I

107TH CONGRESS

1ST SESSION H. R. 1601

To amend the Internal Revenue Code of 1986 to facilitate electric cooperative

participation in a competitive electric power industry.

IN THE HOUSE OF REPRESENTATIVES

APRIL 26, 2001

Mr. MCINNIS (for himself, Mr. TANNER, Mr. HAYWORTH, Mr. MATSUI, Mr.

POMEROY, Mr. RAMSTAD, and Mr. ENGLISH) introduced the following

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

A BILL

To amend the Internal Revenue Code of 1986 to facilitate

electric cooperative participation in a competitive 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 ‘‘Rural Electric Tax

5 Equity Act’’.

6 SEC. 2. MEMBER INCOME TEST.

7 (a) ELECTRIC INDUSTRY RESTRUCTURING INCOME

8 EXCLUDED FROM MEMBER INCOME TEST.—
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1 (1) IN GENERAL.—Section 501(c)(12)(C) of the

2 Internal Revenue Code of 1986 is amended by strik3 ing ‘‘or’’ at the end of clause (i), by striking the pe4 riod at the end of clause (ii) and inserting a comma,

5 and by adding at the end the following new clauses:

6 ‘‘(iii) from the prepayment of any

7 loan, debt, or obligation made, insured, or

8 guaranteed under the Rural Electrification

9 Act of 1936,

10 ‘‘(iv) from any organization or entity

11 in which the electric company owns an in12 terest, other than income received by the

13 electric company and paid by the organiza14 tion or entity,

15 ‘‘(v) from any member that volun16 tarily waives any right to capital credits,

17 patronage dividends, or similar amounts

18 allocated or paid by the electric company,

19 ‘‘(vi) from any member for electric en20 ergy sold or furnished by the electric com21 pany based upon the electric company’s in22 cremental cost of generating, purchasing,

23 transmitting, or distributing the electric

24 energy,
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1 ‘‘(vii) from the receipt of any money

2 or capital or any other contribution in aid

3 of construction that would be excluded

4 from income under section 118(c) if re5 ceived by a regulated public utility,

6 ‘‘(viii) either—

7 ‘‘(I) from the transfer of any

8 amount into a trust, fund, or instru9 ment established to pay any nuclear

10 decommissioning costs, if the transfer

11 is in connection with the transfer of a

12 nuclear powerplant or nuclear power13 plant unit, or

14 ‘‘(II) from the distribution of any

15 amount from any such trust, fund, or

16 instrument, including income rep17 resenting payments by the electric

18 company to the trust, fund, or instru19 ment, and investment income earned

20 by the trust, fund, or instrument,

21 ‘‘(ix) from any individual, organiza22 tion, or entity for the electric company sell23 ing, leasing, exchanging, or otherwise

24 transferring on a mutually agreed upon
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1 basis any property, property right, asset,

2 or service territory, or

3 ‘‘(x) from any organization or entity,

4 including any municipality, resulting from

5 the compulsory or involuntary requisition

6 or condemnation, or the threat or immi7 nence of a compulsory or involuntary req8 uisition or condemnation, of any property,

9 asset, or service territory.’’.

10 (2) SPECIAL RULES.—Section 512(b)(12) of

11 such Code is amended by adding at the end the fol12 lowing new subparagraphs:

13 ‘‘(E) For purposes of this paragraph, if

14 any Federal, State, or local law, regulation,

15 holding, or order prohibits an electric company

16 from engaging in a business on a cooperative

17 basis, and if the electric company owns an in18 terest in any organization or entity engaged in

19 that business, then, at the electric company’s

20 election, the percentage of any income received

21 by the electric company and paid by the organi22 zation or entity equaling the percentage of

23 amounts collected by the organization or entity

24 from electric company members during the tax25 able year shall be treated as amounts collected
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1 by the electric company from members for the

2 sole purpose of meeting losses and expenses.

3 ‘‘(F) For purposes of subparagraph (C),

4 regardless of any contrary Federal, State, or

5 local law, regulation, holding, or order, neither

6 an electric company’s receipt of income de7 scribed in clause (v) or (vi) of such subpara8 graph, nor a member’s voluntary waiver of a

9 right described in such clause (v) or payment

10 described in such clause (vi), shall affect any

11 determination that the electric company is oper12 ating on a mutual or cooperative basis.’’.

13 (b) ELECTRIC INDUSTRY RESTRUCTURING INCOME

14 INCLUDED AS MEMBER INCOME IN MEMBER INCOME

15 TEST.—Section 501(c)(12) of the Internal Revenue Code

16 of 1986, as amended by subsection (a)(2), is amended by

17 adding at the end the following new subparagraph:

18 ‘‘(G)(i) For purposes of this paragraph,

19 amounts collected by a mutual or cooperative

20 electric company from members for the sole

21 purpose of meeting losses and expenses includes

22 income received or accrued from any individual,

23 organization, or entity not a member for, or in

24 connection with, the electric company selling,

25 performing, or otherwise providing any goods or
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1 services as required by, in voluntary compliance

2 with, or in order to conform to any electric in3 dustry restructuring law, including the fol4 lowing:

5 ‘‘(I) The transmission or distribution

6 of electric energy to, with, or for any mem7 ber, or the sale, performance, transfer, or

8 other provision of any other goods or serv9 ices related to the transmission or distribu10 tion of electric energy to, with, or for any

11 member.

