```

[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1370 Introduced in House (IH)]

108th CONGRESS
  1st Session
                                H. R. 1370

To provide for expansion of electricity transmission networks in order 
 to support competitive electricity markets, to ensure reliability of 
   electric service, to modernize regulation and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             March 19, 2003

  Mr. Wynn (for himself and Mr. Burr) introduced the following bill; 
  which was referred to the Committee on Energy and Commerce, and in 
    addition to the Committee on Ways and Means, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL

 
To provide for expansion of electricity transmission networks in order 
 to support competitive electricity markets, to ensure reliability of 
   electric service, to modernize regulation and for other purposes.

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

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Interstate 
Transmission Act''.
    (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title and table of contents.
Sec. 2. Findings.
Sec. 3. Sustainable transmission networks rulemaking.
Sec. 4. Electric reliability standards.
Sec. 5. Disposition of property.
Sec. 6. Promotion of voluntary development of regional transmission 
                            organizations, independent transmission 
                            providers, and similar organizations.
Sec. 7. State and Federal authority to site transmission facilities.
Sec. 8. PUHCA exemption for RTOs.
Sec. 9. Independent transmission companies.

SEC. 2. FINDINGS.

    Congress finds as follows:
            (1) Transmission networks are the backbone of competitive 
        power markets and increased interstate commerce in electricity.
            (2) Wholesale electric competition, already in effect 
        across the nation, and retail electric competition, adopted by 
        nearly half of the States, depend on adequate transmission 
        networks to benefit electric consumers.
            (3) The expansion, enhancement, and improvement of 
        transmission facilities are necessary to maintain and improve 
        reliability of electric service.
            (4) To support competitive power markets and to maintain 
        and improve reliability of electric service, the regulation of 
        transmission service must be reformed.

SEC. 3. SUSTAINABLE TRANSMISSION NETWORKS RULEMAKING.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) is amended 
by adding the following new section at the end thereof:

``SEC. 215. SUSTAINABLE TRANSMISSION NETWORKS RULEMAKING.

    ``(a) Rulemaking Requirement.--Within 1 year after the enactment of 
this section, the Commission shall establish, by rule, transmission 
pricing policies and standards for promoting the expansion and 
improvement of interstate transmission networks through incentive-
based, performance-based, participant-funded, and/or cost-based rate 
treatments to ensure reliability of the electric system, to support 
interstate wholesale markets for electric power, and expand 
transmission transfer capacity needed to sustain wholesale competition. 
Policies and standards established under this section shall 
specifically--
            ``(1) promote capital investment in the economically 
        efficient enlargement of transmission networks to reduce 
        congestion on transmission networks and provide accurate price 
        signals so that new generation and transmission is built where 
        it provides the lowest overall cost to consumers;
            ``(2) encourage improved operation of transmission 
        facilities and deployment of transmission technologies to 
        increase capacity and efficiency of existing networks and 
        reduce line losses, including but not limited to high-capacity 
        wires (including high-temperature superconducting cables), 
        power electronics and information technologies (including 
        flexible alternating current transmission system technologies), 
        and high-voltage, direct current lines; and
            ``(3) provide a return on equity that attracts new 
        investment in transmission facilities and reasonably reflects 
        the financial, operational and other risks taken by public 
        utilities in restructuring transmission assets.
    ``(b) Limitation on the Authority of This Section.--In the case of 
any transmission rate approved by the Commission on or after the 
effective date of the rule established under this section, the rate 
shall comply with--
            ``(1) the policies and standards adopted pursuant to this 
        section as necessary or appropriate to implement the 
        requirements of subsection (a) of this section; and
            ``(2) the procedural and other requirements of this part, 
        including the requirement of sections 205 and 206, that all 
        rates, charges, terms and conditions be just and reasonable and 
        not unduly discriminatory.''.

SEC. 4. ELECTRIC RELIABILITY STANDARDS.

    Part II of the Federal Power Act (16 U.S.C 824 et seq.) is amended 
by adding the following new section at the end thereof:

``SEC. 216. ELECTRIC RELIABILITY.

    ``(a) Definitions.--For purposes of this section--
            ``(1) The term `bulk-power system' means--
                    ``(A) facilities and control systems necessary for 
                operating an interconnected electric energy 
                transmission network (or any portion thereof); and
                    ``(B) electric energy from generation facilities 
                needed to maintain transmission system reliability.
        The term does not include facilities used in the local 
        distribution of electric energy.
