
unless— 
‘‘(A) the original use of such property com-
mences with the taxpayer, 
‘‘(B) such property reasonably can be ex-
pected to remain in use for at least 5 years, 
‘‘(C) such property is installed on or in 
connection with a dwelling unit located in the 
United States and used as a residence by the 
taxpayer, 
‘‘(D) in the case of solar water heating 
property, such property is certified for perform-
ance by the non-profit Solar Rating and Certifi-
cation Corporation or a comparable entity en-
dorsed by the government of the State in which 
such property is installed,
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‘‘(E) in the case of fuel cell property, such 
property meets the performance and quality 
standards (if any) which have been prescribed 
by the Secretary by regulations (after consulta-
tion with the Secretary of Energy), and 
‘‘(F) in the case of any photovoltaic prop-
erty, fuel cell property, or wind energy property, 
such property meets appropriate fire and elec-
tric code requirements. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED SOLAR WATER HEATING PROP-
ERTY
EXPENDITURE.—The term ‘qualified solar 
water heating property expenditure’ means an ex-
penditure for property which uses solar energy to 
heat water for use in a dwelling unit. 
‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property 
which uses solar energy to generate electricity for 
use in a dwelling unit and which is not described in 
paragraph (1). 
‘‘(3) QUALIFIED WIND ENERGY PROPERTY EX-
PENDITURE.—The term ‘qualified wind energy prop-
erty expenditure’ means an expenditure for property
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which uses wind energy to generate electricity for 
use in a dwelling unit. 
‘‘(4) QUALIFIED
FUEL
CELL
PROPERTY
EX-
PENDITURE.—The term ‘qualified fuel cell property 
expenditure’ means an expenditure for any qualified 
fuel cell property (as defined in section 48(c)(1)). 
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) SOLAR PANELS.—No expenditure relating 
to a solar panel or other property installed as a roof 
(or portion thereof) shall fail to be treated as prop-
erty described in paragraph (1) or (2) of subsection 
(c) solely because it constitutes a structural compo-
nent of the structure on which it is installed. 
‘‘(2) SWIMMING POOLS, ETC., USED AS STOR-
AGE MEDIUM.—Expenditures which are properly al-
locable to a swimming pool, hot tub, or any other 
energy storage medium which has a function other 
than the function of such storage shall not be taken 
into account for purposes of this section. 
‘‘(3) DOLLAR AMOUNTS IN CASE OF JOINT OC-
CUPANCY.—In the case of any dwelling unit which is 
jointly occupied and used during any calendar year 
as a residence by 2 or more individuals, the fol-
lowing rules shall apply:
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‘‘(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. 
‘‘(C) Subparagraphs (A) and (B) shall be 
applied separately with respect to expenditures 
described in paragraphs (1), (2), (3), and (4) of 
subsection (c). 
‘‘(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
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defined in such section), such individual shall be 
treated as having made the individual’s tenant-stock-
holder’s proportionate share (as defined in section 
216(b)(3)) of any expenditures of such corporation. 
‘‘(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 the individual owns, such indi-
vidual shall be treated as having made the indi-
vidual’s proportionate share of any expenditures 
of such association. 
‘‘(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 residences. 
‘‘(6) ALLOCATION IN CERTAIN CASES.—Except 
in the case of qualified wind energy property expend-
itures, if less than 80 percent of the use of an item 
is for nonbusiness purposes, only that portion of the 
expenditures for such item which is properly allo-
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cable to use for nonbusiness purposes shall be taken 
into account. 
‘‘(7) 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 or recon-
struction of a structure, such expenditure shall 
be treated as made when the original use of the 
constructed or reconstructed structure by the 
taxpayer begins. 
‘‘(C) AMOUNT.—The amount of any ex-
penditure shall be the cost thereof. 
‘‘(8) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—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 sub-
sidized energy financing (as defined in section 
48(a)(4)(C)).
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‘‘(9) DENIAL OF DEPRECIATION ON WIND EN-
ERGY PROPERTY FOR WHICH CREDIT ALLOWED.— 
No deduction shall be allowed under section 167 for 
property which uses wind energy to generate elec-
tricity if the taxpayer is allowed a credit under this 
section with respect to such property. 
‘‘(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) TERMINATION.—The credit allowed under this 
section shall not apply to taxable years beginning after 
December 31, 2006 (December 31, 2008, with respect to 
qualified photovoltaic property expenditures).’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1016(a) 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 25C(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 25C.’’.
