II

106TH CONGRESS

2D SESSION S. 2967

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

the electric power industry.

IN THE SENATE OF THE UNITED STATES

JULY 27, 2000

Mr. MURKOWSKI (for himself, Mr. GORTON, Mr. KERREY, Mr. JEFFORDS, and

Mr. THOMPSON) introduced the following bill; which was read twice and

referred to the Committee on Finance

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 chap10 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 tax exemption requirements for State and local bonds) is

2 amended by inserting after section 141 the following new

3 section:

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

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

6 FINANCING FOR CERTAIN ELECTRIC OUTPUT FACILI7 TIES.—

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

9 make an irrevocable election under this paragraph to

10 terminate certain tax-exempt financing for electric

11 output facilities. If the governmental unit makes

12 such election, then—

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

14 on or after the date of such election the govern15 mental unit may not issue with respect to an

16 electric output facility any bond the interest on

17 which is exempt from tax under section 103,

18 and

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

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

21 section 141(b), no bond which was issued by

22 such unit with respect to an electric output fa23 cility before the date of enactment of this sub24 section (or which is described in paragraph

25 (2)(B), (D), (E) or (F)) the interest on which
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1 was exempt from tax on such date, shall be

2 treated as a private activity bond.

3 ‘‘(2) EXCEPTIONS.—An election under para4 graph (1) does not apply to any of the following

5 bonds:

6 ‘‘(A) Any qualified bond (as defined in sec7 tion 141(e)).

8 ‘‘(B) Any eligible refunding bond (as de9 fined in subsection (d)(6)).

10 ‘‘(C) Any bond issued to finance a quali11 fying transmission facility or a qualifying dis12 tribution facility.

13 ‘‘(D) Any bond issued to finance equip14 ment or facilities necessary to meet Federal or

15 State environmental requirements applicable to

16 an existing generation facility.

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

18 any existing generation facility. Repairs of fa19 cilities may not increase the generation capacity

20 of the facility by more than 3 percent above the

21 greater of its nameplate or rated capacity as of

22 the date of enactment of this section.

23 ‘‘(F) Any bond issued to acquire or con24 struct (i) a qualified facility, as defined in sec25 tion 45(c)(3), if such facility is placed in service
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1 during a period in which a qualified facility may

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

3 any energy property, as defined in section

4 48(a)(3).

5 ‘‘(3) FORM AND EFFECT OF ELECTION.—

6 ‘‘(A) IN GENERAL.—An election under

7 paragraph (1) shall be made in such a manner

8 as the Secretary prescribes and shall be binding

9 on any successor in interest to, or any related

10 party with respect to, the electing governmental

11 unit. For purposes of this paragraph, a govern12 mental unit shall be treated as related to an13 other governmental unit if it is a member of the

14 same controlled group.

15 ‘‘(B) TREATMENT OF ELECTING GOVERN16 MENTAL UNIT.—A governmental unit which

17 makes an election under paragraph (1) shall be

18 treated for purposes of section 141 as a person

19 which is not a governmental unit and which is

20 engaged in a trade or business, with respect to

21 its purchase of electricity generated by an elec22 tric output facility placed in service after such

23 election, if such purchase is under a contract

24 executed after such election.
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1 ‘‘(4) DEFINITIONS.—For purposes of this sub2 section:

3 ‘‘(A) EXISTING GENERATION FACILITY.—

4 The term ‘existing generation facility’ means an

5 electric generation facility in service on the date

6 of the enactment of this subsection or the con7 struction of which commenced before June 1,

8 2000.

9 ‘‘(B) QUALIFYING DISTRIBUTION FACIL10 ITY.—The term ‘qualifying distribution facility’

11 means a distribution facility over which open

12 access distribution services described in sub13 section (b)(2)(C) are provided.

14 ‘‘(C) QUALIFYING TRANSMISSION FACIL15 ITY.—The term ‘qualifying transmission facil16 ity’ means a local transmission facility (as de17 fined in subsection (c)(3)(A)) over which open

18 access transmission services described in sub19 paragraph (A), (B), or (E) of subsection (b)(2)

20 are provided.

