II

106TH CONGRESS

1ST SESSION S. 1048

To provide for a more competitive electric power industry, and for other

purposes.

IN THE SENATE OF THE UNITED STATES

MAY 13, 1999

Mr. MURKOWSKI (for himself and Mr. BINGAMAN) (by request) introduced the

following bill; which was read twice and referred to the Committee on Finance

A BILL

To provide for a more competitive electric power industry,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Comprehensive Elec5 tricity Competition Tax Act’’.

6 SEC. 2. TABLE OF CONTENTS.

Sec. 1. Short title.

Sec. 2. Table of contents.

TITLE I—AMENDMENTS TO INTERNAL REVENUE CODE

Sec. 101. Treatment of bonds issued to finance electric output facilities.

Sec. 102. Nuclear decommissioning costs.

Sec. 103. Depreciation treatment of distributed power property.

Sec. 104. Tax credit for combined heat and power system property.
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1 TITLE I—AMENDMENTS TO

2 INTERNAL REVENUE CODE

3 SEC. 101. TREATMENT OF BONDS ISSUED TO FINANCE

4 ELECTRIC OUTPUT FACILITIES.

5 (a) IN GENERAL.—Section 141 of the Internal Rev6 enue Code of 1986 (relating to private activity bond; quali7 fied bond) is amended by redesignating subsection (e) as

8 subsection (f) and inserting after subsection (d) the fol9 lowing new subsection:

10 ‘‘(e) BONDS FOR ELECTRIC OUTPUT FACILITIES.—

11 ‘‘(1) BONDS ISSUED BEFORE ENACTMENT OF

12 COMPREHENSIVE ELECTRICITY COMPETITION ACT.—

13 ‘‘(A) IN GENERAL.—The determination of

14 whether any pre-effective date electric output

15 facility bond is a private activity bond (or an in16 dustrial development bond under the Internal

17 Revenue Code of 1954) shall be made without

18 regard to any permissible competitive actions

19 taken by the issuer.

20 ‘‘(B) PRE-EFFECTIVE DATE ELECTRIC

21 OUTPUT FACILITY BOND.—For purposes of sub22 paragraph (A), the term ‘pre-effective date elec23 tric output facility bond’ means any bond issued

24 as part of an issue if—
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1 ‘‘(i) such bond was issued before the

2 date of the enactment of the Comprehen3 sive Electricity Competition Act,

4 ‘‘(ii) any portion of the proceeds of

5 such issue was used with respect to an

6 electric output facility, and

7 ‘‘(iii) the bond was not, as of such

8 date of enactment, a private activity bond

9 (or an industrial development bond under

10 the Internal Revenue Code of 1954).

11 ‘‘(C) PERMISSIBLE COMPETITIVE AC12 TIONS.—For purposes of subparagraph (A), the

13 term ‘permissible competitive actions’ means

14 any action taken by the issuer on or after the

15 date of the enactment of the Comprehensive

16 Electricity Competition Act regarding—

17 ‘‘(i) transmission property owned by

18 the issuer if the issuer is subject to an

19 order of the Federal Energy Regulatory

20 Commission requiring nondiscriminatory,

21 open access to transmission facilities in a

22 manner consistent with rules promulgated

23 by the Commission under sections 205 and

24 206 of the Federal Power Act (as in effect
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1 on the date of the enactment of the Com2 prehensive Electricity Competition Act), or

3 ‘‘(ii) generation property or distribu4 tion property owned by the issuer if the

5 issuer—

6 ‘‘(I) implements retail competi7 tion under section 609 of the Public

8 Utility Regulatory Policies Act of

9 1978, or

10 ‘‘(II) enters into a contract for

11 the sale of electricity or use of its dis12 tribution property which will not be13 come effective prior to the date that

14 the issuer implements retail competi15 tion under section 609 of the Public

16 Utility Regulatory Policies Act of

17 1978.

18 ‘‘(2) BOND ISSUED ON OR AFTER ENACTMENT

19 OF COMPREHENSIVE ELECTRICITY COMPETITION

20 ACT.—

21 ‘‘(A) IN GENERAL.—For purposes of this

22 title, the term ‘private activity bond’ includes

23 any bond issued as part of an issue any of the

24 proceeds of which are to be used (directly on in-
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1 directly) for electric output facilities other than

2 distribution property.

