I

106TH CONGRESS

2D SESSION H. R. 4971

To amend the Internal Revenue Code of 1986 to facilitate competition in

the electric power industry.

IN THE HOUSE OF REPRESENTATIVES

JULY 26, 2000

Mr. HAYWORTH (for himself, Mr. ENGLISH, Mr. MATSUI, Mr. WELLER, Mr.

NEAL of Massachusetts, Mr. RAMSTAD, Mrs. THURMAN, Mr. HERGER,

Mr. WATKINS, Mrs. JOHNSON of Connecticut, and Mr. SHAW) introduced

the following bill; which was referred to the Committee on Ways and

Means

A BILL

To amend the Internal Revenue Code of 1986 to facilitate

competition in the electric power industry.

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 ‘‘Electric Power Indus5 try Tax Modernization Act’’.

6 SEC. 2. TAX-EXEMPT BOND FINANCING OF CERTAIN ELEC7 TRIC FACILITIES.

8 (a) RULES APPLICABLE TO ELECTRIC OUTPUT FA9 CILITIES.—Subpart A of part IV of subchapter B of chap-
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1 ter 1 of the Internal Revenue Code of 1986 (relating to

2 tax exemption requirements for State and local bonds) is

3 amended by inserting after section 141 the following new

4 section:

5 ‘‘SEC. 141A. ELECTRIC OUTPUT FACILITIES.

6 ‘‘(a) ELECTION TO TERMINATE TAX-EXEMPT BOND

7 FINANCING FOR CERTAIN ELECTRIC OUTPUT FACILI8 TIES.—

9 ‘‘(1) IN GENERAL.—A governmental unit may

10 make an irrevocable election under this paragraph to

11 terminate certain tax-exempt financing for electric

12 output facilities. If the governmental unit makes

13 such election, then—

14 ‘‘(A) except as provided in paragraph (2),

15 on or after the date of such election the govern16 mental unit may not issue with respect to an

17 electric output facility any bond the interest on

18 which is exempt from tax under section 103,

19 and

20 ‘‘(B) notwithstanding paragraph (1) or (2)

21 of section 141(a) or paragraph (4) or (5) of

22 section 141(b), no bond that was issued by such

23 unit with respect to an electric output facility

24 before the date of enactment of this subsection

25 (or which is described in paragraph (2)(B), (D),
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1 (E) or (F)) the interest on which was exempt

2 from tax on such date, shall be treated as a pri3 vate activity bond.

4 ‘‘(2) EXCEPTIONS.—An election under para5 graph (1) does not apply to any of the following

6 bonds:

7 ‘‘(A) Any qualified bond (as defined in sec8 tion 141(e)).

9 ‘‘(B) Any eligible refunding bond (as de10 fined in subsection (e)).

11 ‘‘(C) Any bond issued to finance a quali12 fying transmission facility or a qualifying dis13 tribution facility.

14 ‘‘(D) Any bond issued to finance equip15 ment or facilities necessary to meet Federal or

16 State environmental requirements applicable to

17 an existing generation facility.

18 ‘‘(E) Any bond issued to finance repair of

19 any existing generation facility. Repairs of fa20 cilities may not increase the generation capacity

21 of the facility by more than 3 percent above the

22 greater of its nameplate or rated capacity as of

23 the date of enactment of this section.

24 ‘‘(F) Any bond issued to acquire or con25 struct (i) a qualified facility, as defined in sec-
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1 tion 45(c)(3), if such facility is placed in service

2 during a period in which a qualified facility may

3 be placed in service under such section, or (ii)

4 any energy property, as defined in section

5 48(a)(3).

6 ‘‘(3) FORM AND EFFECT OF ELECTION.—

7 ‘‘(A) An election under paragraph (1) shall

8 be made in such a manner as the Secretary pre9 scribes and shall be binding on any successor in

10 interest to, or any related party with respect to,

11 the electing governmental unit. For purposes of

12 this paragraph, a governmental unit shall be

13 treated as related to another governmental unit

14 if it is a member of the same controlled group.

15 ‘‘(B) A governmental unit that makes an

16 election under paragraph (1) shall be treated

17 for purposes of section 141 as a person that is

18 not a governmental unit and that is engaged in

19 a trade or business, with respect to its purchase

20 of electricity generated by an electric output fa21 cility placed in service after such election, if

22 such purchase is under a contract executed

23 after such election.

