I

107TH CONGRESS

1ST SESSION H. R. 1459

To amend the Internal Revenue Code of 1986 to improve electric reliability,

enhance transmission infrastructure, and to facilitate access to the electric transmission grid.

IN THE HOUSE OF REPRESENTATIVES

APRIL 4, 2001

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

NEAL of Massachusetts, Mr. HOUGHTON, Ms. BALDWIN, Mr. KING, Mr.

SPRATT, and Mr. GRAHAM) 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 improve

electric reliability, enhance transmission infrastructure,

and to facilitate access to the electric transmission grid.

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’’.
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1 SEC. 2. TAX-EXEMPT BOND FINANCING OF CERTAIN ELEC2 TRIC FACILITIES.

3 (a) RULES APPLICABLE TO ELECTRIC OUTPUT FA4 CILITIES.—Subpart A of part IV of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to

6 tax exemption requirements for State and local bonds) is

7 amended by adding after section 141 the following new

8 section:

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

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

11 FINANCING FOR CERTAIN ELECTRIC OUTPUT FACILI12 TIES.—

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

14 make an irrevocable election under this paragraph to

15 terminate the issuance of certain obligations de16 scribed in section 103(a) for electric output facilities.

17 If the governmental unit makes such election,

18 then—

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

20 on or after the date of such election the govern21 mental unit may not issue with respect to any

22 electric output facility any bond the interest on

23 which is excluded from gross income under sec24 tion 103, and
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1 ‘‘(B) notwithstanding paragraph (1) or (2)

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

3 section 141(b), no bond—

4 ‘‘(i) which was issued by such unit

5 with respect to an electric output facility

6 before the date of enactment of this sub7 section, the interest on which was exempt

8 from tax on such date,

9 ‘‘(ii) which is an eligible refunding

10 bond that directly or indirectly refunds a

11 bond issued prior to the date of enactment

12 of this section, or

13 ‘‘(iii) which is described in paragraph

14 (2)(D), (E), or (F),

15 shall be treated as a private activity bond.

16 ‘‘(2) EXCEPTIONS.—If an election is made

17 under paragraph (1), paragraph (1)(A) does not

18 apply to any of the following bonds:

19 ‘‘(A) Any qualified bond (as defined in sec20 tion 141(e)).

21 ‘‘(B) Any eligible refunding bond (as de22 fined in subsection (d)(6)).

23 ‘‘(C) Any bond issued to finance a quali24 fying transmission facility or a qualifying dis-
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1 tribution facility owned by the governmental

2 unit.

3 ‘‘(D) Any bond issued to finance equip4 ment or facilities necessary to meet Federal or

5 State environmental requirements applicable to

6 an existing generation facility owned by the

7 governmental unit.

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

9 any existing generation facility owned by the

10 governmental unit. Repairs of facilities may not

11 increase the generation capacity of the facility

12 by more than 3 percent above the greater of its

13 nameplate or rated capacity as of the date of

14 enactment of this section.

15 ‘‘(F) Any bond issued to acquire or

16 construct—

17 ‘‘(i) a qualified facility (as defined in

18 section 45(c)(3)) if such facility is owned

19 by the governmental unit and is placed in

20 service during a period in which a qualified

21 facility may be placed in service under

22 such section, or

23 ‘‘(ii) any energy property (as defined

24 in section 48(a)(3)) that is owned by the

25 governmental unit.
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1 This subparagraph shall not apply to any facil2 ity or property that is constructed, acquired or

3 financed for the principal purpose of providing

4 the facility (or the output thereof) to non5 governmental persons.

6 ‘‘(3) FORM AND EFFECT OF ELECTION.—

7 ‘‘(A) IN GENERAL.—An election under

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

9 as the Secretary prescribes and shall be binding

10 on any successor in interest to, or any related

11 party with respect to, the electing governmental

12 unit. For purposes of this paragraph, a govern13 mental unit shall be treated as related to an14 other governmental unit if it is a member of the

15 same controlled group.