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(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25B the fol-
lowing new item: 
‘‘Sec. 25C. Residential energy efficient property.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003. 
SEC. 1302. EXTENSION AND EXPANSION OF CREDIT FOR 
ELECTRICITY PRODUCED FROM CERTAIN RE-
NEWABLE RESOURCES. 
(a) EXPANSION
OF
QUALIFIED
ENERGY
RE-
SOURCES.—Subsection (c) of section 45 (relating to elec-
tricity produced from certain renewable resources) is 
amended to read as follows: 
‘‘(c) QUALIFIED ENERGY RESOURCES.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified energy 
resources’ means— 
‘‘(A) wind, 
‘‘(B) closed-loop biomass, 
‘‘(C) open-loop biomass, 
‘‘(D) geothermal energy, 
‘‘(E) solar energy, 
‘‘(F) small irrigation power, and 
‘‘(G) municipal solid waste.
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‘‘(2) 
CLOSED-LOOP
BIOMASS.—The 
term 
‘closed-loop biomass’ means any organic material 
from a plant which is planted exclusively for pur-
poses of being used at a qualified facility to produce 
electricity. 
‘‘(3) OPEN-LOOP BIOMASS.— 
‘‘(A) IN GENERAL.—The term ‘open-loop 
biomass’ means— 
‘‘(i) any agricultural livestock waste 
nutrients, or 
‘‘(ii) any solid, nonhazardous, cel-
lulosic waste material which is segregated 
from other waste materials and which is 
derived from— 
‘‘(I) any of the following forest- 
related resources: mill and harvesting 
residues, 
precommercial 
thinnings, 
slash, and brush, 
‘‘(II) solid wood waste materials, 
including 
waste 
pallets, 
crates, 
dunnage, manufacturing and con-
struction wood wastes (other than 
pressure-treated, 
chemically-treated, 
or painted wood wastes), and land-
scape or right-of-way tree trimmings,
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but not including municipal solid 
waste, gas derived from the bio-
degradation of solid waste, or paper 
which is commonly recycled, or 
‘‘(III) agriculture sources, includ-
ing orchard tree crops, vineyard, 
grain, legumes, sugar, and other crop 
by-products or residues. 
Such term shall not include closed-loop biomass. 
‘‘(B) AGRICULTURAL
LIVESTOCK
WASTE 
NUTRIENTS.— 
‘‘(i) IN GENERAL.—The term ‘agricul-
tural livestock waste nutrients’ means agri-
cultural livestock manure and litter, includ-
ing wood shavings, straw, rice hulls, and 
other bedding material for the disposition 
of manure. 
‘‘(ii) AGRICULTURAL
LIVESTOCK.— 
The term ‘agricultural livestock’ includes 
bovine, swine, poultry, and sheep. 
‘‘(4) GEOTHERMAL ENERGY.—The term ‘geo-
thermal energy’ means energy derived from a geo-
thermal deposit (within the meaning of section 
613(e)(2)).
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‘‘(5) SMALL
IRRIGATION
POWER.—The term 
‘small irrigation power’ means power— 
‘‘(A) generated without any dam or im-
poundment of water through an irrigation sys-
tem canal or ditch, and 
‘‘(B) the nameplate capacity rating of 
which is not less than 150 kilowatts but is less 
than 5 megawatts. 
‘‘(6) MUNICIPAL
SOLID
WASTE.—The term 
‘municipal solid waste’ has the meaning given the 
term ‘solid waste’ under section 2(27) of the Solid 
Waste Disposal Act (42 U.S.C. 6903).’’. 
(b) EXTENSION AND EXPANSION OF QUALIFIED FA-
CILITIES.— 
(1) IN GENERAL.—Section 45 is amended by 
redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new sub-
section: 
‘‘(d) QUALIFIED FACILITIES.—For purposes of this 
section— 
‘‘(1) WIND FACILITY.—In the case of a facility 
using wind to produce electricity, the term ‘qualified 
facility’ means any facility owned by the taxpayer 
which is originally placed in service after December 
31, 1993, and before January 1, 2007.