24 ‘‘(4) DEFINITIONS.—For purposes of this sub25 section:
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1 ‘‘(A) EXISTING GENERATION FACILITY.—

2 The term ‘existing generation facility’ means an

3 electric generation facility in service on the date

4 of enactment of this subsection or construction

5 of which commenced prior to June 1, 2000.

6 ‘‘(B) QUALIFYING DISTRIBUTION FACIL7 ITY.—The term ‘qualifying distribution facility’

8 means a distribution facility over which open

9 access distribution services described in sub10 section (b)(2)(C) are provided.

11 ‘‘(C) QUALIFYING TRANSMISSION FACIL12 ITY.—The term ‘qualifying transmission facil13 ity’ means a local transmission facility over

14 which open access transmission services de15 scribed in subsection (b)(2)(A), (B), or (E) are

16 provided.

17 ‘‘(b) PERMITTED OPEN ACCESS ACTIVITIES AND

18 SALES TRANSACTIONS NOT A PRIVATE BUSINESS USE

19 FOR BONDS THAT REMAIN SUBJECT TO PRIVATE USE

20 RULES.—

21 ‘‘(1) GENERAL RULE.—For purposes of this

22 section and section 141, the term ‘private business

23 use’ shall not include a permitted open access activ24 ity or a permitted sales transaction.
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1 ‘‘(2) PERMITTED OPEN ACCESS ACTIVITIES.—

2 For purposes of this section, the term ‘permitted

3 open access activity’ means any of the following

4 transactions or activities with respect to an electric

5 output facility owned by a governmental unit:

6 ‘‘(A) Providing nondiscriminatory open ac7 cess transmissionservice and ancillary

8 services—

9 ‘‘(i) pursuant to an open access trans10 mission tariff filed with and approved by

11 FERC, but, in the case of a voluntarily

12 filed tariff, only if the governmental unit

13 voluntarily files a report described in 18

14 CFR 35.34(c) or (h) or successor provision

15 (relating to whether or not the issuer will

16 join a regional transmission organization)

17 not later than the later of the applicable

18 date prescribed in such sections or 60 days

19 after enactment of this section;

20 ‘‘(ii) under an independent system op21 erator, regional transmission organization

22 or regional transmission group agreement

23 approved by FERC; or

24 ‘‘(iii) in the case of an ERCOT utility

25 (as defined in section 212 (k) of the Fed-
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1 eral Power Act), pursuant to a tariff ap2 proved by the Public Utility Commission of

3 Texas.

4 ‘‘(B) Participation in—

5 ‘‘(i) an independent system operator

6 agreement,

7 ‘‘(ii) a regional transmission organiza8 tion agreement, or

9 ‘‘(iii) a regional transmission group,

10 that has been approved by FERC, or by the

11 Public Utility Commission of Texas in the case

12 of an ERCOT utility. Such participation may

13 include transfer of control of transmission fa14 cilities to an organization described in clause

15 (i), (ii), or (iii).

16 ‘‘(C) Delivery on a nondiscriminatory open

17 access basis of electric energy sold to end-users

18 served by distribution facilities owned by such

19 governmental unit.

20 ‘‘(D) Delivery on a nondiscriminatory open

21 access basis of electric energy generated by gen22 eration facilities connected to distribution facili23 ties owned by such governmental unit.

24 ‘‘(E) Other transactions providing non25 discriminatory open access transmission or dis-
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1 tribution services under Federal, State, or local

2 open access, retail competition or similar pro3 grams, to the extent provided in regulations

4 prescribed by the Secretary.

5 ‘‘(3) PERMITTED SALES TRANSACTION.—For

6 purposes of this subsection, the term ‘permitted

7 sales transaction’ means any of the following sales of

8 electric energy from existing generation facilities (as

9 defined in subsection (a)(4)(A)):

10 ‘‘(A) The sale of electricity to an on-system

11 purchaser, if the seller provides open access dis12 tribution service under paragraph (2)(C) and,

13 in the case of a seller that owns or operates

14 transmission facilities, if such seller provides

15 open access transmission under paragraph

16 (2)(A), (B), or (E).

17 ‘‘(B) The sale of electricity to a wholesale

18 native load purchaser or in a wholesale strand19 ed cost mitigation sale—

20 ‘‘(i) if the seller provides open access

21 transmission service described in para22 graph (2)(A), (B), or (E), or

23 ‘‘(ii) if the seller owns or operates no

24 transmission facilities and transmission

25 providers to the seller’s wholesale native
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1 load purchasers provide open access trans2 mission service described in paragraph

3 (2)(A), (B), or (E).