21 ‘‘(b) PERMITTED OPEN ACCESS ACTIVITIES AND

22 SALES TRANSACTIONS NOT A PRIVATE BUSINESS USE

23 FOR BONDS WHICH REMAIN SUBJECT TO PRIVATE USE

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

2 section and section 141, the term ‘private business

3 use’ shall not include a permitted open access activ4 ity or a permitted sales transaction.

5 ‘‘(2) PERMITTED OPEN ACCESS ACTIVITIES.—

6 For purposes of this section, the term ‘permitted

7 open access activity’ means any of the following

8 transactions or activities with respect to an electric

9 output facility owned by a governmental unit:

10 ‘‘(A) Providing nondiscriminatory open ac11 cess transmission service and ancillary

12 services—

13 ‘‘(i) pursuant to an open access trans14 mission tariff filed with and approved by

15 FERC, but, in the case of a voluntarily

16 filed tariff, only if the governmental unit

17 voluntarily files a report described in para18 graph (c) or (h) of section 35.34 of title 18

19 of the Code of Federal Regulations or suc20 cessor provision (relating to whether or not

21 the issuer will join a regional transmission

22 organization) not later than the later of

23 the applicable date prescribed in such

24 paragraphs or 60 days after the date of

25 the enactment of this section,
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1 ‘‘(ii) under an independent system op2 erator agreement, regional transmission or3 ganization agreement, or regional trans4 mission group agreement approved by

5 FERC, or

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

7 (as defined in section 212(k)(2)(B) of the

8 Federal Power Act (16 U.S.C.

9 824k(k)(2)(B)), pursuant to a tariff ap10 proved by the Public Utility Commission of

11 Texas.

12 ‘‘(B) Participation in—

13 ‘‘(i) an independent system operator

14 agreement,

15 ‘‘(ii) a regional transmission organiza16 tion agreement, or

17 ‘‘(iii) a regional transmission group,

18 which has been approved by FERC, or by the

19 Public Utility Commission of Texas in the case

20 of an ERCOT utility (as so defined). Such par21 ticipation may include transfer of control of

22 transmission facilities to an organization de23 scribed in clause (i), (ii), or (iii).

24 ‘‘(C) Delivery on a nondiscriminatory open

25 access basis of electric energy sold to end-users
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1 served by distribution facilities owned by such

2 governmental unit.

3 ‘‘(D) Delivery on a nondiscriminatory open

4 access basis of electric energy generated by gen5 eration facilities connected to distribution facili6 ties owned by such governmental unit.

7 ‘‘(E) Other transactions providing non8 discriminatory open access transmission or dis9 tribution services under Federal, State, or local

10 open access, retail competition, or similar pro11 grams, to the extent provided in regulations

12 prescribed by the Secretary.

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

14 purposes of this subsection, the term ‘permitted

15 sales transaction’ means any of the following sales of

16 electric energy from existing generation facilities (as

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

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

19 purchaser, if the seller provides open access dis20 tribution service under paragraph (2)(C) and,

21 in the case of a seller which owns or operates

22 transmission facilities, if such seller provides

23 open access transmission under subparagraph

24 (A), (B), or (E) of paragraph (2).
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1 ‘‘(B) The sale of electricity to a wholesale

2 native load purchaser or in a wholesale strand3 ed cost mitigation sale—

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

5 transmission service described in subpara6 graph (A), (B), or (E) of paragraph (2), or

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

8 transmission facilities and transmission

9 providers to the seller’s wholesale native

10 load purchasers provide open access trans11 mission service described in subparagraph

12 (A), (B), or (E) of paragraph (2).

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

14 purposes of this subsection:

15 ‘‘(A) ON-SYSTEM PURCHASER.—The term

16 ‘on-system purchaser’ means a person whose

17 electric facilities or equipment are directly con18 nected with transmission or distribution facili19 ties which are owned by a governmental unit,

20 and such person—

21 ‘‘(i) purchases electric energy from

22 such governmental unit at retail and either

23 was within such unit’s distribution area in

24 the base year or is a person as to whom
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1 the governmental unit has a service obliga2 tion, or

3 ‘‘(ii) is a wholesale native load pur4 chaser from such governmental unit.