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‘‘(2) CLOSED-LOOP BIOMASS FACILITY.— 
‘‘(A) IN GENERAL.—In the case of a facil-
ity using closed-loop biomass to produce elec-
tricity, the term ‘qualified facility’ means any 
facility— 
‘‘(i) owned by the taxpayer which is 
originally placed in service after December 
31, 1992, and before January 1, 2007, or 
‘‘(ii) owned by the taxpayer which be-
fore January 1, 2007, is originally placed 
in service and modified to use closed-loop 
biomass to co-fire with coal, with other bio-
mass, or with both, but only if the modi-
fication is approved under the Biomass 
Power for Rural Development Programs or 
is part of a pilot project of the Commodity 
Credit Corporation as described in 65 Fed. 
Reg. 63052. 
‘‘(B) SPECIAL RULES.—In the case of a 
qualified facility described in subparagraph 
(A)(ii)— 
‘‘(i) the 10-year period referred to in 
subsection (a) shall be treated as beginning 
no earlier than the date of the enactment 
of the Energy Tax Policy Act of 2004,
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‘‘(ii) the amount of the credit deter-
mined under subsection (a) with respect to 
the facility shall be an amount equal to the 
amount determined without regard to this 
clause multiplied by the ratio of the ther-
mal content of the closed-loop biomass 
used in such facility to the thermal content 
of all fuels used in such facility, and 
‘‘(iii) if the owner of such facility is 
not the producer of the electricity, the per-
son eligible for the credit allowable under 
subsection (a) shall be the lessee or the op-
erator of such facility. 
‘‘(3) OPEN-LOOP BIOMASS FACILITIES.— 
‘‘(A) IN GENERAL.—In the case of a facil-
ity using open-loop biomass to produce elec-
tricity, the term ‘qualified facility’ means any 
facility owned by the taxpayer which— 
‘‘(i) in the case of a facility using ag-
ricultural livestock waste nutrients— 
‘‘(I) is originally placed in service 
after the date of the enactment of the 
Energy Tax Policy Act of 2004 and 
before January 1, 2007, and
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‘‘(II) the nameplate capacity rat-
ing of which is not less than 150 kilo-
watts, and 
‘‘(ii) in the case of any other facility, 
is originally placed in service before Janu-
ary 1, 2007. 
‘‘(B) CREDIT ELIGIBILITY.—In the case of 
any facility described in subparagraph (A), if 
the owner of such facility is not the producer of 
the electricity, the person eligible for the credit 
allowable under subsection (a) shall be the les-
see or the operator of such facility. 
‘‘(4) GEOTHERMAL OR SOLAR ENERGY FACIL-
ITY.—In the case of a facility using geothermal or 
solar energy to produce electricity, the term ‘quali-
fied facility’ means any facility owned by the tax-
payer which is originally placed in service after the 
date of the enactment of the Energy Tax Policy Act 
of 2004 and before January 1, 2007. Such term 
shall not include any property described in section 
48(a)(3) the basis of which is taken into account by 
the taxpayer for purposes of determining the energy 
credit under section 48. 
‘‘(5) SMALL IRRIGATION POWER FACILITY.—In 
the case of a facility using small irrigation power to
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produce electricity, the term ‘qualified facility’ 
means any facility owned by the taxpayer which is 
originally placed in service after the date of the en-
actment of the Energy Tax Policy Act of 2004 and 
before January 1, 2007. 
‘‘(6) LANDFILL GAS FACILITIES.—In the case 
of a facility producing electricity from gas derived 
from the biodegradation of municipal solid waste, 
the term ‘qualified facility’ means any facility owned 
by the taxpayer which is originally placed in service 
after the date of the enactment of the Energy Tax 
Policy Act of 2004 and before January 1, 2007. 
‘‘(7) TRASH COMBUSTION FACILITIES.—In the 
case of a facility which burns municipal solid waste 
to produce electricity, the term ‘qualified facility’ 
means any facility owned by the taxpayer which is 
originally placed in service after the date of the en-
actment of the Energy Tax Policy Act of 2004 and 
before January 1, 2007.’’. 
(2) CONFORMING AMENDMENT.—Section 45(e), 
as so redesignated, is amended by striking ‘‘sub-
section (c)(3)(A)’’ in paragraph (7)(A)(i) and insert-
ing ‘‘subsection (d)(1)’’. 