16 ‘‘(B) TREATMENT OF ELECTING GOVERN17 MENTAL UNIT.—A governmental unit which

18 makes an election under paragraph (1) shall be

19 treated for purposes of section 141 as a person

20 which is not a governmental unit and which is

21 engaged in a trade or business, with respect to

22 its purchase of electricity generated by an elec23 tric output facility placed in service after such

24 election, if such purchase is under a contract

25 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 owned by the govern6 mental unit on the date of enactment of this

7 subsection and either in service on such date or

8 the construction of which commenced prior to

9 June 1, 2000.

10 ‘‘(B) QUALIFYING DISTRIBUTION FACIL11 ITY.—The term ‘qualifying distribution facility’

12 means a distribution facility over which open

13 access distribution services described in sub14 section (b)(2)(C) are available.

15 ‘‘(C) QUALIFYING TRANSMISSION FACIL16 ITY.—The term ‘qualifying transmission facil17 ity’ means a local transmission facility (as de18 scribed in subsection (c)(3)(A)) over which open

19 access transmission services described in sub20 paragraph (A) or (B) of subsection (b)(2) are

21 available.

22 ‘‘(b) PERMITTED OPEN ACCESS ACTIVITIES AND

23 SALES TRANSACTIONS NOT A PRIVATE BUSINESS USE

24 FOR BONDS THAT REMAIN SUBJECT TO PRIVATE USE

25 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, including an acceptable reciprocity

16 tariff but, in the case of a voluntarily filed

17 tariff, only if the governmental unit volun18 tarily files a report with the FERC within

19 90 days of the date of enactment of this

20 section relating to whether or not the

21 issuer will join a regional transmission or22 ganization,

23 ‘‘(ii) under an independent system op24 erator or regional transmission organiza25 tion agreement approved by FERC, or
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1 ‘‘(iii) in the case of an ERCOT utility

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

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

4 824k(k)(2)(B))), pursuant to a tariff ap5 proved by the Public Utility Commission of

6 Texas.

7 ‘‘(B) Participation in—

8 ‘‘(i) an independent system operator

9 agreement, or

10 ‘‘(ii) a regional transmission organiza11 tion agreement,

12 which has been approved by FERC, or by the

13 Public Utility Commission of Texas in the case

14 of an ERCOT utility (as so defined). Such par15 ticipation may include transfer of control of

16 transmission facilities to an organization de17 scribed in clause (i) or (ii).

18 ‘‘(C) Delivery on a nondiscriminatory open

19 access basis of electric energy sold to end-users

20 served by distribution facilities owned by such

21 governmental unit.

22 ‘‘(D) Delivery on a nondiscriminatory open

23 access basis of electric energy generated by gen24 eration facilities connected to distribution facili25 ties owned by such governmental unit.
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1 ‘‘(3) PERMITTED SALES TRANSACTION.—For

2 purposes of this subsection, the term ‘permitted

3 sales transaction’ means any of the following sales of

4 electric energy from existing generation facilities (as

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

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

7 purchaser, if the seller makes available open ac8 cess distribution service under paragraph (2)(C)

9 and, in the case of a seller that owns or oper10 ates transmission facilities, if such seller makes

11 available open access transmission under sub12 paragraph (A) or (B) of paragraph (2).

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

14 native load purchaser or in a wholesale strand15 ed cost mitigation sale—

16 ‘‘(i) if the seller makes available open

17 access transmission service described in

18 subparagraph (A) or (B) of paragraph (2),

19 or

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

21 transmission facilities and transmission

22 providers to the seller’s wholesale native

23 load purchasers make available open access

24 transmission service described in subpara25 graph (A) or (B) of paragraph (2).
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1 ‘‘(4) DEFINITIONS AND SPECIAL RULES.—For

2 purposes of this subsection:

3 ‘‘(A) ON-SYSTEM PURCHASER.—The term

4 ‘on-system purchaser’ means a person whose

5 electric facilities or equipment are directly con6 nected with transmission or distribution facili7 ties which are owned by such governmental

8 unit, and such person—

9 ‘‘(i) purchases electric energy from

10 such governmental unit at retail and either

11 was within such unit’s distribution area in

12 the base year or is a person as to whom

13 the governmental unit has a service obliga14 tion, or

15 ‘‘(ii) is a wholesale native load pur16 chaser from such governmental unit.