5 ‘‘(B) WHOLESALE NATIVE LOAD PUR6 CHASER.—The term ‘wholesale native load pur7 chaser’ means a wholesale purchaser as to

8 whom the governmental unit had—

9 ‘‘(i) a service obligation at wholesale

10 in the base year, or

11 ‘‘(ii) an obligation in the base year

12 under a requirements contract, or under a

13 firm sales contract which has been in effect

14 for (or has an initial term of) at least 10

15 years,

16 but only to the extent that in either case such

17 purchaser resells the electricity at retail to per18 sons within the purchaser’s distribution area.

19 ‘‘(C) WHOLESALE STRANDED COST MITI20 GATION SALE.—The term ‘wholesale stranded

21 cost mitigation sale’ means 1 or more wholesale

22 sales made in accordance with the following re23 quirements:

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

25 sales under this subparagraph during the
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1 recovery period may not exceed the sum of

2 its annual load losses for each year of the

3 recovery period.

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

5 load loss for each year of the recovery pe6 riod is the amount (if any) by which—

7 ‘‘(I) sales in the base year to

8 wholesale native load purchasers

9 which do not constitute a private busi10 ness use, exceed

11 ‘‘(II) sales during that year of

12 the recovery period to wholesale native

13 load purchasers which do not con14 stitute a private business use.

15 ‘‘(iii) If actual sales under this sub16 paragraph during the recovery period are

17 less than allowable sales under clause (i),

18 the amount not sold (but not more than 10

19 percent of the aggregate allowable sales

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

21 sold as wholesale stranded cost mitigation

22 sales in the calendar year following the re23 covery period.
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1 ‘‘(D) RECOVERY PERIOD.—The recovery

2 period is the 7-year period beginning with the

3 start-up year.

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

5 is whichever of the following calendar years the

6 governmental unit elects:

7 ‘‘(i) The year the governmental unit

8 first offers open transmission access.

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

10 10 percent of the governmental unit’s

11 wholesale customers’ aggregate retail na12 tive load is open to retail competition.

13 ‘‘(iii) The calendar year which in14 cludes the date of the enactment of this

15 section, if later than the year described in

16 clause (i) or (ii).

17 ‘‘(F) PERMITTED SALES TRANSACTIONS

18 UNDER EXISTING CONTRACTS.—A sale to a

19 wholesale native load purchaser (other than a

20 person to whom the governmental unit had a

21 service obligation) under a contract which re22 sulted in private business use in the base year

23 shall be treated as a permitted sales transaction

24 only to the extent that sales under the contract

25 exceed the lesser of—
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1 ‘‘(i) in any year, the private business

2 use which resulted during the base year, or

3 ‘‘(ii) the maximum amount of private

4 business use which could occur (absent the

5 enactment of this section) without causing

6 the bonds to be private activity bonds.

7 This subparagraph shall only apply to the ex8 tent that the sale is allocable to bonds issued

9 before the date of the enactment of this section

10 (or bonds issued to refund such bonds).

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

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

13 native load purchaser from) a joint action agen14 cy, which is entitled to make a sale described in

15 subparagraph (A) or (B) in a year, may trans16 fer the entitlement to make that sale to the

17 member (or purchaser), or the joint action

18 agency, respectively.

19 ‘‘(c) CERTAIN BONDS FOR TRANSMISSION AND DIS20 TRIBUTION FACILITIES NOT TAX EXEMPT.—

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

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

23 taxation under section 103 may be issued on or after

24 the date of the enactment of this subsection if any

25 of the proceeds of such issue are used to finance—
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1 ‘‘(A) any transmission facility which is not

2 a local transmission facility, or

3 ‘‘(B) a start-up utility distribution facility.

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

5 apply to—

6 ‘‘(A) any qualified bond (as defined in sec7 tion 141(e)),

8 ‘‘(B) any eligible refunding bond (as de9 fined in subsection (d)(6)), or

10 ‘‘(C) any bond issued to finance—

11 ‘‘(i) any repair of a transmission facil12 ity in service on the date of the enactment

13 of this section, so long as the repair does

14 not increase the voltage level over its level

15 in the base year or increase the thermal

16 load limit of the transmission facility by

17 more than 3 percent over such limit in the

18 base year,

19 ‘‘(ii) any qualifying upgrade of a

20 transmission facility in service on the date

21 of the enactment of this section, or

22 ‘‘(iii) a transmission facility necessary

23 to comply with an obligation under a

24 shared or reciprocal transmission agree-
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1 ment in effect on the date of the enact2 ment of this section.

