SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Bond Fairness and Protection Act of 
1999''.

SEC. 2. TAX-EXEMPT BOND FINANCING OF CERTAIN ELECTRIC FACILITIES.

    (a) Permitted Open Access Transactions Not a Private Business 
Use.--Section 141(b)(6) of the Internal Revenue Code of 1986 (defining 
private business use) is amended by adding at the end the following:
                    ``(C) Permitted open access transactions not a 
                private business use.--
                            ``(i) In general.--For purposes of this 
                        subsection, the term `private business use' 
                        shall not include a permitted open access 
                        transaction.
                            ``(ii) Permitted open access transaction 
                        defined.--For purposes of clause (I), the term 
                        `permitted open access transaction' means any 
                        of the following transactions or activities 
                        with respect to an electric output facility (as 
                        defined in subsection (f)(4)(A)) owned by a 
                        governmental unit:
                                    ``(I) Providing open access 
                                transmission services and ancillary 
                                services that meet the reciprocity 
                                requirements of Federal Energy 
                                Regulatory Commission Order No. 888, or 
                                that are ordered by the Federal Energy 
                                Regulatory Commission, or that are 
                                provided in accordance with a 
                                transmission tariff of an independent 
                                system operator approved by such 
                                Commission, or are consistent with 
                                state administered laws, rules or 
                                orders providing for open transmission 
                                access.
                                    ``(II) Participation in an 
                                independent system operator agreement 
                                (which may include transferring control 
                                of transmission facilities to an 
                                independent system operator), in a 
                                regional transmission group, or in a 
                                power exchange agreement approved by 
                                such Commission.
                                    ``(III) Delivery on an open access 
                                basis of electric energy sold by other 
                                entities to end-users served by such 
                                governmental unit's distribution 
                                facilities.
                                    ``(IV) If open access service is 
                                provided under subclause (I) or (III), 
                                the sale of electric output of electric 
                                output facilities on terms other than 
                                those available to the general public 
                                if such sale is to an on-system 
                                purchaser or is an existing off-system 
                                sale.
                                    ``(V) Such other transactions or 
                                activities as may be provided in 
                                regulations prescribed by the 
                                Secretary.
                            ``(iii) Definitions; special rules.--For 
                        purposes of this subparagraph--
                                    ``(I) On-system purchaser.--The 
                                term `on-system purchaser' means a 
                                person who purchases electric energy 
                                from a governmental unit and whose 
                                electric facilities or equipment are 
                                directly connected with transmission or 
                                distribution facilities that are owned 
                                by such governmental unit.
                                    ``(II) Off-system purchaser.--The 
                                term `off-system purchaser' means a 
                                purchaser of electric energy from a 
                                governmental unit other than an on-
                                system purchaser.
                                    ``(III) Existing off-system sale.--
                                The term `existing off-system sale' 
                                means a sale of electric energy to a 
                                person that was an off-system purchaser 
                                of electric energy in the base year, 
                                but not in excess of the kilowatt hours 
                                purchased by such person in such year.
                                    ``(IV) Base year.--The term `base 
                                year' means 1998 (or, at the election 
                                of such unit, in 1996 or 1997).
                                    ``(V) Joint action agencies.--A 
                                member of a joint action agency that is 
                                entitled to make a sale described in 
                                clause (ii)(IV) in a year may transfer 
                                that entitlement to the joint action 
                                agency in accordance with rules of the 
                                Secretary.
                                    ``(VI) Government-owned facility.--
                                An electric output facility (as defined 
                                in subsection (f)(4)(A)) shall be 
                                treated as owned by a governmental unit 
                                if it is owned or leased by such 
                                governmental unit or if such 
                                governmental unit has capacity rights 
                                therein acquired before July 9, 1996, 
                                for the purposes of serving one or more 
                                customers to which such governmental 
                                unit had a service obligation on such 
                                date under state law or a requirements 
contract.''.