3 ‘‘(B) DISTRIBUTION PROPERTY.—For pur4 poses of subparagraph (A), the term ‘distribu5 tion property’ means any output facility, includ6 ing functionally related and subordinate prop7 erty, that operates at 69 kilovolts or less.’’.

8 (b) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as otherwise pro10 vided in this subsection, the amendment made by

11 this section shall apply to obligations issued on or

12 after the date of the enactment of this Act.

13 (2) TREATMENT OF PRE-EFFECTIVE DATE

14 BONDS.—Section 141(e)(1) of the Internal Revenue

15 Code of 1986, as added by this section, shall take

16 effect on the date of enactment of this Act.

17 (3) REFUNDING BONDS.—

18 (A) IN GENERAL.—For purposes of this

19 subsection and the amendment made by this

20 section, section 141(e)(2) of the Internal Rev21 enue Code of 1986, as added by this section,

22 shall not apply to any qualified refunding bond.

23 (B) QUALIFIED REFUNDING BOND.—For

24 purposes of subparagraph (A), the term ‘‘quali25 fied refunding bond’’ means any bond (or a
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1 bond that is part of a series of refundings)

2 issued to refund a pre-effective date electric

3 output facility bond if—

4 (i) the weighted average maturity of

5 the issue of which the refunding bond is a

6 part does not exceed 120 percent of the av7 erage reasonably expected economic life of

8 the facilities being financed with the net

9 proceeds of such issue (determined under

10 section 147(b) of such Code),

11 (ii) the amount of the refunding bond

12 does not exceed the outstanding amount of

13 the refunded bond, and

14 (iii) the net proceeds of the refunding

15 bond are used to redeem the refunded

16 bond not later than 90 days after the date

17 of issuance of the refunding bond.

18 SEC. 102. NUCLEAR DECOMMISSIONING COSTS.

19 (a) IN GENERAL.—Subsection (b) of section 468A of

20 the Internal Revenue Code of 1986 is amended to read

21 as follows:

22 ‘‘(b) LIMITATION ON AMOUNT PAID INTO FUND.—

23 The amount which a taxpayer may pay into the Fund for

24 any taxable year shall not exceed the ruling amount appli25 cable to such taxable year.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 1999.

4 SEC. 103. DEPRECIATION TREATMENT OF DISTRIBUTED

5 POWER PROPERTY.

6 (a) IN GENERAL.—Section 168(e)(3)(E) of the Inter7 nal Revenue Code (classifying certain property as 15-year

8 property) is amended by striking ‘‘and’’ at the end of

9 clause (ii), striking the period at the end of clause (iii)

10 and inserting ‘‘, and’’, and by adding the following new

11 clause:

12 ‘‘(iv) any distributed power prop13 erty.’’.

14 (b) CONFORMING AMENDMENTS.—(1) Section 168(i)

15 is amended by adding at the end following new paragraph:

16 ‘‘(15) DISTRIBUTED POWER PROPERTY.—The

17 term ‘distributed power property’ means property—

18 ‘‘(A) which is used in the generation of

19 electricity for primary use—

20 ‘‘(i) in nonresidential real or residen21 tial rental property used in the taxpayer’s

22 trade or business, or

23 ‘‘(ii) in the taxpayer’s industrial man24 ufacturing process or plant activity, with a
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1 rated total capacity in excess of 500 kilo2 watts,

3 ‘‘(B) which also may produce usable ther4 mal energy or mechanical power for use in a

5 heating or cooling application, as long as at

6 least 40 percent of the total useful energy pro7 duced consists of—

8 ‘‘(i) with respect to assets described in

9 subparagraph (A)(i), electrical power

10 (whether sold or used by the taxpayer), or

11 ‘‘(ii) with respect to assets described

12 in subparagraph (A)(ii), electrical power

13 (whether sold or used by the taxpayer) and

14 thermal or mechanical energy used in the

15 taxpayer’s industrial manufacturing proc16 ess or plant activity,

17 ‘‘(C) which is not used to transport pri18 mary fuel to the generating facility or to dis19 tribute energy within or outside of the facility,

20 and

21 ‘‘(D) where it is reasonably expected that

22 not more than 50 percent of the produced elec23 tricity will be sold to, or used by, unrelated per24 sons.
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1 For purposes of subparagraph (B), energy output is

2 determined on the basis of expected annual output

3 levels, measured in British thermal units (Btu),

4 using standard conversion factors established by the

5 Secretary.’’.

6 (2) Subparagraph (B) of section 168(g)(3) is

7 amended by inserting after the item relating to sub8 paragraph (E)(iii) in the table contained therein the

9 following new line:

10 ‘‘(E)(iv) 22’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section are effective for property placed in service on

13 or after the date of enactment.