3 ‘‘(3) LOCAL TRANSMISSION FACILITY DEFINI4 TIONS AND SPECIAL RULES.—For purposes of this

5 subsection—

6 ‘‘(A) LOCAL TRANSMISSION FACILITY.—

7 The term ‘local transmission facility’ means a

8 transmission facility which is located within the

9 governmental unit’s distribution area or which

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

11 serve retail native load or wholesale native load

12 of 1 or more governmental units. For purposes

13 of this subparagraph, the distribution area of a

14 public power authority which was created in

15 1931 by a State statute and which, as of Janu16 ary 1, 1999, owned at least one-third of the

17 transmission circuit miles rated at 230kV or

18 greater in the State, shall be determined under

19 regulations of the Secretary.

20 ‘‘(B) RETAIL NATIVE LOAD.—The term

21 ‘retail native load’ is the electric load of end22 users served by distribution facilities owned by

23 a governmental unit.

24 ‘‘(C) WHOLESALE NATIVE LOAD.—The

25 term ‘wholesale native load’ is—
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1 ‘‘(i) the retail native load of a govern2 mental unit’s wholesale native load pur3 chasers, and

4 ‘‘(ii) the electric load of purchasers

5 (not described in clause (i)) under whole6 sale requirements contracts which—

7 ‘‘(I) do not constitute private

8 business use under the rules in effect

9 absent this subsection, and

10 ‘‘(II) were in effect in the base

11 year.

12 ‘‘(D) NECESSARY TO SERVE LOAD.—For

13 purposes of determining whether a transmission

14 or distribution facility is, or will be, necessary

15 to supply electricity to retail native load or

16 wholesale native load—

17 ‘‘(i) electric reliability standards or re18 quirements of national or regional reli19 ability organizations, regional transmission

20 organizations, and the Electric Reliability

21 Council of Texas shall be taken into ac22 count, and

23 ‘‘(ii) transmission, siting, and con24 struction decisions of regional transmission

25 organizations or independent system opera-
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1 tors and State and Federal agencies shall

2 be presumptive evidence regarding whether

3 transmission facilities are necessary to

4 serve native load.

5 ‘‘(E) QUALIFYING UPGRADE.—The term

6 ‘qualifying upgrade’ means an improvement or

7 addition to transmission facilities in service on

8 the date of the enactment of this section which

9 is ordered or approved by a regional trans10 mission organization, by an independent system

11 operator, or by a State regulatory or siting

12 agency.

13 ‘‘(4) START-UP UTILITY DISTRIBUTION FACIL14 ITY DEFINED.—For purposes of this subsection, the

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

16 distribution facility to provide electric service to the

17 public that is placed in service—

18 ‘‘(A) by a governmental unit which did not

19 operate an electric utility on the date of the en20 actment of this section, and

21 ‘‘(B) before the date on which such govern22 mental unit operates in a qualified service area

23 (as such term is defined in section

24 141(d)(3)(B)).
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1 A governmental unit is deemed to have operated an

2 electric utility on the date of the enactment of this

3 section if it operates electric output facilities which

4 were operated by another governmental unit to pro5 vide electric service to the public on such date.

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

7 of this section—

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

9 the calendar year which includes the date of the en10 actment of this section or, at the election of the gov11 ernmental unit, either of the 2 immediately pre12 ceding calendar years.

13 ‘‘(2) DISTRIBUTION AREA.—The term ‘distribu14 tion area’ means the area in which a governmental

15 unit owns distribution facilities.

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

17 ‘electric output facility’ means an output facility

18 that is an electric generation, transmission, or dis19 tribution facility.

20 ‘‘(4) DISTRIBUTION FACILITY.—The term ‘dis21 tribution facility’ means an electric output facility

22 that is not a generation or transmission facility.

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

24 ‘transmission facility’ means an electric output facil25 ity (other than a generation facility) that operates at
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1 an electric voltage of 69kV or greater, except that

2 the owner of the facility may elect to treat any out3 put facility that is a transmission facility for pur4 poses of the Federal Power Act as a transmission fa5 cility for purposes of this section.