17 ‘‘(B) WHOLESALE NATIVE LOAD PUR18 CHASER.—The term ‘wholesale native load pur19 chaser’ means a wholesale purchaser as to

20 whom the governmental unit had—

21 ‘‘(i) a service obligation at wholesale

22 in the base year, or

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

24 under a requirements contract, or under a

25 firm sales contract that has been in effect
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1 for (or has an initial term of) at least 10

2 years,

3 but only to the extent that in either case such

4 purchaser resells the electricity (I) directly at

5 retail to persons within the purchaser’s dis6 tribution area or (II) indirectly through one or

7 more intermediate wholesale purchasers (each

8 of whom as of June 30, 2000, was a party to

9 a requirements contract or a firm power con10 tract described in clause (ii)) to retail pur11 chasers in the ultimate wholesale purchaser’s

12 distribution area.

13 ‘‘(C) WHOLESALE STRANDED COST MITI14 GATION SALE.—The term ‘wholesale stranded

15 cost mitigation sale’ means one or more whole16 sale sales made in accordance with the following

17 requirements:

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

19 sales under this subparagraph during the

20 recovery period may not exceed the sum of

21 its annual load losses for each year of the

22 recovery period.

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

24 load loss for each year of the recovery pe25 riod is the amount (if any) by which—
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1 ‘‘(I) sales in the base year to

2 wholesale native load purchasers

3 which do not constitute a private busi4 ness use, exceed

5 ‘‘(II) sales during that year of

6 the recovery period to wholesale native

7 load purchasers which do not con8 stitute a private business use.

9 ‘‘(iii) If actual sales under this sub10 paragraph during the recovery period are

11 less than allowable sales under clause (i),

12 the amount not sold (but not more than 10

13 percent of the aggregate allowable sales

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

15 sold as wholesale stranded cost mitigation

16 sales in the calendar year following the re17 covery period.

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

19 period is the 7-year period beginning with the

20 start-up year.

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

22 is whichever of the following calendar years the

23 governmental unit elects:

24 ‘‘(i) The year the governmental unit

25 first offers open transmission access.
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1 ‘‘(ii) The first year in which at least

2 10 percent of the governmental unit’s

3 wholesale customers’ aggregate retail na4 tive load is open to retail competition.

5 ‘‘(iii) The calendar year which in6 cludes the date of the enactment of this

7 section, if later than the year described in

8 clause (i) or (ii).

9 ‘‘(F) PERMITTED SALES TRANSACTIONS

10 UNDER EXISTING CONTRACTS.—A sale to a

11 wholesale native load purchaser (other than a

12 person to whom the governmental unit had a

13 service obligation) under a contract which re14 sulted in private business use in the base year

15 shall be treated as a permitted sales transaction

16 only to the extent that sales under the contract

17 exceed the lesser of—

18 ‘‘(i) in any year the private business

19 use that resulted from the contract during

20 the base year, or

21 ‘‘(ii) the maximum amount of private

22 business use which could occur (absent the

23 enactment of this section) without causing

24 the bonds to be private activity bonds.
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1 This subparagraph shall only apply to the ex2 tent that the sale is allocable to bonds issued

3 prior to the date of enactment of this section

4 (or bonds issued to refund such bonds).

5 ‘‘(G) TIME OF SALE RULE.—For purposes

6 of paragraphs (C)(ii) and (F), private business

7 use shall be determined under the law in effect

8 in the year of the sale.

9 ‘‘(H) JOINT ACTION AGENCIES.—A joint

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

11 native load purchaser from) a joint action agen12 cy, which is entitled to make a sale described in

13 subparagraph (A) or (B) in a year, may trans14 fer the entitlement to make that sale to the

15 member (or purchaser), or the joint action

16 agency, respectively.

17 ‘‘(c) CERTAIN BONDS FOR TRANSMISSION AND DIS18 TRIBUTION FACILITIES NOT TAX EXEMPT.—

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

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

21 taxation under section 103 may be issued on or after

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

23 proceeds of such issue are used to finance—

24 ‘‘(A) any transmission facility which is not

25 a local transmission facility, or
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1 ‘‘(B) a start-up utility distribution facility.