14 SEC. 104. TAX CREDIT FOR COMBINED HEAT AND POWER

15 SYSTEM PROPERTY.

16 (a) IN GENERAL.—Subpart E of part IV of sub17 chapter A of chapter 1 of the Internal Revenue Code of

18 1986 is amended by inserting after section 48 the fol19 lowing new section:

20 ‘‘SEC. 48A. ENERGY CREDIT.

21 ‘‘(a) IN GENERAL.—For purposes of section 46, the

22 energy credit for any taxable year is the amount equal to

23 the energy percentage of the basis of each energy property

24 placed in service during such taxable year.

25 ‘‘(b) ENERGY PERCENTAGE.—
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the energy percentage is 10

3 percent.

4 ‘‘(2) COMBINED HEAT AND POWER PROP5 ERTY.—The energy percentage is 8 percent in the

6 case of combined heat and power property.

7 ‘‘(3) PERIOD FOR WHICH CREDIT IS ALLOWED

8 FOR COMBINED HEAT AND POWER PROPERTY.—In

9 the case of combined heat and power property, the

10 credit under subsection (a) shall be allowed only for

11 the period beginning on January 1, 2000 and ending

12 on December 31, 2002.

13 ‘‘(4) COORDINATION WITH REHABILITATION.—

14 The energy percentage does not apply to that por15 tion of the basis of any property which is attrib16 utable to qualified rehabilitation expenditures.

17 ‘‘(5) TRANSITION RULES.—Rules similar to the

18 rule of section 48(m) (as in effect on the day before

19 the date of the enactment of the Revenue Reconcili20 ation Act of 1990) shall apply for purposes of this

21 subsection.

22 ‘‘(c) ENERGY PROPERTY DEFINED.—

23 ‘‘(1) IN GENERAL.—For purposes of this sub24 part, the term ‘energy property’ means any

25 property—
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1 ‘‘(A) which is—

2 ‘‘(i) solar energy property,

3 ‘‘(ii) geothermal energy property, or

4 ‘‘(iii) combined heat and power system

5 property,

6 ‘‘(B)(i) the construction, reconstruction, or

7 erection of which is completed by the taxpayer,

8 or

9 ‘‘(ii) which is acquired by the taxpayer if

10 the original use of such property commences

11 with the taxpayer,

12 ‘‘(C) with respect to which depreciation (or

13 amortization in lieu of depreciation) is allow14 able, and

15 ‘‘(D) which meets—

16 ‘‘(i) the performance and quality

17 standards (if any), and the certification re18 quirements (if any), which have been pre19 scribed by the Secretary by regulations

20 (after consultation with the Secretary of

21 Energy or the EPA Administrator, as ap22 propriate), and

23 ‘‘(ii) are in effect at the time the

24 property is placed in service.
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1 ‘‘(2) EXCEPTION.—Such term shall not include

2 any property which is public utility property (as de3 fined in section 46(f)(5) as in effect on the day be4 fore the date of the enactment of the Revenue Rec5 onciliation Act of 1990). The preceding sentence

6 shall not apply to combined heat and power system

7 property.

8 ‘‘(d) DEFINITIONS RELATING TO TYPES OF ENERGY

9 PROPERTY.—For purposes of this section—

10 ‘‘(1) SOLAR ENERGY PROPERTY.—The term

11 ‘solar energy property’ means equipment which uses

12 solar energy—

13 ‘‘(A) to generate electricity,

14 ‘‘(B) to heat or cool (or provide hot water

15 for use in) a structure, or

16 ‘‘(C) to provide solar process heat.

17 ‘‘(2) GEOTHERMAL ENERGY PROPERTY.—The

18 term ‘geothermal energy property’ means equipment

19 used to produce, distribute, or use energy derived

20 from a geothermal deposit (within the meaning of

21 section 613(e)(2)), but only, in the case of electricity

22 generated by geothermal power, up to (but not in23 cluding) the electrical transmission stage.