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

7 ‘eligible refunding bond’ means any State or local

8 bond issued after an election described in subsection

9 (a) that directly or indirectly refunds any tax-exempt

10 bond (other than a qualified bond) issued before

11 such election, if the weighted average maturity of

12 the issue of which the refunding bond is a part does

13 not exceed the remaining weighted average maturity

14 of the bonds issued before the election. In applying

15 such term for purposes of subsection (c)(2)(B), the

16 date of election shall be deemed to be the date of the

17 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
20

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1 ‘‘(B) a transmission facility in which the

2 governmental unit acquired before the base year

3 long-term firm capacity for the purposes of

4 serving customers to which the unit had at that

5 time either—

6 ‘‘(i) a service obligation, or

7 ‘‘(ii) an obligation under a require8 ments contract.

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

10 replacement of components of an electric output fa11 cility, but shall not include replacement of the facil12 ity.

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

14 obligation’ means an obligation under State or Fed15 eral law (exclusive of an obligation arising solely

16 from a contract entered into with a person) to pro17 vide electric distribution services or electric sales

18 service, as provided in such law.

19 ‘‘(e) SAVINGS CLAUSE.—Subsection (b) shall not af20 fect the applicability of section 141 to (or the Secretary’s

21 authority to prescribe, amend, or rescind regulations re22 specting) any transaction which is not a permitted open

23 access transaction or permitted sales transaction.’’.

24 (b) REPEAL OF EXCEPTION FOR CERTAIN NON25 GOVERNMENTAL ELECTRIC OUTPUT FACILITIES.—Sec-
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1 tion 141(d)(5) of the Internal Revenue Code of 1986 is

2 amended by inserting ‘‘(except in the case of an electric

3 output facility which is a distribution facility),’’ after ‘‘this

4 subsection’’.

5 (c) CONFORMING AMENDMENT.—The table of sec6 tions for subpart A of part IV of subchapter B of chapter

7 1 of the Internal Revenue Code of 1986 is amended by

8 inserting after the item relating to section 141 the fol9 lowing new item:

‘‘Sec. 141A. Electric output facilities.’’

10 (d) EFFECTIVE DATE; APPLICABILITY.—

11 (1) EFFECTIVE DATE.—The amendments made

12 by this section shall take effect on the date of the

13 enactment of this Act, except that a governmental

14 unit may elect to apply paragraphs (1) and (2) of

15 section 141A(b), as added by subsection (a), with re16 spect to permitted open access activities entered into

17 on or after April 14, 1996.

18 (2) CERTAIN EXISTING AGREEMENTS.—The

19 amendment made by subsection (b) (relating to re20 peal of the exception for certain nongovernmental

21 output facilities) does not apply to any acquisition of

22 facilities made pursuant to an agreement that was

23 entered into before the date of the enactment of this

24 Act.
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1 (3) APPLICABILITY.—References in this Act to

2 sections of the Internal Revenue Code of 1986, shall

3 be deemed to include references to comparable sec4 tions of the Internal Revenue Code of 1954.

5 SEC. 3. INDEPENDENT TRANSMISSION COMPANIES.

6 (a) SALES OR DISPOSITIONS TO IMPLEMENT FED7 ERAL ENERGY REGULATORY COMMISSION OR STATE

8 ELECTRIC RESTRUCTURING POLICY.—

9 (1) IN GENERAL.—Section 1033 of the Internal

10 Revenue Code of 1986 (relating to involuntary con11 versions) is amended by redesignating subsection (k)

12 as subsection (l) and by inserting after subsection (j)

13 the following new subsection:

14 ‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED15 ERAL ENERGY REGULATORY COMMISSION OR STATE

16 ELECTRIC RESTRUCTURING POLICY.—

17 ‘‘(1) IN GENERAL.—For purposes of this sub18 title, if a taxpayer elects the application of this sub19 section to a qualifying electric transmission trans20 action and the proceeds received from such trans21 action are invested in exempt utility property, such

22 transaction shall be treated as an involuntary con23 version to which this section applies.

