II

105TH CONGRESS

2D SESSION S. 2182

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

JUNE 17, 1998

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

Mrs. MURRAY) 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. TAX-EXEMPT BOND FINANCING OF CERTAIN

4 ELECTRIC FACILITIES.

5 (a) PERMITTED OPEN ACCESS TRANSACTIONS NOT

6 A PRIVATE BUSINESS USE.—Section 141(b)(6) of the In7 ternal Revenue Code of 1986 (defining private business

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

9 ‘‘(C) PERMITTED OPEN ACCESS TRANS10 ACTIONS NOT A PRIVATE BUSINESS USE.—
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1 ‘‘(i) IN GENERAL.—For purposes of

2 this subsection, the term ‘private business

3 use’ shall not include a permitted open ac4 cess transaction.

5 ‘‘(ii) PERMITTED OPEN ACCESS

6 TRANSACTION DEFINED.—For purposes of

7 clause (i), the term ‘permitted open access

8 transaction’ means any of the following

9 transactions or activities with respect to an

10 electric output facility (as defined in sub11 section (f)(5)(A)) owned or leased by a

12 governmental unit or in which a govern13 mental unit has capacity rights:

14 ‘‘(I) Providing open access trans15 mission services and ancillary services

16 that meet the reciprocity requirements

17 of Federal Energy Regulatory Com18 mission Order No. 888, or that are

19 ordered by the Federal Energy Regu20 latory Commission, or that are pro21 vided in accordance with a trans22 mission tariff of an independent sys23 tem operator approved by such Com24 mission, or are consistent with state

25 administered laws, rules or orders
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1 providing for open transmission ac2 cess.

3 ‘‘(II) Participation in an inde4 pendent system operator agreement,

5 regional transmission group, or power

6 exchange agreement approved by such

7 Commission.

8 ‘‘(III) Delivery on an open access

9 basis of electric energy sold by other

10 entities to end-users served by such

11 governmental unit’s distribution facili12 ties.

13 ‘‘(IV) If open access service is

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

15 the sale of electric output of electric

16 output facilities on terms other than

17 those available to the general public if

18 such sale is (1) to an on-system pur19 chaser, (2) an existing off-system sale,

20 or (3) a qualifying load loss sale.

21 ‘‘(V) Such other transactions or

22 activities as may be provided in regu23 lations prescribed by the Secretary.

24 ‘‘(iii) QUALIFYING LOAD LOSS

25 SALE.—For purposes of clause (ii)(IV), a
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1 sale of electric energy by a governmental

2 unit is a qualifying load loss sale in any

3 calendar year after 1997, if it is a new off4 system sale, and the aggregate of new off5 system sales in such year does not exceed

6 lost load, and if the term of the sale does

7 not exceed three years, and such govern8 mental unit has elected under subsection

9 (f)(2) to suspend issuance of certain tax10 exempt bonds for not less than the term of

11 the sale (or for any period equal to the

12 term of the sale that includes the first year

13 of the sale).

14 ‘‘(iv) OTHER DEFINITIONS; SPECIAL

15 RULES.—For purposes of this subpara16 graph—

17 ‘‘(I) ON-SYSTEM PURCHASER.—

18 The term ‘on-system purchaser’

19 means a person who purchases electric

20 energy from a governmental unit and

21 who is directly connected with trans22 mission or distribution facilities that

23 are owned or leased by such govern24 mental unit or in which such govern25 mental unit has capacity rights that
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1 are treated under FERC tariffs or ex2 isting contracts as equivalent to own3 ership.

4 ‘‘(II) OFF-SYSTEM PUR5 CHASER.—The term ‘off-system pur6 chaser’ means a purchaser of electric

7 energy from a governmental unit

8 other than an on-system purchaser.

9 ‘‘(III) EXISTING OFF-SYSTEM

10 SALE.—The term ‘existing off-system

11 sale’ means a sale of electric energy to

12 a person that was an off-system pur13 chaser of electric energy in the base

14 year, but not in excess of the KWH

15 purchased by such person in such

16 year.

17 ‘‘(IV) NEW OFF-SYSTEM SALE.—

18 The term ‘new off-system sale’ means

19 an off-system sale other than an exist20 ing off-system sale.

21 ‘‘(V) LOST LOAD.—The term

22 ‘lost load’ for the purposes of deter23 mining qualifying load loss sales for

24 any year, means the amount (if any)

25 by which (1) the sum of on-system
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1 sales of electric energy and existing

2 off-system sales of electric energy in

3 such year is less than (2) the sum of

4 such sales of electric energy in the

5 base year.

6 ‘‘(VI) BASE YEAR.—The term

7 ‘base year’ means 1997 (or, at the

8 election of such unit, in 1995 or

9 1996).