            ``(2) The terms `Electric Reliability Organization' and 
        `ERO' mean the organization certified by the Commission under 
subsection (c) the purpose of which is to establish and enforce 
reliability standards for the bulk-power system, subject to Commission 
review.
            ``(3) The term `reliability standard' means a requirement, 
        approved by the Commission under this section, to provide for 
        reliable operation of the bulk-power system. The term includes 
        requirements for the operation of existing bulk-power system 
        facilities and the design of planned additions or modifications 
        to such facilities to the extent necessary to provide for 
        reliable operation of the bulk-power system, but the term does 
        not include any requirement to enlarge such facilities or to 
        construct new transmission capacity or generation capacity.
            ``(4) The term `reliable operation' means operating the 
        elements of the bulk-power system within equipment and electric 
        system thermal, voltage, and stability limits so that 
        instability, uncontrolled separation, or cascading failures of 
        such system will not occur as a result of a sudden disturbance 
        or unanticipated failure of system elements.
            ``(5) The term `Interconnection' means a geographic area in 
        which the operation of bulk-power system components is 
        synchronized such that the failure of one or more of such 
        components may adversely affect the ability of the operators of 
        other components within the system to maintain reliable 
        operation of the facilities within their control.
            ``(6) The term `transmission organization' means a regional 
        transmission organization, independent 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 purposes 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 implement 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 
(ERO). The Commission may certify one such ERO if the Commission 
determines that such ERO--
            ``(1) has the ability to develop and enforce, subject to 
        subsection (e)(2), reliability standards that provide for an 
        adequate level of reliability of the bulk-power system;
            ``(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 representation in the 
                selection of its directors and balanced decisionmaking 
                in any ERO committee 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 activities, functions, or 
                operations, or other appropriate sanctions);
                    ``(D) provide for reasonable notice and opportunity 
                for public comment, due process, openness, and balance 
                of interests in developing 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 Commission.
    ``(2) The Commission may approve by rule or order a proposed 
reliability standard or modification to a reliability 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.
    ``(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 applicable on an Interconnection-wide 
basis is just, reasonable, 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 proposed 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 standard or a modification to a reliability 
standard that addresses 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 timely resolution of any 
conflict between a reliability standard and any function, rule, order, 
tariff, rate schedule, or agreement accepted, approved, or ordered by 
the Commission applicable to a transmission organization. Such 
transmission organization shall continue to comply with such function, 
rule, order, tariff, rate schedule or agreement accepted, approved, or 
ordered by the Commission until--
                    ``(A) the Commission finds a conflict exists 
                between 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 proceeding with 
        the Commission.
    ``(2) A penalty imposed under paragraph (1) may take effect not 
earlier than the 31st day after the electric reliability organization 
files with the Commission notice of the penalty and the record of 
proceedings. Such penalty shall be subject to review by the Commission, 
on its own motion or upon application 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 paragraph (1), the 
Commission, after notice and opportunity for hearing (which hearing may 
consist solely of the record before the electric reliability 
organization and opportunity for the presentation of supporting reasons 
to affirm, modify, or set aside the penalty), shall by order affirm, 
set aside, reinstate, or modify the penalty, and, if appropriate, 
remand to the electric reliability organization for further 
proceedings. The Commission shall implement expedited procedures for 
such hearings.
    ``(3) On its own motion or upon complaint, the Commission may order 
compliance with a reliability standard and may impose a penalty against 
a user or owner or operator 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 engaged 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 establish regulations authorizing the 
ERO to enter into an agreement to delegate authority 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 balanced 
                stakeholder board;
            ``(B) the regional entity otherwise satisfies the 
        provisions of subsection (c)(1) and (2); and
            ``(C) the agreement promotes effective and efficient 
        administration of bulk-power system reliability.
The Commission may modify such delegation. The ERO and the Commission 
shall rebuttably presume that a proposal for delegation to a regional 
entity organized on an Interconnection-wide basis promotes effective 
and efficient administration of bulk-power system reliability and 
should be approved. Such regulation may provide that the Commission may 
assign the ERO's authority to enforce reliability standards under 
paragraph (1) directly to a regional entity consistent with the 
requirements of this paragraph.
    ``(5) The Commission may take such action as is necessary 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 violation and shall take 
into consideration the efforts of such user, owner, or operator to 
remedy the violation in a timely manner.
    ``(f) Changes in Electricity Reliability Organization 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 Electric 
Reliability Organization. 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, reasonable, not 
unduly discriminatory or preferential, is in the public interest, and 
satisfies the requirements of subsection (c).