(c) SPECIAL CREDIT RATE AND PERIOD FOR ELEC-
TRICITY
PRODUCED
AND
SOLD
AFTER
ENACTMENT
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HR 4503 RDS 
DATE.—Section 45(b) is amended by adding at the end 
the following new paragraph: 
‘‘(4) CREDIT
RATE
AND
PERIOD
FOR
ELEC-
TRICITY PRODUCED AND SOLD FROM CERTAIN FA-
CILITIES.— 
‘‘(A) CREDIT RATE.—In the case of elec-
tricity produced and sold in any calendar year 
after 2003 at any qualified facility described in 
paragraph (3), (5), (6), or (7) of subsection (d), 
the amount in effect under subsection (a)(1) for 
such calendar year (determined before the ap-
plication of the last sentence of paragraph (2) 
of this subsection) shall be reduced by one- 
third. 
‘‘(B) CREDIT PERIOD.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in the case of any facil-
ity described in paragraph (3), (4), (5), 
(6), or (7) of subsection (d), the 5-year pe-
riod beginning on the date the facility was 
originally placed in service shall be sub-
stituted for the 10-year period in sub-
section (a)(2)(A)(ii). 
‘‘(ii) CERTAIN
OPEN-LOOP
BIOMASS 
FACILITIES.—In the case of any facility de-
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scribed in subsection (d)(3)(A)(ii) placed in 
service before the date of the enactment of 
this paragraph, the 5-year period begin-
ning on January 1, 2004, shall be sub-
stituted for the 10-year period in sub-
section (a)(2)(A)(ii).’’. 
(d) COORDINATION WITH OTHER CREDITS.—Section 
45(e), as so redesignated, is amended by adding at the 
end the following new paragraph: 
‘‘(8) COORDINATION WITH OTHER CREDITS.— 
The term ‘qualified facility’ shall not include— 
‘‘(A) any property with respect to which a 
credit is allowed under section 25C, and 
‘‘(B) any facility the production from 
which is allowed as a credit under section 45K, 
for the taxable year or any prior taxable year.’’. 
(e) COORDINATION
WITH
SECTION
48.—Section 
48(a)(3) (defining energy property) is amended by adding 
at the end the following new sentence: ‘‘Such term shall 
not include any property which is part of a facility the 
production from which is allowed as a credit under section 
45 for the taxable year or any prior taxable year.’’. 
(f) ELIMINATION
OF
CERTAIN
CREDIT
REDUC-
TIONS.—Section 45(b)(3) (relating to credit reduced for
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grants, tax-exempt bonds, subsidized energy financing, 
and other credits) is amended— 
(1) by inserting ‘‘the lesser of 1⁄2 or’’ before ‘‘a 
fraction’’ in the matter preceding subparagraph (A), 
and 
(2) by adding at the end the following new sen-
tence: ‘‘This paragraph shall not apply with respect 
to any facility described in subsection (d)(2)(A)(ii).’’. 
(g) EFFECTIVE DATES.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to electricity produced and 
sold after the date of the enactment of this Act, in 
taxable years ending after such date. 
(2) CERTAIN
BIOMASS
FACILITIES.—With re-
spect 
to 
any 
facility 
described 
in 
section 
45(d)(3)(A)(ii) of the Internal Revenue Code of 
1986, as added by subsection (b)(1), which is placed 
in service before the date of the enactment of this 
Act, the amendments made by this section shall 
apply to electricity produced and sold after Decem-
ber 31, 2003, in taxable years ending after such 
date. 
(3) CREDIT RATE AND PERIOD FOR NEW FA-
CILITIES.—The amendments made by subsection (c)
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shall apply to electricity produced and sold after De-
cember 31, 2003, in taxable years ending after such 
date. 
(4) NONAPPLICATION
OF
AMENDMENTS
TO 
PREEFFECTIVE
DATE
POULTRY
WASTE
FACILI-
TIES.—The amendments made by this section shall 
not apply with respect to any poultry waste facility 
(within the meaning of section 45(c)(3)(C), as in ef-
fect on the day before the date of the enactment of 
this Act) placed in service before January 1, 2004. 
(h) GAO STUDY.—The Comptroller General of the 
United States shall conduct a study on the market viabil-
ity of producing electricity from resources with respect to 
which credit is allowed under section 45 of the Internal 
Revenue Code of 1986 but without such credit. In the case 
of open-loop biomass and municipal solid waste resources, 
the study should take into account savings associated with 
not having to dispose of such resources. In conducting 
such study, the Comptroller shall estimate the dollar value 
of the environmental impact of producing electricity from 
such resources relative to producing electricity from fossil 
fuels using the latest generation of technology. Not later 
than June 30, 2006, the Comptroller shall report on such 
study to the Committee on Ways and Means of the House
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of Representatives and the Committee on Finance of the 
Senate. 