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

3 apply to—

4 ‘‘(A) any qualified bond (as defined in sec5 tion 141(e)),

6 ‘‘(B) any eligible refunding bond (as de7 fined in subsection (d)(6)), or

8 ‘‘(C) any bond issued to finance—

9 ‘‘(i) any repair of a transmission facil10 ity in service on the date of the enactment

11 of this section, so long as the repair does

12 not increase the voltage level over its level

13 in the base year or increase the thermal

14 load limit of the transmission facility by

15 more than 3 percent over such limit in the

16 base year,

17 ‘‘(ii) any qualifying upgrade of a

18 transmission facility in service on the date

19 of the enactment of this section, or

20 ‘‘(iii) a transmission facility necessary

21 to comply with an obligation under a

22 shared or reciprocal transmission agree23 ment in effect on the date of enactment of

24 this section.
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1 ‘‘(3) LOCAL TRANSMISSION FACILITY DEFINI2 TIONS.—For purposes of this subsection—

3 ‘‘(A) LOCAL TRANSMISSION FACILITY.—

4 The term ‘local transmission facility’ means a

5 transmission facility which is located within the

6 governmental unit’s distribution area or which

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

8 serve retail native load or wholesale native load

9 of 1 or more governmental units. For purposes

10 of this subparagraph, the distribution area of a

11 public power authority which was created in

12 1931 by a State statute and which, as of Janu13 ary 1, 1999, owned at least one-third of the

14 transmission circuit miles rated at 230 kV or

15 higher in the State, shall be determined under

16 regulations of the Secretary.

17 ‘‘(B) RETAIL NATIVE LOAD.—The term

18 ‘retail native load’ with respect to a govern19 mental unit (or an entity other than a govern20 mental unit that operates an electric utility) is

21 the electric load of end-users in the distribution

22 area of the governmental unit or entity.

23 ‘‘(C) WHOLESALE NATIVE LOAD.—The

24 term ‘wholesale native load’ is—
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1 ‘‘(i) the retail native load of such

2 unit’s wholesale native load purchasers (or

3 of an ultimate wholesale purchaser de4 scribed in subsection (b)(4)(B)(ii)), and

5 ‘‘(ii) the electric load of purchasers

6 (not described in clause (i)) under whole7 sale requirements contracts which—

8 ‘‘(I) do not constitute private

9 business use under the rules in effect

10 absent this subsection, and

11 ‘‘(II) were in effect in the base

12 year.

13 ‘‘(D) NECESSARY TO SERVE LOAD.—For

14 purposes of determining whether a transmission

15 or distribution facility is, or will be, necessary

16 to supply electricity to retail native load or

17 wholesale native load—

18 ‘‘(i) the governmental unit’s available

19 transmission rights shall be taken into ac20 count,

21 ‘‘(ii) electric reliability standards or

22 requirements of national or regional reli23 ability organizations, regional transmission

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

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

5 organizations or independent system opera6 tors and State and Federal regulatory and

7 siting agencies, after a proceeding that

8 provides for public input, shall be pre9 sumptive evidence regarding whether

10 transmission facilities are necessary to

11 serve native load.

12 ‘‘(E) QUALIFYING UPGRADE.—The term

13 ‘qualifying upgrade’ means an improvement or

14 addition to transmission facilities of the govern15 mental unit in service on the date of enactment

16 of this section which is ordered or approved by

17 a regional transmission organization, by an

18 independent system operator, or by a State reg19 ulatory or siting agency, after a proceeding that

20 provides for public input.

21 ‘‘(4) START-UP UTILITY DISTRIBUTION FACIL22 ITY DEFINED.—For purposes of this subsection, the

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

24 distribution facility to provide electric service to the

25 public that is placed in service—
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1 ‘‘(A) by a governmental unit that did not

2 operate an electric utility on the date of the en3 actment of this section, and

4 ‘‘(B) during the first ten years after the

5 date such governmental unit begins operating

6 an electric utility.