    ``(g) Reliability Reports.--The Electric Reliability Organization 
shall conduct 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 agreements with the governments of Canada 
and Mexico to provide for effective compliance with reliability 
standards and the effectiveness of the Electric Reliability 
Organization in the United States and Canada or Mexico.
    ``(i) Savings Provisions.--(1) The Electric Reliability 
Organization shall have authority to develop and enforce compliance 
with reliability standards for only the bulk-power system.
    ``(2) This section does not authorize the Electric Reliability 
Organization or the Commission to order the construction of additional 
generation or transmission capacity or to set and enforce compliance 
with standards for adequacy or safety of electric facilities or 
services.
    ``(3) Nothing in this section shall be construed to preempt 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 inconsistent with any reliability standard, except that 
the State of New York may establish rules that result in greater 
reliability within that State, as long as such action does not result 
in lesser reliability outside the State than that provided by the 
reliability standards.
    ``(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 consideration any recommendation of the Electric 
Reliability Organization.
    ``(5) The Commission, after consultation with the Electric 
Reliability Organization and the State taking action, may stay the 
effectiveness of any State action, pending the Commission's issuance of 
a final order.
    ``(j) Regional Advisory Bodies.--The Commission shall establish a 
regional advisory body on the petition of at least two-thirds of the 
States within a region that have more than one-half of their electric 
load served within the region. A regional advisory body shall be 
composed or of one member from each participating State in the region, 
appointed by the Governor of each State, and may include 
representatives 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 within 
the region are just, reasonable, not unduly discriminatory 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) Application to Alaska and Hawaii.--The provisions of this 
section do not apply to Alaska or Hawaii.''.

SEC. 5. DISPOSITION OF PROPERTY.

    Section 203 of the Federal Power Act (16 U.S.C. 824b) is repealed.

SEC. 6. PROMOTION OF VOLUNTARY DEVELOPMENT OF REGIONAL TRANSMISSION 
              ORGANIZATIONS, INDEPENDENT TRANSMISSION PROVIDERS, AND 
              SIMILAR ORGANIZATIONS.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) is amended 
by adding at the end thereof the following new section:

``SEC. 217. PROMOTION OF VOLUNTARY DEVELOPMENT OF REGIONAL TRANSMISSION 
              ORGANIZATIONS, INDEPENDENT TRANSMISSION PROVIDERS, AND 
              SIMILAR ORGANIZATIONS.

    ``(a) In General.--The Commission may approve and may encourage the 
formation of regional transmission organizations, independent 
transmission providers, and similar organizations (referred to in this 
section as `transmission organizations') for the purpose of enhancing 
the transmission of electric energy in interstate commerce. Among 
options for the formation of a transmission organization, the 
Commission shall prefer those in which--
            ``(1) participation in the organization by transmitting 
        utilities is voluntary;
            ``(2) the form, structure, and operating entity of the 
        organization are approved of by participating transmitting 
        utilities; and
            ``(3) market incentives exist to promote investment for 
        expansion of transmission facilities and for the introduction 
        of new transmission technologies within the territory of the 
        organization.
    ``(b) Conditions.--No order issued under this Act shall be 
conditioned upon or require a transmitting utility to transfer 
operational control of jurisdictional facilities to an independent 
system operator or other transmission organization.
    ``(c) Complaint.--In addition to any other rights or remedies it 
may have under this Act, any entity serving electric load that is 
denied services by a transmission organization that the transmission 
organization makes available to other load serving entities shall be 
entitled to file a complaint with the Commission concerning the denial 
of such services. If the Commission shall find, after an evidentiary 
hearing on the record, that the denial of services complained of was 
unjust, unreasonable, unduly discriminatory or preferential, or 
contrary to the public interest, the Commission may order the provision 
of such services at rates and on terms and conditions that shall be in 
accordance with section 215 of this Act.''.

SEC. 7. STATE AND FEDERAL AUTHORITY TO SITE TRANSMISSION FACILITIES.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) is amended 
by adding at the end thereof the following new section:

``SEC. 218. STATE AND FEDERAL AUTHORITY TO SITE TRANSMISSION 
              FACILITIES.