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

25 In the case of any involuntary conversion described
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1 in paragraph (1), subsection (a)(2)(B) shall be ap2 plied by substituting ‘4 years’ for ‘2 years’ in clause

3 (i) thereof.

4 ‘‘(3) QUALIFYING ELECTRIC TRANSMISSION

5 TRANSACTION.—For purposes of this subsection, the

6 term ‘qualifying electric transmission transaction’

7 means any sale or other disposition of property used

8 in the trade or business of electric transmission, or

9 an ownership interest in a person whose primary

10 trade or business consists of providing electric trans11 mission services, to another person that is an inde12 pendent transmission company.

13 ‘‘(4) INDEPENDENT TRANSMISSION COM14 PANY.—For purposes of this subsection, the term

15 ‘independent transmission company’ means—

16 ‘‘(A) a regional transmission organization

17 approved by the Federal Energy Regulatory

18 Commission,

19 ‘‘(B) a person—

20 ‘‘(i) who the Federal Energy Regu21 latory Commission determines in its au22 thorization of the transaction under section

23 203 of the Federal Power Act (16 U.S.C.

24 823b) is not a market participant within

25 the meaning of such Commission’s rules
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1 applicable to regional transmission organi2 zations, and

3 ‘‘(ii) whose transmission facilities to

4 which the election under this subsection

5 applies are placed under the operational

6 control of a Federal Energy Regulatory

7 Commission-approved regional trans8 mission organization within the period

9 specified in such order, but not later than

10 the close of the replacement period, or

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

12 exclusive jurisdiction of the Public Utility Com13 mission of Texas, a person which is approved by

14 that Commission as consistent with Texas State

15 law regarding an independent transmission or16 ganization.

17 ‘‘(5) EXEMPT UTILITY PROPERTY.—For pur18 poses of this subsection, the term ‘exempt utility

19 property’ means—

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

21 of generating, transmitting, distributing, or sell22 ing electricity or producing, transmitting, dis23 tributing, or selling natural gas, or

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

25 trade or business consists of generating, trans-
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1 mitting, distributing, or selling electricity or

2 producing, transmitting, distributing, or selling

3 natural gas.

4 ‘‘(6) SPECIAL RULES FOR CONSOLIDATED

5 GROUPS.—

6 ‘‘(A) INVESTMENT BY QUALIFYING GROUP

7 MEMBERS.—

8 ‘‘(i) IN GENERAL.—This subsection

9 shall apply to a qualifying electric trans10 mission transaction engaged in by a tax11 payer if the proceeds are invested in ex12 empt utility property by a qualifying group

13 member.

14 ‘‘(ii) QUALIFYING GROUP MEMBER.—

15 For purposes of this subparagraph, the

16 term ‘qualifying group member’ means any

17 member of a consolidated group within the

18 meaning of section 1502 and the regula19 tions promulgated thereunder of which the

20 taxpayer is also a member.

21 ‘‘(B) COORDINATION WITH CONSOLIDATED

22 RETURN PROVISIONS.—A sale or other disposi23 tion of electric transmission property or an

24 ownership interest in a qualifying electric trans25 mission transaction, where an election is made
26

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1 under this subsection, shall not result in the

2 recognition of income or gain under the consoli3 dated return provisions of subchapter A of

4 chapter 6. The Secretary shall prescribe such

5 regulations as may be necessary to provide for

6 the treatment of any exempt utility property re7 ceived in a qualifying electric transmission

8 transaction as successor assets subject to the

9 application of such consolidated return provi10 sions.

11 ‘‘(7) ELECTION.—Any election made by a tax12 payer under this subsection shall be made by a

13 statement to that effect in the return for the taxable

14 year in which the qualifying electric transmission

15 transaction takes place in such form and manner as

16 the Secretary shall prescribe, and such election shall

17 be binding for that taxable year and all subsequent

18 taxable years.’’.

19 (2) SAVINGS CLAUSE.—Nothing in section

20 1033(k) of the Internal Revenue Code of 1986, as

21 added by subsection (a), shall affect Federal or

22 State regulatory policy respecting the extent to

23 which any acquisition premium paid in connection

24 with the purchase of an asset in a qualifying electric

25 transmission transaction can be recovered in rates.
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1 (3) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to transactions occur3 ring after the date of the enactment of this Act.

