II

106TH CONGRESS

1ST SESSION S. 386

To amend the Internal Revenue Code of 1986 to provide for tax-exempt

bond financing of certain electric facilities.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 6, 1999

Mr. GORTON (for himself, Mr. KERREY, Mr. JEFFORDS, Mr. HOLLINGS, Mr.

THURMOND, Mr. HARKIN, Mrs. MURRAY, Mr. SMITH of Oregon, Mr.

JOHNSON, and Mr. WYDEN) 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 provide

for tax-exempt bond financing of certain electric facilities.

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 ‘‘Bond Fairness and

5 Protection Act of 1999’’.

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

8 (a) PERMITTED OPEN ACCESS TRANSACTIONS NOT

9 A PRIVATE BUSINESS USE.—Section 141(b)(6) of the In-
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1 ternal Revenue Code of 1986 (defining private business

2 use) is amended by adding at the end the following:

3 ‘‘(C) PERMITTED OPEN ACCESS TRANS4 ACTIONS NOT A PRIVATE BUSINESS USE.—

5 ‘‘(i) IN GENERAL.—For purposes of

6 this subsection, the term ‘private business

7 use’ shall not include a permitted open ac8 cess transaction.

9 ‘‘(ii) PERMITTED OPEN ACCESS

10 TRANSACTION DEFINED.—For purposes of

11 clause (I), the term ‘permitted open access

12 transaction’ means any of the following

13 transactions or activities with respect to an

14 electric output facility (as defined in sub15 section (f)(4)(A)) owned by a governmental

16 unit:

17 ‘‘(I) Providing open access trans18 mission services and ancillary services

19 that meet the reciprocity requirements

20 of Federal Energy Regulatory Com21 mission Order No. 888, or that are

22 ordered by the Federal Energy Regu23 latory Commission, or that are pro24 vided in accordance with a trans25 mission tariff of an independent sys-
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1 tem operator approved by such Com2 mission, or are consistent with state

3 administered laws, rules or orders

4 providing for open transmission ac5 cess.

6 ‘‘(II) Participation in an inde7 pendent system operator agreement

8 (which may include transferring con9 trol of transmission facilities to an

10 independent system operator), in a re11 gional transmission group, or in a

12 power exchange agreement approved

13 by such Commission.

14 ‘‘(III) Delivery on an open access

15 basis of electric energy sold by other

16 entities to end-users served by such

17 governmental unit’s distribution facili18 ties.

19 ‘‘(IV) If open access service is

20 provided under subclause (I) or (III),

21 the sale of electric output of electric

22 output facilities on terms other than

23 those available to the general public if

24 such sale is to an on-system purchaser

25 or is an existing off-system sale.
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1 ‘‘(V) Such other transactions or

2 activities as may be provided in regu3 lations prescribed by the Secretary.

4 ‘‘(iii) DEFINITIONS; SPECIAL

5 RULES.—For purposes of this

6 subparagraph—

7 ‘‘(I) ON-SYSTEM PURCHASER.—

8 The term ‘on-system purchaser’

9 means a person who purchases electric

10 energy from a governmental unit and

11 whose electric facilities or equipment

12 are directly connected with trans13 mission or distribution facilities that

14 are owned by such governmental unit.

15 ‘‘(II) OFF-SYSTEM PUR16 CHASER.—The term ‘off-system pur17 chaser’ means a purchaser of electric

18 energy from a governmental unit

19 other than an on-system purchaser.

20 ‘‘(III) EXISTING OFF-SYSTEM

21 SALE.—The term ‘existing off-system

22 sale’ means a sale of electric energy to

23 a person that was an off-system pur24 chaser of electric energy in the base

25 year, but not in excess of the kilowatt
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1 hours purchased by such person in

2 such year.

3 ‘‘(IV) BASE YEAR.—The term

4 ‘base year’ means 1998 (or, at the

5 election of such unit, in 1996 or

6 1997).

7 ‘‘(V) JOINT ACTION AGENCIES.—

8 A member of a joint action agency

9 that is entitled to make a sale de10 scribed in clause (ii)(IV) in a year

11 may transfer that entitlement to the

12 joint action agency in accordance with

13 rules of the Secretary.

14 ‘‘(VI) GOVERNMENT-OWNED FA15 CILITY.—An electric output facility

16 (as defined in subsection (f)(4)(A))

17 shall be treated as owned by a govern18 mental unit if it is owned or leased by

19 such governmental unit or if such gov20 ernmental unit has capacity rights

21 therein acquired before July 9, 1996,

22 for the purposes of serving one or

23 more customers to which such govern24 mental unit had a service obligation
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1 on such date under state law or a re2 quirements contract.’’.