4 ‘‘(4) DEFINITIONS AND SPECIAL RULES.—For

5 purposes of this subsection:

6 ‘‘(A) ON-SYSTEM PURCHASER.—The term

7 ‘on-system purchaser’ from a governmental unit

8 means a person whose electric facilities or

9 equipment are directly connected with trans10 mission or distribution facilities that are owned

11 by such governmental unit, and who—

12 ‘‘(i) purchases electric energy from

13 such governmental unit at retail and either

14 was within such unit’s distribution area in

15 the base year or is a person as to whom

16 the governmental unit has a service obliga17 tion, or

18 ‘‘(ii) is a wholesale native load pur19 chaser from such governmental unit.

20 ‘‘(B) WHOLESALE NATIVE LOAD PUR21 CHASER.—The term ‘wholesale native load pur22 chaser’ means a wholesale purchaser as to

23 whom the governmental unit had—

24 ‘‘(i) a service obligation at wholesale

25 in the base year, or
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1 ‘‘(ii) an obligation in the base year

2 under a requirements contract, or under a

3 firm sales contract that has been in effect

4 for (or has an initial term of) 10 years or

5 more, but only to the extent in either case

6 such purchaser resells the electricity at re7 tail to persons within the purchaser’s dis8 tribution area.

9 ‘‘(C) WHOLESALE STRANDED COST MITI10 GATION SALE.—The term ‘wholesale stranded

11 cost mitigation sale’ means one or more whole12 sale sales made in accordance with clauses (i),

13 (ii), and (iii).

14 ‘‘(i) A governmental unit’s allowable

15 sales under this subparagraph during the

16 recovery period may not exceed the sum of

17 its annual load losses for each year of the

18 recovery period.

19 ‘‘(ii) The governmental unit’s annual

20 load loss for each year of the recovery pe21 riod is the amount (if any) by which—

22 ‘‘(I) sales in the base year to

23 wholesale native load purchasers that

24 do not constitute a private business

25 use, exceed
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1 ‘‘(II) sales during that year of

2 the recovery period to wholesale native

3 load purchasers that do not constitute

4 a private business use.

5 ‘‘(iii) If actual sales under this sub6 paragraph during the recovery period are

7 less than allowable sales under clause (i),

8 the amount not sold (but not more than 10

9 percent of the aggregate allowable sales

10 under clause (i)) may be carried over and

11 sold as wholesale stranded cost mitigation

12 sales in the calendar year following the re13 covery period.

14 ‘‘(D) RECOVERY PERIOD.—The recovery

15 period is the 7 year period beginning with the

16 start-up year.

17 ‘‘(E) START-UP YEAR.—The start-up year

18 is whichever of the following calendar years the

19 governmental unit elects:

20 ‘‘(i) The year the governmental unit

21 first offers open transmission access.

22 ‘‘(ii) The first year in which at least

23 10 percent of the governmental unit’s

24 wholesale customers’ aggregate retail na25 tive load is open to retail competition.
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1 ‘‘(iii) The year of enactment of this

2 section, if later than the year described in

3 clause (i) or (ii).

4 ‘‘(F) PERMITTED SALES TRANSACTIONS

5 UNDER EXISTING CONTRACTS.—A sale to a

6 wholesale native load purchaser (other than a

7 person to whom the governmental unit had a

8 service obligation) under a contract that re9 sulted in private business use in the base year

10 shall be treated as a permitted sales transaction

11 only to the extent that sales under the contract

12 exceed (i) in any year the private business use

13 that resulted during the base year, or (ii) the

14 maximum amount of private business use that

15 could occur (absent the enactment of this sec16 tion) without causing the bonds to be private

17 activity bonds, whichever is less. This subpara18 graph shall only apply to the extent that the

19 sale is allocable to bonds issued prior to the

20 date of enactment of this section (or bonds

21 issued to refund such bonds).

22 ‘‘(G) JOINT ACTION AGENCIES.—A joint

23 action agency, or a member of (or a wholesale

24 native load purchaser from) a joint action agen25 cy, that is entitled to make a sale described in
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1 subparagraph (A) or (B) in a year may transfer

2 the entitlement to make that sale to the mem3 ber (or purchaser), or the joint action agency,

4 respectively.

5 ‘‘(c) CERTAIN BONDS FOR TRANSMISSION AND DIS6 TRIBUTION FACILITIES NOT TAX EXEMPT.—

7 ‘‘(1) GENERAL RULE.—For purposes of this

8 title, no bond the interest on which is exempt from

9 taxation under section 103 may be issued on or after

10 the date of enactment of this subsection if any of the

11 proceeds of such issue are used to finance (A) any

12 transmission facility that is not a local transmission

13 facility, or (B) a start-up utility distribution facility.