7 A governmental unit is treated as having operated

8 an electric utility on the date of the enactment of

9 this section if it operates electric output facilities

10 which were operated by another governmental unit

11 to provide electric service to the public on such date.

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

13 of this section—

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

15 the calendar year which includes the date of the en16 actment of this section or, at the election of the gov17 ernmental unit, either of the 2 immediately pre18 ceding calendar years.

19 ‘‘(2) DISTRIBUTION AREA.—The term ‘distribu20 tion area’ means the area in which a governmental

21 unit (or an entity other than a governmental unit

22 that operates an electric utility) owns distribution

23 facilities.

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

25 ‘electric output facility’ means an output facility
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1 that is an electric generation, transmission, or dis2 tribution facility.

3 ‘‘(4) DISTRIBUTION FACILITY.—The term ‘dis4 tribution facility’ means an electric output facility

5 that is not a generation or transmission facility.

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

7 ‘transmission facility’ means an electric output facil8 ity (other than a generation facility) that operates at

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

10 the owner of the facility may elect to treat any out11 put facility that the FERC determines is a trans12 mission facility under standards applied by FERC

13 under the Federal Power Act as a transmission facil14 ity for purposes of this section.

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

16 ‘eligible refunding bond’ means any State or local

17 bond issued after an election described in subsection

18 (a) that directly or indirectly refunds any bond de19 scribed in section 103(a) (other than a qualified

20 bond) issued before such election, if the weighted av21 erage maturity of the issue of which the refunding

22 bond is a part does not exceed the remaining weight23 ed average maturity of the bonds issued before the

24 election. In applying such term for purposes of sub25 section (c)(2)(B), the date of election shall be
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1 deemed to be the date of the enactment of this sec2 tion.

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

4 Federal Energy Regulatory Commission.

5 ‘‘(8) GOVERNMENT-OWNED FACILITY.—An elec6 tric output facility shall be treated as ‘owned by a

7 governmental unit’ if it is an electric output facility

8 that either is—

9 ‘‘(A) owned or leased by such govern10 mental unit, or

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

12 governmental unit acquired before the base year

13 long-term firm capacity for the purposes of

14 serving customers to which the unit had at that

15 time either—

16 ‘‘(i) a service obligation, or

17 ‘‘(ii) an obligation under a require18 ments contract.

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

20 replacement of components of an electric output fa21 cility, but shall not include replacement of the facil22 ity either at one time or incrementally.

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

24 obligation’ means an obligation under State or Fed25 eral law (exclusive of an obligation arising solely
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1 under a contract entered into with a person) to pro2 vide electric distribution services or electric sales

3 service, as provided in such law.

4 ‘‘(11) CONTRACT MODIFICATIONS.—A contract

5 is treated as a new contract if it is substantially

6 modified.

7 ‘‘(e) SAVINGS CLAUSE.—Subsection (b) does not af8 fect the applicability of section 141 to (or the Secretary’s

9 authority to prescribe, amend or rescind regulations re10 specting) (1) any transaction that is not a permitted open

11 access transaction or permitted sales transaction, or (2)

12 any facilities other than electric output facilities.’’.

13 (b) REPEAL OF EXCEPTION FOR CERTAIN NON14 GOVERNMENTAL ELECTRIC OUTPUT FACILITIES.—Sec15 tion 141(d)(5) of the Internal Revenue Code of 1986 is

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

17 output facility that is a distribution facility),’’ after ‘‘this

18 subsection’’.

19 (c) CONFORMING AMENDMENT.—The table of sec20 tions for subpart A of part IV of subchapter B of chapter

21 1 of the Internal Revenue Code of 1986 is amended by

22 inserting after the item relating to section 141 the fol23 lowing new item:

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

24 (d) EFFECTIVE DATE; APPLICABILITY.—
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1 (1) EFFECTIVE DATE.—The amendments made

2 by this section take effect on the date of enactment

3 of this Act, except that a governmental unit may

4 elect to apply paragraphs (1) and (2) of section

5 141A(b), as added by subsection (a), with respect to

6 permitted open access activities entered into on or

7 after April 14, 1996.