    (b) Election To Terminate Tax Exempt Financing.--Section 141 of the 
Internal Revenue Code of 1986 (relating to private activity bond; 
qualified bond) is amended by adding at the end the following:
    ``(f) Election To Terminate Tax-Exempt Bond Financing for Certain 
Electric Output Facilities.--
            ``(1) In general.--An issuer may make an irrevocable 
        election under this paragraph to terminate certain tax-exempt 
        financing for electric output facilities. If the issuer makes 
        such election, then--
                    ``(A) except as provided in paragraph (2), no bond 
                the interest on which is exempt from tax under section 
                103 may be issued on or after the date of such election 
                with respect to an electric output facility; and
                    ``(B) notwithstanding paragraph (1) or (2) of 
                subsection (a) or paragraph (5) of subsection (b), with 
                respect to an electric output facility no bond that was 
                issued before the date of enactment of this subsection, 
                the interest on which was exempt from tax on such date, 
                shall be treated as a private activity bond, for so 
                long as such facility continues to be owned by a 
                governmental unit.
            ``(2) Exceptions.--An election under paragraph (1) does not 
        apply to--
                    ``(A) any qualified bond (as defined in subsection 
                (e)),
                    ``(B) any eligible refunding bond, or
                    ``(C) any bond issued to finance a qualifying T&D 
                facility, or
                    ``(D) any bond issued to finance equipment 
                necessary to meet Federal or state environmental 
                requirements applicable to, or repair of, electric 
                output facilities in service on the date of enactment 
                of this subsection. Repairs or equipment may not 
                increase by more than a de minimus degree the capacity 
                of the facility beyond its original design.
            ``(3) Form and effect of elections.--An election under 
        paragraph (1) shall be made in such a manner as the Secretary 
        prescribes and shall be binding on any successor in interest to 
        the electing issuer.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) Electric output facility.--The term `electric 
                output facility' means an output facility that is an 
                electric generation, transmission, or distribution 
                facility.
                    ``(B) Eligible refunding bond.--The term `eligible 
                refunding bond' means state or local bonds issued after 
                an election described in paragraph (1) that directly or 
                indirectly refund state or local bonds issued before 
                such election, if the weighted averaged maturity of the 
                refunding bonds do not exceed the remaining weighted 
                average maturity of the bonds issued before the 
                election.
                    ``(C) Qalifying t&d facility.--The term `qualifying 
                T&D facility' means--
                            ``(i) transmission facilities over which 
                        services described in subsection 
                        (b)(6)(C)(ii)(I) are provided, or
                            ``(ii) distribution facilities over which 
                        services described in subsection 
                        (b)(6)(C)(ii)(III) are provided.''.
    (c) Effective Date, Applicability, and Transition Rules.--
            (1) Effective date.--The amendments made by this section 
        take effect on the date of enactment of this Act, except that a 
        governmental unit may elect to apply section 141(b)(6)(C) of 
        the Internal Revenue Code of 1986, as added by subsection (a), 
        with respect to permitted open access transactions on or after 
        July 9, 1996.
            (2) Applicability.--References in the Act to sections of 
        the Internal Revenue Code of 1986, as amended, shall be deemed 
        to include references to comparable sections of the Internal 
        Revenue Code of 1954, as amended.
            (3) Transition rules.--
                    (A) Private business use.--Any activity that was 
                not a private business use prior to the effective date 
                of the amendment made by subsection (a) shall not be 
                deemed to be a private business use by reason of the 
                enactment of such amendment.
                    (B) Election.--An issuer making the election under 
                section 141(f) of the Internal Revenue Code of 1986, as 
                added by subsection (b), shall not be liable under any 
                contract in effect on the date of enactment of this Act 
                for any claim arising from having made the election.
Bond Fairness and Protection Act of 1999 - Amends the Internal Revenue Code, with respect to tax-exempt bond financing of certain electric facilities, to exclude a permitted open access transaction (as defined by this Act) from the definition of private business use. 
Permits, as specified, termination of tax-exempt bond financing for certain electric output facilities.
Bond Fairness and Protection Act of 1999