14 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

15 apply to—

16 ‘‘(A) a qualified bond (as defined in section

17 141(e)),

18 ‘‘(B) an eligible refunding bond (as defined

19 in subsection (d)(6)), or

20 ‘‘(C) any bond issued to finance—

21 ‘‘(i) any repair of a transmission facil22 ity in service on the date of enactment of

23 this section, so long as the repair does not

24 increase the voltage level over its level in

25 the base year or increase the thermal load
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1 limit of the transmission facility by more

2 than 3 percent over such limit in the base

3 year,

4 ‘‘(ii) any qualifying upgrade of a

5 transmission facility in service on the date

6 of enactment of this section, or

7 ‘‘(iii) a transmission facility necessary

8 to comply with an obligation under a

9 shared or reciprocal transmission agree10 ment in effect on the date of enactment of

11 this section.

12 ‘‘(3) LOCAL TRANSMISSION FACILITY DEFINI13 TIONS.—For purposes of this subsection—

14 ‘‘(A) LOCAL TRANSMISSION FACILITY.—

15 The term ‘local transmission facility’ means a

16 transmission facility which is located within the

17 governmental unit’s distribution area or which

18 is, or will be, necessary to supply electricity to

19 serve retail native load or wholesale native load

20 of one or more governmental units. For pur21 poses of this subparagraph, the distribution

22 area of a public power authority which was cre23 ated in 1931 by a State statute and which, as

24 of January 1, 1999, owned at least one-third of

25 the transmission circuit miles rated at 230 kV
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1 or higher in the State, shall be determined

2 under regulations of the Secretary.

3 ‘‘(B) RETAIL NATIVE LOAD.—A govern4 mental unit’s ‘retail native load’ is the electric

5 load of end-users served by distribution facili6 ties owned by such governmental unit.

7 ‘‘(C) WHOLESALE NATIVE LOAD.—A gov8 ernmental unit’s ‘wholesale native load’ is the—

9 ‘‘(i) retail native load of such unit’s

10 wholesale native load purchasers, and

11 ‘‘(ii) electric load of purchasers (not

12 described in clause (i)) under wholesale re13 quirements contracts that (I) do not con14 stitute private business use under the rules

15 in effect absent this subsection, and (II)

16 were in effect in the base year.

17 ‘‘(D) NECESSARY TO SERVE LOAD.—For

18 purposes of determining whether a transmission

19 or distribution facility is, or will be, necessary

20 to supply electricity to retail native load or

21 wholesale native load—

22 ‘‘(i) electric reliability standards or re23 quirements of national or regional reli24 ability organizations, regional transmission

25 organizations and the Electric Reliability
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1 Council of Texas shall be taken into ac2 count, and

3 ‘‘(ii) transmission, siting and con4 struction decisions of regional transmission

5 organizations or independent system opera6 tors and state and Federal agencies shall

7 be presumptive evidence regarding whether

8 transmission facilities are necessary to

9 serve native load.

10 ‘‘(E) QUALIFYING UPGRADE.—The term

11 ‘qualifying upgrade’ means an improvement or

12 addition to transmission facilities in service on

13 the date of enactment of this section that is or14 dered or approved by a regional transmission

15 organization, by an independent system oper16 ator, or by a state regulatory or siting agency.

17 ‘‘(4) START-UP UTILITY DISTRIBUTION FACIL18 ITY DEFINED.—For purposes of this subsection, the

19 term ‘start-up utility distribution facility’ means any

20 distribution facility to provide electric service to the

21 public that is placed in service, (A) by a govern22 mental unit that did not operate an electric utility

23 on the date of enactment of this section, and (B)

24 prior to the date on which such governmental unit

25 operates in a qualified service area (as such term is
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1 defined in section 141(d)(3)(B)). A governmental

2 unit is deemed to have operated an electric utility on

3 the date of enactment of this section if it operates

4 electric output facilities that were operated by an5 other governmental unit to provide electric service to

6 the public on the date of enactment of this section.

7 ‘‘(d) DEFINITIONS; SPECIAL RULES.—For purposes

8 of this section—

9 ‘‘(1) BASE YEAR.—The term ‘base year’ means

10 the year of enactment of this section or, at the elec11 tion of the governmental unit, either of the two cal12 endar years immediately prior to the year of enact13 ment.