12 ‘‘(II) The joining, participation in,

13 transfer of ownership or control of prop14 erty to, or provision of any other goods or

15 services to or for a regional transmission

16 organization, independent system operator,

17 regional transmission group, or similar or18 ganization or entity, all as approved or au19 thorized by the Federal Energy Regulatory

20 Commission, the Public Utility Commission

21 of Texas, the Rural Utilities Service, or

22 other appropriate entity.

23 ‘‘(III) The sale, performance, or other

24 provision to, with, or for any member of

25 any goods or services related to any meter-
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1 ing, billing, collection, customer service, or

2 similar activity.

3 ‘‘(IV) The sale or furnishing of elec4 tric energy to, with, or for any member, or

5 the sale, performance, or other provision of

6 any other goods or services related to the

7 sale or furnishing of electric energy to,

8 with, or for any member.

9 ‘‘(V) The sale or furnishing of electric

10 energy other than to, with, or for any

11 member, or the sale, performance, or other

12 provision of any other goods or services re13 lated to the sale or furnishing of electric

14 energy other than to, with, or for any

15 member, but only to the extent that, after

16 the electric company mandatorily or volun17 tarily complies with any electric industry

18 restructuring law, the annual income re19 ceived or accrued for, or in connection

20 with, the sale or furnishing of electric en21 ergy to, with, or for any member, or the

22 sale, performance, or other provision of

23 any other goods or services to, with, or for

24 any member, is less than the electric com25 pany’s average annual income, adjusted for
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1 historical growth, received or accrued dur2 ing the 3 calendar years preceding the

3 electric company’s compliance.

4 ‘‘(ii) For purposes of this subparagraph,

5 ‘electric industry restructuring law’ means any

6 Federal, State, or local law, regulation, holding,

7 or order restructuring the retail or wholesale

8 electric industry or providing for or facilitating

9 the nondiscriminatory open access to, reliability

10 of, or safety associated with the transmission or

11 distribution of electric energy.’’.

12 SEC. 3. UNRELATED BUSINESS TAXABLE INCOME.

13 Section 512(b) of the Internal Revenue Code of 1986

14 (relating to modifications) is amended by adding at the

15 end the following new paragraph:

16 ‘‘(18) There shall be excluded all income de17 scribed in section 501(c)(12)(G).’’.

18 SEC. 4. TREATMENT OF TAXABLE ELECTRIC COOPERA19 TIVES.

20 Section 7701 of the Internal Revenue Code of 1986

21 (relating to definitions) is amended by redesignating sub22 section (n) as subsection (o) and by inserting after sub23 section (m) the following new subsection:

24 ‘‘(n) TREATMENT OF CERTAIN AMOUNTS RECEIVED

25 BY NONEXEMPT ELECTRIC COMPANIES.—
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1 ‘‘(1) IN GENERAL.—With respect to any non2 exempt electric company—

3 ‘‘(A) any amount received from any indi4 vidual, organization, or entity that would not be

5 a ‘contribution to the capital of the taxpayer’

6 under section 118(b), or that, if the company

7 were a regulated public utility under section

8 118(c), would be a ‘contribution to the capital

9 of the taxpayer’ under section 118(c), shall be

10 treated as a contribution to the company’s cap11 ital, and

12 ‘‘(B) capital credits, patronage dividends,

13 and similar amounts include any amount paid

14 to a patron to the extent that such amount is

15 from income received from business done with

16 or for other patrons to whom no amounts are

17 paid, or to whom smaller amounts are paid,

18 with respect to substantially identical trans19 actions, and income shall be treated as received

20 from business done with or for the nonexempt

21 electric company’s patrons, if the income is re22 ceived:

23 ‘‘(i) ELECTRIC INDUSTRY RESTRUC24 TURING INCOME.—From any individual,

25 organization, or entity not a patron for, or
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1 in connection with, the nonexempt electric

2 company selling, performing, or otherwise

3 providing any goods or services as required

4 by, in voluntary compliance with, or in

5 order to conform to any electric industry

6 restructuring law, including the following:

7 ‘‘(I) WHEELING INCOME.—The

8 transmission or distribution of electric

9 energy to, with, or for any patron, or

10 the sale, performance, transfer, or

11 other provision of any other goods or

12 services related to the transmission or

13 distribution of electric energy to, with,

14 or for any patron.

15 ‘‘(II) REGIONAL TRANSMISSION

16 ORGANIZATION INCOME.—The joining,

17 participation in, transfer of ownership

18 or control of property to, or provision

19 of any other goods or services to or

20 for a regional transmission organiza21 tion, independent system operator, re22 gional transmission group, or similar

23 organization or entity, all as approved

24 or authorized by the Federal Energy

25 Regulatory Commission, the Public
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1 Utility Commission of Texas, the

2 Rural Utilities Service, or other ap3 propriate entity.

4 ‘‘(III) UNBUNDLING INCOME.—

5 The sale, performance, or other provi6 sion to, with, or for any patron of any

7 goods or services related to any meter8 ing, billing, collection, customer serv9 ice, or similar activity.