8 (2) CERTAIN EXISTING AGREEMENTS.—The

9 amendment made by subsection (b) (relating to re10 peal of the exception for certain nongovernmental

11 output facilities) does not apply to any acquisition of

12 facilities made pursuant to an agreement that was

13 entered into before the date of the enactment of this

14 Act.

15 (3) APPLICABILITY.—References in this Act to

16 sections of the Internal Revenue Code of 1986, shall

17 be deemed to include references to comparable sec18 tions of the Internal Revenue Code of 1954.

19 SEC. 3. INDEPENDENT TRANSMISSION COMPANIES.

20 (a) SALES OR DISPOSITIONS TO IMPLEMENT FED21 ERAL ENERGY REGULATORY COMMISSION OR STATE

22 ELECTRIC RESTRUCTURING POLICY.—

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

24 Revenue Code of 1986 (relating to involuntary con25 versions) is amended by redesignating subsection (k)
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1 as subsection (l), and by inserting after subsection

2 (j) the following new subsection:

3 ‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED4 ERAL ENERGY REGULATORY COMMISSION OR STATE

5 ELECTRIC RESTRUCTURING POLICY.—

6 ‘‘(1) IN GENERAL.—For purposes of this sub7 title, if a taxpayer elects the application of this sub8 section to a qualifying electric transmission trans9 action and the proceeds received from such trans10 action are invested in exempt utility property, such

11 transaction shall be treated as an involuntary con12 version to which this section applies. The part of the

13 gain, if any, on a sale or exchange to which section

14 1033 is not applied by reason of section 1245 shall

15 nevertheless not be recognized, if the taxpayer so

16 elects, to the extent that it is applied to reduce the

17 basis for determining gain or loss on sale or ex18 change of property, of a character subject to the al19 lowance for depreciation under section 167, remain20 ing in the hands of the taxpayer immediately after

21 the sale or exchange, or acquired in the same tax22 able year. The manner and amount of such reduc23 tion shall be determined under regulations pre24 scribed by the Secretary. Any election made by the

25 taxpayer under this section shall be made by a state-
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1 ment to that effect in his return for the taxable year

2 in which the sale or exchange takes place, and such

3 election shall be binding for the taxable year and all

4 subsequent taxable years.

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

6 In the case of any involuntary conversion described

7 in paragraph (1), subsection (a)(2)(B) shall be ap8 plied by substituting ‘4 years’ for ‘2 years’ in clause

9 (i) thereof.

10 ‘‘(3) QUALIFYING ELECTRIC TRANSMISSION

11 TRANSACTION.—For purposes of this subsection, the

12 term ‘qualifying electric transmission transaction’

13 means any sale or other disposition of property used

14 in the trade or business of electric transmission, or

15 an ownership interest in a person whose primary

16 trade or business consists of providing electric trans17 mission services, to another person that is an inde18 pendent transmission company.

19 ‘‘(4) INDEPENDENT TRANSMISSION COM20 PANY.—For purposes of this subsection, the term

21 ‘independent transmission company’ means—

22 ‘‘(A) a regional transmission organization

23 approved by the Federal Energy Regulatory

24 Commission,

25 ‘‘(B) a person—
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1 ‘‘(i) who the Federal Energy Regu2 latory Commission determines in its au3 thorization of the transaction under section

4 203 of the Federal Power Act (16 U.S.C.

5 823b) is not a market participant within

6 the meaning of such Commission’s rules

7 applicable to regional transmission organi8 zations, and

9 ‘‘(ii) whose transmission facilities to

10 which the election under this subsection

11 applies are placed under the operational

12 control of a Federal Energy Regulatory

13 Commission-approved regional trans14 mission organization within the period

15 specified in such order, but not later than

16 the close of the replacement period, or

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

18 exclusive jurisdiction of the Public Utility Com19 mission of Texas, a person which is approved by

20 that Commission as consistent with Texas State

21 law regarding an independent transmission or22 ganization.