14 ‘‘(2) DISTRIBUTION AREA.—The term ‘distribu15 tion area’ means the area in which a governmental

16 unit owns distribution facilities.

17 ‘‘(3) ELECTRIC OUTPUT FACILITY.—The term

18 ‘electric output facility’ means an output facility

19 that is an electric generation, transmission, or dis20 tribution facility.

21 ‘‘(4) DISTRIBUTION FACILITY.—The term ‘dis22 tribution facility’ means an electric output facility

23 that is not a generation or transmission facility.

24 ‘‘(5) TRANSMISSION FACILITY.—The term

25 ‘transmission facility’ means an electric output facil-
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1 ity (other than a generation facility) that operates at

2 an electric voltage of 69kV or greater, except that

3 the owner of the facility may elect to treat any out4 put facility that is a transmission facility for pur5 poses of the Federal Power Act as a transmission fa6 cility for purposes of this section.

7 ‘‘(6) ELIGIBLE REFUNDING BOND.—The term

8 ‘eligible refunding bond’ means State or local bonds

9 issued after an election described in subsection (a)

10 that directly or indirectly refund tax exempt bonds

11 (other than a qualified bond) issued before such

12 election, if the weighted average maturity of the re13 funding bonds does not exceed the remaining weight14 ed average maturity of the bonds issued before the

15 election. In applying such term for purposes of sub16 section (c)(2)(B), the date of election shall be

17 deemed to be the date of enactment of this section.

18 ‘‘(7) FERC.—The term ‘FERC’ means the

19 Federal Energy Regulatory Commission.

20 ‘‘(8) GOVERNMENT-OWNED FACILITY.—An elec21 tric output facility shall be treated as ‘owned by a

22 governmental unit’ if it is an electric output facility

23 that either is—

24 ‘‘(A) owned or leased by such govern25 mental unit, or
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1 ‘‘(B) a transmission facility in which the

2 governmental unit acquired prior to the base

3 year long-term firm capacity for the purposes of

4 serving customers to which the unit had at that

5 time either (i) a service obligation or (ii) an ob6 ligation under a requirements contract.

7 ‘‘(9) REPAIR.—The term ‘repair’ shall include

8 replacement of components of an electric output fa9 cility, but shall not include replacement of the facil10 ity.

11 ‘‘(10) SERVICE OBLIGATION.—The term ‘service

12 obligation’ means an obligation under State or Fed13 eral law (exclusive of an obligation arising solely

14 from a contract entered into with such person) to

15 provide electric distribution services or electric sales

16 service, as provided in such law.

17 ‘‘(e) SAVINGS CLAUSE.—Subsection (b) does not af18 fect the applicability of section 141 to (or the Secretary’s

19 authority to prescribe, amend, or rescind regulations re20 specting) any transaction that is not a permitted open ac21 cess transaction or permitted sales transaction.’’

22 (b) REPEAL OF EXCEPTION FOR CERTAIN NON23 GOVERNMENTAL ELECTRIC OUTPUT FACILITIES.—Sec24 tion 141(d)(5) of such Code is amended by inserting ‘‘(ex-
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1 cept in the case of an electric output facility that is a dis2 tribution facility),’’ after ‘‘this section’’.

3 (c) EFFECTIVE DATE, APPLICABILITY.—

4 (1) EFFECTIVE DATE.—The amendments made

5 by this section take effect on the date of enactment

6 of this Act, except that a governmental unit may

7 elect to apply section 141A(b)(1) and (2), as added

8 by subsection (a), with respect to permitted open ac9 cess activities entered into on or after April 14,

10 1996.

11 (2) CERTAIN EXISTING AGREEMENTS.—The

12 amendment made by subsection (b) (relating to re13 peal of the exception for certain nongovernmental

14 output facilities) does not apply to any acquisition of

15 facilities made pursuant to an agreement that was

16 entered into before the date of enactment of this

17 Act.

18 (3) APPLICABILITY.—References in the Act to

19 sections of the Internal Revenue Code of 1986, shall

20 be deemed to include references to comparable sec21 tions of the Internal Revenue Code of 1954.

22 SEC. 3. INDEPENDENT TRANSMISSION COMPANIES.

23 (a) SALES OR DISPOSITIONS TO IMPLEMENT FED24 ERAL ENERGY REGULATORY COMMISSION OR STATE

25 ELECTRIC RESTRUCTURING POLICY.—
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1 (1) IN GENERAL.—Section 1033 of the Internal

2 Revenue Code of 1986 is amended by redesignating

3 subsection (k) as subsection (l) and by inserting

4 after subsection (j) the following new subsection:

5 ‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED6 ERAL ENERGY REGULATORY COMMISSION OR STATE

7 ELECTRIC RESTRUCTURING POLICY.—

8 ‘‘(1) IN GENERAL.—For purposes of this sub9 title, if a taxpayer elects the application of this sub10 section to a qualifying electric transmission trans11 action and the proceeds received from such trans12 action are invested in exempt utility property, such

13 transaction shall be treated as an involuntary con14 version to which this section applies.