SEC. 1303. CREDIT FOR BUSINESS INSTALLATION OF 
QUALIFIED FUEL CELLS. 
(a) IN GENERAL.—Section 48(a)(3)(A) (defining en-
ergy property) is amended by striking ‘‘or’’ at the end of 
clause (i), by adding ‘‘or’’ at the end of clause (ii), and 
by inserting after clause (ii) the following new clause: 
‘‘(iii) qualified fuel cell property,’’. 
(b) QUALIFIED FUEL CELL PROPERTY.—Section 48 
(relating to energy credit; reforestation credit) is amended 
by adding at the end the following new subsection: 
‘‘(c) QUALIFIED FUEL CELL PROPERTY.—For pur-
poses of subsection (a)(3)(A)(iii)— 
‘‘(1) IN
GENERAL.—The term ‘qualified fuel 
cell property’ means a fuel cell power plant which 
generates at least 0.5 kilowatt of electricity using an 
electrochemical process. 
‘‘(2) LIMITATION.—The energy credit with re-
spect to any qualified fuel cell property shall not ex-
ceed an amount equal to $500 for each 0.5 kilowatt 
of capacity of such property. 
‘‘(3) FUEL
CELL
POWER
PLANT.—The term 
‘fuel cell power plant’ means an integrated system, 
comprised of a fuel cell stack assembly and associ-
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HR 4503 RDS 
ated balance of plant components, which converts a 
fuel into electricity using electrochemical means. 
‘‘(4) TERMINATION.—The term ‘qualified fuel 
cell property’ shall not include any property placed 
in service after December 31, 2006.’’. 
(c) ENERGY PERCENTAGE.—Subparagraph (A) of 
section 48(a)(2) (relating to energy percentage) is amend-
ed to read as follows: 
‘‘(A) IN GENERAL.—The energy percent-
age is— 
‘‘(i) in the case of qualified fuel cell 
property, 20 percent, and 
‘‘(ii) in the case of any other energy 
property, 10 percent.’’. 
(d) CONFORMING AMENDMENT.—Section 48(a)(1) is 
amended by inserting ‘‘except as provided in subsection 
(c)(2),’’ before ‘‘the energy’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods after December 31, 
2003, under rules similar to the rules of section 48(m) 
of the Internal Revenue Code of 1986 (as in effect on the 
day before the date of the enactment of the Revenue Rec-
onciliation Act of 1990).
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SEC. 1304. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal 
credits), as amended by this Act, is amended by inserting 
after section 25C the following new section: 
‘‘SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount 
equal to 20 percent of the amount paid or incurred by 
the taxpayer for qualified energy efficiency improvements 
installed during such taxable year. 
‘‘(b) LIMITATIONS.— 
‘‘(1) MAXIMUM CREDIT.—The credit allowed by 
this section with respect to a dwelling unit shall not 
exceed $2,000. 
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER 
ON SAME DWELLING TAKEN INTO ACCOUNT.—If a 
credit was allowed to the taxpayer under subsection 
(a) with respect to a dwelling unit in 1 or more prior 
taxable years, the amount of the credit otherwise al-
lowable for the taxable year with respect to that 
dwelling unit shall be reduced by the sum of the 
credits allowed under subsection (a) to the taxpayer
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with respect to the dwelling unit for all prior taxable 
years. 
‘‘(c) QUALIFIED ENERGY EFFICIENCY IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified 
energy efficiency improvements’ means any energy effi-
cient building envelope component which meets the pre-
scriptive criteria for such component established by the 
2000 International Energy Conservation Code, as such 
Code (including supplements) is in effect on the date of 
the enactment of this section (or, in the case of a metal 
roof with appropriate pigmented coatings which meet the 
Energy Star program requirements), if— 
‘‘(1) such component is installed in or on a 
dwelling unit— 
‘‘(A) located in the United States, 
‘‘(B) owned and used by the taxpayer as 
the taxpayer’s principal residence (within the 
meaning of section 121), and 
‘‘(C) which has not been treated as a 
qualified new energy efficient home for pur-
poses of any credit allowed under section 45G, 
‘‘(2) the original use of such component com-
mences with the taxpayer, and 
‘‘(3) such component reasonably can be ex-
pected to remain in use for at least 5 years.