4 (b) DISTRIBUTIONS OF STOCK TO IMPLEMENT FED5 ERAL ENERGY REGULATORY COMMISSION OR STATE

6 ELECTRIC RESTRUCTURING POLICY.

7 (1) IN GENERAL.—Section 355(e)(4) of the In8 ternal Revenue Code of 1986 is amended by redesig9 nating subparagraphs (C), (D), and (E) as subpara10 graphs (D), (E), and (F), respectively, and by in11 serting after subparagraph (B) the following new

12 subparagraph:

13 ‘‘(C) DISTRIBUTIONS OF STOCK TO IMPLE14 MENT FEDERAL ENERGY REGULATORY COMMIS15 SION OR STATE ELECTRIC RESTRUCTURING

16 POLICY.—

17 ‘‘(i) IN GENERAL.—Paragraph (1)

18 shall not apply to any distribution that is

19 a qualifying electric transmission trans20 action. For purposes of this subparagraph,

21 a ‘qualifying electric transmission trans22 action’ means any distribution of stock in

23 a corporation whose primary trade or busi24 ness consists of providing electric trans25 mission services, where such stock is later
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1 acquired (or where the assets of such cor2 poration are later acquired) by another

3 person that is an independent transmission

4 company.

5 ‘‘(ii) INDEPENDENT TRANSMISSION

6 COMPANY.—For purposes of this sub7 section, the term ‘independent trans8 mission company’ means—

9 ‘‘(I) a regional transmission or10 ganization approved by the Federal

11 Energy Regulatory Commission,

12 ‘‘(II) a person who the Federal

13 Energy Regulatory Commission deter14 mines in its authorization of the

15 transaction under section 203 of the

16 Federal Power Act (16 U.S.C. 824b)

17 is not a market participant within the

18 meaning of such Commission’s rules

19 applicable to regional transmission or20 ganizations, and whose transmission

21 facilities transferred as a part of such

22 qualifying electric transmission trans23 action are placed under the oper24 ational control of a Federal Energy

25 Regulatory Commission-approved re-
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1 gional transmission organization with2 in the period specified in such order,

3 but not later than the close of the re4 placement period (as defined in sec5 tion 1033(k)(2)), or

6 ‘‘(III) in the case of facilities

7 subject to the exclusive jurisdiction of

8 the Public Utility Commission of

9 Texas, a person that is approved by

10 that Commission as consistent with

11 Texas State law regarding an inde12 pendent transmission organization.’’.

13 (2) EFFECTIVE DATE.—The amendments made

14 by this subsection shall apply to distributions occur15 ring after the date of the enactment of this Act.

16 SEC. 4. CERTAIN AMOUNTS RECEIVED BY ELECTRIC UTILI17 TIES EXCLUDED FROM GROSS INCOME AS

18 CONTRIBUTIONS TO CAPITAL.

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

20 the Internal Revenue Code of 1986 (relating to contribu21 tions to the capital of a corporation) is amended—

22 (1) by striking ‘‘WATER AND SEWAGE DIS23 POSAL’’ in the heading and inserting ‘‘CERTAIN’’,
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1 (2) by striking ‘‘water or,’’ in the matter pre2 ceding subparagraph (A) of paragraph (1) and in3 serting ‘‘electric energy, water, or’’,

4 (3) by striking ‘‘water or’’ in paragraph (1)(B)

5 and inserting ‘‘electric energy (but not including as6 sets used in the generation of electricity), water, or’’,

7 (4) by striking ‘‘water or’’ in paragraph

8 (2)(A)(ii) and inserting ‘‘electric energy (but not in9 cluding assets used in the generation of electricity),

10 water, or’’,

11 (5) by inserting ‘‘such term shall include

12 amounts paid as customer connection fees (including

13 amounts paid to connect the customer’s line to an

14 electric line or a main water or sewer line) and’’

15 after ‘‘except that’’ in paragraph (3)(A), and

16 (6) by striking ‘‘water or’’ in paragraph (3)(C)

17 and inserting ‘‘electric energy, water, or’’.

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

19 this section shall apply to amounts received after the date

20 of the enactment of this Act.