15 ‘‘(2) EXTENSION OF REPLACEMENT PERIOD.—

16 In the case of any involuntary conversion described

17 in paragraph (1), subsection (a)(2)(B) shall be ap18 plied by striking ‘2 years’ and inserting ‘4 years’.

19 ‘‘(3) QUALIFYING ELECTRIC TRANSMISSION

20 TRANSACTION.—For purposes of this subsection, the

21 term ‘qualifying electric transmission transaction’

22 means any sale or other disposition of property used

23 in the trade or business of electric transmission, or

24 an ownership interest in a person whose primary

25 trade or business consists of providing electric trans-
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1 mission services, to another person that is an inde2 pendent transmission company.

3 ‘‘(4) INDEPENDENT TRANSMISSION COM4 PANY.—For purposes of this subsection, the term

5 ‘independent transmission company’ means—

6 ‘‘(A) a regional transmission organization

7 approved by the Federal Energy Regulatory

8 Commission,

9 ‘‘(B) a person (i) who the Federal Energy

10 Regulatory Commission determines in its au11 thorization of the transaction under section 203

12 of the Federal Power Act is not a ‘market par13 ticipant’ within the meaning of such Commis14 sion’s rules applicable to regional transmission

15 organizations, and (ii) whose transmission fa16 cilities to which the election under this sub17 section applies are placed under the operational

18 control of a Federal Energy Regulatory Com19 mission-approved regional transmission organi20 zation within the period specified in such order,

21 but not later than the close of the replacement

22 period, or

23 ‘‘(C) in the case of facilities subject to the

24 exclusive jurisdiction of the Public Utility Com25 mission of Texas, a person that is approved by
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1 that commission as consistent with Texas State

2 law regarding an independent transmission or3 ganization.

4 ‘‘(5) EXEMPT UTILITY PROPERTY.—For pur5 poses of this subsection, the term ‘exempt utility

6 property’ means—

7 ‘‘(A) property used in the trade or business

8 of generating, transmitting, distributing, or sell9 ing electricity or producing, transmitting, dis10 tributing, or selling natural gas, or

11 ‘‘(B) stock in a person whose primary

12 trade or business consists of generating, trans13 mitting, distributing, or selling electricity or

14 producing, transmitting, distributing, or selling

15 natural gas.

16 ‘‘(6) SPECIAL RULES FOR CONSOLIDATED

17 GROUPS.—

18 ‘‘(A) INVESTMENT BY QUALIFYING GROUP

19 MEMBERS.—This subsection shall apply to a

20 qualifying electric transmission transaction en21 gaged in by a taxpayer if the proceeds are in22 vested in exempt utility property by a qualifying

23 group member. A ‘qualifying group member’ is

24 any member of a consolidated group within the

25 meaning of section 1502 and the regulations
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1 promulgated thereunder of which the taxpayer

2 is also a member.

3 ‘‘(B) COORDINATION WITH CONSOLIDATED

4 RETURN PROVISIONS.—A sale or other disposi5 tion of electric transmission property or an

6 ownership interest in a qualifying electric trans7 mission transaction, where an election is made

8 under this subsection, shall not result in the

9 recognition of income or gain under the consoli10 dated return provisions of subtitle A, chapter 6,

11 subchapter A hereof. The Secretary shall pre12 scribe such regulations as may be necessary to

13 provide for the treatment of any exempt utility

14 property received in a qualifying electric trans15 mission transaction as successor assets subject

16 to the application of such consolidated return

17 provisions.

18 ‘‘(7) ELECTION.—Any election made by a tax19 payer under this subsection shall be made by a

20 statement to that effect in the return for the taxable

21 year in which the qualifying electric transmission

22 transaction takes place in such form and manner as

23 the Secretary shall prescribe, and such election shall

24 be binding for that taxable year and all subsequent

25 taxable years.’’
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1 (2) SAVINGS CLAUSE.—Nothing in section

2 1033(k) of the Internal Revenue Code of 1986, as

3 added by subsection (a), affects Federal or State

4 regulatory policy respecting the extent to which any

5 acquisition premium paid in connection with the

6 purchase of an asset in a qualifying electric trans7 mission transaction can be recovered in rates.