24 ‘‘(3) COMBINED HEAT AND POWER SYSTEM

25 PROPERTY.—
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1 ‘‘(A) IN GENERAL.—The term ‘combined

2 heat and power system property’ means prop3 erty comprising a system—

4 ‘‘(i) which uses the same energy

5 source for the simultaneous or sequential

6 generation of electrical power, mechanical

7 shaft power, or both, in combination with

8 the generation of steam or other forms of

9 useful thermal energy (including heating

10 and cooling applications),

11 ‘‘(ii) which has an electrical capacity

12 of more than 50 kilowatts or a mechanical

13 energy capacity of more than 67 horse14 power or an equivalent combination of elec15 trical and mechanical energy capacities,

16 ‘‘(iii) which produces—

17 ‘‘(I) at least 20 percent of its

18 total useful energy in the form of

19 thermal energy, and

20 ‘‘(II) at least 20 percent of its

21 total energy in the form of electrical

22 or mechanical power (or a combina23 tion thereof), and

24 ‘‘(iv) the energy efficiency percentage

25 of which exceeds 60 percent (70 percent in
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1 the case of a system with an electrical ca2 pacity in excess of 50 megawatts or a me3 chanical energy capacity in excess of

4 67,000 horsepower (or a combination

5 thereof)).

6 ‘‘(B) SPECIAL RULES.—

7 ‘‘(i) ENERGY EFFICIENCY PERCENT8 AGE.—For purposes of subparagraph

9 (A)(iv), the energy efficiency percentage of

10 a system is the fraction—

11 ‘‘(I) the numerator of which is

12 the total useful electrical, thermal,

13 and mechanical power produced by

14 the system at normal operating rates,

15 and

16 ‘‘(II) the denominator of which is

17 the lower heating value of the primary

18 fuel source for the system.

19 ‘‘(ii) DETERMINATIONS MADE ON BTU

20 BASIS.—The energy efficiency percentage

21 and the percentages under subparagraph

22 (A)(iii) shall be determined on a Btu basis.

23 ‘‘(iii) INPUT AND OUTPUT PROPERTY

24 NOT INCLUDED.—The term ‘combined heat

25 and power system property’ does not in-
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1 clude property used to transport the en2 ergy source to the facility or to distribute

3 energy produced by the facility.

4 ‘‘(iv) ACCOUNTING RULE FOR PUBLIC

5 UTILITY PROPERTY.—In the case that

6 combined heat and power system property

7 is public utility property (as defined in sec8 tion 46(f)(5) as in effect on the day before

9 the date of the enactment of the Revenue

10 Reconciliation Act of 1990), the taxpayer

11 may claim the credit under subsection

12 (a)(1) only if, with respect to such prop13 erty, the taxpayer uses a normalization

14 method of accounting.

15 ‘‘(v) DEPRECIATION.—No credit shall

16 be allowed for any combined heat and

17 power system property unless the taxpayer

18 elects to treat such property for purposes

19 of section 168 as having a class life of not

20 less than 22 years.

21 ‘‘(e) SPECIAL RULES.—For purposes of this

22 section—

23 ‘‘(1) SPECIAL RULE FOR PROPERTY FINANCED

24 BY SUBSIDIZED ENERGY FINANCING OR INDUSTRIAL

25 DEVELOPMENT BONDS.—
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1 ‘‘(A) REDUCTION OF BASIS.—For purposes

2 of applying the energy percentage to any prop3 erty, if such property is financed in whole or in

4 part by—

5 ‘‘(i) subsidized energy financing, or

6 ‘‘(ii) the proceeds of a private activity

7 bond (within the meaning of section 141)

8 the interest on which is exempt from tax

9 under section 103, the amount taken into

10 account as the basis of such property shall

11 not exceed the amount which (but for this

12 subparagraph) would be so taken into ac13 count multiplied by the fraction deter14 mined under subparagraph (B).

15 ‘‘(B) DETERMINATION OF FRACTION.—For

16 purposes of subparagraph (A), the fraction de17 termined under this subparagraph is 1 reduced

18 by a fraction—

19 ‘‘(i) the numerator of which is that

20 portion of the basis of the property which

21 is allocable to such financing or proceeds,

22 and

23 ‘‘(ii) the denominator of which is the

24 basis of the property.
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1 ‘‘(C) SUBSIDIZED ENERGY FINANCING.—

2 For purposes of subparagraph (A), the term

3 ‘subsidized energy financing’ means financing

4 provided under a Federal, State, or local pro5 gram a principal purpose of which is to provide

6 subsidized financing for projects designed to

7 conserve or produce energy.