23 ‘‘(5) EXEMPT UTILITY PROPERTY.—For pur24 poses of this subsection, the term ‘exempt utility

25 property’ means—
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1 ‘‘(A) property used in the trade or business

2 of generating, transmitting, distributing, or sell3 ing electricity or producing, transmitting, dis4 tributing, or selling natural gas, or

5 ‘‘(B) stock acquired in the acquisition of

6 control of a corporation whose primary trade or

7 business consists of generating, transmitting,

8 distributing, or selling electricity or producing,

9 transmitting, distributing, or selling natural

10 gas.

11 ‘‘(6) SPECIAL RULES FOR CONSOLIDATED

12 GROUPS.—

13 ‘‘(A) INVESTMENT BY QUALIFYING GROUP

14 MEMBERS.—

15 ‘‘(i) IN GENERAL.—This subsection

16 shall apply to a qualifying electric trans17 mission transaction engaged in by a tax18 payer if the proceeds are invested in ex19 empt utility property by a qualifying group

20 member.

21 ‘‘(ii) QUALIFYING GROUP MEMBER.—

22 For purposes of this subparagraph, the

23 term ‘qualifying group member’ means any

24 member of a consolidated group within the

25 meaning of section 1502 and the regula-
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1 tions promulgated thereunder of which the

2 taxpayer 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 subchapter A of

11 chapter 6. The Secretary shall prescribe such

12 regulations as may be necessary to provide for

13 the treatment of any exempt utility property re14 ceived in a qualifying electric transmission

15 transaction as successor assets subject to the

16 application of such consolidated return provi17 sions.

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), shall affect Federal or

4 State regulatory policy respecting the extent to

5 which any acquisition premium paid in connection

6 with the purchase of an asset in a qualifying electric

7 transmission 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 the 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) IN GENERAL.—Paragraph (1)

25 shall not apply to any distribution that is
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1 a qualifying electric transmission trans2 action. For purposes of this subparagraph,

3 a ‘qualifying electric transmission trans4 action’ means any distribution of stock in

5 a corporation whose primary trade or busi6 ness consists of providing electric trans7 mission services, where such stock is later

8 acquired (or where the assets of such cor9 poration are later acquired) by another

10 person that is an independent transmission

11 company.

12 ‘‘(ii) INDEPENDENT TRANSMISSION

13 COMPANY.—For purposes of this sub14 section, the term ‘independent trans15 mission company’ means—

16 ‘‘(I) a regional transmission or17 ganization approved by the Federal

18 Energy Regulatory Commission,

19 ‘‘(II) a person who the Federal

20 Energy Regulatory Commission deter21 mines in its authorization of the

22 transaction under section 203 of the

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

24 is not a market participant within the

25 meaning of such Commission’s rules
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1 applicable to regional transmission or2 ganizations, and whose transmission

3 facilities transferred as a part of such

4 qualifying electric transmission trans5 action are placed under the oper6 ational control of a Federal Energy

7 Regulatory Commission-approved re8 gional transmission organization with9 in the period specified in such order,

10 but not later than the close of the re11 placement period (as defined in sec12 tion 1033(k)(2)), or

13 ‘‘(III) in the case of facilities

14 subject to the exclusive jurisdiction of

15 the Public Utility Commission of

16 Texas, a person that is approved by

17 that Commission as consistent with

18 Texas State law regarding an inde19 pendent transmission organization.’’

20 (2) EFFECTIVE DATE.—The amendments made

21 by this subsection shall apply to distributions occur22 ring after the date of the 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 contribu6 tions to the capital of a corporation) is amended—

7 (1) by striking ‘‘WATER AND SEWAGE DIS8 POSAL’’ in the heading, and inserting ‘‘CERTAIN’’,

9 (2) by striking ‘‘water or,’’ in the matter pre10 ceding subparagraph (A) of paragraph (1) and in11 serting ‘‘electric energy, water, or’’,

12 (3) by striking ‘‘water or’’ in paragraph

13 (1)(B)and inserting ‘‘electric energy (but not includ14 ing assets used in the generation of electricity),

15 water, or’’,

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

17 (2)(A)(ii) and inserting ‘‘electric energy (but not in18 cluding assets used in the generation of electricity),

19 water, or’’,

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

21 amounts paid as customer connection fees (including

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

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

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

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

26 and inserting ‘‘electric energy, water, or’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to amounts received after the date

3 of the enactment of this Act.