8 (3) EFFECTIVE DATE.—The amendments made

9 by this subsection shall apply to transactions occur10 ring after the date of enactment of this Act.

11 (b) DISTRIBUTIONS OF STOCK TO IMPLEMENT FED12 ERAL ENERGY REGULATORY COMMISSION OR STATE

13 ELECTRIC RESTRUCTURING POLICY.

14 (1) IN GENERAL.—Section 355(e)(4) of the In15 ternal Revenue Code of 1986 is amended by redesig16 nating subparagraphs (C), (D), and (E) as subpara17 graphs (D), (E), and (F), respectively, and by in18 serting after subparagraph (B) the following new

19 subparagraph:

20 ‘‘(C) DISTRIBUTIONS OF STOCK TO IMPLE21 MENT FEDERAL ENERGY REGULATORY COMMIS22 SION OR STATE ELECTRIC RESTRUCTURING

23 POLICY.—

24 ‘‘(i) Paragraph (1) shall not apply to

25 any distribution that is a qualifying elec-
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1 tric transmission transaction. For purposes

2 of this subparagraph, a ‘qualifying electric

3 transmission transaction’ means any dis4 tribution of stock in a corporation whose

5 primary trade or business consists of pro6 viding electric transmission services, where

7 such stock is later acquired (or where the

8 assets of such corporation are later ac9 quired) by another person that is an inde10 pendent transmission company.

11 ‘‘(ii) INDEPENDENT TRANSMISSION

12 COMPANY.—For purposes of this sub13 section, the term ‘independent trans14 mission company’ means—

15 ‘‘(I) a regional transmission or16 ganization approved by the Federal

17 Energy Regulatory Commission,

18 ‘‘(II) a person (x) who the Fed19 eral Energy Regulatory Commission

20 determines in its authorization of the

21 transaction under section 203 of the

22 Federal Power Act is not a ‘market

23 participant’ within the meaning of

24 such Commission’s rules applicable to

25 regional transmission organizations,
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1 and (y) whose transmission facilities

2 transferred as a part of such quali3 fying electric transmission transaction

4 are placed under the operational con5 trol of a Federal Energy Regulatory

6 Commission-approved regional trans7 mission organization within the period

8 specified in such order, but later than

9 the close of the replacement period (as

10 defined in section 1033(k)(2)), or

11 ‘‘(III) in the case of facilities

12 subject to the exclusive jurisdiction of

13 the Public Utility Commission of

14 Texas, a person that is approved by

15 that commission as consistent with

16 Texas State law regarding an inde17 pendent transmission organization.’’

18 (2) EFFECTIVE DATE.—The amendments made

19 by this subsection shall apply to distributions occur20 ring after the date of enactment of this Act.
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1 SEC. 4. CERTAIN AMOUNTS RECEIVED BY ELECTRIC UTILI2 TIES EXCLUDED FROM GROSS INCOME AS

3 CONTRIBUTIONS TO CAPITAL.

4 (a) IN GENERAL.—Subsection (c) of section 118 of

5 the Internal Revenue Code of 1986 (relating to special

6 rules for water and sewage disposal utilities) is amended—

7 (1) in the heading, by striking ‘‘WATER AND

8 SEWAGE DISPOSAL’’ and inserting ‘‘CERTAIN’’.

9 (2) in paragraph (1)—

10 (A) in the lead-in for paragraph (1), by

11 striking ‘‘water or,’’ and inserting ‘‘electric en12 ergy, water, or’’, and

13 (B) in subparagraph (B), by striking

14 ‘‘water or’’ and inserting ‘‘electric energy (but

15 not including assets used in the generation of

16 electricity), water, or’’,

17 (3) in paragraph (2)(A)(ii), by striking ‘‘water

18 or’’ and inserting ‘‘electric energy (but not including

19 assets used in the generation of electricity), water,

20 or’’, and

21 (4) in paragraph (3)—

22 (A) in subparagraph (A), by inserting

23 ‘‘such term shall include amounts paid as cus24 tomer connection fees (including amounts paid

25 to connect the customer’s line to an electric line
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1 or a main water or sewer line) and’’ after ‘‘ex2 cept that’’, and

3 (B) in subparagraph (C), by striking

4 ‘‘water or’’ and inserting ‘‘electric energy,

5 water, or’’.

6 (b) EFFECTIVE DATE.—The amendments made by

7 subsection (a) shall apply to amounts received after the

8 date of enactment of this Act.