    ``(a) In order to ensure the availability of adequate capacity to 
provide for reliable, economic transmission of electric energy in 
interstate commerce, upon enactment of this section, and after notice 
and opportunity for comment, the Commission shall publish a report, 
which it shall revise each year thereafter, describing areas where 
additional facilities are necessary to increase electric transmission 
capacity. The report shall include information from the regional 
transmission organization planning processes explaining the feasibility 
of providing additional transmission capacity through existing 
transmission rights of way, and shall assess efforts to promote 
adequate and economically efficient transmission of electricity through 
the introduction of new transmission technologies, and to encourage 
investment in new and existing transmission facilities. The Commission 
shall rely upon information provided by regional transmission 
organizations developed in conjunction with States through regional 
transmission organization planning processes, information provided 
by State public utility commissions, and such other information about 
transmission constraints, reliability, and prices of electric energy as 
the Commission deems appropriate. In the report, the Commission shall 
review the status of facilities for which an application has been 
submitted pursuant to subsection (b).
    ``(b) A regional transmission organization or a regional 
transmission entity which has submitted an application to a State or 
local agency for approval of transmission facilities to provide 
additional transmission capacity in an area identified in the report 
required by subsection (a) shall notify the Commission by providing a 
copy of the application, including a description of the facilities and 
the proposed route. The regional transmission organization shall submit 
to the Commission with a copy of the application a statement assessing 
the feasibility of upgrading existing transmission facilities to 
provide additional capacity in an area identified in the report 
required by subsection (a).
    ``(c) If a regional transmission organization or a regional 
transmission entity has not received approval of its application to the 
State to construct transmission facilities in an area identified in the 
report required by subsection (a) within one year of the notice to the 
Commission pursuant to subsection (b), or within two years of such 
notice has not received all permits and approvals required to construct 
the facilities, the Commission may, after considering the feasibility 
of upgrading existing facilities to increase electric transmission 
capacity, upon its own motion or upon request, and after notice and 
opportunity for hearing, issue a certificate of public convenience and 
necessity to construct a proposed transmission facility if it finds the 
facilities to be authorized by the certificate are or will be required 
by public convenience and necessity.
    ``(d) The Commission shall have the power to attach to the issuance 
of such certificate and to the exercise of the rights granted 
thereunder such reasonable terms and conditions related to the 
construction of such facility as the public convenience and necessity 
may require.
    ``(e) The Commission shall require that construction on the 
proposed transmission facility commence within 18 months after the 
Commision grants an issuance of certificate. If construction does not 
commence within the allowed time, the certificate reverts back to the 
Commission. The owner of the proposed transmission facility may apply 
for up to two six-month extensions.
    ``(f) The Commission shall issue its final decision in the 
certificate proceeding within 18 months after the filing of a request 
for a certificate or the initiation of proceedings on its own motion.
    ``(g) When any holder of a certificate of public convenience and 
necessity for electric transmission facilities issued by the Commission 
pursuant to subsection (c) cannot acquire by contract, or is unable to 
agree with the owner of the property to the compensation to be paid for 
the necessary rights-of-way to construct, operate and maintain such 
transmission facility, it may acquire the same by the exercise of the 
right of eminent domain in the district court of the United States for 
the district in which such property may be located, or in the State 
courts.''.

SEC. 8. PUBLIC UTILITY HOLDING COMPANY ACT EXEMPTION FOR RTOS.

    The Public Utility Holding Company Act (15 U.S.C. 79 et seq.) is 
amended--
            (1) by redesignating section 36 as section 37; and
            (2) by inserting after section 35 the following:

``SEC. 36. SAVINGS CLAUSE.

    ``(a) In General.--This Act shall not apply to a multistate 
independent transmission company or to any action to form, modify, 
finance, sell, purchase, operate, or otherwise affect such an 
organization.
    ``(b) Definitions.--For purposes of subsection (a):
            ``(1) The term `multistate independent transmission' means 
        any person which owns or operates facilities in more than one 
        State used for the transmission of electric energy in 
        interstate commerce and which--
                    ``(A) is not engaged in the generation or sale of 
                electric energy; or
                    ``(B) the Federal Energy Regulatory Commission 
                determines is not a market participant (within the 
                meaning of the Commission's rules applicable to 
                regional transmission organizations).
            ``(2) The term `transmission of electric energy in 
        interstate commerce' shall have the meaning given such term in 
        section 201 of the Federal Power Act.''.

SEC. 9. INDEPENDENT TRANSMISSION COMPANIES.

    (a) In General.--Section 1033 of the Internal Revenue Code of 1986 
(relating to involuntary conversions) is amended by redesignating 
subsection (k) as subsection (l) and by inserting after subsection (j) 
the following new subsection:
    ``(k) Sales or Dispositions To Implement Federal Energy Regulatory 
Commission or State Electric Restructuring Policy.--
            ``(1) In general.--For purposes of this subtitle, if a 
        taxpayer elects the application of this subsection to a 
        qualifying electric transmission transaction--
                    ``(A) such transaction shall be treated as an 
                involuntary conversion to which this section applies, 
                and
                    ``(B) exempt utility property shall be treated as 
                property which is similar or related in service or use 
                to the property disposed of in such transaction.