4 SEC. 5. TAX TREATMENT OF NUCLEAR DECOMMISSIONING

5 FUNDS.

6 (a) INCREASE IN AMOUNT PERMITTED TO BE PAID

7 INTO NUCLEAR DECOMMISSIONING RESERVE FUND.—

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

9 Code of 1986 (relating to special rules for nuclear decom10 missioning costs) is amended to read as follows:

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

12 ‘‘(1) IN GENERAL.—The amount which a tax13 payer may pay into the Fund for any taxable year

14 during the funding period shall not exceed the level

15 funding amount determined pursuant to subsection

16 (d), except—

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

18 Federal or State law or regulation (including

19 authorization by a public service commission) to

20 charge customers a greater amount for nuclear

21 decommissioning costs, in which case the tax22 payer may pay into the Fund such greater

23 amount, or

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

25 nuclear powerplant, where the transferor or
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1 transferee (or both) is required pursuant to the

2 terms of the transfer to contribute a greater

3 amount for nuclear decommissioning costs, in

4 which case the transferor or transferee (or

5 both) may pay into the Fund such greater

6 amount.

7 ‘‘(2) CONTRIBUTIONS AFTER FUNDING PE8 RIOD.—Notwithstanding any other provision of this

9 section, a taxpayer may make deductible payments

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

11 the funding period and the termination of the license

12 issued by the Nuclear Regulatory Commission for

13 the nuclear powerplant to which the Fund relates

14 provided such payments do not cause the assets of

15 the Fund to exceed the nuclear decommissioning

16 costs allocable to the taxpayer’s current or former

17 interest in the nuclear powerplant to which the Fund

18 relates. The foregoing limitation shall be applied by

19 taking into account a reasonable rate of inflation for

20 the nuclear decommissioning costs and a reasonable

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

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

23 (b) DEDUCTION FOR NUCLEAR DECOMMISSIONING

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

25 of the Internal Revenue Code of 1986 (relating to income
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1 and deductions of the taxpayer) is amended to read as

2 follows:

3 ‘‘(2) DEDUCTION OF NUCLEAR DECOMMIS4 SIONING COSTS.—In addition to any deduction under

5 subsection (a), nuclear decommissioning costs paid

6 or incurred by the taxpayer during any taxable year

7 shall constitute ordinary and necessary expenses in

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

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

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

11 amended to read as follows:

12 ‘‘(d) LEVEL FUNDING AMOUNTS.—

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

14 section, the level funding amount for any taxable

15 year shall equal the annual amount required to be

16 contributed to the Fund in each year remaining in

17 the funding period in order for the Fund to accumu18 late the nuclear decommissioning costs allocable to

19 the taxpayer’s current or former interest in the nu20 clear powerplant to which the Fund relates. The an21 nual amount described in the foregoing sentence

22 shall be calculated by taking into account a reason23 able rate of inflation for the nuclear decommis24 sioning costs and a reasonable after-tax rate of re-
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1 turn on the assets of the Fund until such assets are

2 anticipated to be expended.

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

4 for a Fund shall end on the last day of the last tax5 able year of the expected operating life of the nu6 clear powerplant.

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

8 purposes of this section—

9 ‘‘(A) IN GENERAL.—The term ‘nuclear de10 commissioning costs’ means all costs to be in11 curred in connection with entombing, decon12 taminating, dismantling, removing, and dis13 posing of a nuclear powerplant, and shall in14 clude all associated preparation, security, fuel

15 storage, and radiation monitoring costs. Such

16 term shall include all such costs which, outside

17 of the decommissioning context, might other18 wise be capital expenditures.

19 ‘‘(B) IDENTIFICATION OF COSTS.—The

20 taxpayer may identify nuclear decommissioning

21 costs by reference either to a site-specific engi22 neering study or to the financial assurance

23 amount calculated pursuant to section 50.75 of

24 title 10 of the Code of Federal Regulations.’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

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

3 2000, in taxable years ending after such date.

Æ