9 SEC. 5. TAX TREATMENT OF NUCLEAR DECOMMISSIONING

10 FUNDS.

11 (a) INCREASE IN AMOUNT PERMITTED TO BE PAID

12 INTO NUCLEAR DECOMMISSIONING RESERVE FUND.—

13 Subsection (b) of section 468A of the Internal Revenue

14 Code of 1986 is amended to read as follows:

15 ‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—

16 ‘‘(1) IN GENERAL.—The amount which a tax17 payer may pay into the Fund for any taxable year

18 during the funding period shall not exceed the level

19 funding amount determined pursuant to subsection

20 (d), except—

21 ‘‘(A) where the taxpayer is permitted by

22 Federal or State law or regulation (including

23 authorization by a public service commission) to

24 charge customers a greater amount for nuclear

25 decommissioning costs, in which case the tax-
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1 payer may pay into the Fund such greater

2 amount, or

3 ‘‘(B) in connection with the transfer of a

4 nuclear powerplant, where the transferor or

5 transferee (or both) is required pursuant to the

6 terms of the transfer to contribute a greater

7 amount for nuclear decommissioning costs, in

8 which case the transferor or transferee (or

9 both) may pay into the Fund such greater

10 amount.

11 ‘‘(2) CONTRIBUTIONS AFTER FUNDING PE12 RIOD.—Notwithstanding any other provision of this

13 section, a taxpayer may make deductible payments

14 to the Fund in any taxable year between the end of

15 the funding period and the termination of the license

16 issued by the Nuclear Regulatory Commission for

17 the nuclear powerplant to which the Fund relates

18 provided such payments do not cause the assets of

19 the Fund to exceed the nuclear decommissioning

20 costs allocable to the taxpayer’s current or former

21 interest in the nuclear powerplant to which the Fund

22 relates. The foregoing limitation shall be applied by

23 taking into account a reasonable rate of inflation for

24 the nuclear decommissioning costs and a reasonable
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1 after-tax rate of return on the assets of the Fund

2 until such assets are anticipated to be expended.’’

3 (b) DEDUCTION FOR NUCLEAR DECOMMISSIONING

4 COSTS WHEN PAID.—Paragraph (2) of section 468A(c)

5 of such Code is amended to read as follows:

6 ‘‘(2) DEDUCTION OF NUCLEAR DECOMMIS7 SIONING COSTS.—In addition to any deduction under

8 subsection (a), nuclear decommissioning costs paid

9 or incurred by the taxpayer during any taxable year

10 shall constitute ordinary and necessary expenses in

11 carrying on a trade or business under section 162.’’

12 (c) LEVEL FUNDING AMOUNTS.—Subsection (d) of

13 section 468A of such Code is amended to read as follows:

14 ‘‘(d) LEVEL FUNDING AMOUNTS.—

15 ‘‘(1) ANNUAL AMOUNTS.—For purposes of this

16 section, the level funding amount for any taxable

17 year shall equal the annual amount required to be

18 contributed to the Fund in each year remaining in

19 the funding period in order for the Fund to accumu20 late the nuclear decommissioning costs allocable to

21 the taxpayer’s current or former interest in the nu22 clear powerplant to which the Fund relates. The an23 nual amount described in the foregoing sentence

24 shall be calculated by taking into account a reason25 able rate of inflation for the nuclear decommis-
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1 sioning costs and a reasonable after-tax rate of re2 turn on the assets of the Fund until such assets are

3 anticipated to be expended.

4 ‘‘(2) FUNDING PERIOD.—The funding period

5 for a Fund shall end on the last day of the last tax6 able year of the expected operating life of the nu7 clear powerplant.

8 ‘‘(3) NUCLEAR DECOMMISSIONING COSTS.—For

9 purposes of this section, the term ‘nuclear decom10 missioning costs’ shall mean all costs to be incurred

11 in connection with entombing, decontaminating, dis12 mantling, removing, and disposing of a nuclear pow13 erplant, and shall include all associated preparation,

14 security, fuel storage, and radiation monitoring

15 costs. The taxpayer may identify such costs by ref16 erence either to a site-specific engineering study or

17 to the financial assurance amount calculated pursu18 ant to section 50.75 of title 10 of the Code of Fed19 eral Regulations. The term shall include all such

20 costs which, outsie of the decommissioning context,

21 might otherwise be capital expenditures.’’

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

23 this section shall apply to amounts paid after June 30,

24 2000, in taxable years ending after such date.

Æ