10 ‘‘(VII) JOINT ACTION AGEN11 CIES.—A member of a joint action

12 agency that is entitled to make a

13 qualifying load loss sale in a year may

14 transfer that entitlement to the joint

15 action agency in accordance with rules

16 of the Secretary.’’.

17 (b) ELECTION TO TERMINATE TAX EXEMPT FI18 NANCING.—Section 141 of the Internal Revenue Code of

19 1986 (relating to private activity bond; qualified bond) is

20 amended by adding at the end the following:

21 ‘‘(f) ELECTION TO TERMINATE OR SUSPEND TAX22 EXEMPT BOND FINANCING FOR CERTAIN ELECTRIC OUT23 PUT FACILITIES.—

24 ‘‘(1) TERMINATION ELECTION.—An issuer may

25 make an irrevocable election under this paragraph to
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1 terminate certain tax-exempt financing for electric

2 output facilities. If the issuer makes such election,

3 then—

4 ‘‘(A) except as provided in paragraph (3),

5 no bond the interest on which is exempt from

6 tax under section 103 may be issued on or after

7 the date of such election with respect to an elec8 tric output facility; and

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

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

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

12 bond that was issued before the date of enact13 ment of this subsection, the interest on which

14 was exempt from tax on such date, shall be

15 treated as a private activity bond, for so long

16 as such facility continues to be owned by a gov17 ernmental unit.

18 ‘‘(2) SUSPENSION ELECTION.—For purposes of

19 subsection (b)(6)(C)(iii), an issuer may elect to sus20 pend certain tax-exempt financing for electric output

21 facilities for a calendar year. If the issuer makes

22 such election, then (except as provided in paragraph

23 (3)) no bond, the interest on which is exempt from

24 tax under section 103, may be issued in such cal25 endar year with respect to an electric output facility.
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1 ‘‘(3) EXCEPTIONS.—An election under para2 graph (1) or (2) does not apply to—

3 ‘‘(A) any qualified bond (as defined in sub4 section (e)),

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

6 ‘‘(C) any bond issued to finance a qualify7 ing T&D facility, or

8 ‘‘(D) any bond issued to finance repairs or

9 pollution control equipment for electric output

10 facilities. Repairs cannot increase by more than

11 a de minimis degree the capacity of the facility

12 beyond its original design.

13 ‘‘(4) FORM AND EFFECT OF ELECTIONS.—An

14 election under paragraph (1) or (2) shall be made in

15 such a manner as the Secretary prescribes and shall

16 be binding on any successor in interest to the issuer.

17 ‘‘(5) Definitions.—For purposes of this sub18 section—

19 ‘‘(A) ELECTRIC OUTPUT FACILITY.—The

20 term ‘electric output facility’ means an output

21 facility that is an electric generation, trans22 mission, or distribution facility.

23 ‘‘(B) ELIGIBLE REFUNDING BOND.—The

24 term ‘eligible refunding bond’ means state or

25 local bonds issued after an election described in
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1 paragraph (1) or (2) that directly or indirectly

2 refund state or local bonds issued before such

3 election, if the weighted average maturity of the

4 refunding bonds do not exceed the remaining

5 weighted average maturity of the bonds issued

6 before the election.

7 ‘‘(C) QUALIFYING T&D FACILITY.—The

8 term ‘qualifying T&D facility’ means—

9 ‘‘(i) transmission facilities over which

10 services described in subsection

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

12 ‘‘(ii) distribution facilities over which

13 services described in subsection

14 (b)(6)(C)(ii)(III) are provided.’’

15 (c) EFFECTIVE DATE, APPLICABILITY, AND TRANSI16 TION RULES.—

17 (1) EFFECTIVE DATE.—The amendments made

18 by this section take effect on the date of enactment

19 of this Act, except that a governmental unit may

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

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

22 with respect to permitted open access transactions

23 on or after July 9, 1996.

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

25 sections of the Internal Revenue Code of 1986, as
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1 amended, shall be deemed to include references to

2 comparable sections of the Internal Revenue Code of

3 1954, as amended.

4 (3) TRANSITION RULES.—

5 (A) PRIVATE BUSINESS USE.—Any activity

6 that was not a private business use prior to the

7 effective date of the amendment made by sub8 section (a) shall not be deemed to be a private

9 business use by reason of the enactment of such

10 amendment.

11 (B) ELECTION.—An issuer making the

12 election under section 141(f) of the Internal

13 Revenue Code of 1986, as added by subsection

14 (b), shall not be liable under any contract in ef15 fect on the date of enactment of this Act for

16 any claim under section 141(f) of such Code

17 arising from having made the election.

18 (d) SHORT TITLE.—This Act may be cited as the

19 ‘‘Private Use Competition Reform Act of 1998’’.

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