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If the aggregate cost of such components with respect to 
any dwelling unit exceeds $1,000, such components shall 
be treated as qualified energy efficiency improvements 
only if such components are also certified in accordance 
with subsection (d) as meeting such prescriptive criteria. 
‘‘(d) CERTIFICATION.—The certification described in 
subsection (c) shall be— 
‘‘(1) determined on the basis of the technical 
specifications or applicable ratings (including prod-
uct labeling requirements) for the measurement of 
energy efficiency (based upon energy use or building 
envelope component performance) for the energy ef-
ficient building envelope component, 
‘‘(2) provided by a local building regulatory au-
thority, a utility, a manufactured home production 
inspection primary inspection agency (IPIA), or an 
accredited home energy rating system provider who 
is accredited by or otherwise authorized to use ap-
proved energy performance measurement methods by 
the 
Residential 
Energy 
Services 
Network 
(RESNET), and 
‘‘(3) made in writing in a manner which speci-
fies in readily verifiable fashion the energy efficient 
building envelope components installed and their re-
spective energy efficiency levels.
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‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) 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 are specifically and pri-
marily designed to reduce the heat gain of such 
dwelling unit. 
‘‘(2) MANUFACTURED HOMES INCLUDED.—The 
term ‘dwelling unit’ includes a manufactured home 
which conforms to Federal Manufactured Home 
Construction and Safety Standards (section 3280 of 
title 24, Code of Federal Regulations). 
‘‘(3) APPLICATION OF RULES.—Rules similar to 
the rules under paragraphs (3), (4), and (5) of sec-
tion 25C(d) shall apply.
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‘‘(f) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure 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. 
‘‘(g) APPLICATION OF SECTION.—This section shall 
apply to qualified energy efficiency improvements installed 
after December 31, 2003, and before January 1, 2007.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Subsection (a) of section 1016, as amended 
by this Act, 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 25D(f), 
in the case of amounts with respect to which a credit 
has been allowed under section 25D.’’. 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1, as amended by this 
Act, is amended by inserting after the item relating 
to section 25C the following new item: 
‘‘Sec. 25D. Energy efficiency improvements to existing homes.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003.
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SEC. 1305. CREDIT FOR CONSTRUCTION OF NEW ENERGY 
EFFICIENT HOMES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) 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)(D), $1,000, and 
‘‘(ii) in the case of a dwelling unit de-
scribed in subsection (c)(3)(D)(ii), $2,000. 
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME 
DWELLING UNIT TAKEN INTO ACCOUNT.—If a
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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
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‘‘(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, 
‘‘(C) the original use of which, after such 
construction, is reasonably expected to be as a 
residence by the person who acquires such 
dwelling unit from the eligible contractor, 
‘‘(D) which is—
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‘‘(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 2000 International 
Energy Conservation Code, as such Code 
(including supplements) is in effect on the 
date of the enactment of this section, and 
to have building envelope component im-
provements 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
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‘‘(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—
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‘‘(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)(D) shall be de-
termined in accordance with guidance prescribed by 
the Secretary. Such guidance shall specify proce-
dures and methods for calculating energy and cost 
savings. 
‘‘(2) FORM.—A certification described in sub-
section (c)(3)(D) 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-
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HR 4503 RDS 
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) (relating to current year business 
credit) is amended by striking ‘‘plus’’ at the end of para-
graph (14), by striking the period at the end of paragraph 
(15) and inserting ‘‘, plus’’, and by adding at the end the 
following new paragraph: 
‘‘(16) the new energy efficient home credit de-
termined under section 45G(a).’’. 
(c) BASIS ADJUSTMENT.—Subsection (a) of section 
1016, as amended by this Act, 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 adding at the end the following new paragraph:
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‘‘(31) 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.— 
(1) IN GENERAL.—Subsection (d) of section 39 
is amended to read as follows: 
‘‘(d) TRANSITIONAL RULE.—No portion of the un-
used business credit for any taxable year which is attrib-
utable to a credit specified in section 38(b) or any portion 
thereof may be carried back to any taxable year before 
the first taxable year for which such specified credit or 
such portion is allowable (without regard to subsection 
(a)).’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply with respect to taxable 
years ending after December 31, 2002. 