8 ‘‘(2) CERTAIN PROGRESS EXPENDITURE RULES

9 MADE APPLICABLE.—Rules similar to the rules of

10 subsections (c)(4) and (d) of section 46 (as in effect

11 on the day before the date of the enactment of the

12 Revenue Reconciliation Act of 1990) shall apply for

13 purposes of this section.’’.

14 (b) CONFORMING AMENDMENTS.—

15 (1) Section 48 of such Code is amended to read

16 as follows:

17 ‘‘SEC. 48. REFORESTATION CREDIT.

18 ‘‘(a) IN GENERAL.—For purposes of section 46, the

19 reforestation credit for any taxable year is 10 percent of

20 the portion of the amortizable basis of any qualified timber

21 property which was acquired during such taxable year and

22 which is taken into account under section 194 (after the

23 application of section 194(b)(1)).

24 ‘‘(b) DEFINITIONS.—For purposes of this subpart,

25 the terms ‘amortizable basis’ and ‘qualified timber prop-
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1 erty’ have the respective meanings given to such terms by

2 section 194.’’.

3 (2) Subsection (d) of section 39 of such Code

4 is amended by adding at the end the following new

5 paragraph:

6 ‘‘(9) NO CARRYBACK OF ENERGY CREDIT BE7 FORE EFFECTIVE DATE.—No portion of the unused

8 business credit for any taxable year which is attrib9 utable to the energy credit determined under section

10 48A, except for the credit determined with respect to

11 solar energy property and geothermal energy prop12 erty, may be carried back to a taxable year ending

13 before the date of the enactment of section 48A.’’.

14 (3) Paragraph (3) of section 50(c) of such Code

15 is amended by adding at the end the following flush

16 sentence:

17 ‘‘In the case of the energy credit, the preceding sentence

18 shall apply only to so much of such credit as relates to

19 solar energy property and geothermal property (as such

20 terms are defined in section 48A(e)).’’.

21 (4) Subclause (III) of section 29(b)(3)(A)(i) of

22 such Code is amended by striking ‘‘section

23 48(a)(4)(C)’’ and inserting ‘‘section 48A(g)(1)(C)’’.
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1 (5) Subparagraph (E) of section 50(a)(2) of

2 such Code is amended by striking ‘‘section 48(a)(5)’’

3 and inserting ‘‘section 48A(g)(2)’’.

4 (6) Subparagraph (B) of section 168(e)(3) of

5 such Code is amended—

6 (A) in clause (vi)(I) by striking ‘‘section

7 48(a)(3)’’ and inserting ‘‘paragraphs (1) and

8 (2) of section 48A(d)’’, and

9 (B) in the last sentence by striking ‘‘sec10 tion 48(a)(3)’’ and inserting ‘‘section

11 48A(c)(2)’’.

12 (7) Subparagraph (E) of section 168(e)(3) of

13 such Code, as amended by section 803(a), is further

14 amended by striking ‘‘and’’ at the end of clause (iii),

15 by striking the period at the end of clause (iv) and

16 inserting ‘‘, and’’, and by inserting after clause (iv)

17 the following new clause:

18 ‘‘(v) any combined heat and power

19 system property (as defined in section

20 48A(d)(4)) for which a credit is allowed

21 under section 48A and which, but for this

22 clause, would have a recovery period of less

23 than 15 years.’’.

24 (8) The table contained in subparagraph (B) of

25 section 168(g)(3) of such Code, as amended by sec-
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1 tion 803(b)(2), is further amended by adding at the

2 end the following:

3 ‘‘(E)(v) 22’’.

4 (c) CLERICAL AMENDMENT.—The table of sections

5 for subpart E of part IV of subchapter A of chapter 1

6 of such Code is amended by striking the item relating to

7 section 48 and inserting the following new items:

‘‘Sec. 48. Reforestation credit.

‘‘Sec. 48A. Energy credit.’’.

8 (d) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to periods after December 31,

10 1999, under rules similar to the rules of section 48(m)

11 of the Internal Revenue Code of 1986 (as in effect on the

12 day before the date of the enactment of the Revenue Rec13 onciliation Act of 1990).

Æ