21 SEC. 5. TAX TREATMENT OF NUCLEAR DECOMMISSIONING

22 FUNDS.

23 (a) INCREASE IN AMOUNT PERMITTED TO BE PAID

24 INTO NUCLEAR DECOMMISSIONING RESERVE FUND.—

25 Subsection (b) of section 468A of the Internal Revenue
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1 Code of 1986 (relating to special rules for nuclear decom2 missioning costs) is amended to read as follows:

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

4 ‘‘(1) IN GENERAL.—The amount which a tax5 payer may pay into the Fund for any taxable year

6 during the funding period shall not exceed the level

7 funding amount determined pursuant to subsection

8 (d), except—

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

10 Federal or State law or regulation (including

11 authorization by a public service commission) to

12 charge customers a greater amount for nuclear

13 decommissioning costs, in which case the tax14 payer may pay into the Fund such greater

15 amount, or

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

17 nuclear powerplant, where the transferor or

18 transferee (or both) is required pursuant to the

19 terms of the transfer to contribute a greater

20 amount for nuclear decommissioning costs, in

21 which case the transferor or transferee (or

22 both) may pay into the Fund such greater

23 amount.

24 ‘‘(2) CONTRIBUTIONS AFTER FUNDING PE25 RIOD.—Notwithstanding any other provision of this
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1 section, a taxpayer may make deductible payments

2 to the Fund in any taxable year between the end

3 of the funding period and the termination of the li4 cense issued by the Nuclear Regulatory Commission

5 for the nuclear powerplant to which the Fund relates

6 provided such payments do not cause the assets of

7 the Fund to exceed the nuclear decommissioning

8 costs allocable to the taxpayer’s current or former

9 interest in the nuclear powerplant to which the Fund

10 relates. The foregoing limitation shall be applied by

11 taking into account a reasonable rate of inflation for

12 the nuclear decommissioning costs and a reasonable

13 after-tax rate of return on the assets of the Fund

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

15 (b) DEDUCTION FOR NUCLEAR DECOMMISSIONING

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

17 of the Internal Revenue Code of 1986 (relating to income

18 and deductions of the taxpayer) is amended to read as

19 follows:

20 ‘‘(2) DEDUCTION OF NUCLEAR DECOMMIS21 SIONING COSTS.—In addition to any deduction under

22 subsection (a), nuclear decommissioning costs paid

23 or incurred by the taxpayer during any taxable year

24 shall constitute ordinary and necessary expenses in

25 carrying on a trade or business under section 162.’’.
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1 (c) LEVEL FUNDING AMOUNTS.—Subsection (d) of

2 section 468A of the Internal Revenue Code of 1986 is

3 amended to read as follows:

4 ‘‘(d) LEVEL FUNDING AMOUNTS.—

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

6 section, the level funding amount for any taxable

7 year shall equal the annual amount required to be

8 contributed to the Fund in each year remaining in

9 the funding period in order for the Fund to accumu10 late the nuclear decommissioning costs allocable to

11 the taxpayer’s current or former interest in the nu12 clear powerplant to which the Fund relates. The an13 nual amount described in the preceding sentence

14 shall be calculated by taking into account a reason15 able rate of inflation for the nuclear decommis16 sioning costs and a reasonable after-tax rate of re17 turn on the assets of the Fund until such assets are

18 anticipated to be expended.

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

20 for a Fund shall end on the last day of the last tax21 able year of the expected operating life of the nu22 clear powerplant.

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

24 purposes of this section—
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1 ‘‘(A) IN GENERAL.—The term ‘nuclear de2 commissioning costs’ means all costs to be in3 curred in connection with entombing, decon4 taminating, dismantling, removing, and dis5 posing of a nuclear powerplant, and shall in6 clude all associated preparation, security, fuel

7 storage, and radiation monitoring costs. Such

8 term shall include all such costs which, outside

9 of the decommissioning context, might other10 wise be capital expenditures.

11 ‘‘(B) IDENTIFICATION OF COSTS.—The

12 taxpayer may identify nuclear decommissioning

13 costs by reference either to a site-specific engi14 neering study or to the financial assurance

15 amount calculated pursuant to section 50.75 of

16 title 10 of the Code of Federal Regulations.’’.

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

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

19 2000, in taxable years ending after such date.

Æ