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS 
CREDITS.—Section 196(c) (defining qualified business 
credits) is amended by striking ‘‘and’’ at the end of para-
graph (10), by striking 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).’’.
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(f) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding 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. 1306. ENERGY CREDIT FOR COMBINED HEAT AND 
POWER SYSTEM PROPERTY. 
(a) IN GENERAL.—Section 48(a)(3)(A) (defining en-
ergy property), as amended by this Act, is amended by 
striking ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at 
the end of clause (iii), and by inserting after clause (iii) 
the following new clause: 
‘‘(iv) combined heat and power system 
property,’’. 
(b) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—Section 48 (relating to energy credit; reforestation 
credit), as amended by this Act, is amended by adding 
at the end the following new subsection: 
‘‘(d) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—For purposes of subsection (a)(3)(A)(iv)— 
‘‘(1) COMBINED
HEAT
AND
POWER
SYSTEM 
PROPERTY.—The term ‘combined heat and power 
system property’ means property comprising a sys-
tem—
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HR 4503 RDS 
‘‘(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.—
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‘‘(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
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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
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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. 1307. CREDIT FOR ENERGY EFFICIENT APPLIANCES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its), as amended by this Act, 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
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‘‘(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—
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‘‘(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
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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.
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‘‘(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) (relating to current year business 
credit), as amended by this Act, is amended by striking
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‘‘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) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1, 
as amended by this Act, is amended by adding at the end 
the following new item: 
‘‘Sec. 45H. Energy efficient appliance credit.’’. 
(d) 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. 
SEC. 1308. ENERGY EFFICIENT COMMERCIAL BUILDINGS 
DEDUCTION. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (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.
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‘‘(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) $1.50, 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 a build-
ing— 
‘‘(i) which is located in the United 
States, and 
‘‘(ii) which is the type of structure to 
which the Standard 90.1–2001 is applica-
ble, 
‘‘(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-
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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). 
‘‘(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), in the case of a building placed 
in service on or before the date of the enact-
ment of this section, 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-
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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 ‘$.50’ 
for ‘$1.50’. 
‘‘(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 cost for purposes of this section. 
‘‘(3) NOTICE
TO
OWNER.—Each certification 
required under this section shall include an expla-
nation to the building owner regarding the energy
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efficiency features of the building and its projected 
annual energy costs. 
‘‘(4) 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— 
‘‘(i) comparable, given the difference 
between commercial and residential build-
ings, to the requirements in the Mortgage 
Industry National Accreditation Proce-
dures for Home Energy Rating Systems, 
and 
‘‘(ii) fuel neutral such that the same 
energy efficiency measures allow a building 
to be eligible for the deduction under this 
section regardless of whether such building 
uses a gas or oil furnace or boiler, an elec-
tric heat pump, or other fuel source.
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‘‘(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
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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
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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, 2007.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1016(a), as amended by this sec-
tion, is amended by striking ‘‘and’’ at the end of 
paragraph (30), by striking the period at the end of
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paragraph (31) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph: 
‘‘(32) to the extent provided in section 
179B(e).’’. 
(2) Section 1245(a) is amended by inserting 
‘‘179B,’’ after ‘‘179A,’’ both places it appears in 
paragraphs (2)(C) and (3)(C). 
(3) Section 1250(b)(3) is amended by inserting 
before the period at the end of the first sentence ‘‘or 
by section 179B’’. 
(4) Section 263(a)(1) 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 subparagraph (H) the 
following new subparagraph: 
‘‘(I) expenditures for which a deduction is 
allowed under section 179B.’’. 
(5) Section 312(k)(3)(B) is amended by strik-
ing ‘‘or 179A’’ each place it appears 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 is amended by 
inserting after section 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
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the date of the enactment of this Act in taxable years end-
ing after such date. 
SEC. 1309. THREE-YEAR APPLICABLE RECOVERY PERIOD 
FOR DEPRECIATION OF QUALIFIED ENERGY 
MANAGEMENT DEVICES. 
(a) IN GENERAL.—Section 168(e)(3)(A) (defining 3- 
year property) is amended by striking ‘‘and’’ at the end 
of clause (ii), by striking the period at the end of clause 
(iii) and inserting ‘‘, and’’, and by adding at the end the 
following new clause: 
‘‘(iv) any qualified energy manage-
ment device.’’. 