10 ‘‘(IV) ELECTRIC ENERGY SALES

11 INCOME.—The sale or furnishing of

12 electric energy to, with, or for any pa13 tron, or the sale, performance, or

14 other provision of any other goods or

15 services related to the sale or fur16 nishing of electric energy to, with, or

17 for any patron.

18 ‘‘(V) REPLACEMENT ELECTRIC

19 ENERGY SALES INCOME.—The sale or

20 furnishing of electric energy other

21 than to, with, or for any patron, or

22 the sale, performance, or other provi23 sion of any other goods or services re24 lated to the sale of or furnishing of

25 electric energy other than to, with, or
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1 for any patron, but only to the extent

2 that, after the nonexempt electric

3 company mandatorily or voluntarily

4 complies with any electric industry re5 structuring law, the annual income re6 ceived or accrued for, or in connection

7 with, the sale or furnishing of electric

8 energy to, with, or for any patron, or

9 the sale, performance, or other provi10 sion of any other goods or services to,

11 with, or for any patron, is less than

12 from the company’s average annual

13 income, adjusted for historical growth,

14 received or accrued during the 3 cal15 endar years preceding the company’s

16 compliance.

17 ‘‘(ii) ATTRIBUTION INCOME.—From

18 any organization or entity in which the

19 nonexempt electric company owns an inter20 est.

21 ‘‘(iii) WAIVER INCOME.—From any

22 patron that voluntarily waives any right to

23 capital credits, patronage dividends, or

24 similar amounts allocated or paid by the

25 nonexempt electric company.
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1 ‘‘(iv) INCREMENTAL COST ELECTRIC

2 ENERGY INCOME.—From any patron for

3 electric energy sold or furnished by the

4 nonexempt electric company based upon

5 the company’s incremental cost of gener6 ating, purchasing, transmitting, or distrib7 uting the electric energy.

8 ‘‘(v) NUCLEAR DECOMMISSIONING IN9 COME.—Either—

10 ‘‘(I) from the transfer of any

11 amount into a trust, fund, or instru12 ment established to pay any nuclear

13 decommissioning costs, if the transfer

14 is in connection with the transfer of a

15 nuclear powerplant or nuclear power16 plant unit, or

17 ‘‘(II) from the distribution of any

18 amount from such trust, fund, or in19 strument, including income rep20 resenting payments by the nonexempt

21 electric company to the trust, fund, or

22 instrument, and investment income

23 earned by the trust, fund, or instru24 ment.
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1 ‘‘(vi) PROPERTY TRANSFER IN2 COME.—From any individual, organization,

3 or entity for the nonexempt electric com4 pany selling, leasing, exchanging, or other5 wise transferring on a mutually agreed

6 upon basis any property, property right,

7 asset, or service territory.

8 ‘‘(vii) CONDEMNATION INCOME.—

9 From any organization or entity, including

10 any municipality, resulting from the com11 pulsory or involuntary requisition or con12 demnation, or the threat or imminence of

13 a compulsory or involuntary requisition or

14 condemnation, of any property, asset, or

15 service territory.

16 ‘‘(2) SPECIAL RULES.—For purposes of this

17 subsection—

18 ‘‘(A) WAIVER INCOME.—Regardless of any

19 contrary Federal, State, or local law, regulation,

20 holding, or order, neither a nonexempt electric

21 company’s receipt of income described in para22 graph (1)(B)(iii), nor a patron’s voluntary waiv23 er of a right described in such paragraph, shall

24 affect any determination that the company is

25 operating on a cooperative basis.
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1 ‘‘(B) INCREMENTAL COST ELECTRIC EN2 ERGY INCOME.—Regardless of any contrary

3 Federal, State, or local law, regulation, holding,

4 or order, neither a nonexempt electric com5 pany’s receipt of income described in paragraph

6 (1)(B)(iv), nor a patron’s payment of the

7 amount described in such paragraph, shall af8 fect any determination that the company is op9 erating on a cooperative basis.

10 ‘‘(3) DEFINITIONS.—For purposes of this

11 subsection—

12 ‘‘(A) ELECTRIC INDUSTRY RESTRUC13 TURING LAW.—The term ‘electric industry re14 structuring law’ means any Federal, State, or

15 local law, regulation, holding, or order restruc16 turing the retail or wholesale electric industry

17 or providing for or facilitating the nondiscrim18 inatory open access to, reliability of, or safety

19 associated with the transmission or distribution

20 of electric energy.

21 ‘‘(B) NONEXEMPT ELECTRIC COMPANY.—

22 The term ‘nonexempt electric company’ means

23 any corporation or organization described in

24 section 1381(a)(2)(C) and engaged in fur25 nishing electric energy.’’.
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1 SEC. 5. EFFECTIVE DATE.

2 The amendments made by this Act shall apply to

3 amounts received in taxable years ending after the date

4 of the enactment of this Act.

Æ