3 (b) ELECTION TO TERMINATE TAX EXEMPT FI4 NANCING.—Section 141 of the Internal Revenue Code of

5 1986 (relating to private activity bond; qualified bond) is

6 amended by adding at the end the following:

7 ‘‘(f) ELECTION TO TERMINATE TAX-EXEMPT BOND

8 FINANCING FOR CERTAIN ELECTRIC OUTPUT FACILI9 TIES.—

10 ‘‘(1) IN GENERAL.—An issuer may make an ir11 revocable election under this paragraph to terminate

12 certain tax-exempt financing for electric output fa13 cilities. If the issuer makes such election, then—

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

15 no bond the interest on which is exempt from

16 tax under section 103 may be issued on or after

17 the date of such election with respect to an elec18 tric output facility; and

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

20 of subsection (a) or paragraph (5) of subsection

21 (b), with respect to an electric output facility no

22 bond that was issued before the date of enact23 ment of this subsection, the interest on which

24 was exempt from tax on such date, shall be

25 treated as a private activity bond, for so long
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1 as such facility continues to be owned by a gov2 ernmental unit.

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

5 ‘‘(A) any qualified bond (as defined in sub6 section (e)),

7 ‘‘(B) any eligible refunding bond, or

8 ‘‘(C) any bond issued to finance a qualify9 ing T&D facility, or

10 ‘‘(D) any bond issued to finance equipment

11 necessary to meet Federal or state environ12 mental requirements applicable to, or repair of,

13 electric output facilities in service on the date

14 of enactment of this subsection. Repairs or

15 equipment may not increase by more than a de

16 minimus degree the capacity of the facility be17 yond its original design.

18 ‘‘(3) FORM AND EFFECT OF ELECTIONS.—An

19 election under paragraph (1) shall be made in such

20 a manner as the Secretary prescribes and shall be

21 binding on any successor in interest to the electing

22 issuer.

23 ‘‘(4) DEFINITIONS.—For purposes of this

24 subsection—
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1 ‘‘(A) ELECTRIC OUTPUT FACILITY.—The

2 term ‘electric output facility’ means an output

3 facility that is an electric generation, trans4 mission, or distribution facility.

5 ‘‘(B) ELIGIBLE REFUNDING BOND.—The

6 term ‘eligible refunding bond’ means state or

7 local bonds issued after an election described in

8 paragraph (1) that directly or indirectly refund

9 state or local bonds issued before such election,

10 if the weighted averaged maturity of the re11 funding bonds do not exceed the remaining

12 weighted average maturity of the bonds issued

13 before the election.

14 ‘‘(C) QALIFYING T&D FACILITY.—The term

15 ‘qualifying T&D facility’ means—

16 ‘‘(i) transmission facilities over which

17 services described in subsection

18 (b)(6)(C)(ii)(I) are provided, or

19 ‘‘(ii) distribution facilities over which

20 services described in subsection

21 (b)(6)(C)(ii)(III) are provided.’’.

22 (c) EFFECTIVE DATE, APPLICABILITY, AND TRANSI23 TION RULES.—

24 (1) EFFECTIVE DATE.—The amendments made

25 by this section take effect on the date of enactment
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1 of this Act, except that a governmental unit may

2 elect to apply section 141(b)(6)(C) of the Internal

3 Revenue Code of 1986, as added by subsection (a),

4 with respect to permitted open access transactions

5 on or after July 9, 1996.

6 (2) APPLICABILITY.—References in the Act to

7 sections of the Internal Revenue Code of 1986, as

8 amended, shall be deemed to include references to

9 comparable sections of the Internal Revenue Code of

10 1954, as amended.

11 (3) TRANSITION RULES.—

12 (A) PRIVATE BUSINESS USE.—Any activity

13 that was not a private business use prior to the

14 effective date of the amendment made by sub15 section (a) shall not be deemed to be a private

16 business use by reason of the enactment of such

17 amendment.

18 (B) ELECTION.—An issuer making the

19 election under section 141(f) of the Internal

20 Revenue Code of 1986, as added by subsection

21 (b), shall not be liable under any contract in ef22 fect on the date of enactment of this Act for

23 any claim arising from having made the elec24 tion.

Æ