            ``(2) Extension of replacement period.--In the case of any 
        involuntary conversion described in paragraph (1), subsection 
        (a)(2)(B) shall be applied by substituting `4 years' for `2 
        years' in clause (i) thereof.
            ``(3) Qualifying electric transmission transaction.--For 
        purposes of this subsection, the term `qualifying electric 
        transmission transaction' means any sale or other disposition 
        before January 1, 2009, of--
                    ``(A) property used in the trade or business of 
                providing electric transmission services, or
                    ``(B) any stock or partnership interest in a 
                corporation or partnership, as the case may be, whose 
principal trade or business consists of providing electric transmission 
services,
        but only if such sale or disposition is to an independent 
        transmission company.
            ``(4) Independent transmission company.--For purposes of 
        this subsection, the term `independent transmission company' 
        means--
                    ``(A) a regional transmission organization approved 
                by the Federal Energy Regulatory Commission,
                    ``(B) a person--
                            ``(i) who the Federal Energy Regulatory 
                        Commission determines in its authorization of 
                        the transaction under section 203 of the 
                        Federal Power Act (16 U.S.C. 823b) is not a 
                        market participant within the meaning of such 
                        Commission's rules applicable to regional 
                        transmission organizations, and
                            ``(ii) whose transmission facilities to 
                        which the election under this subsection 
                        applies are under the operational control of a 
                        Federal Energy Regulatory Commission-approved 
                        regional transmission organization before the 
                        close of the period specified in such 
                        authorization, but not later than the close of 
                        the period applicable under subsection 
                        (a)(2)(B) as extended under paragraph (2), or
                    ``(C) in the case of facilities subject to the 
                exclusive jurisdiction of the Public Utility Commission 
                of Texas, a person which is approved by that Commission 
                as consistent with Texas State law regarding an 
                independent transmission organization.
            ``(5) Exempt utility property.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `exempt utility 
                property' means property used in the trade or business 
                of--
                            ``(i) generating, transmitting, 
                        distributing, or selling electricity, or
                            ``(ii) producing, transmitting, 
                        distributing, or selling natural gas.
                    ``(B) Nonrecognition of gain by reason of 
                acquisition of stock.--Acquisition of control of a 
                corporation shall be taken into account under this 
                section with respect to a qualifying electric 
                transmission transaction only if the principal trade or 
                business of such corporation is a trade or business 
                referred to in subparagraph (A).
            ``(6) Special rule for consolidated groups.--In the case of 
        a corporation which is a member of an affiliated group filing a 
        consolidated return, such corporation shall be treated as 
        satisfying the purchase requirement of subsection (a)(2) with 
        respect to any qualifying electric transmission transaction 
        engaged in by such corporation to the extent such requirement 
        is satisfied by another member of such group.
            ``(7) Election.--An election under paragraph (1), once 
        made, shall be irrevocable.''
    (b) Exception From Gain Recognition Under Section 1245.--Subsection 
(b) of section 1245 of such Code is amended by adding at the end the 
following new paragraph:
            ``(9) Dispositions to implement federal energy regulatory 
        commission or state electric restructuring policy.--At the 
        election of the taxpayer, the amount of gain which would (but 
        for this paragraph) be recognized under this section on any 
        qualified electric transmission transaction (as defined in 
        section 1033(k)) for which an election under section 1033 is 
        made shall be reduced by the aggregate reduction in the basis 
        of section 1245 property held by the taxpayer or, if 
        insufficient, by a member of an affiliated group which includes 
        the taxpayer at any time during the taxable year in which such 
        transaction occurred. The manner and amount of such reduction 
        shall be determined under regulations prescribed by the 
        Secretary.''
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
of this section shall apply to transactions occurring after the date of 
the enactment of this Act.
    (d) Distributions of Stock To Implement Federal Energy Regulatory 
Commission or State Electric Restructuring Policy.--
            (1) In general.--Subparagraph (A) of section 355(e)(3) of 
        such Code (relating to special rules relating to acquisitions) 
        is amended by inserting after clause (iv) the following new 
        clause:
                            ``(v) The acquisition of stock in any 
                        controlled corporation in a qualifying electric 
                        transmission transaction (as defined in section 
                        1033(k)).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to distributions after the date of the enactment of 
        this Act.
                                 <all>
```