(b) DEFINITION OF QUALIFIED ENERGY MANAGE-
MENT DEVICE.—Section 168(i) (relating to definitions 
and special rules) is amended by inserting at the end the 
following new paragraph: 
‘‘(15) QUALIFIED
ENERGY
MANAGEMENT
DE-
VICE.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
energy management device’ means any energy 
management device which is placed in service 
before January 1, 2008, by a taxpayer who is 
a supplier of electric energy or a provider of 
electric energy services.
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‘‘(B) ENERGY
MANAGEMENT
DEVICE.— 
For purposes of subparagraph (A), the term 
‘energy management device’ means any meter 
or metering device which is used by the tax-
payer— 
‘‘(i) to measure and record electricity 
usage data on a time-differentiated basis 
in at least 4 separate time segments per 
day, and 
‘‘(ii) to provide such data on at least 
a monthly basis to both consumers and the 
taxpayer.’’. 
(c) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (A)(iii) the following: 
‘‘(A) (iv) ....................................................................................................
20’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act, in taxable years 
ending after such date. 
SEC. 1310. CREDIT FOR PRODUCTION FROM ADVANCED NU-
CLEAR POWER FACILITIES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its), as amended by this Act, is amended by adding after 
section 45K the following new section:
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‘‘SEC. 45L. CREDIT FOR PRODUCTION FROM ADVANCED NU-
CLEAR POWER FACILITIES. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
the advanced nuclear power facility production credit of 
any taxpayer for any taxable year is equal to the product 
of— 
‘‘(1) 1.8 cents, multiplied by 
‘‘(2) the kilowatt hours of electricity— 
‘‘(A) produced by the taxpayer at an ad-
vanced nuclear power facility during the 8-year 
period beginning on the date the facility was 
originally placed in service, and 
‘‘(B) sold by the taxpayer to an unrelated 
person during the taxable year. 
‘‘(b) NATIONAL LIMITATION.— 
‘‘(1) IN
GENERAL.—The amount of credit 
which would (but for this subsection and subsection 
(c)) be allowed with respect to any facility for any 
taxable year shall not exceed the amount which 
bears the same ratio to such amount of credit as— 
‘‘(A) the national megawatt capacity limi-
tation allocated to the facility, bears to 
‘‘(B) the total megawatt nameplate capac-
ity of such facility.
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‘‘(2) AMOUNT OF NATIONAL LIMITATION.—The 
national megawatt capacity limitation shall be 6,000 
megawatts. 
‘‘(3) ALLOCATION OF LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity 
limitation in such manner as the Secretary may pre-
scribe. 
‘‘(4) REGULATIONS.—Not later than 6 months 
after the date of the enactment of this section, the 
Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes 
of this subsection. Such regulations shall provide a 
certification process under which the Secretary, after 
consultation with the Secretary of Energy, shall ap-
prove and allocate the national megawatt capacity 
limitation. 
‘‘(c) OTHER LIMITATIONS.— 
‘‘(1) ANNUAL LIMITATION.—The amount of the 
credit allowable under subsection (a) (after the ap-
plication of subsection (b)) for any taxable year with 
respect to any facility shall not exceed an amount 
which bears the same ratio to $125,000,000 as— 
‘‘(A) the national megawatt capacity limi-
tation allocated under subsection (b) to the fa-
cility, bears to
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‘‘(B) 1,000. 
‘‘(2) OTHER
LIMITATIONS.—Rules similar to 
the rules of section 45(b) shall apply for purposes of 
this section, except that paragraph (2) thereof shall 
not apply to the 1.8 cents under subsection (a)(1). 
‘‘(d) ADVANCED NUCLEAR POWER FACILITY.—For 
purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘advanced nu-
clear power facility’ means any advanced nuclear fa-
cility— 
‘‘(A) which is owned by the taxpayer and 
which uses nuclear energy to produce elec-
tricity, and 
‘‘(B) which is placed in service after the 
date of the enactment of this paragraph and be-
fore January 1, 2021. 
‘‘(2) ADVANCED NUCLEAR FACILITY.—For pur-
poses of paragraph (1), the term ‘advanced nuclear 
facility’ means any nuclear facility the reactor design 
for which is approved after the date of the enact-
ment of this paragraph by the Nuclear Regulatory 
Commission (and such design or a substantially 
similar design of comparable capacity was not ap-
proved on or before such date).